Late last month, generic pharmaceutical companies in the United States received a signal that the Department of Justice's ("DOJ") Antitrust Division may be widening the scope of its federal investigation of potential antitrust violations in the generic drug industry when a third generic drug maker disclosed in a filing with the Securities and Exchange Commission that it had received a grand jury subpoena for "documents related to communications with competitors" regarding the sale and supply of generic drugs. The government's investigation into potential anticompetitive practices in the generic drug market began in late 2014 when it issued grand jury subpoenas to two generic drug makers. Those two subpoenas were followed by a November 20, 2014 congressional hearing at which Congress sought to determine the cause for the recent and sharp increases in the costs of numerous generic drugs. Prior to the hearing, congressional leaders sent letters to fourteen generic drug makers asking for an explanation behind the "huge upswings in generic drug prices that are hurting patients." Notably, based on information available to date, the three grand jury subpoenas are aimed at obtaining documents generally related to communications and correspondence with competitors, and none of the subpoenas focus on any particular generic drug or time period.
The DOJ's federal investigation was preceded by an investigation by the Connecticut Attorney General's Office into the rising costs of the generic drug digoxin, which has fueled speculation that the Connecticut AG's investigation sparked the interest of the DOJ and that these two arms of government may be sharing information to determine whether these recent price increases in the generic drug market can be attributed to illegal anticompetitive practices. These recent state and federal investigations, as well as the congressional inquiry, are in addition to investigations in recent years by the Federal Trade Commission and other state attorneys general offices into so-called "pay for delay" schemes, in which brand name manufacturers allegedly paid generic drug makers to delay entry into the marketplace.
Considering that the grand jury subpoenas are not focused on any particular drug or time period, the DOJ may be signaling an intent to vastly expand the reach of its investigation into numerous generic drugs and drug makers. Companies should take this opportunity to focus on antitrust training and compliance. It is not a violation of the antitrust laws to have market power, or to use that market power to raise prices and increase profits. It is, however, unlawful to gain or use that market power in an anticompetitive manner. Should a company uncover anticompetitive activities, the company should consider the options available under the DOJ's Corporate Leniency Policy, including the DOJ Antitrust Division's "Amnesty Plus" policy. Under the "Amnesty Plus" policy, a company that is currently under investigation for one particular antitrust, or cartel, offense that discloses the existence of a second offense can receive immunity from prosecution for that second offense. However, under the "Penalty Plus" policy, the DOJ would seek a harsher criminal sentence for any company under investigation that discovers a second offense but chooses not to disclose it to the government.
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