By Brent Kendall and Jared S. Hopkins 

WASHINGTON -- Novartis AG's Sandoz subsidiary will pay a $195 million criminal penalty for fixing prices on generic drugs, the Justice Department said Monday.

The department said Sandoz admitted it was guilty of participating in several conspiracies to rig bids and fix prices on an array of generic medicines.

Sandoz entered into a deferred prosecution agreement and is cooperating with the federal government's continuing investigation, the department said. The criminal penalty was the highest the department has assessed for a purely domestic price-fixing cartel, officials said.

Under the agreement, the four felony counts against Sandoz will be dropped after three years if it lives up to its commitments to the Justice Department.

"Today's resolution, with one of the largest manufacturers of generic drugs, is a significant step toward ensuring that prices for generic drugs are set by competition, not collusion, and rooting out antitrust crimes that cheated American purchasers of vital medicines," said Assistant Attorney General Makan Delrahim, the Justice Department's antitrust chief.

The conspiracies took place between 2013 and 2015, including for drugs that treated people with hypertension, cystic fibrosis and skin conditions. Affected drug sales totaled more than $500 million, the department said.

"We are disappointed that this misconduct occurred in the face of our clear antitrust compliance policies and multiple trainings -- and in full contravention of the company's values," said Sandoz President Carol Lynch.

Two other firms, Rising Pharmaceuticals Inc. and Heritage Pharmaceuticals Inc., reached deferred-prosecution agreements with the department last year, with much smaller fines.

The department said in court papers it agreed to defer the Sandoz prosecution because a felony conviction would likely exclude the company from federal health-care programs, a predicament that could lead to substantial consequences not only for the company, but for competition in the industry.

For several years, the generic-drug industry has faced scrutiny from federal and state officials over alleged price-fixing of dozens of its medicines, including treatments for diabetes, arthritis and cancer. Most states have also sued companies and executives over alleged price-fixing of generic drugs.

So far, three drug-industry executives have pleaded guilty to federal charges related to the price-fixing, while a fourth was indicted and awaits trial. Last month, former Sandoz executive Hector Armando Kellum pleaded guilty to his role in a generic-drug price-fixing scheme.

State attorneys general originally filed a civil lawsuit in 2016 against six companies, accusing them of conspiring to manipulate prices for doxycycline hyclate, an antibiotic, and glyburide, used in the treatment of diabetes.

Generic drugs account for 90% of prescriptions written by doctors in the U.S. but just 22% of overall drug spending in the country, according to the generic-drug lobbying group, the Association for Accessible Medicines.

Unlike the branded-drug industry, where new therapies are granted patent exclusivity for several years, generic-drug companies compete in the open market. The first generic to a novel therapy approved by the FDA typically gets six months to compete on its own before other companies can launch their generic drugs.

Drug prices fall about 50% after a second generic enters the market, according to an FDA analysis.

The price-fixing investigation hasn't been the only thing shaking the industry. It has been rattled by competition from Indian makers and under pricing pressure from the groups in the U.S. that buy and distribute the drugs.

Write to Brent Kendall at brent.kendall@wsj.com and Jared S. Hopkins at jared.hopkins@wsj.com

 

(END) Dow Jones Newswires

March 02, 2020 19:19 ET (00:19 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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