Generic drug companies have been accused of running a “cartel” that fixed drug prices, according to a lawsuit that has been joined by the AGs of most U.S. states.  The litigation initially focused only on two drugs but has since expanded to include sixteen companies and more than 300 drugs.  Connecticut’s assistant attorney general Joseph Nielsen has led the charge.“This is most likely the largest cartel in the history of the United States,” Nielsen said.In the United States, new drugs are protected by company patents for many years, and the manufacturer can set whatever price it wants until the patent expires.  Then generics will start offering their own version, which contains the same ingredients often available at a much lower price.As more generic competitors enter the market, the price continues to decrease.  When there are multiple generic competitors, the price can drop to 20 percent or less the price of the originally brand-name version.  Generic drugs account for 90 percent of the prescriptions filled in the United States.

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According to the states’ lawsuit generic companies are colluding to keep prices higher than they should be.  They’ve been accused of operating the “cartel” primarily by employing two tactics:  When a new generic entered the market to compete with an existing generic drug, the companies would divide up the customers amongst themselves and only sold their portion to their designated market.  Generic competitors selling different versions of the same drug would work together to maintain or even raise prices.Generic companies refer to the market the “sandbox” where everyone was expected to play nice.  When they were dividing up the market, they made sure each company got its “fair share.”  Deals were negotiated by phone, email, and text, and at company functions.  Court documents include claims the companies “subverted the operation of a competitive marketplace for generic pharmaceuticals” and “artificially inflated prices through unlawful agreements.”The complaint includes detailed information regarding the conspiracy.  One drug maker, Heritage, was planning to introduce a new generic version of a treatment for acne.  Another generic version, made by Mylan, was already available.  Before Heritage started selling its drug, its representatives reached out to Mylan about how to divide the market.  Heritage said it wanted for the business of two Mylan clients, a large wholesaler, and a large retail pharmacy.  Mylan agreed to give up those two customers to Heritage because of a prior agreement which allowed Mylan to introduce a different new drug without competition.When Heritage approached the wholesaler about the new drug, the wholesaler gave Mylan a chance to make a counteroffer, referred to as the right of first refusal.  But Mylan purposely declined and lost the account.Most of the companies implicated in the lawsuit have denied any wrongdoing.  However, the states have gotten access to more than one million documents to help prove their case.“If proven, these allegations are hugely significant and could give rise to large damage awards,” said Rachel Sachs, a law professor at Washington University in St. Louis.

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