Drug firms conspire in vitamins market

Swiss pharmaceutical manufacturer Hoffman-La Roche Ltd. plead guilty to an extensive global price-fixing conspiracy surrounding vitamins, the U.S. Department of Justice announced. The company will pay a record $500 million in criminal fines for its part in the cartel, which also included German vitamin maker BASF Aktiengesellschaft and French pharmaceutical rival Rhône-Poulenc SA.

BASF and Rhône-Poulenc Rorer also plead guilty to the same price-fixing charges, but they were dealt lesser penalties. BASF was fined $225 million for its role; Rhône-Poulenc, sidestepping criminal fines by cooperating with the U.S. Department of Justice to expose the cartel, gained protection from criminal prosecution.

The Department of Justice charged the international corporations with:

•Â Agreeing to fix and raise prices on Vitamins A, B2, B5, C, E, Beta Carotene and vitamin premixes, such as those used in cereals and animal feed;

•Â Agreeing to allocate the volume of sales and market shares of vitamins;

•Â Agreeing to divide contracts to supply vitamin premixes to customers in the United States by rigging the bids for those contracts; and

•Â Participating in meetings and conversations to monitor and enforce adherence to the agreed-upon prices and market shares.

The companies committed these crimes between 1990 and February 1999, with executives meeting in various cities around the world on an annual basis to work out the details of their arrangement.

"This conspiracy has affected more than $5 billion of commerce in products found in every American household," said Joel Klein, the assistant attorney general in charge of the Justice Department's antitrust division. According to Klein, the price-fixing affected "virtually every American consumer" by forcing them to pay inflated prices for various vitamin and vitamin-enriched products.

The sharp and costly crackdown should send a loud and clear message to other international businesses that such anti-competitive schemes will not be tolerated in the United States, according to attorney general Janet Reno.

"Those currently engaged or contemplating similar conduct should take note of the high cost of getting caught," she said. "Five hundred million is not only a record fine in an antitrust case, but it is the largest fine the Justice Department has ever obtained in any criminal case."

Despite the hefty financial burden of guilt, and the possibility of future fines as a result of civil suits filed by offended parties (such as livestock feed and vitamin purchasers), none of the companies indicated any immediate, significant changes in business operations, with the obvious exception of cessation of criminal activities.

However, Roche, the parent company of Hoffman-La Roche, acknowledged that the managers responsible for the unlawful practices were asked to leave the company. Kuno Sommer, who was the director of marketing of the vitamins and fine chemicals division until late 1997, and Roland Brönnimann, head of the vitamins and fine chemicals division, left the company immediately. According to the Department of Justice, Sommer was also charged individually with lying to government officials during an investigation of the price-fixing two years ago; he plead guilty and will serve a four-month prison sentence as well as pay a $100,000 fine.

Markus Altwegg, a current member of Roche's executive committee and the man responsible for all Swiss pharmaceutical operations, has been appointed head of the vitamins and fine chemicals division.

Rhône-Poulenc's pending merger with Hoechst Marion Roussel appears to be unaffected by the announcement.

Although it is hardly commendable to be found guilty of price-fixing, Gary Spratling, the Justice Department's deputy assistant attorney general for criminal enforcement, was generous in his comments about the affected corporations.

"The cooperation of Rhône-Poulenc, together with the information provided by others, led directly to the charges filed today and the decision of the defendants not to contest the charges and to cooperate with our investigation," Spratling said. "Once Hoffman-La Roche and BASF decided to step forward and accept responsibility for their actions, they each provided a level of cooperation nothing less than exemplary." PR