Shares of Teva (TEVA) and Mylan (MYL) are sliding after Connecticut Attorney General William Tong led a 44-state coalition in announcing a lawsuit against Teva and 19 other generic drug manufacturers alleging a "broad conspiracy to artificially inflate and manipulate prices, reduce competition and unreasonably restrain trade for more than 100 different generic drugs."
LAWSUIT: Connecticut Attorney General William Tong led a 44-state coalition in announcing a lawsuit against Teva Pharmaceuticals and 19 other generic drug manufacturers alleging a "broad conspiracy to artificially inflate and manipulate prices, reduce competition and unreasonably restrain trade for more than 100 different generic drugs." The lawsuit, filed in U.S. District Court for the District of Connecticut, also names 15 individual senior executive defendants who were responsible for sales, marketing, pricing and operations. "The drugs at issue account for billions of dollars of sales in the United States, and the alleged schemes increased prices affecting the health insurance market, taxpayer-funded healthcare programs like Medicare and Medicaid, and individuals who must pay artificially-inflated prices for their prescriptions drugs," Tong said in a statement. The complaint alleges that Teva, Novartis' (NVS) Sandoz unit, Mylan, Pfizer (PFE) and 16 other generic drug manufacturers, including Amneal Pharmaceuticals (AMRX), Dr. Reddy's (RDY) and Lannett (LCI), "engaged in a broad, coordinated and systematic campaign to conspire with each other to fix prices, allocate markets and rig bids for more than 100 different generic drugs." In an interview broadcast on CBS' "60 Minutes," Tong said that the suit highlights corporate greed on an entirely new scale. "I think that what we have come upon is that the generic drug industry is the largest private sector corporate cartel in history," he contended.
TEVA TO FIGHT LAWSUIT: Teva's chief financial officer reiterated that the company has done nothing wrong in the wake of a price-fixing lawsuit filed by 44 U.S. states, according to a report by Reuters over the weekend. Mike McClellan said the suit was an amended one and not new, while stressing it was civil and not criminal. "We take these accusations seriously and we are going to defend ourselves," he added.
LAWSUIT TO WEIGH ON SHARES: In a research note to investors, Wells Fargo analyst David Maris said he believes the lawsuit by the states against the generic drugmakers will weigh on generic drug stocks this week and remain an "overhang issue for some time." While he acknowledged that actual penalties and damages are impossible to calculate, they could be material. Maris spoke to the Connecticut attorney general's office on Monday and learned they are preparing for trial in these cases. Language the attorney general has used, such as "unprecedented" and his desire to claw back all gains from collusion, should be indicative of the states' intent, Maris wrote. Further, the analyst pointed out that very often charges from states are resolved with the companies not admitting wrongdoing and paying financial settlement, but given the high profile of these cases, he is not sure that small penalties will satisfy the states. Maris believes that for a sector that is generally highly levered, and with some companies named already facing an overhang from opioid litigation like Teva, this is "especially unwelcome news."
PRICE ACTION: In morning trading, shares of Teva have plunged almost 13% to $12.54, while Mylan's stock has dropped over 7% to $20.55. Also lower are Novartis, Pfizer, Amneal, Dr. Reddy's and Lannett.