Shares of Teva Pharmaceutical (NYSE:TEVA) fell over 15% today, after the United States government revealed a lawsuit against the drugmaker, accusing it of defrauding Medicare using kickbacks to increase sales of Copaxone.
According to Reuters, the lawsuit alleges the drugmaker illegally made $300 million in donations to two charitable foundations from 2006 to 2015 to cover the rising cost of the multiple sclerosis drug. The kickbacks reduced the expense of co-payments, which are supposed to provide a downward pressure on drug prices. The U.S. government argues the practice resulted in taxpayers footing the bill for rising drug prices.
As of 3:02 p.m. EDT, the pharma stock had settled to a 10.9% loss.
How many red flags can investors overlook? This is just the latest lawsuit brought against Teva, which has also recently faced legal risks related to its involvement in the American opioid crisis and an industrywide price-fixing scandal related to generic drugs.
In March, the company stopped negotiating with the U.S. government related to the price-fixing scheme. Teva essentially bet it wouldn't face criminal consequences during the coronavirus pandemic, when access to generic drugs is critical. The U.S. government moved to proceed with its case in July -- and decided to make Teva Pharmaceutical the focus of the first trial.
Investors might be tempted to look at the low stock price of Teva Pharmaceutical and conclude it's a value stock in an otherwise overvalued market. But investors should also ask themselves if they want to own a company with what appears to be a morally bankrupt culture.