Pharma stocks crash after US lawsuit over price manipulations

Mumbai: Shares of pharmaceutical companies plunged in strong late afternoon selling on Monday on reports of a major US lawsuit against drug industry cartelisation. Sun Pharma shares fell nearly 21 per cent, the biggest intra-day fall since its listing in 1994, after more than 40 US states filed a 500-page lawsuit accusing the generic drug makers of a massive, systematic conspiracy to manipulate prices.

ET was the first Indian paper to report on the lawsuit, its contents and implications in its edition dated April 11, 2019.

Shares of Aurobindo Pharma and Glenmark fell 4.2 per cent each to close at Rs 717.3 and Rs 591.65, respectively. Dr Reddy’s Laboratories shares declined 2.62 per cent to end at Rs 2,801.15 on Monday.


The office of the attorney general of Connecticut unsealed documents, that ET has a copy of, which reveals initials and titles of individuals implicated in the conspiracy, industry “code words” and previously undisclosed emails from drug companies “brazenly discussing strategy to violate federal and state antitrust laws”. The Indian generic makers named in the lawsuit are Aurobindo, Dr Reddy’s, Emcure, Glenmark and Zydus.

The lawsuit names several senior executives of generic drug companies (only through initials), including senior sales manager at Sun Pharma, president of Sun Pharma; vice president, sales and marketing at Dr Reddy’s; president, corporate development at Emcure; executive VP at Mayne Pharma; VP national accounts at Par Pharma, and senior director of national accounts at Zydus as co-conspirators.

“The unredacted complaint sheds new light on commonly used code words used by co-conspirators as they colluded with competitors to divvy up market share and coordinate on price increases in violation of federal anti-trust law. These include ‘fair share’ and ‘playing nice in the sandbox’,” said a statement released by Elizabeth Benton, director of communications at the Attorney General Office of Connecticut to ET on April 11.

According to emails, text messages and phone records, these executives came together in several occasions to align their drug launches and pricing strategies. This included raising prices or getting off the market at the same time.

The other generic makers named in the suit include Apotex, Teva, Heritage Pharma and Par Pharma. The State of Connecticut alleged that these drug companies entered into conspiracies to fix prices and allocate customers in order to inflate and manipulate prices, reduce competition, and unreasonably restrain trade for 15 separate generic drugs. As a result of this misconduct, prices of generic drugs have skyrocketed and American consumers have been paying the financial cost, its lawsuit said.

A similar lawsuit had been filed in 2016 by these states, proceedings for which are still on. The fresh suit names 20 pharmaceutical companies, including seven Indian companies, such as Sun Pharma’s US arm Taro, Aurobindo Pharma, Dr Reddy’s, Glenmark, Lupin, Wockhardt and Zydus.

The Sun Pharma stock, which opened at Rs 442.85 on Monday, suddenly crashed to Rs 350.40 around 3 pm, before closing at Rs 396.85, down 9.39 per cent.

Nearly 2.66 crore shares changed hands on both the exchanges, against an average of 42 lakh shares being traded in the past two weeks. Sun Pharma shares had declined nearly 33 per cent in November-December last year over insider trading charges.

“We believe the allegations made in these lawsuits are without merit, and we will continue to vigorously challenge them,” said a Sun Pharma spokesperson.

The lawsuit alleged that Sun Pharmaceuticals almost doubled the price of anti-fungal drug Nystatin from $68 to $131 in April 2013. After the price increase, there were several phone calls between Sun and competitors -- Heritage and Teva -- which also followed Sun's lead and raised the price of Nystatin to $142 a bottle.

Rocked by allegations of questionable corporate governance practices, Sun Pharma early this month said that it will constitute a corporate governance and ethics committee to oversee such matters in the next board meeting.

“While governance issues could continue to be an overhang till an investigation is completed, prima facie we see no concern with the business,” Jefferies had said in an earlier report.

The stock had hit a lifetime high of Rs 1,200.7 on April 7, 2015, and is down 67 per cent since then.

Abhishek Sharma, analyst at IIFL, has advised investors to reduce their holding of the stock as the company’s investments in the specialty business could continue, thereby reducing the returns/margin accretion from this segment.