The numbers are shocking price hikes of at least two and about ninety generic drugs sold in the US over the past three years, maybe due to collusion among drug manufacturers. That's according to a study that comes in the middle of a Justice Department investigation into pharmaceutical price fixing. The former CEO of Touring Pharmaceuticals, Martin Screlly, came under fire for raising the price of dara prine more than fiftyfold. He told Bloomberg that he would do it again. So it's not like I'm surprising and saying to do it again. Everybody is doing it. In capitalism, you try to get the highest price for that you can for a product. Screlly is facing trial on unrelated federal charges of securities fraud. Last week, twenty States filed a civil complaint alleging executives at companies agreed at trade shows, golf games, and private dinners to pump up the cost of antibiotics and medication used to treat diabetes. The bottom line is that right now, there is little consumed comers can do about the price of their drugs. Our guest is Jennifer Ree, senior litigation analyst at Bloomberg Intelligence Jen the Antitrust Division of the Justice Department has been looking into price fixing allegations for the past two years. How widespread is the alleged collusion among drug copies, among drug companies, and who are the major players? Well, hi June, thanks for having me um. You know it, we're just at the beginning, so I think it's already widespread, but I believe it's probably going to get even more widespread. And right now you're looking at subpoenas at least received by you know, just about every big generic company you can think of, you know, Milon, Teva, Landet Impacts, Son Maine, par Pharma, which is owned by Endo. Now, of course, just because these companies have gotten subpoenas doesn't mean that they're involved in any kind of wrongdoing, but it's at least at this point the d o J has decided it's important enough to just spread out and look at all of them. And in addition to that, you actually have a lawsuit that's already been filed now by the state of led by the state of Connecticut, but joined by about nineteen other states, at least covering two drugs. They're talking about an antibiotic, a very popular, commonly used antibiotic called doxy cycling, and another medication for oral diabetes called gliberride. And it seems like they have some pretty good evidence, um, at least with based on what they're talking about in that suit, that some of these companies may have gotten together and talked about this. Um. You know the important thing here when you played that clip by Martin Screlly and and we were listening to his comments, and I think for antitrust and the important thing here is that companies can raise their prices unilaterally and it's not necessarily a violation of the law. And they can even watch what their competitors are doing. They might see that a competitor raise the price and then raise their price trying to make more money for the company and for their shareholders, not necessarily against the law. But June, what they can't do is get together and decide collectively to agree, you know, hey, we're all beating each other up competing. We need to stop doing that because we can all raise our prices if we don't do that. And that's what the DJ is looking at. Here. Two executives of a small generic drug maker are preparing to plead guilty to price fixing charges in January, and those are the first criminal charges in this investigation. What does that suggest about the future of the investigation. Well, I'll tell you this, um, that is a really good sign that there will be more private suits and that those private suits will have some success. And I say that because those executives, from what I understand, will not only plead guilty, but they've agreed now to cooperate with the government and they can do that, you know, for some leniency, lower fines, lower you know, sent in jail sentences. And what that means is they're just going to turn over all their documents and tell them what they've been doing and who they've been talking to. And basically they're going to be a whistleblower. And that's really important here because in these conspiracy cases and antitrust they're very, very difficult to prove. You you can't just show the companies raise their price, but you have to show an agreement. And it's you know, it's very rare the companies are getting together in a smoke filled room or executives and saying, hey, let's all charge a hundred dollars for this product. So usually plaintiffs are using circumstantial evidence, and again it can be difficult to prove with circumstantial evidence. But where you have whistleblowers, companies and executives willing to turn over materials, um emails, maybe chat rooms or even uh, you know, just discuss or testify about a discussion, you now have some pretty good solid evidence against others. The average price jump, according to the study among the ninety drugs, was fifty percent. But as you said, increases alone or not proof of collusion. What have the companies said to explain these hikes? You know, I've thought about those hikes, and you look at the graphs and they look pretty bad. And I have to think in my head, if they really wanted to increase price, fix and increase their price, why did they go so far? You know, why didn't they do something that was less obvious. What they are saying so far, at least as far as I've seen, is that they're taking those profits. That there are many different reasons that there could be that their inputs increased or other costs of production increased. But they're also saying that they're taking those profits and they're turning them around and putting them back into the company and you know, back into coming up with more generic drugs. And it's expensive to get the FDA approvals and develop the drugs. But so far, I think the d O J in the States aren't really buying it, and I don't think they've at least as I've yet seen the evidence of that. The US doesn't regulate drug prices, but a U. S. Senate committee just released a report calling for pricing legislation, including importation and faster approval of competing drugs. Would that solve some of this? You know, it might. Uh, certainly, the faster FDA approval access for generic drugs can can be a very good thing. The statistics show that the quicker and the more and the sooner generic drugs come on the market, the more the prices dropped for everything, including the original brand drug. UM. You know, some regulation of prices might have some some benefit. But what I did see was this had to do with regulation of prices in relation to medicare UM. And I you know, at this point to what you're looking at is conduct that occurred in the past, So you know now that this is all kind of broken wide open. I would imagine going forward, these companies are already going to be much more careful about what they're doing with price. What this is digging into is allegations that this has been ongoing for several years and up through today. So are we looking at huge penalties if that's proven. Yes, any number of things. Executives could go to jail. Price fixing is criminal under the antitrust laws, so this can be up to um I believe a ten year sentence for individuals. They can also be fined up to one million dollars. Companies can be fined up to a hundred million dollars. In general, there are alternative fines that can go over that, and to be honest, most of the price fixing finds recently have gone over that, so there can be really big fines. We saw fines approaching five million in an auto parts investigation that was similar similar price fixing allegations. But June I actually think the bigger problem for the companies maybe the private cases, because what happens as soon as the d o J finds criminal price fixing and starts getting guilty please, you have just a slew of private plaintiff class action cases brought by insurance companies and consumers and pharmacies, any buyers of these products. And we already see one to three, four, five, six of about ten cases covering about ten different drugs. I think it's just the beginning and we'll see more. And the reason in those cases are so tough for the defendants June is because when you lose an antitrust case, your damages are automatically tripled. Just why does the Justice Department decide to investigate certain deals and certain industries for antitrust reasons? We are talking with an expert in that area, Jennifer Ray. She's a senior litigation analyst at Bloomberg Intelligence. Jen what makes the Justice Department look at a company or at a deal? Well, you know, to start um, every deal of a certain size gets filed before the government, but both the ATC and the Department of Justice, because they have a tendency if a deal needs to be reviewed to split them between them that they each take the area where they have more expertise generally, and once those when those deals are filed, just a very small amount of initial information goes into the government and they can usually look at that that information and say, hey, you know what we're not sure. We believe these are two competitors merging, and we're not sure how many other competitors are there. You know, is this going to be too concentrated a market? And should we look at it more carefully before we just green light this deal. I think most mergers that get reviewed are that type that we call a horizontal deal, where the government observes that a deal that was filed is between two competitors in a big industry and they should take a closer look, and that's how they make the decision at least to get into an investigation of that deal. So, Jen, we have talked about the A T and T Time Warner deal, and that's one that President elect Donald Trump has come out against. We don't know what exactly that means as far as what the Justice Department is going to be doing, but tell us about that deal and what the chances are for it to go forward in your opinion, Sure, I think that's such an interesting deal right now June, and people are talking about it because I think in the normal course, that deal is what you'd call a vertical deal, different than the ones that I just discussed where the two companies don't compete. You know, they're not competing for consumers right now. They deal with each other. One creates the content time warner and the other distributes the content and um A T and T. So we think of them as having a vertical relationship. And in the antitrust world, vertical deals usually are thought to be mostly pro competitive. They can cause the market harms, but they're generally thought to be pro competitive because if that kind of combination is usually good, it fosters innovation. UM it's a it's a secured source of supply for both sides. It can save money and doesn't generally harm consumers in the form of lower prices because they don't compete against each other and you're not concentrating a market. So when this deal came along, most antitrust thinkers would say, well, that's probably going to be fine. They'll take a look at it, but but it shouldn't raise a lot of concerns. But then Donald Trump made the comments that he made, which is I think why so many people have been thinking and talking about this deal, where he said, I think this is no hood and I think it's a kind of deal that my administration would like to block. My feeling about it, June, is that once people are put in place at the Department of Justice to look at this and they take the traditional you know, sort of the traditional studied way of doing it, the professional way, these deals are looked at, and they walk through it. They might want some modifications of behavior, some promises that a T and T won't favor Time Warner content or somehow discriminate against other distributors. Um. But I think this deal should go through. I think it's likely the deal will go through. Jen. How often does a president get involved in what kind of deals go through? Well, they rarely, do you know, it really would be unprecedented And I say precedented, um Um, it's not. There have been rumors in the past sometimes of some involvement, but it's just generally something they leave to their anti drust experts who are at the agencies, the Federal Trade Commission, in the Department of Justice, um and and aren't usually involved. So it'll be different and interesting and new if we do see a President Trump who tries to get his hands dirty in the anti trust area. You know what I've said before is that even if he does try to push his decision makers to go in a certain way. At the end of the day, they still have to go before a judge, both a PC and d J and get a judge order blocking a deal to keep parties from closing. So really, at the end of the day is up to that judge and the evidence that they're able to put in front of that judge. It will be a very interesting year and anti trust and we look forward to talking with you more about all the deals coming up. Thanks so much for joining us. Jen that's Jennifer Re, senior litigation analyst at Bloomberg Intelligence. And for more on Jen's analysis of antitrust and other deals, you can go to b I go on the Bloomberg terminal. Coming up on Bloomberg Law. For the first time, the Justice Department is suing one of the banks at the center of its investigation over the sale of mortgage backed securities ahead of the financial crisis. Barklay's decides to buck the trend and not to settle with the Justice Department. Deutsche Bank has settled just yesterday. That's coming up on Bloomberg Block. This is Bloomberg

The numbers are shocking price hikes of at least two and about ninety generic drugs sold in the US over the past three years, maybe due to collusion among drug manufacturers. That's according to a study that comes in the middle of a Justice Department investigation into pharmaceutical price fixing. The former CEO of Touring Pharmaceuticals, Martin Screlly, came under fire for raising the price of dara prine more than fiftyfold. He told Bloomberg that he would do it again. So it's not like I'm surprising and saying to do it again. Everybody is doing it. In capitalism, you try to get the highest price for that you can for a product. Screlly is facing trial on unrelated federal charges of securities fraud. Last week, twenty States filed a civil complaint alleging executives at companies agreed at trade shows, golf games, and private dinners to pump up the cost of antibiotics and medication used to treat diabetes. The bottom line is that right now, there is little consumed comers can do about the price of their drugs. Our guest is Jennifer Ree, senior litigation analyst at Bloomberg Intelligence Jen the Antitrust Division of the Justice Department has been looking into price fixing allegations for the past two years. How widespread is the alleged collusion among drug copies, among drug companies, and who are the major players? Well, hi June, thanks for having me um. You know it, we're just at the beginning, so I think it's already widespread, but I believe it's probably going to get even more widespread. And right now you're looking at subpoenas at least received by you know, just about every big generic company you can think of, you know, Milon, Teva, Landet Impacts, Son Maine, par Pharma, which is owned by Endo. Now, of course, just because these companies have gotten subpoenas doesn't mean that they're involved in any kind of wrongdoing, but it's at least at this point the d o J has decided it's important enough to just spread out and look at all of them. And in addition to that, you actually have a lawsuit that's already been filed now by the state of led by the state of Connecticut, but joined by about nineteen other states, at least covering two drugs. They're talking about an antibiotic, a very popular, commonly used antibiotic called doxy cycling, and another medication for oral diabetes called gliberride. And it seems like they have some pretty good evidence, um, at least with based on what they're talking about in that suit, that some of these companies may have gotten together and talked about this. Um. You know the important thing here when you played that clip by Martin Screlly and and we were listening to his comments, and I think for antitrust and the important thing here is that companies can raise their prices unilaterally and it's not necessarily a violation of the law. And they can even watch what their competitors are doing. They might see that a competitor raise the price and then raise their price trying to make more money for the company and for their shareholders, not necessarily against the law. But June, what they can't do is get together and decide collectively to agree, you know, hey, we're all beating each other up competing. We need to stop doing that because we can all raise our prices if we don't do that. And that's what the DJ is looking at. Here. Two executives of a small generic drug maker are preparing to plead guilty to price fixing charges in January, and those are the first criminal charges in this investigation. What does that suggest about the future of the investigation. Well, I'll tell you this, um, that is a really good sign that there will be more private suits and that those private suits will have some success. And I say that because those executives, from what I understand, will not only plead guilty, but they've agreed now to cooperate with the government and they can do that, you know, for some leniency, lower fines, lower you know, sent in jail sentences. And what that means is they're just going to turn over all their documents and tell them what they've been doing and who they've been talking to. And basically they're going to be a whistleblower. And that's really important here because in these conspiracy cases and antitrust they're very, very difficult to prove. You you can't just show the companies raise their price, but you have to show an agreement. And it's you know, it's very rare the companies are getting together in a smoke filled room or executives and saying, hey, let's all charge a hundred dollars for this product. So usually plaintiffs are using circumstantial evidence, and again it can be difficult to prove with circumstantial evidence. But where you have whistleblowers, companies and executives willing to turn over materials, um emails, maybe chat rooms or even uh, you know, just discuss or testify about a discussion, you now have some pretty good solid evidence against others. The average price jump, according to the study among the ninety drugs, was fifty percent. But as you said, increases alone or not proof of collusion. What have the companies said to explain these hikes? You know, I've thought about those hikes, and you look at the graphs and they look pretty bad. And I have to think in my head, if they really wanted to increase price, fix and increase their price, why did they go so far? You know, why didn't they do something that was less obvious. What they are saying so far, at least as far as I've seen, is that they're taking those profits. That there are many different reasons that there could be that their inputs increased or other costs of production increased. But they're also saying that they're taking those profits and they're turning them around and putting them back into the company and you know, back into coming up with more generic drugs. And it's expensive to get the FDA approvals and develop the drugs. But so far, I think the d O J in the States aren't really buying it, and I don't think they've at least as I've yet seen the evidence of that. The US doesn't regulate drug prices, but a U. S. Senate committee just released a report calling for pricing legislation, including importation and faster approval of competing drugs. Would that solve some of this? You know, it might. Uh, certainly, the faster FDA approval access for generic drugs can can be a very good thing. The statistics show that the quicker and the more and the sooner generic drugs come on the market, the more the prices dropped for everything, including the original brand drug. UM. You know, some regulation of prices might have some some benefit. But what I did see was this had to do with regulation of prices in relation to medicare UM. And I you know, at this point to what you're looking at is conduct that occurred in the past, So you know now that this is all kind of broken wide open. I would imagine going forward, these companies are already going to be much more careful about what they're doing with price. What this is digging into is allegations that this has been ongoing for several years and up through today. So are we looking at huge penalties if that's proven. Yes, any number of things. Executives could go to jail. Price fixing is criminal under the antitrust laws, so this can be up to um I believe a ten year sentence for individuals. They can also be fined up to one million dollars. Companies can be fined up to a hundred million dollars. In general, there are alternative fines that can go over that, and to be honest, most of the price fixing finds recently have gone over that, so there can be really big fines. We saw fines approaching five million in an auto parts investigation that was similar similar price fixing allegations. But June I actually think the bigger problem for the companies maybe the private cases, because what happens as soon as the d o J finds criminal price fixing and starts getting guilty please, you have just a slew of private plaintiff class action cases brought by insurance companies and consumers and pharmacies, any buyers of these products. And we already see one to three, four, five, six of about ten cases covering about ten different drugs. I think it's just the beginning and we'll see more. And the reason in those cases are so tough for the defendants June is because when you lose an antitrust case, your damages are automatically tripled. Just why does the Justice Department decide to investigate certain deals and certain industries for antitrust reasons? We are talking with an expert in that area, Jennifer Ray. She's a senior litigation analyst at Bloomberg Intelligence. Jen what makes the Justice Department look at a company or at a deal? Well, you know, to start um, every deal of a certain size gets filed before the government, but both the ATC and the Department of Justice, because they have a tendency if a deal needs to be reviewed to split them between them that they each take the area where they have more expertise generally, and once those when those deals are filed, just a very small amount of initial information goes into the government and they can usually look at that that information and say, hey, you know what we're not sure. We believe these are two competitors merging, and we're not sure how many other competitors are there. You know, is this going to be too concentrated a market? And should we look at it more carefully before we just green light this deal. I think most mergers that get reviewed are that type that we call a horizontal deal, where the government observes that a deal that was filed is between two competitors in a big industry and they should take a closer look, and that's how they make the decision at least to get into an investigation of that deal. So, Jen, we have talked about the A T and T Time Warner deal, and that's one that President elect Donald Trump has come out against. We don't know what exactly that means as far as what the Justice Department is going to be doing, but tell us about that deal and what the chances are for it to go forward in your opinion, Sure, I think that's such an interesting deal right now June, and people are talking about it because I think in the normal course, that deal is what you'd call a vertical deal, different than the ones that I just discussed where the two companies don't compete. You know, they're not competing for consumers right now. They deal with each other. One creates the content time warner and the other distributes the content and um A T and T. So we think of them as having a vertical relationship. And in the antitrust world, vertical deals usually are thought to be mostly pro competitive. They can cause the market harms, but they're generally thought to be pro competitive because if that kind of combination is usually good, it fosters innovation. UM it's a it's a secured source of supply for both sides. It can save money and doesn't generally harm consumers in the form of lower prices because they don't compete against each other and you're not concentrating a market. So when this deal came along, most antitrust thinkers would say, well, that's probably going to be fine. They'll take a look at it, but but it shouldn't raise a lot of concerns. But then Donald Trump made the comments that he made, which is I think why so many people have been thinking and talking about this deal, where he said, I think this is no hood and I think it's a kind of deal that my administration would like to block. My feeling about it, June, is that once people are put in place at the Department of Justice to look at this and they take the traditional you know, sort of the traditional studied way of doing it, the professional way, these deals are looked at, and they walk through it. They might want some modifications of behavior, some promises that a T and T won't favor Time Warner content or somehow discriminate against other distributors. Um. But I think this deal should go through. I think it's likely the deal will go through. Jen. How often does a president get involved in what kind of deals go through? Well, they rarely, do you know, it really would be unprecedented And I say precedented, um Um, it's not. There have been rumors in the past sometimes of some involvement, but it's just generally something they leave to their anti drust experts who are at the agencies, the Federal Trade Commission, in the Department of Justice, um and and aren't usually involved. So it'll be different and interesting and new if we do see a President Trump who tries to get his hands dirty in the anti trust area. You know what I've said before is that even if he does try to push his decision makers to go in a certain way. At the end of the day, they still have to go before a judge, both a PC and d J and get a judge order blocking a deal to keep parties from closing. So really, at the end of the day is up to that judge and the evidence that they're able to put in front of that judge. It will be a very interesting year and anti trust and we look forward to talking with you more about all the deals coming up. Thanks so much for joining us. Jen that's Jennifer Re, senior litigation analyst at Bloomberg Intelligence. And for more on Jen's analysis of antitrust and other deals, you can go to b I go on the Bloomberg terminal. Coming up on Bloomberg Law. For the first time, the Justice Department is suing one of the banks at the center of its investigation over the sale of mortgage backed securities ahead of the financial crisis. Barklay's decides to buck the trend and not to settle with the Justice Department. Deutsche Bank has settled just yesterday. That's coming up on Bloomberg Block. This is Bloomberg