The US Federal Trade Commission (FTC) has announced its intention of proceeding against Watson, now owned by Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), over an illegal agreement it signed with Endo to avoid competition between the two companies. The FTC also announced that it had reached a settlement with Endo on the matter.
The light penalty that Endo received in this affair could be an indication that Teva's exposure is small. In the past few weeks, Teva's share price has been at a decade-long low.
Last year, Teva acquired Actavis, the generics division of Allergan (of which Watson is part) for $40 billion. According to the claim against Watson, in 2012 its senior managers reached a "pay for delay" agreement under which they held back the launch of a generic equivalent of an Endo product in exchange for $250 million.
The delay enabled Endo to keep its monopoly on a local anesthesia product even after the patent protecting it expired. The victim of the agreement was the public, since in the absence of generic competition the price of the product did not fall by the 80-90% drop usually seen when a generic equivalent of an existing drug is introduced. Endo's sales revenue from the product in 2012 was about $1 billion.
The FTC's claim was first filed in March 2016, after Teva had already agreed to buy Actavis, but before the deal was completed. In October, after a partial court ruling in favor of the companies involved and against the FTC, further prosecution of the claim was delayed. On Tuesday, however, the story surfaced again when Endo reached a settlement with the FTC, whereby Endo will not be required to pay financial compensation for the agreement but only to refrain from making such agreements in future. It is therefore likely that Teva's exposure is not high.
The FTC's official demand is that Watson and Allergan (that is, Teva) should desist from such illegal activity and should repay money they received unlawfully. As mentioned, the payment the companies received from Endo is put at $250 million, and it would appear that this represents the upper limit of any possible settlement.
This has not been an easy period for Teva on the legal front. The company recently reached a $520 million settlement with the US anti-corruption authorities over alleged illegal methods of promoting its business in developing countries. The settlement removed the threat of prosecution in the US, but a Teva shareholder has filed a derivative action against the company for having put itself in a situation that required such a settlement.
Meanwhile the FTC has filed claims against twenty generic drug companies, Teva among them, alleging that they engaged in price fixing between them. This criminal indictment is accompanied by a civil lawsuit by the states that were customers for the drugs in question, and the two cases are running in parallel.
More important than any of these cases is probably the lawsuit Teva is conducting to prevent the introduction of generic competition for the 40 mg dosage version of its blockbuster multiple sclerosis treatment Copaxone in the US. A ruling on this case is expected next month.
Dr. Zvi Gabbay, who heads the Capital Markets department at the law firm of Barnea & Co. and who was formerly in charge of enforcement at the Israel Securities Authority, said, "Although the FTC may enlist the aid of Endo's managers to improve its claim against Teva, on the balance of probabilities its seems more likely that the very lenient settlement with Endo is good news for Teva. The fact that the claim is now not even against the same people who allegedly committed the infringement also carries weight in decisions of this kind. It could be that Teva is in talks with the FTC aimed at settling all the antitrust cases together."
Published by Globes [online], Israel business news - www.globes-online.com - on January 26, 2017
© Copyright of Globes Publisher Itonut (1983) Ltd. 2017