Governor Andrew M. Cuomo recently announced that The New York State Department of Financial Services has filed administrative charges against Teva Pharmaceuticals TEVA and Allergan, a subsidiary of AbbVie ABBV, charging them with insurance fraud in connection with the opioid crisis.
The DFS charges claim that these companies used fraudulent marketing and promotional campaigns to promote their opioid products and legitimize their safety/efficacy to treat pain, which aggravated the country’s opioid crisis. These promotional materials downplayed the risks of addiction of opioid-based drugs. Backed by these promotions, the consumers assumed that these opioid products were medically legitimate, which led to an increase in demand for the drugs. This resulted in a significant rise in insurance costs for New York consumers.
According to DFS’ charges, Teva and Allergan violated section 403 of the New York Insurance Law and 408 of the Financial Services Law. While section 403 prohibits fraudulent insurance acts, section 408 prohibits intentional fraud related to a financial product or service. A hearing on the case will be held on Oct 26, 2020 at the office of the New York State Department of Financial Service. Both the laws carry with them penalties of up to $5,000 per violation.
Opioid manufacturers and distributors like Teva, Allergan, Mallinckrodt MNK, Johnson & Johnson JNJ and Amneal Pharmaceuticals have been blamed regularly for aggravating the country’s opioid epidemic by making and selling addictive prescription painkillers.
Opioid drugs like morphine, codeine, oxycodone and fentanyl, which these companies market and are used as painkillers, have high abuse potential. Use of these opioid-based drugs are highly controlled by the FDA.
Going by the Centers for Disease Control and Prevention estimate, in the past two decades, the death toll rose to 450,000 due to opioid-based drug abuse.
With significant increase in the number of deaths or instances of such substance abuse and high costs related to opioid overdose, the issue has intensified into a public menace. Several government organizations are taking steps to contain the widespread abuse of drugs. Lawsuits have been slapped against pharma companies like Teva across multiple states, holding them responsible for the opioid epidemic crisis and deaths due to opioid overdose.
Many states aim to generate funds through penalties for abatement plans. A few of these companies have been penalized with hefty fines by district courts in some states. Meanwhile, others preferred out-of-court settlements by shelling out lump sum amounts to avoid trials.
Shares of Teva were down almost 10% in response to the news. Meanwhile the U.S. Justice Department filed a complaint against Teva. The complaint stated that Teva used independent charitable foundations to illegally pay millions of dollars in kickbacks to cover Medicare co-payment obligations for its multiple sclerosis drug, Copaxone. The illicit payments were made to cover up for price increases of the drug and boost profits, which is in violation of the Anti-Kickback Statute. The alleged kickback arrangement also pulled the stock down on Tuesday.
Both Teva and AbbVie carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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