Pill with coins coming out Thestates say the pharmaceutical companies conspired with one anotherto fix prices and carve up markets for medicines among themselves,rather than compete on price. (Photo: Shutterstock)

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Teva Pharmaceutical Industries Ltd. helped mastermind a sweeping conspiracy among generic-drug makersto raise the price of medicines, according to a new antitrustlawsuit filed by states that stems from a five-year investigationof the companies.

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More than a dozen current and former executives at topgeneric-drug makers, including Mylan NV and a unit of Pfizer Inc.,were targeted in the lawsuit made public Friday. The suit was filedby more than 40 states and led by Connecticut Attorney GeneralWilliam Tong.

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Related: Drugmaker 'shenanigans' blamed for lag in genericdrug development

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“We have hard evidence that shows the generic-drug industryperpetrated a multi-billion dollar fraud on the American people,”Tong said in a statement Friday. “We all wonder why our healthcare, and specifically the prices for generic prescription drugs,are so expensive in this country — this is a big reason why.”

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The lawsuit accuses the drugmakers of inflating prices of morethan 100 different drugs, significantly broadening a 2016complaint. In addition to the states, the Justice Department'santitrust division is conducting a criminal investigation. Theunit's chief said April 30 that charges would be filed, withoutspecifying timing.

Dinners, parties and golf

The states say the pharmaceutical companies conspired with oneanother to fix prices and carve up markets for medicines amongthemselves, rather than compete on price. Executives used industrydinners, cocktail parties and golf outings to perpetuate thescheme, in addition to communicating through text messages andtelephone calls, the complaint said. Novartis AG's Sandoz, Teva'sActavis unit, and Taro Pharmaceutical Industries Ltd. are alsonamed in the complaint.

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The executives named in the complaint are upper-level sales andmarketing managers including Maureen Cavanaugh, a former seniorvice president for Teva, who is now at Lannett Co., according tothe company's website. James Nesta, Mylan's vice president ofsales, and David Rekenthaler, a former vice president of sales atTeva who is now at Apotex Inc., according to his LinkedIn profile,are also named as defendants.

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Mylan President Rajiv Malik was named in a separate complaintfiled by state attorneys general in 2017. That complaint is stillpending.

Company responses

“The allegations in this new complaint and in the litigationmore generally, are just that — allegations,” Kelley Dougherty, aTeva vice president, said in a statement.

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Pfizer said in a statement it has cooperated with theConnecticut attorney general since being contacted more than a yearago and “we do not believe the company or our colleaguesparticipated in unlawful conduct and deny any wrongdoing.”Greenstone, the company's generics unit, “has been a reliable andtrusted supplier of affordable generic medicines for decades andintends to vigorously defend against these claims,” Pfizersaid.

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Representatives for the other companies didn't respond torequests for comment after regular business hours on Fridayevening. Cavanaugh, Nesta and Rekenthaler didn't immediatelyrespond to messages sent through LinkedIn.

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The complaint puts Teva at the center of the conspiracy, sayingit colluded with a core group of competitors to follow each other'sprice increases. During a 19-month period from 2013 to 2015, Tevasignificantly raised prices on about 112 generic drugs and colludedwith its competitors on at least 86 medicines, the states said.While the size of the increases varied, some were more than1,000%.

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“Teva is a consistent participant in the conspiracies identifiedin this complaint, but the conduct is pervasive and industry-wide,”according to the complaint, which was filed in federal court inConnecticut. “Through its senior-most executives and accountmanagers, Teva participated in a wide-ranging series of restraintswith more than a dozen generic drug manufacturers, all of whomknowingly and willingly participated.”

Shares sink

The states are seeking unspecified damages and penalties fromthe companies. Potential fines could exceed $2 billion, given thatgeneric drug firms were churning out higher profits during the timein question, said Steven Tepper, an analyst at Israel Brokerage& Investments. That strikes a blow to a company alreadystruggling to pay back $29 billion of debt — a sum almost twice itsmarket value.

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Teva shares sank almost 11 percent Sunday to 46.66shekels.

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“To take this in proportion, that's about a year's worth of freecash flow that will have to be thrown out instead of used to reducethe debt,” Tepper said. “The companies will most likely drag thislawsuit out for a number of years and Teva could be in much bettershape then than it is in today. But a major fine is still not anice situation.”

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