The environment for generic drugs in the U.S. is evolving thanks to a massive lawsuit involving 18 companies as well as an activist Food and Drug Administration chairman who is more comfortable challenging companies.

The lawsuit which includes 45 states and the Justice Department, alleges that active price fixing is going on in the generic sector and that companies collude to fix prices on drugs designed to be lower cost alternatives to brand name drugs.

The original action was filed on the last day of October in 2017, but the lawsuit may be evolving thanks to a pair of former Heritage Pharmaceuticals Inc. executives who pleaded guilty more than a year ago to federal antitrust charges and are now cooperating with prosecutors. Former CEO Jeffery Glazer and former president Jason Malek each paid a $25,000 fine and agreed to aid prosecutors. The pair was charged with conspiring to fix the prices of doxycycline hyclate, an antibiotic, and manipulate the market for diabetes drug glyburide.

Besides Glazer and Malek chatting up prosecutors, state attorneys general have assembled a wide range of internal documents that include phone logs, emails and texts that allegedly show generic executives fixing prices, dividing markets up in the pursuit of controlling the market while giving the outward impression that the market was competitive.

The lawsuit maintains that because generic drug prices were being fixed, consumers paid too much for drugs via copays and health insurance premiums increased. The legal action also alleges that federal programs like Medicaid and Medicare had to pay more for generic drugs impacted by price fixing.

Some of the companies that are named in the complaint include Heritage, Mylan Pharmaceuticals Inc. (MYL) , Teva Pharmaceuticals USA Inc. (TEVA) , Sun Pharmaceutical Industries Inc. and Dr. Reddy's Laboratories Inc. (RDY) . A number of companies named in the action are located in India which has a thriving generic drug industry. The action also names a pair of drug execs, Satish Mehta and Rajiv Malik. Mehta founded Emcure Pharmaceuticals which is named in the lawsuit as well. Malik is president and executive director of Mylan.

FDA chairman Scott Gottlieb.
FDA chairman Scott Gottlieb.

The companies named in the complaint have declined to comment on the action or have denied the allegations.

There could be another lawsuit in the offing as the states look at the possible role that pharmacy benefit managers may have played in generic prices being fixed. Prosecutors are seeking more documents.

Meanwhile, FDA Chairman Scott Gottlieb is disrupting both business as usual at the FDA and the slow moving Trump administration. Gottlieb has so far been a vocal critic of how drug pricing is done in the U.S. and he seems intent on making change.

Gottlieb spent some of March 7 telling drug manufactures, pharmacy benefit managers and insurance companies that he has grown tired of the "Kabuki drug-pricing constructs" that delay generic biosimilars from getting to market. Gottlieb stopped just short of raising the specter of price fixing, instead terming the environment a "rigged payment scheme."

Biosimilars are biologic medical products are almost exact copies of products already in the market that have been approved and compete in the market.

One of the issues that Gottlieb has championing is accelerating generic products into the marketplace to increase competition and choice and help lower drug pricing. Addressing a crowd at the America's Health Insurance Plans conference, Gottlieb didn't hold back. "We are living in a world where financial toxicity is a real concern for patients. And every member of the drug supply chain needs to take responsibility for addressing it."

Gottlieb may be allowing his own frustrations to color his lectures of the industry. Generic drug approvals have slowed this year, according to the FDA's own data. For the last three months of 2017 the FDA averaged 75 generic drug approvals per month. But for the first two months of 2018, a total of 57 generic drugs gained approval. The agency blamed the slowdown on a new deadline of January 1 for companies tracking elemental impurities.

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