Boxes of tablets, produced by Teva Pharmaceutical Industries Ltd., sit on a pharmacy counter in this arranged photograph in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Teva Is at Center of Drug Price-Fixing Case Filed by States

(Bloomberg) -- Teva Pharmaceutical Industries Ltd. helped mastermind a sweeping conspiracy among generic-drug makers to raise the price of medicines, according to a new antitrust lawsuit filed by states that stems from a five-year investigation of the companies. Teva’s stock fell.

More than a dozen current and former executives at top generic-drug makers, including Mylan NV and a unit of Pfizer Inc., were targeted in the lawsuit made public Friday. The suit was filed by more than 40 states and led by Connecticut Attorney General William Tong.

“We have hard evidence that shows the generic-drug industry perpetrated a multi-billion dollar fraud on the American people,” Tong said in a statement Friday. “We all wonder why our health care, and specifically the prices for generic prescription drugs, are so expensive in this country -- this is a big reason why.”

The lawsuit accuses the drugmakers of inflating prices of more than 100 different drugs, significantly broadening a 2016 complaint. In addition to the states, the Justice Department’s antitrust division is conducting a criminal investigation. The unit’s chief said April 30 that charges would be filed, without specifying timing.

Dinners, Parties and Golf

The states say the pharmaceutical companies conspired with one another to fix prices and carve up markets for medicines among themselves, rather than compete on price. Executives used industry dinners, cocktail parties and golf outings to perpetuate the scheme, in addition to communicating through text messages and telephone calls, the complaint said. Novartis AG’s Sandoz, Teva’s Actavis unit, and Taro Pharmaceutical Industries Ltd. are also named in the complaint.

The executives named in the complaint are upper-level sales and marketing managers including Maureen Cavanaugh, a former senior vice president for Teva, who is now at Lannett Co., according to the company’s website. James Nesta, Mylan’s vice president of sales, and David Rekenthaler, a former vice president of sales at Teva who is now at Apotex Inc., according to his LinkedIn profile, are also named as defendants.

Mylan President Rajiv Malik was named in a separate complaint filed by state attorneys general in 2017. That complaint is still pending.

Company Responses

“The allegations in this new complaint and in the litigation more generally, are just that -- allegations,” Kelley Dougherty, a Teva vice president, said in a statement.

Pfizer said in a statement it has cooperated with the Connecticut attorney general since being contacted more than a year ago and “we do not believe the company or our colleagues participated in unlawful conduct and deny any wrongdoing.” Greenstone, the company’s generics unit, “has been a reliable and trusted supplier of affordable generic medicines for decades and intends to vigorously defend against these claims,” Pfizer said.

Representatives for the other companies didn’t respond to requests for comment after regular business hours on Friday evening. Cavanaugh, Nesta and Rekenthaler didn’t immediately respond to messages sent through LinkedIn.

The complaint puts Teva at the center of the conspiracy, saying it colluded with a core group of competitors to follow each other’s price increases. During a 19-month period from 2013 to 2015, Teva significantly raised prices on about 112 generic drugs and colluded with its competitors on at least 86 medicines, the states said. While the size of the increases varied, some were more than 1,000%.

“Teva is a consistent participant in the conspiracies identified in this complaint, but the conduct is pervasive and industry-wide,” according to the complaint, which was filed in federal court in Connecticut. “Through its senior-most executives and account managers, Teva participated in a wide-ranging series of restraints with more than a dozen generic drug manufacturers, all of whom knowingly and willingly participated.”

Shares Sink

The states are seeking unspecified damages and penalties from the companies. Potential fines could exceed $2 billion, given that generic drug firms were churning out higher profits during the time in question, said Steven Tepper, an analyst at Israel Brokerage & Investments. That strikes a blow to a company already struggling to pay back $29 billion of debt -- a sum almost twice its market value.

Teva shares sank almost 11% Sunday to 46.66 shekels.

“To take this in proportion, that’s about a year’s worth of free cash flow that will have to be thrown out instead of used to reduce the debt,” Tepper said. “The companies will most likely drag this lawsuit out for a number of years and Teva could be in much better shape then than it is in today. But a major fine is still not a nice situation.”

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