Allergan PLC is the latest firm targeted by the US Department of Justice in its investigation of price hikes in the generic drug industry.

The company reported in its Aug. 6 quarterly SEC filing that on June 25, Actavis (renamed Allergan following the merger of the two companies) received a subpoena from the Department of Justice’s antitrust division “seeking information relating to the marketing and pricing of certain of the company’s generic products and communications with competitors about such products.”

The DOJ began its probe of the industry last year following reports of dramatic increases in generic drug prices. The issue got widespread attention when Sen. Bernie Sanders, I-Vt., and Rep. Elijah Cummings, D-Md., launched an investigation in October. They sent letters to 14 generic drug manufacturers requesting information about their escalating prices ([A#28141008001]).

Their letter to Actavis asked about the price it has been charging for the antibiotic doxycycline. Citing data from the Healthcare Supply Chain Association (HSCA), they noted that from October 2013 to April 2014 the average price charged for a 500-count bottle of 100 mg tablets had risen from $20 to $1,829, an 8,281% increase.

At a November hearing on generic drug price increases, Sanders noted that generic manufacturers argued he had “cherry-picked” the drugs with the highest increases. But he said that according to Centers for Medicare and Medicaid Services pricing data, from July 2013 to July 2014 more than 1,200 generic drugs, nearly 10% of all generic drugs, more than doubled in price and that the average increase for those drugs was 448% ([A#14141120006]).

Generic Pharmaceutical Association President and CEO Ralph Neas issued a statement the day of the hearing saying the HSCA had focused on 10 drugs in a marketplace of more than 12,000 generic medicines and that thousands have seen significant price erosion.

Sanders, now a Democratic presidential candidate, said he had invited the CEOs of Teva Pharmaceutical Industries Ltd., Lannett Co. Inc. and Marathon Pharmaceuticals LLC to testify at the hearing and that they had declined. The hearing was held by the Senate Health, Education, Labor & Pensions Committee’s Subcommittee on Primary Health and Aging, which Sanders then chaired.

Broader Federal Investigation

In addition to Allergan, at least three other generic firms are under investigation. Lannett announced in its November quarterly filing that on Nov. 3 its senior VP of sales and marketing was served with a grand jury subpoena “relating to a federal investigation of the generic pharmaceutical industry into possible violations of the Sherman Act.”

The subpoena requested corporate documents relating to communications or correspondence with competitors regarding the sale of generic prescription medications. Lannett said the subpoena was not specifically directed to any particular product and is not limited to any particular time period.

Lannett noted that in July 2014 it received interrogatories and a subpoena from Connecticut’s Office of the Attorney General concerning the AG’s investigation into digoxin pricing. The company said that the AG is investigating whether anyone engaged in activities that resulted in fixing, maintaining or controlling prices of digoxin or in allocating and dividing customers or territories relating to the sale of digoxin in violation of Connecticut antitrust law.

Impax Laboratories Inc. reported in an 8-K SEC filing that on Nov. 3, one of its sales representatives received a subpoena from DOJ’s antitrust division requesting documents to and testimony before the grand jury of the Eastern District of Pennsylvania. The request relates to any communication or correspondence with any competitor in the sale of generic prescription medications.

Par Pharmaceutical Inc. announced in its annual report filed with the SEC in March that on Dec. 5, 2014 it received a subpoena from the DOJ’s antitrust division requesting documents related to communications with competitors regarding its authorized generic version of Covis Pharmaceuticals Inc.’s Lanoxin (digoxin) and its generic doxycycline products.

Par also noted that in August 2014 it received a subpoena from the Connecticut AG’s office requesting documents related to its agreement with Covis to distribute the authorized generic of Lanoxin.

On a separate front, Par noted that in February 2015, it received a civil investigative demand from the Federal Trade Commission requesting documents related to its license agreement and manufacturing and supply agreement with Concordia Pharmaceuticals Inc. relating to its sale of the generic version of Kapvay (clonidine).

Wilson Sonsini Goodrich & Rosatti attorneys Mark Rosman and Seth Silber noted in a November post that the subpoenas signal a much broader federal investigation into potential Sherman Act violations in the generic pharmaceutical industry with potential criminal implications for the companies and individuals involved.

“A DOJ investigation into the alleged exchange of pricing information in the pharmaceutical industry likely indicates that the agency anticipates uncovering criminal antitrust conduct in the form of price fixing or customer allocation,” they wrote.

OIG Is Reviewing Price Increases

Earlier this year, Sanders and Cummings asked HHS’s Office of Inspector General to investigate the generic price increases and the effect they have had on generic drug spending within Medicare and Medicaid programs. They also asked OIG to examine the extent to which the increases have exceeded the specific statutory inflation factor of the Social Security Act.

In a Feb. 24 letter to OIG Inspector Daniel Levinson, they cited a Congressional Research Service analysis of national average drug acquisition cost data maintained by CMS. The analysis includes estimated Medicaid costs for six drugs. For doxycycline, the analysis found that from July 1, 2013 to June 30, 2014 there were 272,456 prescriptions for doxycycline 100 mg capsules and that Medicaid paid $16.2 million. By comparison, during the previous year there were 37.6% fewer prescriptions (436,778) and Medicaid paid $7.3 million.

Levinson responded in an April 13 letter saying that OIG plans to update its previous review of generic drug price increases under the Medicaid rebate program. It will examine quarterly average manufacturer prices for the top 200 generic drugs from 2005 through 2014 and determine the extent to which the quarterly AMPs exceeded the inflation-adjusted baseline AMP. He said the OIG will also determine the amount of additional rebates that the Medicaid program would have received if the specified statutory inflation factor had been applied to generic drugs.

Levinson said OIG currently does not have work planned to review the effect of generic drug price increases on the Medicare program but would continue to analyze whether it can perform such a review.

Under the Medicaid drug rebate program, manufacturers are required to pay an additional rebate when the AMP for a brand-name drug increases more than the consumer price index for urban consumers. There is no similar rebate provision for generic drugs. Sanders and Cummings introduced legislation last year and again in May to create one.

The “Medicaid Generic Drug Price Fairness Act of 2015”, S. 1364 and H.R. 2391, would amend the Social Security Act to require the payment of an additional rebate to the state Medicaid plan in the case of increase in the price of a generic drug at a rate that is greater than the rate of inflation.

The OIG is also looking at price increases beyond the generic industry. Allergan noted in its SEC filing that its Forest subsidiary received a subpoena dated April 29 from HHS’s Office of Inspector General requesting documents relating to average manufacturer and best price calculations of several of its products.

Generic Drug Pricing Probe: Allergan Latest Firm Hit With DOJ Subpoena

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