Teva minor player in alleged US price fixing

Teva  photo: PR

Twenty US states are suing generic drug companies for "extensive, well-coordinated, and long-term" actions.

The lawsuit filed a week ago by 20 US states against six generic drug companies, including Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) and Mylan N.V. (Nasdaq: MYL; TASE: MYL), reveals how the price fixing between the generic companies allegedly operated. Teva clearly appears as one of the companies accused of the "extensive, well-coordinated, and long-term" actions, but it appears that its role in the conspiracy described in the lawsuit was small.

According to the statement of claim, the leaders in the price fixing were the former CEO and VP commercial operations in US company Heritage Pharmaceuticals, a small New Jersey-based generics company. The two former executives have admitted they engaged in the price-fixing, and are reported to be cooperating with the investigation.

For example, the indictment alleges a conspiracy between Heritage and Mylan on the pricing of the doxycycline hyclate antibiotic. In the case involving Teva, Heritage marked a specific drug for treating diabetes as an interesting area in which prices could be raised. Heritage's sales personnel were asked to contact the company's competitors immediately in order to reached agreement in principle on price rises. The lawsuit cites an e-mail in which Heritage employees reported that they had reached agreement with one competitor. There is no description of any such e-mail involving Teva (not in the disclosed part, at least; part of the statement of claim was withheld in order to maintain secrecy), but it appears that the prices of Teva's drugs also rose during this period.

This lawsuit is separate from the indictment filed by the US Department of Justice for price fixing, which was revealed several months ago. That was a criminal indictment, while the current case, which allegedly involves the same acts, is a civil suit. The complainants are the 20 states (in the name of those who paid for the expensive drugs), but the case involves federal law and comes under the jurisdiction of a federal court.

Teva is exposed to both the criminal indictment and the civil suit, and is liable to have to reach a compromise on both of them. Nevertheless, according to Barnea & Co. partner and Capital Market & Securities department head Dr. Zvi Gabbay, formerly responsible for enforcement in the Israel Securities Authority, it is possible and customary to agree on a deal for closing both cases simultaneously.

"The main interest in a compromise is that of the companies, but both the complainant states in the civil suit and the criminal prosecutor also have an interest in reaching a compromise. These trials are held before juries. They are lengthy and difficult to conduct. The federal prosecutor is also now very sensitive to indictments against companies because of the affair of the accountancy firm involved in the Enron affair, Arthur Andersen. The firm was acquitted in the trial for its conduct in the Enron case, but by that time, hundreds, even thousands of jobs had been lost."

The federal prosecutors are therefore sometimes inclined to accept a complete overhaul of supervision, and if the companies are recognized as complying with all the rules for several years, the indictment can be withdrawn upon payment of a not terribly large fine.

Published by Globes [online], Israel business news - www.globes-online.com - on December 25, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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Teva  photo: PR
Teva photo: PR
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