Shares of generic drugmakers took a hit on Monday after allegations related to price fixing of several drugs surfaced in an article published on The Washington Post.
Shares of all major players in the generic industry plunged following the report. Shares of Mylan MYL fell 0.8%, Teva Pharmaceutical Industries’ TEVA shares were down 5% and Dr. Reddy's Laboratories Limited RDY stock was down 2.6% on Dec 10. Shares of Endo International ENDP, the parent company of generic maker Par Pharmaceutical, also fell 1.9% on the same day.
The Washington Post article alleged that generic drugmakers formed a cartel to control prices of generic drugs to reap profits in an ultra-competitive market. It stated that an antitrust litigation, which was filed in 2016 against two drugs, has expanded into an investigation related to price fixing allegations against 16 companies involving 300 drugs.
There have been several instances of significant and coordinated hikes in prices of popular generic drugs in the past without any specific reason. This led several market participants and investigators to believe that the prices of these drugs have been cooked up. Per the article, the generic industry stood at approximately $104 billion in 2017. Thus, even a fractional increase in annual sales will generate billions of dollars for companies.
Although a federal judge ruled last month that more than a million documents related to price-fixing allegations will be made public, generic drugmakers denied these allegations, calling it a conspiracy by the officials who have failed to prove anti-competitive behavior so far.
A cartel or a conspiracy will be proved in the court of law but it is likely to be a long-drawn legal battle between the states and the companies. The price hike of generic drugs is against the whole idea of the law related to these drugs, which has been enacted to give access to cheaper copy-cat versions of expensive branded drugs. So, these alleged fixing of price of generic drugs can cost consumers and taxpayers a huge sum.
The FDA has been supporting faster approvals of generic versions of branded drugs in the past couple of years to increase competition, which leads to price cut. However, alleged price fixing by generic companies, which have been assigned the responsibility to make cheaper drugs, is detrimental to FDA’s efforts.
The generic drug industry is already experiencing a turmoil due to several factors including price erosion, which has dented its performance since mid-2015. The industry will be further pressed if a federal case related to price fixing of certain drugs is initiated as some top generic drugmakers may face legal action.
The generic drug industry is down 14% so far this year compared with the S&P 500’s decline of 1.5%.
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Endo International plc (ENDP) : Free Stock Analysis Report
Mylan N.V. (MYL) : Free Stock Analysis Report
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