Sanofi SA (SNY), Novo Nordisk (NVO) And Eli Lilly (LLY) Stock…Being Sent To The Corn Field

Okay, so unless you are a Twilight Zone enthusiast , you may not catch much of what the title implies, but, trust me, the “corn field” isn’t the most comfortable place to live.

And, as of just a short while ago, it appears that three of the biggest makers of diabetes treatments, Sanofi (SNY), Novo Nordisk (NVO) and Eli Lilly (LLY), might be sent to a place far worse than the “corn field”, the Federal Court system.

Is Price Fixing The New Black?

The large drug companies simply can’t get put of their own way. Despite the slight chance that a Trump administration might have very well given these large and important companies some breathing room to continue to develop and innovate, along comes another potential instance of corporate malfeasance. And, similar to other cases, it involves those that should be setting the example.

According to a suit filed on Monday in a Massachusetts federal court, claims are being made that the three named co-defendants have simultaneously hiked the price of insulin by over 150% during the past five years.

In the suit, plaintiffs claim that SNY, NVO and LLY raised their public benchmark price for insulin products while maintaining a lower “true” price for its larger pharmacy benefit management companies, like Express Scripts, CVS Health, and OptumRX.

Banking Off Of Intermediaries

Companies such as Express Scripts (ESRX), CVS Health (CVS), and other large pharmacy intermediaries act as the broker between health insurers and suppliers, keeping a percentage of the price difference negotiated between the parties. Nothing off the hook there, it’s a practice that should keep things relatively honest from a pricing standpoint…until it doesn’t.

The suit does not name the intermediaries, but does have some choice language against the three defendants. The lawsuit, which is seeking class action status, no surprise there, alleges violations of the federal racketeering statute, which allows for triple damages of any potential award. The suit also alleges breaches of various consumer protection laws in states in which they conducted business.

For investors holding these stocks, while they should feel ashamed of their management teams, the likelihood of far reaching damage is unlikely. But, investors should hold hope that Trump will be too busy tweeting to notice the news, and allow the free markets to continue to wield its own method of pricing power in the private sector.

Our friends at Trade Ideas alerted us to the breaking story and our team at CNA Finance will keep our followers appraised of any new developments.

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