Inherited pay-for-delay penalties are getting expensive for 'cash-strapped' Teva

Teva last week agreed to a $225 million settlement with a group that bought Bayer's Cipro.

Teva is eager to start moving in the right direction after a particularly rocky 2016. Problem is, it’s still paying for pay-for-delay decisions made by its products’ previous owners.

Both Paul Bisaro, former chief of Actavis, and Bruce Downey, who once ran Barr, “held the legal line that settlements are legal as long as they are done within the scope of the patent,” Bernstein analyst Ronny Gal wrote in a Monday note to clients.

And now, with that position slapped aside by a 2013 Supreme Court ruling, their “legacy is getting expensive” for Teva, which now owns both drugmakers.

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For one, the generics giant last week agreed to a $225 million settlement with a group that picked up Bayer antibiotic Cipro. In the case, brought eight years before Teva acquired Barr, the plaintiffs argued that alleged pay-for-delay deals from the 1990s between the German drugmaker and Barr led to higher prices and violated antitrust law.

Also last week, the FTC refiled charges against Watson and former parent Actavis, claiming they illegally blocked a lower-cost generic version of Endo’s Lidoderm after entering into a pay-for-delay pact with Endo. And “we predict Teva would end up paying another nine-digit sum” to settle that case as well, Gal wrote.

All things considered, “the cumulative sum of fines is getting noticeable”—especially for “cash-strapped” Teva, he said. The Israeli company earlier this month walked down its previously outlined 2017 guidance by more than $1 billion after new 2016 launches didn’t hit their marks. And some analysts think Teva’s new revenue forecast—a range of $23.8 billion to $24.5 billion--may still be too high.

That blunder, along with criticism of Teva’s $40.5 billion Allergan generics buy and a deal gone awry for Mexican generics maker Rimsa, have prompted shareholders to start making noise about the company’s leadership.

"I don't understand (CEO Erez) Vigodman's strategy, but it's clear to me that they need one of two things: either a CEO with pharma experience or an experienced board of directors to guide him,” activist Benny Landa recently told Israeli newspaper Globes.

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