The new complaint focuses on common, generic ointments used totreat a variety of skin conditions such as eczema, psoriasis andinflammation. (Photo: Shutterstock)

(Bloomberg) –Novartis AG's Sandoz unit was at the center of asweeping conspiracy with competitors to raise prices of genericdrugs by more than 1,000%, according to the latest U.S. lawsuit bystate antitrust enforcers against the industry.

A nationwide group of state attorneys general said in acomplaint filed in federal court Wednesday that Sandoz and otherdrugmakers colluded to artificially inflate prices for more than 80topical treatments like creams and ointments from 2009 through2016.

Related: BCBS sues CVS over inflated drugprices

"They are committing a massive fraud on the American people,"Connecticut Attorney General William Tong, who is helping to leadthe states' investigation, said on a press call.

The case is the third major complaint in a six-yearinvestigation by states that accuse pharmaceutical companies of awidespread price-fixing and market-allocation conspiracy. Theattorneys general say industry executives engaged in a scheme tostop competing with one another on generic-drug prices and toprotect their profits.

The new complaint focuses on common, generic ointments used totreat a variety of skin conditions such as eczema, psoriasis,inflammation caused by allergic reactions, scaly growths caused bysun exposure, and fungal infections like athlete's foot andringworm. Nine in 10 drugs used in the U.S. is a generic copy of aname-brand medication.

Tong said the generic drugmakers had created the largestcorporate cartel in American history, which cost American consumersbillions of dollars because of inflated prices.

Separately, the drugmakers also face a criminal probe by theU.S. Justice Department that has so far led to charges against fourexecutives and criminal settlements with four companies, includingSandoz.

Sandoz in March agreed to pay $195 million to settle the JusticeDepartment's case. The settlement came after a former Sandozexecutive, Hector Armando Kellum, pleaded guilty in February to aprice-fixing charge and agreed to cooperate with the JusticeDepartment's investigation.

Novartis said in a statement that it disagrees with the "broadclaims" alleged by the states.

"The individual instances of misconduct at the core of theresolution we reached with the U.S. Department of Justice in Marchdo not support the vast, systemic conspiracy the states allege,"Novartis spokesman Eric Althoff said in an emailed statement. "Wetake seriously our compliance with antitrust laws, and we willcontinue to defend ourselves in this matter."

Advancing probe

The lawsuit, brought by 46 states, four U.S. territories and theDistrict of Columbia, is based on millions of documents obtainedfrom generic drugmakers, cooperating witnesses and a database ofmore than 11 million call records.

According to the attorneys general, the companies routinelyshared information about pricing strategy and had longstandingagreements not to compete for one another's customers. Executivesstayed in constant contact through text messages and phone calls aswell at industry dinners, cocktail parties and golf outings, thesuit alleges.

In addition to Sandoz, the states sued Perrigo Co., TevaPharmaceutical Industries Ltd. and its Actavis unit, Mylan NV, anda host of others.

Mylan called the complaint "baseless" and said it has found noevidence executives engaged in price-fixing. Teva said it wasreviewing the complaint, and that the claims remained mereallegations. Perrigo said in a statement it "intends to vigorouslydefend this case and looks forward to presenting a full defense,which will include all of the facts."

Dermatology leader

Novartis became a leader in dermatology medicines in 2012 whenit reached a $1.5 billion deal for closely held FougeraPharmaceuticals Inc. After the deal, all but one of Fougera's salesexecutives lost their jobs, and that employee is now cooperatingwith the states, according to the complaint. The states relied inpart on notebooks the employee used to keep track of priceincreases he discussed with competitors.

The lawsuit details dozens of instances of coordination amongthe companies. For example, in May 2014, Taro PharmaceuticalIndustries Ltd. had finalized a list of planned price increases forgeneric medicines, including a more than 1,000% increase onclobetasol, used to treat skin conditions like eczema, psoriasisand rashes.

Taro employee Ara Aprahamian placed a series of calls to aSandoz employee before the price increases took effect. Thatunnamed Sandoz employee communicated with his supervisor, Kellum,about the increases, and Kellum ultimately told the employee tocommunicate to Aprahamian that Sandoz would follow. In July 2014,Sandoz increased the price of clobetasol to match Taro and anothercompany.

Aprahamian was indicted by the U.S. in February on price-fixingcharges and has pleaded not guilty.

Taro Treasurer William Coote said in a statement that theallegations made by the states are without merit.

"Taro Pharmaceuticals is committed to the highest level ofethics and integrity in every aspect of our operations," Cootesaid.

Read more: 

• CVS Caremark going after 'hyperinflated' drugcosts
• Overall costs for generic drugs decline,but consumers not seeing the savings
• California AG takes on 'pay for delay' generic drugdeals

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