Teva could be hit by huge fine on US cartel probe

Teva Photo: Reuters
Teva Photo: Reuters

Teva is reportedly being investigated in the US for allegedly forming a cartel and fixing prices for 300 drugs.

Was Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) part of the largest cartel in US history? US states indicted six generics companies in the US two years ago, including Teva, for price fixing. Those indictments, however, involved 15 drugs; the current case involves 300 generic drugs. "The Washington Post" reported that a federal judge had recently ruled that prosecutors from various US states could pool over one million emails, phone messages, and other documents brought as evidence.

Teva said yesterday in response, "Teva cooperated with investigations by US government authorities." "The Washington Post" quotes a document submitted to a court by Teva stating that allegations of price fixing are "are entirely conclusory and devoid of any facts.”

"It is difficult to estimate the extent of Teva's exposure to the affair, because there are media reports and comments by the company, while the company's messages are ostensibly different and more calming," Leader Capital Markets Ltd. (TASE:LDRC) research department manager Sabina Levy said yesterday. "I don't think that we've seen an affair of this type or scale in the industry, so there is no indication for estimating the potential damage. According to tangential cases, the potential damage to Teva could be in the hundreds of millions of dollars, if not more."

"This is a disturbing story," Levy says. "When it was reported before, it was an unpleasant surprise, and it's even more so now. This question was not on the agenda recently; the investment community was more concerned about Teva's regular business, so 'The Washington Post's' story put it on center stage again." At the same time, Levy believes that as a result of the developments in the US generics industry in recent years - plunging prices, consolidation, and a tougher reimbursement policy by insurers - "The industry has already gone a considerable distance in cutting prices, so I don't think it can be said with a high degree of certainty that the results of the investigation, whatever they may be, will generate pressure on drug prices."

Victims of the cartel: Consumers and taxpayers

Teva's share price dropped over 5% on the Tel Aviv Stock Exchange (TASE) in response to the report. Levy says, "The fall in the share succeeded the report, although it is difficult to know whether or not it is justified, because it is hard to estimate just how much this affairs is 'worth,' but the report is a reminder that the matter is alive and kicking, and affects investors' sentiments."

Down 24% since August

In its expanded financial reports, Teva had to report the legal proceeding in which it was involved and matters pertaining to competition. In its most recent reports, Teva mentioned the subject, after having written in June 2016 that it had received a summons from the US Department of Justice antitrust division, and had had to hand over documents and information pertaining to the marketing and pricing of generic drugs in the US, and to its agreements with competitors concerning those drugs.

Actavis, acquired by Teva for almost $40 billion in 2016, received a similar demand even before the acquisition. In its reports, Teva stated that it was fully complying with the demands. The report also detailed a civil proceeding begun in December 2016 by general prosecutors from 20 US states against Teva and other companies alleging breaches of antitrust laws and fixing prices of generic drugs. A number of months later, 20 more states were added to the proceedings. 45 states, plus Puerto Rico and the District of Columbia, are taking part in the current proceeding. The prosecutors are asking the respondents for damages allegedly caused to government agencies and consumers, and for the imposition of civil fines.

Teva managed by CEO Kare Schultz, has a $19.8 billion market cap. Its share price rose 74% since the low point reached on Wall Street in November when Schultz took up his position, but the price is down 24% since August.

Teva is in the midst of a huge streamlining program, including 14,000 layoffs, aimed at saving $3 billion a year in costs. The company has a very large debt to service - $29.5 billion, as of the third quarter. Most of the debt was incurred as a result of Teva's largest ever acquisition - Actavis, the generics arm of Allergan - in 2016.

Published by Globes, Israel business news - en.globes.co.il - on December 11, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Teva Photo: Reuters
Teva Photo: Reuters
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