Summary
- One week ago, the DOJ charged Teva for overcharging customers in an alleged "price-fixing conspiracy."
- In this article, I will take a closer look at what this lawsuit means for Teva.
- I also will explain why investors probably don't need to worry about this criminal charge.
- This idea was discussed in more depth with members of my private investing community, Stability & Opportunity. Get started today »
Yet another lawsuit
One week ago, Teva (TEVA) suffered yet another few high-volatility days as the circulating rumors were confirmed: Teva will be charged in a criminal antitrust investigation by the DOJ for overcharging consumers by "at least $350 million."
Reuters mentions that settlement negotiations failed because Teva refused "to agree to a settlement that would have required paying a criminal penalty and admitting wrongdoing."
Effectively, in May there were reports that Teva had walked away from negotiations:
"... daring the U.S. Department of Justice to pursue criminal price fixing charges against the drugmaker at a time when it's part of the COVID-19 pandemic response. … But Teva faces its own pitfalls in walking away. In a note to investors Friday, Bernstein analyst Ronny Gal said Teva's decision to risk a criminal prosecution could put the company "in a tough position" to pursue government contracts and float new debt. In all, Teva could be on the hook for damages worth up to $1 billion, Gal noted, saying that anything in the nine-figure range would be "preferred."
Other co-conspirators in the same alleged conspiracy effectively settled. E.g., Novartis' (NVS) Sandoz unit admitted to conspiring with Teva, while Teva denied wrongdoing and is continuing to do so in a statement following the indictment (which mirrors what was said during the recent conference call):
"So if we look at the price fixing first, then there's a criminal side to it, which is something we discussed with the DOJ. There's also a civil side in the DOJ and then there's a sort of a AG/MDL side to it, which also is civil. And I think you're referring to the fact that, with DOJ on the criminal side, there are allegations, I think, around 10 products. And on the civil side the allegation is around 110 products.
Now, first of all, it's important to repeat that in our internal investigation, where we've been through more than a million documents, we don't see any evidence of organized price fixing, organized curtail or anything involving a structured approach to this by Teva.
Now we do have continued discussions with the DOJ. And I think it's not really possible right now to give you a sort of firm basis for how you should model this. It's an unclarified legal situation. And as you know, in legal situations they can develop in all kind of ways in the U.S.
And we will do our best; of course, based on the fact that we believe we did nothing wrong to not have a sort of insurmountable financial damage coming out of this. And there's a lot of tactical elements to that, which I can't really comment on."
In a nutshell: Although Teva didn't find any evidence of wrongdoing, it was willing to settle, but if the terms were not acceptable it would fight in the courts. And this is what it ultimately decided to do.
