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Par Pharmaceutical Engaged in Drug-Switch Scheme, U.S. Says

Par Pharmaceutical Cos., a maker and distributor of generic drugs, engaged in an illegal drug-switching scheme to increase sales, the U.S. said in a lawsuit in which two Mylan Inc. units are also accused by a whistleblower of wrongdoing.

The U.S. joined a lawsuit against Par filed in 2006 by a whistleblower who previously settled similar claims against drugstore chains CVS Caremark Corp. and Walgreen’s. The U.S. complaint, filed in March 2009, was unsealed today in Chicago federal court. The suit has been joined by 20 states and the District of Columbia.

The lawsuit, filed under the federal False Claims Act, claims that Woodcliff, New Jersey-based Par conspired with its pharmacy customers to switch prescriptions of generic Zantac from tablets to higher-priced capsules to skirt Medicaid price limits. The whistleblower also accused Alphapharm Pty Ltd. and Genpharm ULC, units of Mylan, for which Par held U.S. marketing rights, of participating in the alleged scheme. The U.S. didn’t join the suit against the Mylan units.

“To increase sales, defendants marketed their higher-priced drugs to pharmacies by falsely portraying their drugs as equivalent to popular, lower-priced generics,” the U.S. said. This allowed the drugstores to get higher reimbursements from Medicaid programs and “evade the government’s price limits,” according to the complaint.

The U.S. is seeking triple damages and fines for each false claim filed.

Allison Wey, Par’s vice president for investor relations, didn’t immediately return a call seeking comment.

Before Acquisitions

The complaint “relates to alleged matters that occurred prior to Mylan’s acquisition of Merck KGaA’s generics business, which included Alphapharm and Genpharm,” Nina Devlin, a Mylan spokeswoman, said in an e-mail. “We note that the federal government has looked at and declined to intervene in the case against Alphapharm and Genpharm.”

The company believes the whistleblower’s claims are “meritless,” she said. “Regardless, we believe that we would be entitled to indemnification from a third party.”

Under the rules of the federal False Claims Act, a whistleblower files a lawsuit under seal and it stays secret until the government investigates the complaint and decides whether to join the action.

Settlement Pressure

A decision by the U.S. to intervene in a whistleblower suit puts pressure on the defendants to settle, said Patrick Burns, of Taxpayers Against Fraud in Washington. “Their chance of losing at trial is higher than 95 percent. If they lose, they’ll have to pay $5,500 to $11,000 per false claim, for every prescription, every switch.”

The lawsuit was initially filed in 2006 against Par by Bernard Lisitza, a pharmacist who has filed similar claims against drugstores and drugmakers.

“My client noticed there was a pattern of switching capsules for tablets, depending on which would be the more profitable,” Michael Behn, Lisitza’s attorney, said today in an interview.

“Alphapharm and Genpharm were added later” to the complaint, Behn said. Lisitza will be pursing the claims against the Mylan units on his own through the lawsuit, he said.

Par fell $1.47, or 5.2 percent, to $27.03 in New York Stock Exchange composite trading. Earlier today, the shares fell as much as 10 percent.

The case is U.S. ex. rel Lisitza v. Par Pharmaceutical Cos., 06-6131, U.S. District Court, Northern District of Illinois (Chicago).

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