Teva Pharmaceutical Industries is a titan of Israel’s pharmaceutical industry. Over the last 30 years the company has evolved into a global generics giant through a sustained spate of acquisitions in the US and Europe during the 90s and 2000s, expanding its presence in the supply chain.

Teva’s revenues have also been supercharged by blockbuster multiple sclerosis drug Copaxone, which the company licensed from the Weizmann Institute of Science in 1987. Since the drug’s commercial launch in 1997, Copaxone has generated billions in annual revenue, and made $4.3bn in a single year at its sales peak in 2013, which at the time represented around 20% of Teva’s total revenue. The company has continued to refine and release new forms and dosages of its lead product to maximise its efficacy and profitability, as recently evidenced by last month’s launch of Copaxone in the prefilled auto-injector Ypsomate.

In recent years, however, Teva executives and shareholders have had less good news to shout about, and some considerably more worrying issues to consider. On top of the generic competition for Copaxone that has emerged from Mylan and Sandoz, high debt levels and falling US generic revenues, the company has faced a rocky legal road, including a high-profile allegation that it had exacerbated the US opioid crisis, a case that it settled in June this year with the state of Oklahoma for $85m, without admitting any wrongdoing.

Cases such as this one contributed to $57m in legal expenses incurred by Teva in the first quarter of 2019, and with a recent move by Connecticut attorney general William Tong, the company’s US legal bill isn’t likely to be cut anytime soon.

Teva at the centre of price-fixing allegations

On 12 May, Tong filed a lawsuit on behalf of 44 US states against Teva Pharmaceuticals USA and 19 other pharma companies, including Teva subsidiary Actavis Generics, as well as Sandoz, Mylan, Pfizer, Aurobindo and others. In addition to the corporate defendants, the suit identifies 15 individual defendants, including former Teva executives Maureen Cavanaugh, Kevin Green, Nisha Patel and David Rekenthaler.

In the words of a press release issued by the Connecticut attorney general, the suit centres around “a broad conspiracy to artificially inflate and manipulate prices, reduce competition and unreasonably restrain trade for more than 100 different generic drugs”. The allegations claim that this behaviour rigged competition and increased prices for diabetes, cancer and epilepsy drugs, among others, and that some of the “co-ordinated price increases” saw prices raised by over 1,000%.

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Focusing on a period between July 2013 and January 2015, the suit alleges that Teva was a “consistent participant” in a collusive conspiracy to allocate market share in the generic drug sector, as well as agreeing to collectively maintain or increase drug prices, thereby avoiding price erosion through natural competition. While Teva is at the centre of the complaint, the suit argues that the anti-competitive conduct it describes is “pervasive and industry-wide”.

“We have hard evidence that shows the generic drug industry perpetrated a multi-billion dollar fraud on the American people,” Tong said in May. “We have emails, text messages, telephone records, and former company insiders that we believe will prove a multi-year conspiracy to fix prices and divide market share for huge numbers of generic drugs. We all wonder why our healthcare, specifically the prices for generic prescription drugs, is so expensive in this country – this is a big reason why.”

‘Playing nice in the sandbox’

The complaint, an unredacted version of which was unsealed and made public on 24 June, paints an ugly picture of industry collusion, in which executives from competing companies actively collaborated to fix prices and slice up markets under a loose ‘fair share’ principle. This coordination, the suit alleges, was facilitated by direct emails and calls between competitors, as well as industry events such as dinners, golf days and ‘girls’ nights out’.

The evidence presented in the complaint describes alleged behaviour by Teva and others to agree on market share to be claimed by new entrants to the market and maintained by existing players. The suit alleges that collusive behaviour on market share – for example, by not bidding against competitors for contracts based on informal agreements – have been described in the industry as “playing nice in the sandbox”, and that Teva executives described its most collusive rivals as “high quality” competitors.

The complaint also makes many allegations of price-fixing between generic competitors, including Teva. The document alleges: “Starting sometime in 2012 or even earlier, and continuing for several years, competitors would systematically communicate with each other as they were identifying opportunities and planning new price increases, and then again shortly before or at the time of each increase.

“There was an understanding among many of these generic drug manufacturers – including the Defendants – that a competitor’s price increase be quickly followed; but even if it could not, the overarching conspiracy dictated that the competitors who had not increased their prices would, at a minimum, not seek to take advantage of a competitor’s price increase by increasing their own market share.”

Teva responded to the allegations in May. “Teva continues to review the issue internally and has not engaged in any conduct that would lead to civil or criminal liability,” the company said in a statement.

In January, as reported by Law360, Teva noted: “Overall, we establish prices to enable patient access, maintain our commitment to innovative and generic medicines and fulfil obligations to our shareholders…Teva fosters a culture of compliance with [applicable competition] laws and regulations, and is dedicated to conducting business with integrity and fairness. Litigation surrounding US generic pricing of several companies, including Teva, continues to be the subject of inaccurate media stories.”        

Legal issues compound existing problems

The price-fixing lawsuit is a serious prospect for all the companies and individuals implicated, but Teva, which controls around 13% of the US generics market and has been cited as a central figure in the alleged anti-competitive conduct, may face more severe reputational damage.

It’s also financially vulnerable, cutting costs and thousands of jobs in recent years as it attempts to cut down a huge debt burden, which stood at $26.7bn at the end of March this year. The company has cut its debts down from $35bn, a sum that was in large part driven by Teva’s $40.5bn acquisition of Actavis in July 2015. Nevertheless, Teva CEO Kare Schultz still described the debt as the company’s “elephant in the room” at the JP Morgan Healthcare Conference in January 2019.

Despite the price-fixing allegations against Teva and others, declining US generic drug prices – as the Food and Drug Administration has accelerated the pace of generic approvals – have eaten into the industry’s revenues and diminished Teva’s capacity to quickly pay off its debts. Teva’s blockbuster Copaxone is under threat, too – generic competition is expected to reduce its 2018 sales by up to $1bn, and its market share is likely to be further chipped away in the coming years.

The duration and outcome of the price-fixing case remains to be seen, but analysts have estimated that it could cost Teva between $1.5bn and $3bn to settle the lawsuit, a cost that would exacerbate its problems – although if the case drags on for years, it may be better-positioned to absorb this cost in the future.

Recovery on the horizon?

Of course, Teva has some advantages to fall back on as it works its way back to sustained growth. Cost-cutting undertaken by Schultz, who joined as CEO in November 2017, has helped save billions in annual expenditure and address inefficiencies in the business.

Teva’s expansion into innovative drug development has also yielded two proprietary treatments on the market – migraine therapy Ajovy and Austedo, which is indicated for tardive dyskinesia and chorea associated with Huntingdon’s disease. The $200m that these drugs made collectively in 2018 isn’t enough to fill the gap left by Copaxone’s decline, but Teva has targeted combined sales of $500m this year. Teva’s market share – however it was won or maintained – puts it in a strong position to capitalise quickly on US generic sales as they recover.

Betting on the recovery of the US generics market and the continued sales growth of its new therapies might be the most pressing concerns for Teva as it looks to turn things around. But the launch of the 44-state price-fixing lawsuit in May has thrown another long and unpredictable process into the mix, with unknown costs and reputational damage at the end of it. With the intense political spotlight being shone on US drug prices in recent years, the American public will want to know whether pharma executives conspired to make their prescriptions more expensive, and the answer to that question will certainly have a bearing on Teva’s health in the future.