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Generics billionaire Satish Mehta is in the eye of a storm over overpriced drugs

From Valeant to Martin Shkreli, populists have raged at exorbitant prices in the pharmaceutical industry. Now, amid a collusion scandal, there may finally be a major fall guy: Generics billionaire Satish Mehta

Published: Apr 18, 2017 07:58:31 AM IST
Updated: Apr 18, 2017 03:56:42 PM IST

Generics billionaire Satish Mehta is in the eye of a storm over overpriced drugs
Satish Mehta has alleged that Jeffrey Glazer looted Heritage
Portraits by Roberto Parada For Forbes

In September 2015, Satish Mehta, the billionaire chief executive of the Indian drug company Emcure Pharmaceuticals, wrote an effusive email congratulating Jeffrey Glazer, the CEO of his US crown jewel, Heritage Pharmaceuticals, on a job well done. “In a short span of 4.5 years, you have taken Heritage to another level,” Mehta wrote, adding that he considered Glazer to be “an integral part of our family”.

Within a year, however, Mehta’s family had turned dysfunctional. This January, Glazer, 45, pleaded guilty to violating US anti-trust law by conspiring with manufacturers to fix the prices of generic drugs. And Mehta appears to be the next target in the war against price gouging.

Since its development in the 1980s, the off-patent generics business has been a counterweight to rising pharmaceutical prices in America. These chemical copycats often cut prices by 80 percent and save consumers an estimated $227 billion a year. But in recent years, the prices on dozens of generics have soared, and combined with brazen operators like Martin Shkreli, Valeant Pharmaceuticals and EpiPen maker Mylan, these increases have fuelled populist outrage.

But outside of publicly shaming drug companies, there was not much politicians or federal prosecutors could do. Jeffrey Glazer marks the US government’s first—and so far only—criminal action. The case has also spawned a class action lawsuit of sorts filed by 20 states, with the suit claiming that Glazer colluded with five other generics companies, including Mylan, Teva Pharmaceuticals and India’s Aurobindo Pharma.

The government seems intent on widening its case. Bad news for Mehta. Buried in the government’s deal with Glazer is language that says he conspired with his bosses in India on one of the price-fixing schemes. From April 2013 to December 2015, Heritage had only three board members, and two of them were Glazer and Mehta, who was Heritage’s chairman until October 2015.

Mehta isn’t commenting, but he isn’t exactly rolling over. In an aggressive pre-emptive strategy, his team is trying to portray Glazer as an unreliable rat. Prior to charges being filed against Glazer in December 2016, Mehta fired him and had the Heritage subsidiary file a scathing lawsuit, claiming that Glazer was an out-of-control criminal and racist who “looted” Heritage. The lawsuit could undermine the government’s ability to broaden its case by casting doubt on its star witness, Glazer, who is likely to receive a lenient sentence—and may avoid jail time altogether—in exchange for his cooperation. Emcure’s Heritage unit has also pointed out that doxycycline hyclate—the one generic drug prosecutors have specifically tied to top executives at Emcure—declined in price over the duration of the alleged price-fixing scheme.

It’s a tricky spot for Mehta, the son of a drug distributor who founded Emcure in 1981 as a contract manufacturer for multinationals. His early success consisted of drugs for anaemia. He would later focus on therapeutic areas such as cardiology, gynaecology and anti-infective medicines, opening eight manufacturing sites in India. By 2008, Emcure posted revenue of about $150 million.

In the past decade, Mehta started looking for growth in the US as competition in India became more intense. Today, Indian companies supply about 30 percent of generics to the US market. At Emcure, Mehta prepared for this transformation by partnering with Blackstone, which invested $50 million for a 13 percent stake in 2006. Around the same time, in 2005, Glazer founded Heritage with the backing of the late billionaire Aubrey McClendon.

Generics billionaire Satish Mehta is in the eye of a storm over overpriced drugs
Jeffrey Glazer
Portraits by Roberto Parada For Forbes

Glazer had built Heritage into a solid generics company with about $30 million in sales when Mehta came knocking, paying $58 million in 2011. By 2016, Heritage had boosted US sales to $265 million, 40 percent of Emcure’s total take. But there were warning signs. The Food & Drug Administration had become concerned about the quality of drugs imported from India, banning drugs produced at one of Emcure’s facilities.

In April 2014, according to the lawsuit filed by 20 states against six generic drug makers, Heritage’s president, an ex-telemarketer named Jason Malek—Glazer’s brother-in-law—told his sales team to target a number of drugs for price increases, including glyburide, an oral medication used to treat diabetes. Glazer, the lawsuit says, had Malek instruct the team to contact Heritage’s glyburide competitors, Teva and Aurobindo, in an effort to strike an agreement on price increases.

Heritage masterminded a scheme to raise the price of glyburide by 200 percent. Malek contacted Teva and was able to increase the price of glyburide and other drugs while Glazer started pushing Heritage staffers to talk to competitors at Aurobindo about increasing the prices of other generics. The complaint alleges that a meeting at an industry conference resulted in Aurobindo confirming a price-hike agreement on glyburide. Teva, subpoenaed by the Department of Justice last year, says it is fully cooperating. “We have not found evidence that would give rise to any civil or criminal liability,” a spokeswoman for Teva says. Aurobindo declined to comment. In another case, Glazer and Malek called sales reps at Mylan to discuss the pricing of doxycycline hyclate.

Glazer allegedly conspired with his bosses in India on one price-fixing scheme

State attorneys general claim the discussion revolved around avoiding a price war over the treatment and that Mylan agreed to “walk away” from customers. Mylan says it knows of no evidence the company participated in price-fixing. Heritage has sent a letter to lawmakers showing that the price of doxycycline hyclate fell by 48 percent over a two-year period.

According to Mehta and other senior Emcure executives in India, they are also victims of Glazer and Malek. Their lawsuit claims the brothers-in-law kept Emcure senior management in the dark and stole tens of millions of dollars by embezzling intellectual property, business opportunities and profits, creating at least five dummy corporations. The lawsuit included evidence from bank accounts and Glazer’s texts and emails, including one containing a racial epithet aimed at his Indian bosses.

When Glazer appeared before a federal judge to plead guilty, prosecutor Mark Grundvig said Glazer had conspired with individuals he “reported to” at Emcure on the price-fixing scheme. Grundvig’s statement had a very clear message—a warning to a billionaire half a world away.

(This story appears in the 12 May, 2017 issue of Forbes India. To visit our Archives, click here.)

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