Shares of generic drug companies fell on Monday after more than 40 state attorneys general announced they had filed suit against 20 manufacturers of generic medications, alleging a conspiracy to artificially inflate prices and reduce competition.
Forty-four states, including New York, alleged in an amended civil antitrust complaint that companies including Teva Pharmaceutical Industries Ltd.T, Mylan N.V. , Novartis AG’s, Sandoz and Pfizer Inc. had engaged in a broad, coordinated conspiracy to fix prices and rig bids on more than 100 different generic drugs. The complaint alleges that drug executives laid the groundwork for illegal agreements over dinners, cocktail parties and golf outings, along with frequent phone calls, emails and text messages.
Shares of Teva were down 16% on Monday, while Mylan stock fell 10%. Shares of Novartis declined 1.7% and Pfizer shares inched down 0.5%. The SPDR S&P Pharmaceuticals ETF XPH fell 4.1%, while the S&P 500 SPX fell 2.3%.
The complaint, filed Friday, is the second in an ongoing investigation of the generic drug industry. The first complaint, filed in 2016 and involving 18 defendants and 15 generic drugs, is still pending in the U.S. District Court in the Eastern District of Pennsylvania. Two former executives from New Jersey-based Heritage Pharmaceuticals have since inked settlement agreements and are cooperating with attorneys general on the case.
Despite the selloff, any risks from Friday’s complaint “have already been priced into shares,” Colin Scarola of CFRA Research wrote in a Monday note, referring to Mylan and Teva, which were particularly hard-hit. “We think the risks are much the same today as they were last week as the allegations are related to a case that has already been underway for several years and the process will likely take several more years before conclusion.”
Health stocks have largely underperformed the broader market this year, as anxiety mounts over discussions about tightening regulations around drug pricing and “Medicare for All.” The S&P 500 has gained 12.4% so far this year, while the SPDR Health Care Select Sector SPDR exchange-traded fund XLF has gained 0.8% and the SPDR S&P Pharmaceuticals ETF has gained 6%.