Photographer: Dhiraj Singh/Bloomberg

U.S. Generic Drug Probe Seen Expanding After Guilty Pleas

  • Ex-Heritage executives said to cooperate with prosecutors
  • Charges are first in U.S. probe said to involve a dozen firms

Two executives of a small generic-drug maker are preparing to plead guilty to price-fixing charges and will cooperate with U.S. prosecutors examining allegations of widespread collusion among drug manufacturers, according to people with knowledge of the matter.

Jeffrey Glazer, a former chief executive officer of Heritage Pharmaceuticals Inc., and Jason Malek, an ex-president, were charged in Philadelphia, according to court filings unsealed on Wednesday. Each was charged in a criminal information with two counts of conspiring with other drugmakers, which weren’t identified, to fix the prices of an antibiotic and a drug used to treat diabetes.

They are the first criminal charges stemming from a sweeping two-year investigation of the generic-drug industry. The executives are preparing to plead guilty at a court appearance scheduled for Jan. 9, the people with knowledge of the matter said. Their cooperation could lead to charges against executives at other drugmakers, the people said.

From April 2013 to at least December 2015, Glazer and Malek conspired with others in the production and sale of generics including doxycycline hyclate and glyburide, according to the court papers.

Dominant Producer

Mylan NV was the dominant producer of a high-price, delayed-release version of doxycycline hyclate, according to data compiled by Bloomberg Intelligence. Heritage also makes a delayed-release version of the antibiotic. Mylan spokeswoman Nina Devlin said in an e-mail that the company is cooperating with the investigation and that, “to date, we know of no evidence that Mylan participated in price fixing.”

“Millions of Americans rely on prescription medications to treat acute and chronic health conditions,” Deputy Assistant Attorney General Brent Snyder of the Justice Department’s antitrust division said in a statement. The charges are an important step “in ensuring that generic pharmaceutical companies compete vigorously to provide these essential products at a price set by the market, not by collusion.”

Lawyers for Glazer and Malek declined to comment.

Drugmakers have met harsh criticism from U.S. lawmakers over their pricing practices in the past year, with executives from Mylan and Valeant Pharmaceuticals International Inc. appearing before congressional committees to explain steep increases. The Justice Department probe marks a broadening of Washington’s scrutiny from branded drugs, which are more expensive, to generic products, which account for more than 80 percent of U.S. prescriptions.

Shares fell among drugmakers that have disclosed receiving subpoenas related to the probe. Mylan dropped 1.6 percent to $37.69 at the New York close, Endo International Plc fell 3.8 percent to $15.34, Lannett Co. fell 3.4 percent to $24.10 and Teva Pharmaceutical Industries Ltd. fell 1.6 percent to 140.60 shekels.

Executives Fired

Glazer and Malek were fired from Heritage in August, according to a civil lawsuit filed against the two executives by their former employer last month in federal court in New Jersey. Heritage accused them of stealing tens of millions of dollars from the company over at least seven years, according to that complaint.

“Glazer and Malek accomplished this brazen theft by creating at least five dummy corporations, which they used to siphon off Heritage’s profits through numerous racketeering schemes,” closely held Heritage alleged in the lawsuit. “Through one particularly audacious scheme, Glazer and Malek, together with other co-conspirators, secretly arranged deeply discounted sales of Heritage products to their dummy corporations or through complicit third parties willing to act as straw buyers in return for bribes.”

Glazer and Malek then illicitly pocketed the profit that resulted when Heritage customers paid the market price for the drugs, Heritage said in the lawsuit.

‘That’s It?’

The magnitude of the theft is captured in an August 2015 text message exchange in which Glazer told Malek that they had netted $466,000 in profit in one day. Glazer then wrote to Malek, “Distro $100k each,” which Heritage said referred to distribution of the proceeds. Malek responded: “That’s it?”

The Justice Department has asked the judge in that case to put it on hold as prosecutors pursue their investigation.

“We are fully cooperating with all aspects of the Department of Justice’s continuing investigation,” Heritage said in a written statement. “Recently Heritage initiated its own legal action against these same individuals to seek redress for an elaborate embezzlement and self-dealing scheme. We are deeply disappointed by the misconduct and are committed to ensuring it does not happen again.”

The broader U.S. antitrust investigation into generics spans more than a dozen companies and about two dozen drugs, people familiar with the matter told Bloomberg last month. Though individual companies have made various disclosures about the inquiry, they have identified only a handful of drugs under scrutiny, including doxycycline and a heart treatment.

Doxycycline Makers

Mayne Pharma Group Ltd. and Endo International had previously disclosed receiving subpoenas related to doxycycline. Mayne representatives didn’t respond to requests for comment made after business hours. Endo spokeswoman Heather Zoumas-Lubeski declined to comment beyond the company’s filings.

Sun Pharmaceutical Industries Ltd., Lannett and Teva make doxycycline but haven’t disclosed if subpoenas they received were related to those drugs. Sun and Lannett representatives also didn’t respond to queries about whether they had been issued subpoenas over doxycycline. 

Allergan Plc previously disclosed that its Actavis unit, which makes doxycycline, had received a subpoena, without specifying which drug it was asked about. It then sold the unit to Teva. Allergan spokesman Mark Marmur declined to comment.

Teva, Aurobindo Pharma Ltd. and Citron Pharma LLC make glyburide, according to data compiled by Bloomberg. Aurobindo and Citron representatives didn’t immediately respond to queries about whether they had been issued subpoenas over the diabetes drug.

Teva spokeswoman Elizabeth DeLuca didn’t respond to an inquiry about whether the company had been subpoenaed specifically over doxycycline and glyburide. Teva is “cooperating fully” with subpoena requests, she said by e-mail.

Other companies involved in the probe, potentially over different drugs, are Impax Laboratories Inc., Covis Pharma Holdings Sarl, and Taro Pharmaceutical Industries Ltd. All three have disclosed receiving subpoenas and have said they are cooperating.

Frequently Prescribed

None of the companies in the government’s investigation are named in the case against Glazer and Malek. Heritage, which is identified only as Company A in the documents, is a subsidiary of Emcure Pharmaceuticals Ltd., based in Pune, India.

Doxycycline hyclate, an old antibiotic, was prescribed 12 million times in the U.S. last year, according to Symphony Health Solutions data compiled by Bloomberg Intelligence. It’s used for a range of conditions including pneumonia, respiratory tract infections, Lyme disease and acne. Glyburide, a blood sugar-lowering drug for diabetes, had 4 million prescriptions last year in the U.S.

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