‘Greed shot’. How Ministry of Health ‘got hooked’ on Copaxone
In December 2016, Israeli Company Teva agreed a settlement worth $520 million with the US government for allegedly indulging in bribing in Russia, Ukraine, and Mexico. It is worth mentioning that its Russian subsidiary OOO (a type of legal entity) Teva confessed to having bribed public official despite the Investigative Committee and Prosecutor General’s Office of the Russian Federation not knowing about it. Below is the CrimeRussia’s investigation into why the US Department of Justice fights Russian corruption, Ministry of Health of the Russian Federation prefers an expensive Israeli medication to cheap Russian alternatives, and what former Russian senator Boris Shpigel has to do with it.
The global pharmaceutical industry is poisoned with corruption. This does not come as a surprise; the World Health Organization and Transparency International have both addressed the issues on multiple occasions. However, one does not simply break with traditions of pharmaceutical lobbyism that came about over the course of the XX century. The industry is corrupt at all levels, from manufacturing and clinical trials to registration process and commercial distribution.
Leading pharmaceutical companies were shown to have indulged in bribing over the last 15 years, including Johnson&Johnson ($70 million), Pfizer ($60.2 million), Eli Lilly ($29.4 million), Roche (€90 million), Novartis (€92 million). These companies were severely fined. However, Israeli company Teva broke the record last year; it paid the biggest fine of them all so far.
In 2012, the US Securities and Exchange Commission began investigating how Teva Pharmaceutical Industries bribed foreign public officials. It is worth mentioning that the USA was not on the list of the countries whose public officials were accused of having taken bribes from Teva. The list featured Russia, Ukraine, and Mexico.
However, the US judicial system has been able to punish foreign companies for corruption since 1977, after the Foreign Corrupt Practices Act was passed. Mind you, the Act is extraterritorial. Yet it can only punish those companies that have offices in the USA or whose securities are listed on US stock exchanges.
Teva started as an Israeli company that eventually grew into a multinational one. It has been this way for the last 30 years. It has an HQ and 4 subsidiaries in the USA. The company was first listed on NASDAQ back in 1975. Recently, Teva has been publicly traded on the New York Stock Exchange.
The SEC ruled Teva Pharmaceutical Industries and its Russian subsidiary Teva are to pay a $236 million compensation to the US government for illegal money making and also fined them for $283 million. Teva will pay the money. Filed by the Commission to State of Florida court, the lawsuit was settled before court action began.
The company aggressively promoted Copaxone in several countries from 2010 to 2012, according to the SEC’s files. Copaxone, a multiple sclerosis drug manufactured and marketed under the name Copaxone®, is its main unique innovative product.
The company’s promotion strategies varied from country to country. In Mexico, Teva paid doctors to prescribe expensive Copaxone without mentioning alternatives. In Ukraine, it ‘hired’ a serving high-ranking Ministry of Healthcare of Ukraine official as a ‘registration consultant’. Teva paid the official monthly salary and covered their travel and other expenses that exceeded $200 000, according to the SEC.
Evidences directly linked to Russia were discovered over the course of the 4 year-long investigation. The Israeli entrepreneurs gained support of a high-ranking Russian official, according to analysis of in-house correspondence of Teva top managers with their Israeli superiors. The official owned a large company profiting from selling foreign medicines. A Copaxone sales contract was signed with that company. The contract gave the company an exclusive right to sell the drug in Russia. The official made sure Copaxone would sell well in Russia in exchange. He used his influential ties with the Ministry of Health in order to provide for that.
A little bit of pharmaceutics
Copaxone (non-proprietary name - Glatiramer acetate) is an immunomodulator drug widely used to treat multiple sclerosis and associated complications all over the world.
The cold chain system is required for every Copaxone manufacturing stage due to the drug being thermolabile
There are more than 3 million people suffering from this central nervous system disease, according to the WHO. There are 150 000 people suffering from multiple sclerosis in Russia, according to doctors. Many of them need drug therapy.
Copaxone is not Teva’s original drug despite the common misconception. Teva mostly manufactures generic drugs. Generic drugs are drugs that are much less expensive thanks to their manufacturers not having had to spend money on R & D and clinical trials of original drugs no longer protected by patents.
Yes, the drug was developed in Israel in 1980. But it was not Teva pharmacists who developed it but Weizmann Institute of Science scientists. This information is published on the company’s official web-site. Teva simply acquired the right for Copaxone from Yeda Company, the commercial division of the world famous Israeli R & D institute. Teva had already become a multinational pharmaceutical giant by that time.
Keep it simple. The Teva HQ in Petah Tikva, Israel. The company made $21.9 billion in 2016
Copaxone’s popularity began growing around the world from this point. There were no drugs as effective as it at the time, according to experts. $3 to $4 million worth of Copaxone is sold annually. 1 dose of Copaxone consists of a syringe with 20 mg/mm of the drug and is quite expensive. Its average price in different countries amounts to $250. However, no one has been able to take the leading position from it despite its high price and large amount of generic analogues of Glatiramer acetate. This was largely ‘thanks’ to Teva’s widely used lobbying strategy of bribing health care officials, as it later turned out.
On prescription of Ministry of Health
There is a backstory to the success of Copaxone in Russia. The Sem Nozology Program was launched in Russia in 2008. It is still active. It helps procure medications needed for treatment of 7 rare and most “expensive” deceases at the expense of the Russian federal budget and sell them to people affected by the 7 deceases or even give it to them for free.
The Program covers 7 groups of people, namely those: suffering from cystic fibrosis; dwarfism; haemophilia; Gaucher's disease; chronic myelogenous leukemia; multiple sclerosis; in need of immunosuppressive drugs after organ transplantation.
43.61 billion rubles are to be spent on Sem Nozology annually over the course of 3 years, according to the Federal Law “On 2017 Federal Budget and 2018 and 2019 Planning Period” passed in December, 2016.
A substantial portion of the money is spent of procurement of Copaxone sold in Russia by Teva that was the monopoly supplier of the drug until 2016. 2 alternatives to Copaxone – Glatirate (international nonproprietary name: Glatiramer acetate) and Aksoglatiran-FS - appeared on the market in April of 2016 alone. The 2 drugs are made in Russia. It is worth mentioning they only made it to the market thanks to Federal Antimonopoly Service and Prosecutor General’s Office of the Russian Federation. The 2 agencies made FBGU (Public Company) Nauchny Tsentr Ekspertizi Sredstv Meditsinskogo Primeneniya work on registration of the 2 Russian drugs faster.
The SEC documents do not specify the name of the Russian official who helped Teva secure a monopoly on supply of the expensive drug of state significance to the Russian market. Teva illegally made more than $200 million while the unnamed lobbyist made $65 million ‘thanks’ to the conspiracy, according to the lawsuit filed in Florida. However, there are plenty of hints at who the lobbyist is in the US documents.
Equation in one unknown
For example, the entrepreneur who founded the company that acquired the exclusive right to prepack and sell Copaxone was a member of the Federal Assembly of the Russian Federation, Deputy Chairman of one the Assembly committees, and, moreover, a key figure in communication with the Knesset from 2003 to March of 2013, according to reports.
The entrepreneur formally left his pharmaceutical business and gave his wife the right to run it. The bribe he took in exchange for promoting the drug in the Ministry of Heath was passed off as discounts. However, those discounts (16.5%) did not look like something one would expect on the market. Given the manufacturer would cooperate with him without living a single chance for Teva, the senator promised to support the drug and influence public procurement process in such a way that the drug would be purchased for the price profitable for the manufacturer, according to the lawsuit.
Let’s now just put 2 and 2 together. 4 senators left the Council on March 27, 2013: Svetlana Zhurova (Kirov Region), Svetlana Orlova (Kemerov Region), Vitaly Malkin (Republic of Buryatia), Boris Shpigel (Penza Region).
The last one, a famous pharmaceutical magnate, social activist, and former singer Nikolay Baskov’s father-in-law and producer, founded the Biotek Company as far back as in 1990. The company signed a master contract with its Israeli partner that granted it an exclusive right to prepack and sell Copaxone in Russia.
At the Council, Shpigel worked as the First Deputy Chairman of the Constitutional Legislation Committee and Head of the Group for Cooperation between the Council with the Knesset. Moreover, he worked as the Head of various organizations of the Congress of the Jewish Religious Organizations and Associations in the Russian Federation for a long time. Shpigel became the president of the Global Congress of Russian-Speaking Jews and Chairman of the Presidium of the Mir Bez Natsizma Human Rights Anti-Fascist Movement in 2007.
Shpigel personally knows famous Israeli politicians, including former Israeli President Shimon Peres and acting Israeli Prime Minister Benjamin Netanyahu. He is also acquainted with Israeli business elite. That is why it seemed only logical to try and become a partner of Teva, a company that means to Israelis as much as Apple does to Americans.
It was Boris Shpigel who encouraged twofold increase of the public procurement of Copaxone (from 88 000 to 156 000 packs a year), according to the Kompaniya Magazine. He also contributed to listing everyone suffering from multiple sclerosis in Russia. He worked at the Council and was involved with public activities at the time. Shpigel theatrically refrained from all business activities. It was Evgeniya Shpigel who ran Biotek, he claimed.
Standard that is not good enough
Everything about his business was perfect for several years. Teva treated Russian people at the expense of the federal budget. It used expensive but effective Copaxone. Its and Biotek’s profit grew alongside budgetary expenses on Sem Nozology. However, several events took place in 2013. They were not related at the 1st glace. However, they changed everything.
Shpigel’s Israeli partners did not ship a scheduled batch right before a Ministry of Health auction around the same time he was dismissed from the Council. The partners did not explain the reason to Biotek. They simply stopped communicating with the company. Biotek was eventually forced to withdraw from the auction. At the same time, Teva Pharmaceutical Industries decided to participate in the auction through its subsidiary OOO Teva. A 2.5 billion ruble public procurement contract was signed with Teva, since no one else participated in the auction. The Israelis unilaterally terminated the master contract with their Russian partner without providing any explanation, as later turned out.
Biotec filed a complaint to the Federal Antimonopoly Service and multiple lawsuits to commercial court. Teva paid it 1.2 billion rubles to compensate lost profit as the result. However, nothing changed since then: Teva prefers paying its former partner compensations and continue selling in Russia without intermediaries.
There is only 1 theory as to why Teva suddenly cut ties with its Russian Partner, namely new CEO Jeremy Levin taking the office. He initiated a drastic restructuring of the company’s workflow. He distanced it from blatantly corrupt products promotion practices and favored European business practices. The decision to cut ties with Shpigel’s company whose owner had just gotten back into business after leaving the Council was due to results of a compliance audit, according to some accounts. The audit revealed that the agreement terms and the company’s partner obligations to comply with them disagreed.
Jeremy Levin wanted to start a revolution at Teva and lay off 5 000 employees. However, he himself had to resign in 2 years
Teva’s official reaction to the 2016 ruling of the Department also confirms this theory. The company claimed their top managers involved with Copaxone promotion no longer worked for them, while their new business practices are based on “compliance with laws and fair competition”.
However, there is another theory out there. Teva cut ties with Biotek in 2013 due to the Department’s anti-corruption investigation, according to the CrimeRussia's sources. The investigation had been going on for more than a year at that point.
The investigation began in Mexico. However, local FBI agents already informed the US law enforcement about the role the Russian corrupt official played in Copaxone promotion. This means Teva could not maintain corrupt business relationships with Russia anymore, since it had made a plea bargain due to a fear of losing the US market.
Shpigel’s defense strategy
Russia and Israel also began investigations into illegal activities of the Israeli pharmacists once the Department ruled on the case opened against Teva for bribing foreign official.
The Anti-Corruption Department of the Israeli police began an investigation against Teva for bribing foreign official. It is worth mentioning that the company will have to pay fines that are much larger than those it paid in the USA, according to the CrimeRussia’s source. The investigation is kept secret. However, it is known that Israeli investigators have already begun inspecting documents on Teva’s foreign commercial activities. They are doing just fine by themselves so far, too. The MIA of the Russian Federation has not yet received a single request regarding the case from them.
The Russian investigation also started as the result of a chain reaction. Ministry of Health of Health Head Veronika Skvortsova officially requested the Prosecutor General’s Office investigated the case. The Office ordered the Investigative Committee to start such an investigation.
Employees of the Committee have already begun inspecting the Ministry of Health’s documents on contracts with Teva signed between 2006 and 2011, according to Head of the Department for Drugs Provision of the Ministry of Health Elena Maksimkina’s February announcement.
The Head of the Department for Drugs Provision of the Ministry of Health Elena Maksimkina
However, Maksimkina may herself end up being put under the microscope. It is known that she actively opposed creating of generic version of Copaxone in Russia. She argued that “there is no point in trying to substitute the proven effective drug” despite it being much more expensive than Russian alternatives.
Boris Shpigel has now taken another side. The former senator and acting Biotek Head is now promoting a Russian generic drug called Aksoglatiran, a potential rival to Teva’s Copaxone. Copaxone’s patent protection in Russia expired in 2015. This opened drug manufacturers the opportunity to use its chemical formula to create alternatives for free.
Shpigel understands the danger he is in and that he may have to answer for what he did in the past, according to the CrimeRussia’s source’s opinion. However, he is absolutely calm. Shpigel is not afraid to speak about US lawyers’ indirect accusation of bribe taking in his numerous interviews and comments.
Boris Shpigel understands the Committee and Office may very well ask him about suspicious Teva’s discounts for Copaxone in the future, according to the source. It may lead to investigators recalling a 2005-2008 corruption scandal involving bribes for supply of insulin by the Eli Lilly Company. Shpigel was involved back then, too. That is why he is now creating a sound ‘defense strategy’ trying to surround himself with positive media kerfuffle.
Several Internet media outlets and blogs published several articles on Teva / Gate written by quite prominent journalists over the course of several days in February of 2017. However, they are all written using the same language and have the same structure. All the publications have indirect hints at “US footprints”, the case being framed up, and the Israeli partner’s dirty tricks, while Shpigel is passed off as a flawless entrepreneur.
Chaim Hurvitz is Eli Hurvitz’s son. Eli Hurvitz is former Head of the Teva Board of Directors and Company CEO. He held the office for 25 years. Chaim Hurvitz holds 1% of Teva’s shares
In the meantime, the Israeli police opened a criminal case against Chaim Hurvitz, a former Teva International Department Head who ran it back then. It was he who corresponded with Shpigel, according to the Department. That is why only time and investigation will show what really happed.
It is a question of theft from the budget in 2012 in the amount of 22 million rubles ($365.770) in the framework of the state contract for the construction of water supply and sewage in Rostov Veliky.