Teva Tumbles at Tel Aviv Opening Following Massive U.S. Lawsuit

40 U.S. states sue Teva, other drugmakers for 'multi-billion dollar fraud on the american people'

Teva plant in Jerusalem
Lior Mizrahi

Teva Pharmaceuticals on Sunday denied any wrongdoing and said it would defend itself against a price-fixing lawsuit filed by 44 U.S. states over the weekend. Nevertheless, the company’s shares plunged to their lowest level since November 2017.

Chief Financial Officer Mike McClellan told a conference in Israel that the suit was an amended one and not new, while also stressing that it was civil in nature and not criminal. “There have been no developments in this area,” he said. “We take these accusations seriously, and we are going to defend ourselves.”

The Israeli company’s U.S. unit and 19 other drug makers are alleged to have conspired to divide up the market for drugs to avoid competing and, in some cases, are said to have conspired to prevent prices from dropping or to raise them, according to the complaint filed Friday in U.S. District Court in Connecticut.

Prosecutors said Teva Pharmaceuticals USA had orchestrated matters to inflate drug prices – sometimes by more than 1,000% – and to stifle competition for generic drugs.

“The allegations in this new complaint, and in the litigation more generally, are just that – allegations,” Teva said in a statement afterwards. “Teva continues to review the issue internally and has not engaged in any conduct that would lead to civil or criminal liability.”

The statements did little to assuage investor concerns, and Teva shares plummeted 10.7% in Tel Aviv Stock Exchange trading on Sunday to close at 46.66 shekels ($13.07). Teva also trades on the New York Stock Exchange, but news of the suit came after the market closed on Friday.

The sharp drop in Teva shares, as well as at another pharma company, Opko Health, based on pre-opening orders, led to a six-minute delay in the start of TASE trading on Sunday. Opko finished 13.8% lower at 7.56 shekels on unrelated news. The TASE’s benchmark TA-35 index fell 0.6% for the day in light trading.

The lawsuit comes as Teva CEO Kare Schultz, who was brought in at the end of 2017, struggles to cut costs and find drugs that can compensate the company for falling sales of its best-selling Copaxone after generic versions of the multiple sclerosis drug entered the market.

Teva, the world’s largest generic drug maker, said earlier this month that it earned 60 cents a share excluding one-off items in the first quarter, down from 94 cents a year earlier. Revenue fell 15% to $4.3 billion. 

But Teva reaffirmed its 2019 forecast of adjusted earnings of $2.20 to $2.50 a share on revenue of $17 billion to $17.4 billion. Analysts had been forecasting earnings per share of $2.40 on revenue of $17.29 billion.

Bloomberg News quoted Steven Tepper, an analyst at Israel Brokerage & Investments, as saying that based on his analysis, Teva faced a potential fine in the price-fixing affair that could exceed $2 billion.

“To take this in proportion, that’s about a year’s worth of free cash flow that will have to be thrown out instead of used to reduce the debt,” he said. “The companies will most likely drag this lawsuit out for a number of years and Teva could be in much better shape then than it is in today. But a major fine is still not a nice situation.”