By Peter Loftus, Brent Kendall and Christopher M. Matthews

Federal prosecutors, after a lengthy probe, are nearing possible criminal charges for price-collusion in the generic-drug industry, according to a person familiar with the matter.

The U.S. Justice Department could begin to bring cases before year's end, though the timing of any potential enforcement actions remains uncertain, according to the person familiar with the matter.

The specific companies that are a focus of the investigation weren't immediately known. However, the Justice Department has sent subpoenas to several manufacturers of generic drugs and to some individual executives, seeking information about product pricing and "communications with competitors," according to the companies' filings with the Securities and Exchange Commission over the past two years.

Those companies include Teva Pharmaceutical Industries Ltd.; Mylan NV; Dr. Reddy's Laboratories; Taro Pharmaceuticals; Endo International PLC; and Actavis, which Allergan PLC recently sold to Teva.

A department spokesman declined to comment.

The developments, reported earlier by Bloomberg News, sent shares of generic drug makers tumbling. Endo fell 20%, while Teva declined 9.5%, and Mylan dropped 6.9%.

In a separate probe, a group of state attorneys general are investigating generic-drug companies for price-fixing, according to another person familiar with the matter. That investigation, which is a civil matter, is being led by Connecticut Attorney General George Jepsen, the person said.

That probe began in 2014 and includes smaller drug companies as well as some of the largest U.S. drug manufacturers and the U.S.-based subsidiaries of foreign companies, according to the person.

The pricing practices of pharmaceutical companies that make costly branded drugs have attracted significant public outcry over the past year, spurring congressional hearings and regulatory probes. But the pricing of generic drugs, which generally cost much less than brand-name drugs, has drawn much less scrutiny.

However, prices for some generic drugs have risen sharply in recent years. The Government Accountability Office in August issued a report finding that more than 300 of 1,441 established generic drugs analyzed had at least one extraordinary price increase of 100% or more between 2010 and 2015.

Price collusion, if proven, could undermine a key goal in the rules that fostered the creation of generic drugs: to reduce spending.

The exact nature of the federal investigation isn't fully clear, but some companies have identified specific drugs of interest to the government. Endo disclosed in an SEC filing that the Justice Department sought information from its Par unit about at least two generic drugs: digoxin, a heart drug; and doxycycline, an antibiotic. Mylan said the subpoena it received sought information about its generic doxycycline product.

Many generic drugs are produced by more than one manufacturer. The GAO report said both digoxin and doxycycline had significant price increases since 2012, though it didn't specify the manufacturers.

Some labor-union health-benefit funds and other drug purchasers have filed lawsuits in state and federal courts againstsome of the drugmakers, including Mylan and Endo, alleging that they conspired to fix the prices of digoxin and doxycycline. The plaintiffs allege that between 2012 and 2014, the average market price for digoxin and doxycycline increased by 884% and 8,281%, respectively, according to a court document. Mylan said in an SEC filing it intends to defend itself against the suits.

A Mylan spokeswoman said the company knows of no evidence that it participated in price fixing, and it is cooperating with the DOJ investigation.

An Endo spokeswoman didn't return calls seeking comment. Teva said in its SEC filing it's cooperating with the subpoena. A Taro spokesman said the company is cooperating with the DOJ in responding to its subpoena, and can't comment on the details of the pending investigation.

Spokespeople for other generic-drug makers that have disclosed subpoenas couldn't immediately be reached.

Agreements among companies to set prices or to divide up markets have long been illegal under federal antitrust law. Prosecutors have generally found it difficult to win price collusion cases, because of the high barrier that courts have established to prove a conspiracy among different companies, according to Herbert Hovenkamp, a University of Iowa Law School professor and author of the "Antitrust Law" textbook.

"Courts are clear" that there must be evidence of an agreement among companies to follow each other on prices, such as a written document or telephone conversation or a meeting, Mr. Hovenkamp said.

Most criminal price-fixing cases end up settling, rather than going to trial. In recent years, dozens of auto-parts makers have agreed to plead guilty to fixing prices on new car parts, and have paid nearly $2.9 billion in criminal fines.

Wells Fargo analyst David Maris said in a research note that the news of the investigation "could add a severe overhang to the sector that may last well past the presidential election and into the new year."

--Jonathan D. Rockoff contributed to this article.

Write to Peter Loftus at peter.loftus@wsj.com, Brent Kendall at brent.kendall@wsj.com and Christopher M. Matthews at christopher.matthews@wsj.com

(END) Dow Jones Newswires

November 04, 2016 02:47 ET (06:47 GMT)

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