Sandoz Settles Drug Price-Fixing Case In U.S. Will Indian Pharma Firms Follow Suit?

Novartis AG's Sandoz became the first large generic drugmaker to reach a settlement with the U.S. Department of Justice in a price-fixing case. It has agreed to pay a penalty of $195 million to settle criminal charges that it conspired with other pharmaceutical companies to fix prices of generic drugs.

Around 20 companies—seven of which are Indian drugmakers—are defendants in the case. Indian companies include Aurobindo Pharma Ltd., Dr. Reddy's Laboratories Ltd., Glenmark Pharmaceuticals Ltd., Lupin Ltd., Taro Pharmaceuticals Ltd. (Sun Pharma's subsidiary), Wockhardt Ltd. and Zydus Cadila.

The lawsuit alleged that the companies engaged in a broad, coordinated and systematic campaign to conspire with each other to fix prices, allocate markets and rig bids for more than 100 different generic drugs. It seeks damages, civil penalties and actions by the court to restore competition in the U.S. generic drugs market. Sandoz said it's also in settlement negotiations with the civil division of the Justice Department to resolve potential related claims and has set aside $185 million for that case.

According to a report by Macquarie, various dosage forms like tablets, capsules, suspensions, topicals across statins, ace inhibitors, beta blockers, antibiotics, anti-depressants, contraceptives, etc., are part of the lawsuit.

The U.S. government had earlier reached settlements with two smaller generic drug makers—Heritage Pharmaceuticals Inc. in June 2019 and Rising Pharmaceuticals Inc. in December—and had pressed charges against four executives.

According to U.S. antitrust laws, if found guilty, penalties could be twice the amount of gains from the illegal acts.

Also Read: India Restricts Drug Exports As Threat Of Coronavirus Rises

Analyst Take

• Indian companies would likely prefer a settlement, Alankar Garude, pharma analyst at Macquarie, wrote in a report. The settlement is also an indication that the U.S. Justice Department is keen to resolve this matter, Garude said. With all major listed Indian generic pharma companies named in the lawsuit, barring Cipla Ltd., the stakes are high for the industry, he said.
• According to Sameer Baisiwala, analyst at Morgan Stanley, with three companies settling with the U.S. Justice Department in the last nine months, this multi-year, industry-wide investigation appears to be heading toward resolution. This probe is an important industry overhang, which hurts stock prices as and when new charges/cases are filed, he said.
• According to Anubhav Aggarwal of Credit Suisse, the cumulative benefit to Taro Pharma from price increase has been more than $1 billion. As a sensitivity, a potential penalty of $500 million would impact the drugmaker's stock by Rs 15 per share while a penalty amount higher at $1 billion could impact the company's stock by Rs 30 per share.
• While Jefferies analyst Piyush Nahar expects other drugmakers to follow suit, he said penalty for Indian companies can be lower than that of Sandoz as Indian companies have a much smaller sales exposure in the U.S.. He expects the penalty for Sun Pharma to be lower than Sandoz, given the aggregate benefit was lower. A settlement for the case will remove the overhang for the sector, he said.