The $120 Million Settlement

Five leading drugmakers swallowed a bitter pill last week. In a surprise move, they offered to pay $120 million to settle treble-damage claims against them for allegedly rigging the price of a widely used antibiotic, tetracycline. While proposing the settlement, the five companies--American Cyanamid, Chas. Pfizer, Bristol-Myers, Upjohn and Squibb Beech-Nut--asserted that they "have not violated the antitrust laws."

In 1967, a federal jury convicted Cyanamid, Pfizer and Bristol-Myers of plotting to fix the price of tetracycline--and the companies are still appealing the verdict. Upjohn and Squibb were named co-conspirators but not defendants. Encouraged by the verdict, 39 states, ten cities and counties, 15 private hospitals and 17 miscellaneous groups claimed damages for overcharges on the drug, which has been sold since 1953. Sales amounted to well over $100 million annually. The Justice Department charged that the capsules cost an average 1.60 to produce, but sold for as much as 510. Whatever the merits of the damage claims, the companies wanted to avoid long and costly court fights, and so proposed the settlement.

The main beneficiaries would be state and municipal hospitals and welfare agencies, which could collect about $60 million. Another $20 million would go to competing antibiotic makers, private hospitals and other claimants. For the first time in an antitrust settlement, individual customers could also collect--if they can prove their purchases between 1953 and 1966 by presenting prescriptions and sales slips to state agencies. Most likely, few would be able to do so, and the agencies would thus keep most of the funds. Drug executives warned, however, that unless practically all of the 81 claimants accept their share of the $120 million by March 7, the deal is off.

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