Teva Claims Pharma Fraud in $2.3B Lawsuit

     (CN) – Teva Pharmaceutical has filed a $2.3 billion lawsuit against corrupt Mexican drug manufacturers it says “blatantly” lied about their products, slipping more than 40 medications past national regulators that now cannot be sold on the market.
     Teva is a multinational company founded in Jerusalem in 1901. Headquartered today in Petah Tikva, Israel, Teva is the largest generic drug company in the world and among the top 15 pharmaceutical companies globally.
     Teva sued Fernando and Abdala Leopoldo De Jesus Espinosa and their holding company PPTM International after acquiring the brothers’ company, Representaciones E Investigaciones Medicas (Rimsa) in 2015 for $2.3 billion.
     Rimsa, founded in Mexico City in 1970, began as a distributor before ultimately becoming one of the largest independent pharmaceutical manufacturers in Mexico.
     In a 52-page lawsuit filed in New York County Supreme Court on Tuesday, Teva says the Espinosa brothers were involved in a multi-year scheme to sell “defective and unlawful products” through Rimsa, and to conceal those violations from Mexican regulators.
     Pharmaceutical companies in Mexico must comply with approved drug formulations and are subject to periodic audits to ensure compliance, but Teva says it discovered after its purchase of Rimsa that the Espinosa brothers ran a scheme to avoid those legal requirements.
     “Instead of registering the actual formulations for finished products, Rimsa made up false ‘paper’ formulations for products not yet developed or tested,” Teva says in the lawsuit.
     According to Teva, the brothers submitted false formulations to Mexico’s equivalent of the Food and Drug Administration, allowing Rimsa to avoid the “burdens and delays” that come with the development and testing of new medications that ultimately must be submitted for registration.
     Teva claims Rimsa ran a simple scheme of “double paperwork,” keeping one set of records with the real formulations for internal use and another set with the fake formulations that were shown to regulators. The company did the same thing with electronic records through “parallel computing systems.”
     “Rimsa would then fraudulently launch its actual products under the guise of those made-up formulations — even though the actual products were often completely different,” Teva says in its complaint.
     Teva says the brothers even had a name for their scheme, calling it the company’s “Fast Track” program.
     Rimsa’s quality director warned company officials in August 2010 that the fraud potentially could be discovered and that she feared the outcome of an investigation.
     “I am really very worried, and I do not want to suffer the legal consequences of what we are doing outside the law,” the quality director said in an email sent to Rimsa senior officers. “You know I have two children that depend solely on me.”
     The corruption did not end with fake formulas, according to Teva, which says Rimsa provided Mexican authorities with false information about suppliers, active pharmaceutical ingredients and various lab tests, including stability tests for shelf life.
     “In many instances, Rimsa concealed test results showing that products would not remain stable,” the complaint states. “Rimsa used the same double paperwork and parallel computing systems to conceal all of those frauds, as well.”
     The unnamed quality director supplied upper management with lists of products that didn’t match registered formulas, and showed the unauthorized suppliers and failed lab tests. She even supplied a pie chart “depicting the massive percentage” of Rimsa drugs that did not comply with federal law, according to Teva’s lawsuit.
     Teva claims Rimsa “blatantly” lied about its operations during the acquisition process, providing them with dossiers containing false information.
     As a result of the fraud, Mexican authorities have prohibited Teva from selling 44 of the products acquired from Rimsa and have shut down its manufacturing facility entirely, and the company says it doesn’t know when or if the products will ever return to the market.
     “The business that Teva acquired was so infected by the Espinosas’ corrupt practices that it puts Teva’s reputation and stature as a manufacturer of high-quality pharmaceuticals at risk,” the complaint states. “Patient safety and compliance with the laws governing the commercialization of medicines are indispensable in this industry and essential to Teva’s corporate values.”
     Attorneys representing Teva did not immediately return a phone call seeking comment on Tuesday morning.
     The Espinosa brothers could not be reached.
     In a statement, Teva said it has “never before seen anything like this in our industry, nor have we been confronted with such a massive manipulation” despite its presence in 80 nations and having been a part of numerous mergers and acquisitions. The company said it is already taking corrective measures and working with Mexican authorities so it can properly enter the market there.
     Teva is suing for fraud, breach of contract and indemnification. The company wants the court to declare that although the deal’s share purchase agreement limits indemnification to funds held in escrow, an exception for losses resulting from instances of fraud does exist and entitles Teva to recovery.
     The company seeks $2.3 billion in compensatory damages, as well as punitive damages, rescission and/or rescissory damages and costs, expenses and attorneys’ fees.
     It is represented by Steven Molo, Robert Kry, Jessica Ortiz and Lauren Weinstein of Molo Lamken in New York.

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