Regeneron (REGN) Accused of Fraudulent Practices Related to Eylea
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Shares of Regeneron Pharmaceuticals REGN were down 1.70% on Apr 11, following a complaint filed by the U.S. Department of Justice against the company, alleging fraudulent drug pricing practices related to its lead drug, Eylea.
The Department filed a complaint under the False Claims Act (FCA) against Regeneron, which manufactures and sells the ophthalmology drug, Eylea. The lawsuit was originally filed under the qui tam or whistleblower provisions of the FCA.
Eylea is an anti-vascular endothelial growth factor inhibitor that is approved in the United States for the treatment of neovascular age-related macular degeneration.
The complaint alleges that Regeneron fraudulently raised Medicare reimbursement rates for its leading drug, Eylea, by knowingly submitting false average sales price reports to the Centers for Medicare and Medicaid Services, excluding certain price concessions.
Regeneron allegedly manipulated Medicare’s drug pricing process by knowingly failing to report its payment of credit card processing fees as price concessions to its customers. Per the complaint, Regeneron paid these credit card fees so that distributors would accept credit cards for Eylea purchases and simultaneously charged a lower cash price for the drug. Regeneron’s customers could then receive credit card benefits for their purchases, such as “cash back” and other credit card rewards.
Per the complaint, Regeneron significantly inflated the cost of its drug to Medicare over many years by resorting to these fraudulent practices and, in turn, boosted its revenues. As a result, the higher average sales price cost the Medicare system hundreds of millions of dollars.
These practices likely enabled Eylea to become the market leader in this space and seize market share from its competitors.
Under the FCA, private parties file an action on behalf of the United States and receive a portion of the recovery. The matter is being handled by the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the District of Massachusetts, with assistance from the Department of Health and Human Services Office of Inspector General and the FBI.
The lawsuit definitely puts Regeneron in the back seat. If Regeneron is found guilty, the government is eligible to recover three times the amount of its losses from the company plus fines under the FCA.
The mammoth litigation costs will be a drag on the company’s bottom line.
Regeneron’s shares have risen 8.7% in the past year against the industry’s decline of 15.4%.
