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| Teva CEO Erez Vigodman |
Teva ($TEVA) has been investigating for some time whether its business practices abroad have breached the Foreign Corrupt Practices Act (FCPA) and/or local laws. And now, it says it's "likely" they have.
The Israeli drugmaker has identified "certain business practices and transactions" in Russia and a range of other countries--including some in Eastern Europe and Latin America--that probably "constitute violations" of one or both, the company said in its 20-F. And to top it off, its affiliates in certain countries under investigation have provided local authorities with "inaccurate or altered information relating to marketing or promotional practices."
The company says it's been active in reporting the issues to U.S. authorities, bringing them to the attention of the SEC and DOJ. Its probe is also still going on--at least until the end of this year, but maybe beyond that--and it may unearth issues or facts that could "expand the scope or severity" of the potential violations, Teva says.
It's not the kind of news investors want to hear--particularly since Teva can't predict the impact of the potential missteps and can't assure them that "we will not be materially and adversely affected," it said in the filing. Teva could find itself subject to injunctions or limitations on its future conduct in the affected countries, and it could also suffer criminal or civil penalties. Perhaps least reassuring of all, "there can be no assurance that the remedial measures we have taken and will take in the future will be effective," Teva said. And in any of those scenarios, its reputation or its business could take a hit.
That's something some of Teva's pharma peers know all too well. When Teva first admitted back in November 2013 that its investigation had turned up suspect practices in those regions, the industry was still reeling from GlaxoSmithKline's ($GSK) $489 million bribery scandal in China--and the country's corruption crackdown that came along with it. As more and more companies came under the microscope, spooked doctors and reps cut down on face time, putting a chill on many drugmakers' China sales.
The FCPA has been doing a crackdown of its own, coinciding with the industry's push into fast-growing emerging markets. Pfizer ($PFE) and Johnson & Johnson ($JNJ) have already shelled out to settle probes, for $60 million and $70 million, respectively. And a few years ago, Novo Nordisk ($NVO) paid $9 million to wrap up its FCPA allegations.
Teva will have to hope similar emerging markets troubles are not in its future. CEO Erez Vigodman has said that's one of the areas he'd like to strengthen as the company looks to return to its generics roots. He's even targeting it for potential deals, he says, though none of those have turned up yet despite the M&A wave that's been sweeping across pharma for the last year-plus.
- here's Teva's 20-F
Special Report: Top 10 generics makers by 2012 revenue - Teva | Top 10 Drugmakers in Emerging Markets