Pharma Firm Sandoz Enters into Deferred Prosecution Agreement with Justice Department, Agrees to Pay $195 Million for Generic-Drug Bid-Rigging and Price Fixing

On March 2, the U.S. Department of Justice announced that U.S.-headquartered generic pharma company Sandoz Inc. agreed to enter into a deferred prosecution agreement (DPA) with the Department for conspiring to allocate customers, rig bids, and fix prices for generic drugs.  In connection with the DPA, the Justice Department filed a four-count information in federal court in the Eastern District of Pennsylvania, charging Sandoz (a division of Swiss pharma company Novartis) “with participating in four criminal antitrust conspiracies, each with a competing manufacturer of generic drugs and various individuals.”

Under the terms of the DPA, Sandoz agreed to pay a $195 million criminal penalty and admitted that its sales affected by the charged conspiracies exceeded $500 million.  In that DPA, Sandoz admitted that it participated in the four charged antitrust conspiracies set forth in the information, as follows:

• Count One: This count charged Sandoz “for its role in a conspiracy with a generic drug company based in New York and other individuals.  Sandoz admitted that drugs affected by this conspiracy included clobetasol (cream, emollient cream, gel, ointment, and solution), desonide ointment, and nystatin triamcinolone cream.”
• Count Two: This count charged Sandoz for its role in a conspiracy with Kavod Pharmaceuticals LLC (formerly Rising Pharmaceuticals) “to allocate customers and fix prices of benazepril HCTZ. Rising was charged and entered into a deferred prosecution agreement in December 2019 for its participation in the same conspiracy.”
• Count Three: This count charged Sandoz “for its role in a conspiracy with a generic drug company based in Michigan. Sandoz admitted that drugs affected by this conspiracy included desonide ointment.”
• Count Four: This count charged Sandoz “for its role in a conspiracy with a generic drug company based in Pennsylvania. Sandoz admitted that drugs affected by this conspiracy included tobramycin inhalation solution.”

Note: This case is noteworthy for two reasons.  First, according to the Department, Sandoz’s $195 million criminal penalty is the largest ever paid in a domestic antitrust investigation.  A corporate criminal conviction under section 1 of the Sherman Act carries a maximum penalty of $100 million per count.   An alternative sentencing provision allows that penalty to be increased to not more than twice the gross gain derived from the crime, or twice the gross loss that victims suffered, if either amount is greater than $100 million.

Second, it indicates that the Antitrust Division of the Department is sustaining momentum in its investigation of the generic pharma industry.  Sandoz is the third pharmaceutical company to admit to criminal antitrust charges, and the seventh case to be charged, in that investigation.  In addition, three individuals, including a former Sandoz executive, have pleaded guilty to charges in the investigation, and a fourth individual was indicted last month and is awaiting trial.

For both reasons, compliance counsel in the pharma industry should report on this latest DPA to senior executives in their companies, and promptly incorporate information about the case into corporate briefing and training materials.  Every senior executive, in every industry, needs to understand that the Justice Department regards bid-rigging and price-fixing as core criminal conduct under the Sherman Act and tends to be highly motivated to investigate and prosecute such cases.