The Rimsa plant in Mexico is closed and Is not producing anything, a source close to the company owned by Israel's Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) told Globes. According to the source, a large proportion of the plant's employees have been laid off, so that it will be difficult to make it operational again any time soon. No production is taking place at other sites on the basis of Rimsa's intellectual property either. In fact, Teva is obtaining no benefit whatsoever from its $2.3 billion investment in Rimsa. Nor, according to the source, is Rimsa making any effort to restore regulatory approval for its products. Sources close to Teva, however, claim that the company has not given up on its investment in Rimsa and that it is taking steps to restore at least part of Rimsa's business to its former state. Nevertheless, the latest developments raise the fear that Teva will have to make a large write-down on its investment in Rimsa in the very near future.
The story of Teva's investment in Rimsa became a Mexican telenovela in late September this year when Teva claimed that the Espinosa brothers, who controlled Rimsa and ran it until its sale to Teva, had systematically deceived the regulatory authorities and patients for years and had fraudulently sold defective and illegal drugs. Teva said that it too had fallen victim to the brothers' fraud when Rimsa made false representations to it during the due diligence examination before the acquisition of the company, and that on the basis of these representations it paid $2.3 billion to buy Rimsa. Teva claimed that it had been caused damage in excess of the acquisition price (because of damage to its reputation, for example) and sued the Espinosa brothers in the court in New York. The Espinosa brothers for their part claimed that Teva had simply changed its mind about the acquisition.
Teva's share price has declined sharply since the Rimsa affair broke. This affair was not the only cause of the decline, but it adds to the negative sentiment towards the stock.
A few weeks ago, the head of the drug regulation authority in Mexico, COFEPRIS (Federal Committee for Protection from Sanitary Risks), was quote in Mexican newspaper "El Economista" as saying that there was no safety or efficacy problem in the Rimsa products submitted to it. The plant was closed, he said, because of a lack of information about the source of the raw materials for the drugs, and because there was a product at the plant that was past its expiry date and that was required to be destroyed.
Teva claimed that Rimsa had sold products different from those described in documents sent to COFEPRIS, had concealed the results of trials that showed that the products were unstable, and had hidden the true information on computers separate from those on which the information was processed for submission to the regulator. Teva said that it too had been presented with false documents, and that Rimsa had erased documents before control was transferred to it. Teva also claimed that in internal correspondence a senior quality control person at Rimsa had said she feared that the company was taking illegal steps.
The Espinosa brothers claim that their conduct vis-a-vis the regulator was in accordance with Mexican practice. They say that Rimsa did not file an updated list of sources of its raw materials because these sources varied all the time among Mexican companies. They also say that while there were some problems with a number of products, these problems did not affect safety or efficacy, and no attempt was made to conceal them from the regulator. They further claim that when Teva approached the regulator he proposed that it should remedy the defects, but that when Teva refused, it was decided not to allow it to sell the product anymore.
Teva stated today in response: "Following the discovery of the severe infractions committed under Rimsa's previous ownership, that of the Espinosa brothers, the health authorities in Mexico suspended production activity at the plant. Teva's business was affected by this and the company had to adjust the workforce to the level of activity. As a leading global drug company, Teva is committed to continuing to invest in its business in Mexico, to launch new products and to expand its activity in the country. We are working in full consultation with the health authorities with the aim of resuming production and restoring the products to the marketplace. Teva is committed to improving the health of patients in Mexico through the supply of high-quality, safe drugs, while complying with local law and health procedures and meeting the highest global standards that are in force at Teva with regard to quality."
Teva's quarterly financials, due to be released tomorrow, are liable to give expression to the failed Rimsa acquisition through a large write-down. In addition, the financials will, for the first time, consolidate the business of Actavis, the generic division of Allergan that Teva bought for $40 billion, and there may be a write-down of goodwill on account of that acquisition as well.
Published by Globes [online], Israel business news - www.globes-online.com - on November 14, 2016
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