The deepening legal woes of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) continue to weigh on the company's share price. After losing nearly 10% on Wall Street yesterday, Teva's share price is currently down a further 2.81% at $10.19, giving a market cap of $12 billion. The company's share price is slightly higher in 2020 after falling 56% in 2019.
Casting a shadow over Teva has been lawsuits claiming that Teva contributed to addiction to the opioid painkiller and that Teva colluded with rivals to fix the prices of generic drugs. To make matters worse, a third and new legal front against the Israeli pharmaceuticals company opened up yesterday when the US Justice Ministry filed a suit against Teva in the Boston District Court claiming that the company paid kickbacks to promote sales of its branded multiple sclerosis treatment Copaxone.
Teva was already exposed to suits worth billions of dollars in the first two legal affairs and estimates are that the new lawsuit could cost the drugmaker another $1 billion, and maybe even more, although Teva could reach a settlement and reduce the financial damage.
This latest lawsuit, relates to the period between 2006 and 2015, when Teva still enjoyed exclusivity on the multiple sclerosis treatment, with no generic competition. According to the lawsuit, during that time Teva made illegal payments of more than $300 million to two charities - The Chronic Disease Fund and the Assistance Fund - to cover the co-payments by patients for Copaxone, which were not covered by Medicare federal insurance. These payments, according to the lawsuit, violated the False Claims Act and generated hundreds of millions of dollars in revenue for Teva.
"Teva planned to ensure that the patients taking Copaxone did not have to pay the high prices that it was taking for the treatment," the lawsuit says. "Teva paid the funds tens of millions of dollars annually because it knew that this would serve as money to cover payments for Copaxone, and that sales of Copaxone would grow and enrich Teva with amounts that were much larger than those it was paying the funds."
Over this period, Teva gradually increased the price of Copaxone from $17,000 per year to $73,000 per year.
The suit also claims that Teva's senior management in Israel knew about this and approved the payments to the funds and even mentioned them in an email in 2015 under the subject "Medicare donations procedures." According to the email, a payment of more than $5 million required approval by a senior vice president and a payment of more than $15 million required approval by an even more senior executive (the name of Rob Koremans appears there) and a payment of over $25 million required approval of the CFO (Eyal Desheh during that period), and over $25 million needed approval of the CEO (then Erez Vigodman).
Teva said in response. "Teva has always been committed to the health of its patients and accessibility to affordable treatments, and this includes ensuring access to treatments for multiple sclerosis. The program to assist multiple sclerosis sufferers was designed to support patients needing possibilities for important treatment by providing donations to independent charitable organizations, who helped patients receive access to medications prescribed for them by their doctors. This suit filed by the Justice Department regarding the program for these donations seeks only to restrict even more the access of patients to important treatments and health services. The company will vigorously defend itself against these charges."
The fines could amount to $1 billion
Bank Hapoalim (TASE: POLI) share desk and research unit manager Yaron Friedman wrote today, "The law prohibits pharmaceutical companies from providing any sort of incentives aimed at preference for their products, and so if Teva did what is claimed in the lawsuit, this was a violation of the law. Although Us law allows pharmaceutical companies to donate to private charities, that are there to assist in financing treatments for patients with private health insurance, it prohibits financing for patients assisted by government programs (such as Medicare), in order to prevent biasing these programs to more expensive alternatives on the market."
"In addition, it claims that some of the requests for the medication were false, which makes the lawsuit more serious. Market estimates are that if Teva is convicted, then it might be liable to fines of up to $1 billion."
However, Friedman still gives an 'outperform' recommendation for Teva's share with a very high risk, and explains that, "Teva's situation is good and cannot be compared with what it was two or three years ago. Generics have stabilized, Copaxone sales aren't bad, and the debt situation has improved. The headlines from yesterday are of course bad for Teva but it has to be understood in the right context."
Bernstein analyst Ronny Gal takes a more severe view. He sees Teva's exposure to the suit as being between $3 billion and $4.5 billion. He explains that the suit requires Teva to pay three times the damage it has caused as well as fines, and it claims that the damage was hundreds of millions of dollars in false claims to Medicare. Accordingly, Gal estimates that three times the dame will amount to at least $3 billion (not including fines).
According to research data from IQVIA about Copaxone sales, Gal says that 7.1% of Copaxone sales between 2017 and 2019 were via Medicare. Assuming the same percentage between 2006 and 2015, Medicare would have paid $1.5 billion for Copaxone, so that a multiple of three would amount to $4.5 billion.
Nevertheless, Gal believes that ultimately the damage won't be so severe. He says that the lawsuit is not so strong. "It is doubtful that Teva developed something to use in an inappropriate way with the drug for treating multiple sclerosis. Mayve it received an unfair market share compared with other drugs on the market, which were prices in a similar range."
IBI pharmaceutical analyst Steven Tepper thinks that the fall in Teva's share price yesterday was not justified and believes that Teva will reach a settlement, as have similar companies in similar situations in recent years. Such companies typically paid $120 to $360 million for similar suits. "The legal procedures can be expected to last several years and it won't be easy for the prosecutor to prove the real damage. In the end Teva will reach a settlement and according to our estimates, it is reasonable that it will be within the range of $150 million to $350 million."
Another opioid suit
Teva was also hit yesterday by more bad news on the legal front when New York Governor Andrew Cuomo announced that he was filing a suit against Teva in the opioids affair, stating that Teva was responsible for 20% of the opioids consumed in New York State between 2006 and 2014 (mainly through Actavis, which Teva acquired from Allergan after that date).
Teva said, "These claims duplicate claims in other lawsuits that are pending. Teva continues to reject these claims and is focusing on completing national arrangements with the Attorney Generals that were announced last October."
Bank Hapoalim's Friedman notes that although this suit is new, it joins more than 2,500 others from states, districts, cities and private individuals throughout the US. Friedman recounts that Teva reached a settlement with four attorney generals in October 2019 in which it would pay compensation of $250 million and donate drugs worth $23 billion (according to the price list). The arrangement has yet to be approved by other attorney generals and the approval has been delayed by the Covid-19 crisis.
Friedman told "Globes" that this latest opioid lawsuit is part of the negotiating tactics for the overall settlement. In his estimation, Teva will be forced to pay between $5 billion and $10 billion to settle the claims.
Published by Globes, Israel business news - en.globes.co.il - on August 19, 2020 © Copyright of Globes Publisher Itonut (1983) Ltd. 2020