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Heritage Pharmaceuticals Under Fire, Settles Criminal and Civil Charges with DOJ

V&E Antitrust Update, June 6, 2019

On May 30, 2019, the DOJ’s Antitrust Division charged Heritage Pharmaceuticals Inc., a generic pharmaceutical company, for conspiring with its competitors to fix prices, rig bids, and allocate customers. The one-count felony information, filed on May 30 in the Eastern District of Pennsylvania, alleges that from April 2014 to December 2015 Heritage conspired with other individuals and companies to fix and maintain prices of glyburide, a medicine used to treat diabetes.1 At the same time, the Antitrust Division and Heritage entered into a deferred prosecution agreement (“DPA,” explained below) to resolve the charge.

Heritage simultaneously entered into a civil settlement with the DOJ’s Civil Division in which it agreed to pay $7.1 million to resolve False Claims Act allegations for conduct related to the conspiracy.2 DOJ alleged that between 2012 and 2015, Heritage and other manufacturers sold drugs at inflated prices to federal healthcare programs including Medicare, Medicaid, and the Department of Veterans Affairs, in violation of the Act.

The information is the third criminal charge in the Antitrust Division’s ongoing investigation into the generic pharmaceutical industry. In 2016, DOJ charged Heritage’s former CEO Jeff Glazer and former president Jason Malek with price fixing. They both pled guilty in 2017 and are awaiting sentencing.

Unlike the executives, the company avoided a felony conviction by entering into a DPA with the Antitrust Division. Under the DPA’s terms, Heritage will pay a $225,000 criminal penalty and cooperate fully with the ongoing criminal investigation.3 The Antitrust Division will ask the court to dismiss the charges against Heritage at the end of the period if the company complies with the terms of the DPA.

The DPA is significant in two respects. First, the DPA confirms that the Antitrust Division’s ongoing criminal investigation into generic drug price fixing extends beyond Heritage and glyburide. Heritage’s cooperation obligations under the DPA require it to continue aiding the DOJ in its ongoing investigation. According to the Information, the conspiracy involves unnamed companies and includes generic drugs beyond glyburide.4

Second, this is the first time the Antitrust Division has agreed to a DPA with an entity other than a bank.5 Although the Antitrust Division emphasized that it “entered into the deferred prosecution agreement with Heritage based on the individual facts and circumstances of this case,”6 the collateral consequences it seeks to avoid may extend throughout the pharmaceutical industry as a whole. A guilty plea likely would bar Heritage from participating in Medicare and Medicaid programs, which would have “substantial consequences, including to American consumers” — a concern not unique to any one drug manufacturer.7 As the investigation continues, we may see the use of additional DPAs to resolve any charges against other manufacturers and to help preserve competition by allowing manufacturers to continue distributing generic alternatives.

The generic pharmaceutical antitrust cases have been litigated actively since 2016. Currently, the sprawling multidistrict civil litigation involves eighteen drugs, several classes of plaintiffs, and numerous defendants. In addition, a coalition of over forty state attorneys general have brought price fixing charges under state antitrust laws against numerous defendants, involving hundreds of drugs. The criminal charge against Heritage, however, is the first by DOJ since it charged the company’s two executives over two years ago. U.S. Attorney for the Eastern District of Pennsylvania William McSwain, whose office worked with DOJ on both the criminal and civil cases, stated that “[p]rice fixing and market allocation in generic drugs will not be tolerated….and my Office will continue to investigate and pursue illegal conduct regarding generic drugs.”8 The DOJ Antitrust Division’s DPA and Civil Division’s settlement confirm that the DOJ’s generic drug investigation is not only alive and well, but also being conducted from multiple lines of attack within the agency. It remains to be seen whether the size and scope of the DOJ’s investigation will expand to that of the state and civil litigation.

Visit our website to learn more about V&E’s Antitrust practice. For more information, please contact Vinson & Elkins lawyers Hill Wellford or Ryan Will

1 Information, USA v. Heritage Pharmaceuticals Inc., Case No. 2:19-cr-00316, ECF No. 1 (E.D. Pa. May 30, 2019), available at https://www.justice.gov/opa/press-release/file/1167341/download.

2 DEPARTMENT OF JUSTICE – USAO E.D. PA., Press Release (May 31, 2019), available at https://www.justice.gov/usao-edpa/pr/heritage-pharmaceuticals-pays-over-7-million-resolve-civil-false-claims-act-allegations.

3 DOJ will not publicly release the DPA until the Court approves it.

4 Information at ¶ 4, 6.

5 DOJ in recent years has declined to prosecute or deferred prosecution of large banks, in part because a felony conviction would have barred them from certain financial business such as handling retirement funds.

6 DEPARTMENT OF JUSTICE, Press Release No. 19-599 (May 31, 2019), available at https://www.justice.gov/opa/pr/pharmaceutical-company-admits-price-fixing-violation-antitrust-law-resolves-related-false.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.