Teva Hit With Price-Fixing Lawsuit By 44 US States

Teva Hit With Price-Fixing Lawsuit By 44 US States
May 15, 2019

 

Teva Pharmaceutical Industries’ (TEVA) shares plunged this week after 44 US states filed a case against the company and an additional 19 generic pharmaceutical businesses over accusations of a substantial drug price-fixing scandal worth billions of dollars. The damage prevention statements issued by Teva did little to soothe investor worries. In the last two trading sessions, the shares of Teva shares have plummeted 18.15% to trade at $12.10.

 

Teva faces a potential fine of up to $2 billion in drug price-fixing scandal

According to the complaint lodged by Connecticut Attorney-General William Tong, Teva considerably increased prices on roughly 112 distinct generic medicines between July 2013 and January 2015 and conspired with “high quality” rivals on at least 86 drugs. While price rises differed, some price increases supposedly surpassed 1,000%.

For several years, the lawsuit has stated, “Competitors in the generic drug industry would systematically and routinely communicate with one another directly, divvy up customers to create an artificial equilibrium in the market and then maintain anti-competitively high prices.”

Generic drugs are chemically similar to brand name medicines and may be sold after the end of commercial exclusivity given to their actual creator by patent privileges. Off-patented medications, which are usually offered at lower prices than brand name medicines, represent about 90% of all US prescriptions.

The lawsuit alleged that “Defendant Teva is a consistent participant in the conspiracies identified in this complaint, but the conduct is pervasive and industry-wide. 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. As a result of these conspiracies, Defendants reaped substantial monetary rewards.”

On its part, Teva Pharmaceuticals rejected any misconduct, saying it would protect itself against a market-fixing lawsuit lodged by 44 US states. The company’s shares declined to its lowest level since November 2017. Teva vowed to fight the legal proceedings.

Regarding the allegations, Teva vice president Kelley Dougherty said: “The allegations in this new complaint and in the litigation more generally, are just that – allegations. Teva continues to review the issue internally and has not engaged in any conduct that would lead to civil or criminal liability.”

While speaking to reporters in Israel, Chief Financial Officer Mike McClellan stated that the complaint was not new but an updated one. He further pointed out that the lawsuit is civil and not criminal in nature.

McClellan said: “There have been no developments in this area. We take these accusations seriously, and we are going to defend ourselves.”

Other key drug manufacturers listed in the 524-page filing include New York City-based Pfizer Inc., Ahmedabad, India-based company Zydus Pharmaceuticals, and Brazil-based Novartis Group’s Sandoz subsidiary. The lawsuit also mentions 15 individual respondents saying they used their interactions with rival firms to “allocate markets and increase prices on overlap drugs.”

Defendants include Marc Falkin, ex-Senior Vice President, U.S. Generic Sales, Teva; Maureen Cavanaugh, ex-Senior Vice President and Commercial Officer, Teva-North America; and David Rekenthaler, ex-Sales Vice President, US Generics, Teva, and presently Sales Vice President, another defendant Toronto, Apotex, Canada. The plaintiff states demand restitution, reimbursement of illicit earnings, and legal proceedings to avoid further monopolistic strategies. Teva faces a possible price-fixing penalty of up to $2bn.

Regarding the possible fine, Steven Tepper, an analyst at Israel Brokerage & Investments, said: “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. The companies will most likely drag this lawsuit out for a number of years, and Teva could be in much better shape than it is in today. But a major fine is still not a nice situation.”

Teva, presently the topic of wholesale reorganization and strategic cost-cutting initiatives amid falling revenues and massive debt, currently manufactures roughly 550 FDA-approved generic goods. Teva, which has announced that it would trim employee count by 14,000 at the end of this year, depended strongly on revenue from Copaxone sales – sold at $5,800 and generating approximately 20% of revenues – since 1996 when the drug was first introduced to the market.

The financial condition of the company worsened in July 2017, when Dutch-American pharmaceutical firm Mylan N.V. slashed the wholesale monthly price of its generic variant of the drug from $5,000 to $1,900 (approximately 60%. However, the firm estimates an end to falling profits as its two new medications – Ajovy and Austedo – begin to gather momentum in the US pharmaceutical industry. At the end of March 31st, 2019, Teva’s debt was $28.6 billion, compared with $28.9 billion at the end of December 31st, 2018, and $32.40 billion at the end of 2017.

Teva CEO Kare Schultz, who joined the company in the final leg of 2017, is struggling to cut expenses and discover medicines that can offset the company’s dropping revenues due to a steep rise in competition to its best-selling Copaxone from generic variants of the various sclerosis drugs. Earlier this month, Teva, the world’s biggest generic drug manufacturer, reported first-quarter earnings of $0.60 a share excluding one-off items, a decline from 0.94 cents in the previous year. Revenue declined 15% y-o-y to $4.3 billion. But Teva reiterated its FY19 outlook of $2.20 to $2.50 a share on revenue of between $17 billion and $17.4 billion. Analysts had predicted $2.40 per share of income on revenues of $17.29 billion.

The lawsuit is expected to keep the stock weak in the days to come.

The historical price chart indicates that the stock is trading below its 50-day moving average. Additionally, the MACD indicator’s reading has a negative reading. As a result, we can expect the stock to remain bearish in the short-term.

tev - technical analysis - 15th May 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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