Teva Pharmaceutical Industries Ltd. defrauded Medicare and other government health programs by channeling $300 million through two charitable foundations to boost sales of the company’s best-selling multiple-sclerosis drug Copaxone, the U.S. said in a lawsuit.
The Israel-based drugmaker used the foundations to cover co-payments for patients, insulating them from big price increases to prop up excessive drug costs, the U.S. Justice Department said in a lawsuit filed Tuesday in federal court in Boston. From 2007 to 2015, Teva raised the price of Copaxone from about $17,000 a year to more than $73,000, according to the government.
“Teva intended the payments to ensure that Copaxone patients never faced the steep prices that Teva charged for its drug, thus inducing the patients, including Medicare patients, to purchase the drug,” the government said in its complaint, which is seeking triple damages, restitution and fines.
The Justice Department is targeting drugmakers that use charities to cover co-payments for their products, claiming that the structure of the programs amount to illegal kickbacks for patients in government-sponsored health plans such as Medicare. The U.S. said Teva conspired with two foundations and a specialty pharmacy company, none of which are named as defendants.
Patient-assistance charities grew exponentially after Congress expanded Medicare in 2003 to cover prescription drugs. Drugmakers can donate to funds helping patients with private insurance, but not those in government-funded drug plans, because the U.S. says the donations could steer patients toward higher-priced medications.
Teva’s U.S.-traded shares dropped as much as 15%, heading for the biggest decline since March. The company’s euro-denominated bonds also fell.
The market reaction “seems harsh, almost incorporating a worse possible scenario,” Raymond James analyst Elliot Wilbur said in a note to clients Tuesday. The slump wiped out $1.6 billion of Teva’s market value, which is more than the almost $1 billion the government could recover, said Wilbur, who has an “outperform” rating on the shares.
Teva will defend itself against the government’s allegations, spokeswoman Kelley Dougherty said in an email.
The lawsuit “only seeks to further restrict patients’ access to important medicines and health care,” Dougherty said. Teva’s program “was designed to support patients who needed important treatment options by appropriately providing charitable contributions to independent charitable foundations that helped patients obtain access to medicines, as prescribed by their physician,” she said.
Teva Chief Executive Officer Kare Schultz has grappled with $25 billion in debt the company took on when it acquired Allergan Plc’s generic-drug business in 2015. In addition, Teva is struggling with declining sales and profitability as Copaxone faces its first generic competition.
In January, Teva agreed to pay $54 million to settle whistle-blower claims it bribed doctors to prescribe Copaxone and Azilect, a drug used to treat Parkinson’s Disease, by paying them thousands of dollars in sham speaker fees for dinners attended only by company officials. Teva declined to comment on the settlement at the time.
Over the past year, the Justice Department has sued other drugmakers over donations it claims are a cover for illegal kickbacks.
In June, prosecutors accused Regeneron Pharmaceuticals Inc. of illegally funneling tens of millions of dollars through a charitable foundation to boost sales of its Eylea macular degeneration drug. The donations — made through the Chronic Disease Fund — covered the co-payments for Medicare patients using Eylea, which typically costs more than $10,000 a year.
Last year, two charities agreed to pay a total of $6 million to resolve a DOJ probe into claims they operated as fronts for drugmakers seeking to ramp up sales by paying copays through the entities. The charities were Good Days and Patient Access Network Foundation. Good Days was among the foundations that Mallinckrodt Plc unit Questcor is accused of using to subsidize patient copays for its H.P. Acthar Gel, which treats multiple sclerosis and arthritis.
The case is U.S. v. Teva Pharmaceuticals USA, 20-cv-11548, U.S. District Court, District of Massachusetts (Boston).