Relying on Drug Companies With Flawed Safety Records to Save Us from Covid-19

Among the many things that have changed drastically in the past few months is the public perception of the pharmaceutical industry. At the beginning of the year, the main news about Big Pharma was the possibility of a multi-billion-dollar opioid settlement with the states.

Now, rather than being held accountable for tens of thousands of overdose deaths, the industry is being hailed as our savior from Covid-19. The news is filled with laudatory stories about the efforts of the drug companies to come up with a treatment for those currently suffering from the virus and a vaccine that may be the only way for society to return to something approximating normal.

Of course, everyone wants these efforts to succeed, but we shouldn’t ignore the very checkered track record of the industry. The safety portion of that record suggests that pushing for extremely rapid results may be risky.

The pharmaceutical industry’s safety problems date back at least to the 1930s, when a company called S.E. Massengill introduced a liquid antibiotic without testing and the drug turned out to cause fatal kidney damage. In the 1950s Parke-Davis heavily promoted a typhoid drug for less serious ailments until it emerged that users were developing severe and irreversible anemia. During the same period, thousands of children around the world were born with birth defects after their mothers took the morning-sickness drug thalidomide during pregnancy.

Sometimes these scandals involved vaccines. In the mid-1950s a California company called Cutter Laboratories produced large stocks of the new polio vaccine that mistakenly contained the live virus. Scores of children who received the vaccine developed polio.

Defenders of the pharmaceutical industry will claim that safety practices are much more stringent these days. But consider the recent history of Johnson & Johnson, which is one of the companies actively pursuing a coronavirus vaccine.

J&J, whose baby products long enjoyed a reputation for purity, has in the past two decades been implicated in a seemingly endless series of controversies about product safety and the illegal marketing of drugs for uses not approved as safe by the Food and Drug Administration.

Some of the company’s problems stemmed from faulty production practices. During 2009 and 2010 J&J had to announce around a dozen recalls of medications, contact lenses and hip implants. The most serious of these was the massive recall of liquid Tylenol and Motrin for infants and children after batches of the medications were found to be contaminated with metal particles.

in 2013 Advanced Sterilization Products, a division of J&J subsidiary Ethicon Inc., had to pay $1.2 million to settle FDA allegations that it had produced and distributed adulterated and misbranded sterilization monitoring products.

Other major companies in the coronavirus vaccine race have been involved in their own controversies. In 2012 GlaxoSmithKline, which is partnering with Sanofi in its vaccine effort, had to pay $3 billion to settle various criminal and civil charges, among which were allegations that the company withheld data on safety problems with its diabetes drug Avandia from the FDA.

Pfizer, which is working with a smaller company called BioNTech, has had safety problems dating back to the 1980s, when defective heart valves made by its Shiley division caused the death of more than 100 people. An FDA task force concluded that the company had withheld crucial safety information.

We are all desperate for drugs to treat and prevent coronavirus, but we should make sure that the urgency of the situation does not lead to safety shortcuts that can have disastrous consequences.

Trump’s Risky Covid-19 Infomercials

Donald Trump has declared himself a wartime president, but in many of his briefings these days he comes across more as one of those hucksters of late-night television touting miracle cures. He relentlessly promotes the anti-malaria drug hydroxychloroquine as a treatment for Covid-19, even though it has not been proven safe or effective for that purpose. “What do you have to lose?” Trump keeps saying, ignoring evidence that the drug can have serious cardiac side effects.

It is understandable that those suffering from coronavirus disease may be willing to try anything to survive, and some doctors are treating seriously ill patients with hydroxychloroquine as a last-ditch measure. There are also clinical trials under way to see if the drug really does work against Covid-19. But all that is entirely different from the president’s using the White House podium to suggest that everyone should try the medication as if it were a new brand of mouthwash.

Not only is that dangerous – Trump’s comments have caused a run on the drug that has affected those who need it to treat diseases such as lupus and rheumatoid arthritis – but it also stands in contradiction to several decades of efforts to discourage widespread promotion of prescription drugs for uses not approved by the Food and Drug Administration.

Data in Violation Tracker show that over the past two decades pharmaceutical companies have paid out more than $20 billion in fines and settlements to resolve Justice Department, FDA and state attorneys general cases involving the improper marketing of drugs. These include three dozen cases in which the penalty amount exceeded $100 million and five in which the amount was more than $1 billion.

The largest single penalty of this kind was the $3 billion paid by GlaxoSmithKline in 2012 for off-label promotion of drugs such as the anti-depressant Paxil as well as its failure to report certain safety data. In 2009 Pfizer and its subsidiary Pharmacia & Upjohn agreed to pay $2.3 billion to resolve allegations that they illegally promoted drugs such as the anti-inflammatory Bextra.

In 2013 Johnson & Johnson and several subsidiaries paid $2.2 billion in criminal fines and civil settlements to resolve allegations they had marketed the anti-psychotic medication Risperdal and other drugs for unapproved uses as well as allegations that they had paid kickbacks to physicians and pharmacists to encourage off-label usage. At a press conference announcing the resolution of the case, U.S. Attorney General Eric Holder said the company’s practices ”recklessly put at risk the health of some of the most vulnerable members of our society — including young children, the elderly and the disabled.”

In the current situation, it is an elected leader rather than a drug maker doing the improper promotion, but a corporation — the French firm Sanofi, which produces hydroxychloroquine under the brand name Plaquenil – stands to benefit. As a result of Trump’s hype, a sleepy product dating back to the 1950s, is now the most sought-after pharmaceutical on the planet.

Sanofi is being cautious, stating on its website that Plaquenil “can cause serious adverse reactions and should not be taken without medical prescription or advice,” adding that it has not been approved for use in Covid-19 patients. Yet the site goes right on to state: “According to some preliminary results from independent pilot studies, hydroxychloroquine was reported as having a potential anti-viral effect on the virus that causes COVID-19.”

Other companies such as Amneal Pharmaceuticals, which produces a generic version of hydroxychloroquine, may have their own pot of gold. The company has ramped up production of the drug and has generated good p.r. by donating a quantity of the medication to the state of Texas.

The risk here is that Trump’s unbridled advocacy for the drug will steamroll the FDA into opening the floodgates and making it available not just to the desperately ill, but also to millions of others who have a mild form of the disease or are not infected at all. And we may never know for sure if those millions benefited from the medication or were needlessly exposed to cardiac and other risks.

A Boom Decade for Corporate Misconduct

Business journalists are looking back with amazement at the stock market’s track record over the past decade. Yet the 2010s were also a boom period for corporate crime and misconduct.

In Violation Tracker my colleagues and I have documented more than 240,000 cases for that period representing $442 billion in fines and settlements—more than twice the $161 billion total for the previous decade. (The numbers are not adjusted for inflation.)

The cases from the 2010s include 574 with a penalty of $100 million or more, 147 with a penalty of $500 million or more, and 67 with a penalty of $1 billion or more.

The top tier of these mega-cases is dominated by four corporations. BP is linked to the largest single case on the list—the $20.8 billion settlement with the federal government and five states to resolve civil claims stemming from the massive 2010 Deepwater Horizon oil spill in the Gulf of Mexico. BP paid out numerous other mega-penalties and smaller ones to put its total for the decade at nearly $28 billion.

The second biggest single penalty during the decade was Bank of America’s $16.65 billion settlement with the Justice Department in 2014 to resolve claims relating to fraud in the period leading up to the financial crisis, including such behavior on the part of Merrill Lynch and Countrywide Financial, which BofA acquired during that crisis. BofA also had plenty of other penalties during the decade—including two in excess of $10 billion—bringing its total for that period to an eye-popping $62 billion.

The third of the penalty leaders is Volkswagen, which in 2016 reached a $14.7 billion settlement with the federal government and the state of California to resolve allegations relating to systematic cheating on diesel pollution emission testing through the use of defeat devices. VW paid out several other multi-billion penalties related to the cheating and racked up a penalty total of more than $23 billion for the decade.

Rounding out the list of companies with individual penalties in excess of $10 billion is JPMorgan Chase, which in 2013 reached a $13 billion settlement to resolve federal and state claims relating to the sale of toxic mortgage-backed securities by the bank itself and by its acquisitions Bear Stearns and Washington Mutual. JPMorgan also had several other penalties of $1 billion or more, along with smaller ones, that pushed its penalty total for the decade to more than $29 billion.

Other big domestic banks had a substantial share of mega-penalties. These include Citigroup, with a $7 billion toxic securities settlement in 2014 (and a penalty total of $16 billion for the decade) and Wells Fargo, with a similar $5.3 billion settlement in 2012 (and a penalty total of $15 billion stemming from issues such as the creation of bogus accounts to generate illicit fees).

The decade also saw a slew of mega-cases involving foreign banks such as BNP Paribas, Deutsche Bank, Royal Bank of Scotland and Credit Suisse for offense such as violations of economic sanctions and their own toxic securities abuses.

Financial services companies of all kinds dominated the mega-penalty list, accounting for 41 of the 67 billion-dollar cases. Also worthy of mention are the pharmaceutical companies, including settlements by GlaxoSmithKline for $3 billion and Johnson & Johnson for $2.2 billion, both for marketing drugs for purposes not approved as safe by the Food and Drug Administration. That industry will end up paying much more when the pending multistate opioid litigation is resolved.

The list could continue. Suffice it to say that the decade’s major cases made it clear that corporate misconduct perseveres through good times and bad.

The 2019 Corporate Rap Sheet

While the news has lately focused on political high crimes and misdemeanors, 2019 has also seen plenty of corporate crimes and violations. Continuing the pattern of the past few years, diligent prosecutors and career agency officials have pursued their mission to combat business misconduct even as the Trump Administration tries to erode the regulatory system. The following is a selection of significant cases resolved during the year.

Online Privacy Violations: Facebook agreed to pay $5 billion and to modify its corporate governance to resolve a Federal Trade Commission case alleging that the company violated a 2012 FTC order by deceiving users about their ability to control the privacy of their personal information.

Opioid Marketing Abuses: The British company Reckitt Benckiser agreed to pay more than $1.3 billion to resolve criminal and civil allegations that it engaged in an illicit scheme to increase prescriptions for an opioid addiction treatment called Suboxone.

Wildfire Complicity: Pacific Gas & Electric reached a $1 billion settlement with a group of localities in California to resolve a lawsuit concerning the company’s responsibility for damage caused by major wildfires in 2015, 2017 and 2018. PG&E later agreed to a related $1.7 billion settlement with state regulators.

International Economic Sanctions: Britain’s Standard Chartered Bank agreed to pay a total of more than $900 million in settlements with the U.S. Justice Department, the Treasury Department, the Federal Reserve, the New York Department of Financial Services and the Manhattan District Attorney’s Office concerning alleged violations of economic sanctions in its dealing with Iranian entities.

Emissions Cheating: Fiat Chrysler agreed to pay a civil penalty of $305 million and spend around $200 million more on recalls and repairs to resolve allegations that it installed software on more than 100,000 vehicles to facilitate cheating on emissions control testing.

Foreign Bribery: Walmart agreed to pay $137 million to the Justice Department and $144 million to the Securities and Exchange Commission to resolve alleged violations of the Foreign Corrupt Practices Act in Brazil, China, India and Mexico.

False Claims Act Violations: Walgreens agreed to pay the federal government and the states $269 million to resolve allegations that it improperly billed Medicare, Medicaid, and other federal healthcare programs for hundreds of thousands of insulin pens it knowingly dispensed to program beneficiaries who did not need them.

Price-fixing: StarKist Co. was sentenced to pay a criminal fine of $100 million, the statutory maximum, for its role in a conspiracy to fix prices for canned tuna sold in the United States.  StarKist was also sentenced to a 13-month term of probation.

Employment Discrimination: Google’s parent company Alphabet agreed to pay $11 million to settle a class action lawsuit alleging that it engaged in age discrimination in its hiring process.

Investor Protection Violation: State Street Bank and Trust Company agreed to pay over $88 million to the SEC to settle allegations of overcharging mutual funds and other registered investment company clients for expenses related to the firm’s custody of client assets.

Illegal Kickbacks: Mallinckrodt agreed to pay $15 million to resolve claims that Questcor Pharmaceuticals, which it acquired, paid illegal kickbacks to doctors, in the form of lavish dinners and entertainment, to induce them to write prescriptions for the company’s drug H.P. Acthar Gel.

Worker Misclassification: Uber Technologies agreed to pay $20 million to settle a lawsuit alleging that it misclassified drivers as independent contractors to avoid complying with labor protection standards.

Accounting Fraud: KPMG agreed to pay $50 million to the SEC to settle allegations of altering past audit work after receiving stolen information about inspections of the firm that would be conducted by the Public Company Accounting Oversight Board.  The SEC also found that numerous KPMG audit professionals cheated on internal training exams by improperly sharing answers and manipulating test results.

Trade Violations: A subsidiary of Univar Inc. agreed to pay the United States $62 million to settle allegations that it violated customs regulations when it imported saccharin that was manufactured in China and transshipped through Taiwan to evade a 329 percent antidumping duty.

Consumer Protection Violation: As part of the settlement of allegations that it engaged in unfair and deceptive practices in connection with a 2017 data breach, Equifax agreed to provide $425 million in consumer relief and pay a $100 million civil penalty to the Consumer Financial Protection Bureau. It also paid $175 million to the states.

Ocean Dumping: Princess Cruise Lines and its parent Carnival Cruises were ordered to pay a $20 million criminal penalty after admitting to violating the terms of their probation in connection with a previous case relating to illegal ocean dumping of oil-contaminated waste.

Additional details on these cases can be found in Violation Tracker, which now contains 397,000 civil and criminal cases with total penalties of $604 billion.

Note: I have just completed a thorough update of the Dirt Diggers Digest Guide to Strategic Corporate Research. I’ve added dozens of new sources (and fixed many outdated links) in all four of the guide’s parts: Key Sources of Company Information; Exploring A Company’s Essential Relationships; Analyzing A Company’s Accountability Record; and Industry-Specific Sources.

Another Type of Quid Pro Quo

As the political news is dominated by discussion of quid pro quo and bribery, there has been another ongoing series of allegations about improper payments for things of value. The other quid pro quo relates to the pharmaceutical industry, which has been the subject of a seemingly never-ending scandals about financial inducements given to healthcare professionals.

The most significant recent case involves a company called Avanir Pharmaceuticals, which had to pay more than $115 million to resolve allegations that it paid kickbacks to physicians to get them to prescribe its drug Nuedexta for uses not approved as safe by the Food and Drug Administration.

Among those uses were the treatment of behaviors associated with dementia among residents of long-term care facilities. Nuedexta was tested and approved for patients exhibiting what is known as pseudobulbar affect (PBA) — involuntary, sudden, and frequent episodes of laughing or crying that occur secondary to a neurologic disease or brain injury.

The case against Avanir included allegations that physicians receiving its payments ended up putting large numbers of patients on Nuedexta who showed no symptoms of PBA, exposing them to unknown risks.

The Justice Department regarded Avanir’s behavior to be serious enough to warrant criminal charges, but like in so many other cases, the company was offered a deferred prosecution agreement that allowed it to buy its way out of full legal jeopardy by paying criminal penalties of nearly $13 million. The company agreed to cooperate in the prosecution of several individuals who received the kickbacks and whose liability may end up being more than financial in nature.

In addition to the criminal matter, Avanir agreed to pay $103 million to settle a related civil False Claims Act case based on the fact that federal and state healthcare programs ended up paying claims stemming from the improper prescribing of Nuedexta.

Avanir’s alleged behavior is especially troublesome because of the involvement of elderly dementia patients, but the use of kickbacks is far from unknown in the pharmaceutical industry. In Violation Tracker we document about 50 drug industry cases in which kickbacks were the primary or secondary offense.

These cases, which have resulted in more than $7 billion in fines and settlements, have implicated pretty much every large pharmaceutical producer and numerous smaller ones as well. Some companies show up on the list several times. These include Abbott Laboratories, which along with its subsidiaries has been involved in six cases between 2003 and 2017 that resulted in $630 million in penalties, and Pfizer, which together with its subsidiaries has paid $531 million in five cases between 2004 and 2018.

The extent of the recidivism in drug industry kickback cases suggests that the industry is not taking the problem very seriously and that the Justice Department’s approach has not had the necessary deterrent effect. Perhaps there is a lesson here for the political world as well.

Inflicting Financial Pain on the Pain Pill Pushers

The proceedings in a Cleveland courtroom are addressing issues about the fundamental nature of a major American industry. The case consolidates more than 2,000 lawsuits brought mainly by state and local governments against all the major parties responsible for the opioid crisis: the drug manufacturers, the drug distributors, the pharmacy benefit managers, the large drugstore chains and major supermarket chains whose stores contain pharmacies.

What is known as Multidistrict Litigation 2804 is scheduled to begin trial proceedings on October 21 in a partial action involving two Ohio counties and a handful of the corporate defendants — unless Judge Aaron Polster (photo) succeeds in his effort to get the parties to reach a settlement. Reports on potential deals have been emerging at frequent intervals. The New York Times reports that several of the defendants, including the three big drug distributors – AmerisourceBergen, Cardinal Health and McKesson – together with two of the pharmaceutical producers, have been offering a deal worth nearly $50 billion.

That sounds like a lot of money, but there may be less to it than meets the eye. For one thing, only about half the total consists of cash payments, with the rest taking the form of addiction treatment drugs, supplies and delivery services. It would be easy for the companies to inflate the value of the in-kind compensation and thus lower their burden.

Moreover, the cash payments would probably be paid out over time, again making things easier for the defendants and reducing the resources that state and local governments need in the short term. Those costs are massive. The Times quotes a report by the Society of Actuaries estimating the cost to society of the opioid epidemic at roughly $188 billion this year alone.

This suggests that a reasonable settlement should be some multiple of the $50 billion figure currently being considered. The 1998 Master Tobacco Settlement showed that a large profitable industry could handle payments that were estimated to cost $206 billion, spread out over time. The industry has paid out more than $132 billion over the past two decades, with annual payments in recent years amounting to about $6 billion.

The plaintiffs should not focus on the total theoretical size of the settlement but instead on how much will be available to each jurisdiction each year to address a problem that remains overwhelming.

It is also worth remembering the size of the industry in question. The big three drug distributors alone have combined annual revenues of more than $500 billion. Their deep pockets and those of the other defendants should be depleted as much as possible.

The drug industry giants have caused massive pain and suffering in the opioid epidemic. They should be made to feel substantial financial pain of their own.

Back Pedaling on Kickbacks?

It’s hard not to be suspicious when the Secretary of Health and Human Services promotes a supposed reform by stating that “President Trump has promised American patients a healthcare system with affordable, personalized care, a system that puts you in control, provides peace of mind, and treats you like a human being, not a number. But too often, government regulations have stood in the way of delivering that kind of care.”

Secretary Alex Azar used those dubious statements in a press release about his department’s plan to “modernize and clarify” the regulations that interpret the Physician Self-Referral Law (known as the Stark Law) and the Federal Anti-Kickback Statute.

Azar claims that the rule changes would promote new methods of delivering healthcare based on greater coordination among providers, including those with financial relationships with one another.

The changes are technical in nature, but I cannot help but worry that the scheme would serve to legitimize dubious dealings and enable providers to avoid prosecution under laws that have been in place for several decades.

I have become more familiar with these laws in the course of collecting data for Violation Tracker. The database currently contains more than 360 cases in which kickbacks and bribery are involved as the primary or secondary offense. These cases have resulted in more than $14 billion in fines and settlements involving many of the largest names in pharmaceuticals (Merck, Amgen, Bristol-Myers Squibb, Pfizer, et al.), hospitals (Tenet, HCA, among others) and pharmacies (such as CVS).

The biggest penalty is a $2.2 billion agreement signed by Johnson & Johnson in 2013 to resolve civil and criminal charges of paying kickbacks to physicians to encourage them to prescribe several of its drugs for uses not approved by the Food and Drug Administration.

One of those drugs was the anti-psychotic medication Risperdal, which was only approved for schizophrenia but which J&J was allegedly promoting for other less serious conditions among elderly patients through financial inducements to providers.

In an interesting coincidence, the announcement of the new HHS proposal came at almost exactly the same time that a jury in Philadelphia hit J&J with an $8 billion verdict over its marketing of Risperdal for use by children.

It will be interesting to see whether the new HHS rules on kickbacks, if they go through, manage to distinguish between more innocent financial dealings among providers and the corrupt practices that have been so common among the larger players. Given this administration’s track record on healthcare and so many other issues, we cannot give it the benefit of the doubt.

The Tainted Corporations Dominating the Opioid Industry

The release of a previously confidential database is providing insights into the opioid industry analogous to what would be contained in the secret accounts of all the Mexican drug cartels. The database, known as the Automation of Reports and Consolidated Order System, or ARCOS, is compiled by the U.S. Drug Enforcement Administration. It was made public by the federal judge in Cleveland overseeing a massive lawsuit brought by nearly 2,000 localities against opioid manufacturers and distributors.

A detailed analysis of the database by the Washington Post shows that the industry has been heavily concentrated in the hands of fewer than a dozen large corporations. These companies are among the defendants in the Cleveland case and are increasingly being targeted for their role in generating an epidemic that has caused hundreds of thousands of deaths.

The claims by the corporations that they are not to blame for the crisis is made harder to swallow by the fact that they each have a history of involvement in other types of corporate misconduct. That history, taken from their entries in Violation Tracker, is summarized below.

The Post analysis of ARCOS shows that just six companies distributed three-quarters of the 76 billion oxycodone and hydrocodone pills that saturated the country in the period from 2006 to 2012.

McKesson Corporation, which accounted for 18.4 percent of the pills, has accumulated more than $400 million in total penalties, more than half of which comes from False Claims Act cases. For example, in 2012 it paid $190 million to settle federal allegations that it reported inflated drug pricing information for a large number of prescription drugs, causing Medicaid to overpay for those medications. The company paid another $151 million to settle related allegations brought by 28 state attorneys general in a case not yet in Violation Tracker (but will be added in an expansion later this year).

Walgreens (16.5 percent) is now part of Walgreens Boots Alliance, which has total penalties of $589 million. Nearly half of that comes from a $269 million settlement of False Claims Act allegations of improper billing for insulin pens. In 2013 Walgreens paid $80 million in a Controlled Substances Act case.

Cardinal Health (14 percent) has more than $195 million in penalties, the largest portion of which includes four cases involving violations of the Controlled Substances Act. Among its other controversies: a $35 million settlement with the SEC of allegations it engaged in fraudulent accounting and a $26.8 million settlement with the Federal Trade Commission concerning anti-competitive practices.

AmerisourceBergen (11.7 percent) has accumulated $899 million in penalties, including a $625 million False Claims Act settlement and a $260 million criminal penalty for distributing misbranded oncology drugs.

CVS (7.7 percent) has $850 million in penalties, more than half of which comes from 15 False Claims Act cases. Another $183 million resulted from Controlled Substances Act matters.

Rounding out the list of major distributors is Walmart (6.9 percent), which has accumulated $1.6 billion in penalties, 90 percent of which resulted from wage and hour cases.

According to the Post analysis, three companies accounted for 88 percent of opioid production during the 2006-2012 period.

SpecGx, a subsidiary of Mallinckrodt, accounted for the largest portion, 37.7 percent. Mallinckrodt has $139 million in penalties, including a $100 million antitrust settlement and a $35 million Controlled Substances Act settlement.

Actavis Pharma (34.6 percent) is now owned by Teva Pharmaceuticals, which has more than $2 billion in penalties, most of which comes from cases involving allegations that another subsidiary, Cephalon, engaged in anti-competitive practices and marketed drugs for purposes not approved by the Food and Drug Administration.

The last big manufacturer is Par Pharmaceutical (15.7 percent), a subsidiary of Endo International, which has total penalties of $287 million, including a $192 million settlement for marketing of drugs for unapproved purposes.

Purdue Pharma, which is often the leading target of criticism for the opioid crisis, showed up in the ARCOS database as producing only 3 percent of output.

Given the involvement of these companies in all kinds of corporate misconduct, it is highly unlikely that they were blameless in bringing about the opioid epidemic. Chances are that the lawsuit in Cleveland will result in substantial increases in their penalty totals.

Will Prosecutors Get Tough with the Largest Corporate Lawbreakers?

By the standards of corporate law enforcement, the Justice Department is throwing the book at Insys Therapeutics. To resolve a civil and criminal case alleging that the company paid illegal kickbacks to healthcare providers to market its powerful opioid Subsys, DOJ required Insys to pay a total of $225 million in fines and forfeitures. Its operating subsidiary had to plead guilty to five counts of mail fraud.

A few weeks earlier, a federal jury in Massachusetts delivered guilty verdicts against the Insys founder John Kapoor (photo) and four former top executives on racketeering charges relating to the kickbacks and other actions such as misleading insurance companies about the need for Subsys, which was supposed to be used in limited circumstances by cancer patients but which Insys tried to get prescribed more widely.

Although Insys itself was offered a deferred prosecution agreement, the company has felt the effects of these legal setbacks. It has been forced to file for Chapter 11 bankruptcy, its stock price has plunged, and it has agreed to sell off Subsys.

If Insys ends up going out of business entirely – and if Kapoor and the others end up in prison for a substantial period of time – this will serve as a warning to other players in the pharmaceutical industry that there can be dire consequences for serious misconduct.

Yet the challenge for prosecutors is whether they can apply similar punishments to larger malefactors in the drug business and related sectors. Insys, after all, had only $82 million in revenue last year and has a workforce of only 226. Its disappearance from the scene would not cause major disruptions.

Consider the case of Johnson & Johnson, with over $80 billion in annual revenues and about 135,000 employees. Despite a carefully cultivated image of purity in connection with its products for infants, J&J has been involved in a series of scandals over the past decade. Violation Tracker shows that it has paid out more than $3 billion in penalties.

The company has received a lot of unfavorable attention in recent months in connection with allegations that it covered up internal concerns about possible asbestos contamination of its baby powder and other talc-based products. J&J has been hit with a flood of lawsuits and has already received some massive adverse verdicts.

The company is also on the defensive for its role in the opioid crisis, facing a lawsuit brought by the state of Oklahoma, which has already collected substantial settlements in related cases brought against Purdue Pharma and Teva Pharmaceutics. J&J may wish it had settled.

An expert witness in the case recently accused the company of contributing to a “public health catastrophe” and charged that its behavior in some ways was even worse than that of widely vilified Purdue. It remains to be seen whether a company of the size and prominence of J&J will be subjected to the same kind of federal prosecutorial offensive launched against Insys. It is only when business giants face existential threats for their misdeeds that we may see real change in corporate behavior.

The Other Collusion

The Trump crowd may have escaped prosecution on charges of colluding with the Russians, but another case involving collusion is moving full steam ahead. Attorneys general from 43 states and Puerto Rico are pursuing a blockbuster lawsuit against the generic drug industry on charges of conspiring to artificially inflate and manipulate prices, reduce competition and unreasonably restrain trade for more than 100 different products.

Led by Connecticut Attorney General William Tong (photo), the coalition claims to have extensive evidence in the form of emails, text messages, telephone records, and statements from former company insiders documenting that 20 companies such as Teva, Sandoz and Mylan engaged in a “broad, coordinated and systematic campaign” to conspire with each other to generate prices increases that in some instances exceeded 1,000 percent.

The case, which could result in a multi-billion-dollar settlement, is a reminder that price-fixing, one of the oldest forms of corporate crime, remains a live issue. The main change is the method by which companies collude. Adam Smith’s discussion of the practice in The Wealth of Nations (1776) stated that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Now the same results can be achieved electronically, without face-to-face encounters.

Price-fixing accounts for more of the federal criminal cases in Violation Tracker than any other offense type besides environmental matters. The 212 cases have resulted in $10 billion in penalties, including more than two dozen cases in which the defendants had to pay more than $100 million.

Many of those cases involve industries such as auto parts, electronic components and chemicals; in other words, business-to-business transactions. Federal antitrust prosecutors have focused much less on goods purchased by individual consumers.

That’s where the states come in. The current case against the generic drug companies is just the latest in a string of lawsuits in which state AGs have banded together to address anti-competitive practices that affect consumers.

We’re now in the process of collecting data on those cases to add to Violation Tracker. So far, we have identified more than 100 multistate lawsuits involving price-fixing and related matters. Quite a few of these involve drug and vitamin producers.

There have even been some brought against the same generic producers targeted in the new case. For example, in 2000 Mylan agreed to pay $108 million to settle multistate allegations that it conspired with other companies to control the market for generic anti-anxiety drugs.

The past and current allegations against companies such as Teva and Mylan are especially troubling because these generic producers were supposed to be the heroes of the drug industry. Instead of acting as a check on the avaricious impulses of the brand-name producers, it appears that they jumped on the profit-maximization bandwagon. This should serve as another indicator that market forces are not up to the task of eliminating price-gouging in the pharmaceutical industry. Strong government intervention is the only remedy.