(CN) – Generic pharmaceutical maker Lannett Company Inc. faces a shareholder derivative action after the company artificially bolstered the price of five of its generic drugs through an alleged price-fixing scheme probed by the Department of Justice.
According to lead plaintiff Drew Dozier’s complaint filed in the U.S. District Court for the District of Delaware, the DOJ conducted investigations into several generic drug companies to find the cause of the price increases.
“The state and federal regulatory investigations revealed an industry-wide scheme involving a number of generic drug companies, including Lannett, who colluded in order to fix prices and engage in other anticompetitive behavior,” the 70-page complaint states.
The company allegedly lied to investors by assuring them the company was not engaging in “anti-corporate misconduct.” The company also told shareholders that they would not be adversely impacted as a result of the investigation.
But the pharmaceutical company was subsequently added to an amended complaint which caused Lannett’s share price to take a 14 percent hit, falling approximately $3.25 per share, according to the complaint.
Jerome Stevens Pharmaceuticals Inc. (JSP) previously maintained a distribution agreement with Lannett where JSP would be the primary supplier for the majority of Lannett’s generic drugs. Shareholders claim Lannett failed to properly address the threat the investigation and complaint posed to the companies’ distribution agreement. Meanwhile, Lannett allegedly continued assuring shareholders that the distribution relationship would continue, according to the complaint.
Shortly after, the company announced the agreement with JSP would not continue. News of the non-renewal of the distribution agreement dealt a major blow to the share price, tumbling 60 percent to close at $5.35 per share in late August 2018.
In a May 7 filing with the SEC, the company disclosed that it “received written notice from various state Attorneys General that they intend to bring claims alleging price fixing and anticompetitive behavior with respect to additional drug products, some of which are manufactured and distributed by the Company.”
“The Company does not know when such claims will be filed, what allegations will be made against the Company or any of its employees or other affiliated individuals, or whether allegations against the Company will be related to any of the additional drug products identified in the notice,” the complaint states, quoting the filing.
The shareholders claim Lannett and its senior executives breached their fiduciary duties by engaging in the alleged price inflation scheme, while misrepresenting the working relationship with their primary distributor, which led to a sharp drop in the company’s stock. Dozier represented by Michael Farnan in Wilmington, DE., Phillip Kim of the Rosen Law Firm P.A. in New York, and Timothy Brown in Oyster Bay, NY.