Dinners, ‘Girls’ Evenings’, Meetings on the golf courts: The lawsuit that tells Us about Teva

Girls’ parties, exclusive dinners, meetings on the golf courts, exchange phone calls and thousands of emails used by the largest generic drug makers to divide market shares and to coordinate prices,

according to the lawsuit filed last Friday in the Connecticut court.

Forty-four states in the United States filed the suit against 18 generic pharmaceutical manufacturers. Israeli company, Teva, at the center of what became “the enemies of the people.”

According to the allegations, Teva significantly raised the price of 112 generic drugs and coordinated with more than a dozen companies, the cost of at least 86 medications with its competitors. In some cases, prices increased by more than 1,000%.

Leading generic manufacturers, including Mylan and Pfizer,
Dr. Rady’s, Sandoz, Taro Israel, and Actavis, which was acquired by Teva in 2016.

After a five-year investigation, a quote from “The Wealth of Nations” (1776), by the well-known Scottish economist Adam Smith, opens the lengthy detailed lawsuit:
“People from the same professional branch rarely meet, even for entertainment, but the conversation always ends with a conspiracy against the public, or in certain cases with raising prices.”

The lawsuit immediately goes to illustrate the truth of Smith’s insight. Under the title “The warm and pleasant nature of the industry,” the suit notes that the structure of the generic industry facilitates direct communication and interaction between competing manufacturers.

For example, many of the leading generic companies are present at industry conferences over the years, such as that of the Pharmacy Chain Association or the Association of Generic Companies. The salespeople of these companies meet with each other and discuss the businesses and customers of each of them.
These conferences and meetings include social and entertainment events such as golf games, cocktail parties, and dinners. The defendants used these meetings to discuss and share sensitive competitive information about upcoming tenders and pricing policies.

The salespeople who were supposed to be bitter competitors were not satisfied with industry conferences and organized more intimate encounters by exploiting the physical proximity of the staffs of the companies in which they employed (the lawsuit claims that 41 generic companies located between New York and Philadelphia).

Teva at the center of a conspiracy to raise drugs prices: “Deception against the American people”

In January 2014, when the prices of some generic drugs rose sharply, 13 senior executives at generic companies including CEOs mate at a steakhouse in Bridgewater, New Jersey.

The practice among the companies was that at every dinner of the generic companies, one company was responsible for paying the bill.

In one of the meetings, one of the executives recorded as complaining: “It’s amazing how many people like whiskey when they do not pay for it.” Another variety of encounters were “girls’ evenings” in which they met regularly and shared sensitive business information.

The senior executives developed a jargon to hide their criminal acts, quite ostensibly, like gangs. When a generic drug maker participated in the plot, and the prices remained high, she was said to be “playing well in the sandbox.”

The following case described in the statement of claim illustrates this. One of the Pharm chains turned to Teva in the name of Greenstone, the generic arm of Pfizer. A representative of the pharm chain hinted at the nature of Greenstone’s intention to start marketing the drug Cabergoline and that it was interested in acquiring several customers.
The representative of the Pharm chain specifically asked for a coin to give up a big customer for Greenstone and said that “Greenstone promised to play nicely in the sandbox.” A representative of Teva responded after an internal discussion was held: “Tell Greenstone that we are playing well in the sandbox and we will give them the requested customer.”

The balance of terror among competitors

Another term used by the members of the cartel was “fair share.” It means that a member of the cartel will not submit a competing and lower bid after one of the manufacturers has raised the price of the drug – as long as each of the cartel participants has allocated a fair share of the profit pie.

The allocation of a “fair share” to each member of the cartel based on the number of companies producing a particular drug, and the timing at which each of them started marketing the drug. The manufacturers agreed to avoid competing for the price and at certain times to raise the cost of the drug.

The mechanism of allocating a fair share to each of the competitors was particularly effective when a new manufacturer entered the market.

In a competitive generic drug market, the entry was supposed to lower the price of the drug – but in the distorted market created by the cartel, the veteran manufacturers turned to the new manufacturer and agreed to give up the customer or customers.

They promised not to submit a competing offer to the same customer. Sometimes, they will give the customer a fictitious offer at a deliberately high price so that the new manufacturer who enters the market will win the customer he wants.

The lawsuit describes the balance of terror that prevailed among the competitors.

For example, Taro refused in August 2015 to submit a competing bid for the marketing of Etodolac for the treatment of pain and inflammation of an extensive pharmacy network, which rival company Zydus was its leading supplier.

The reason for the refusal was the fear that Zydus would interact and compete in marketing a relevant Taro product, Warfarin, designed to prevent blood clotting.

The lawsuit details how Taro agreed with Teva and Zydus in 2014 to coordinate the price of Warfarin and to divide the customers among them. They concerned that a competitive bid for Etodolac’s marketing would upset the delicate balance achieved in the critical Warfarin market.

The lawsuit states that in 2013, Teva’s sales and pricing officers conducted phone calls or SMS messages with every major competitor in the industry. According to the table attached to the claim, Teva representatives held no less than 1,389 phone calls or text messages with seven prominent generic companies, the most prominent being the Indian company Zydus, which received no fewer than 531 calls.

According to the lawsuit, one of the active figures in the price coordination mechanism was Nisha Patel, who was hired by Teva in 2013 as vice president of sales and marketing for strategic customers.

Patel did not waste time, and shortly after her appointment, she turned to a senior executive at Sandoz, the generic arm of Swiss pharmaceutical giant Novartis. In the meantime, the same senior official has become one of the country’s most prominent witnesses.