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Drug makers are constantly foraging for deals to bulk up their pipelines, but not all go according to plan.

Consider the nasty spat between Teva Pharmaceuticals and two Mexican brothers, Fernando and Leopoldo Espinosa. Over the past two weeks, they have filed dueling lawsuits after their $2.3 billion deal went sour and now both sides are blaming the other for the debris.

At issue was a move made last year by Teva, which is one of the world’s largest generic drug makers, to expand in Mexico by purchasing Rimsa, one of the country’s largest independent pharmaceutical manufacturers, from the Espinosa brothers. At the time, Teva hailed its acquisition, which closed last March, as a “significant platform for growth” in the second-largest market in Latin America.


Now, Teva claims the brothers engaged in chicanery, ploys, and misrepresentations about their business in order to walk away with huge profits, according to its lawsuit, which was filed on Tuesday. Rimsa was “was engaged in a years-long scheme to sell defective and unlawful products and to conceal those violations from Mexican regulators.”

For their part, the Espinosas denied the “baseless allegations.” As far as they are concerned, Teva is suffering from a classic case of “buyer’s remorse” after failing to properly conduct due diligence, and as a result, “desperately” wants them to return a “significant portion of the purchase price,” according to their Sept. 13 lawsuit.


The problems, according to Teva, surfaced shortly after the deal closed six months ago. An anonymous email was sent to the transition team integrating the two companies that discussed alleged corruption, double paperwork, incomplete stability tests, and various irregularities in a plant in Guadalajara. This immediately triggered an investigation by Teva executives.

They claim to have subsequently uncovered “rampant corruption.” Notably, Teva charges that Rimsa “employed an elaborate, long-running scheme to avoid legal requirements” for submitting product formulations to regulators. “Instead of registering the actual formulations for finished products, Rimsa made up false formulations for products not yet developed or tested.”

In doing so, Teva charged that Rimsa avoided the costs of developing and testing products before submitting the paperwork to regulators. “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 charged in its lawsuit.

The Teva lawsuit goes on to claim that Rimsa submitted fraudulent information to regulators about ingredients suppliers and lied about laboratory tests, including the stability tests that must ensure the stated shelf life of each product was accurate and that the product would remain stable, and, therefore, safe and effective, according to the lawsuit.

There is more interesting reading in the 52-page lawsuit, which contains more specific details about the many allegations.

The Espinosas, meanwhile, contend that the Teva board and management team is embarrassed and trying to compensate for poor judgment. “The fact is that Teva completely misunderstood what it was purchasing and wants to undo the transaction by any desperate measure, including making false accusations of fraud. It did not understand the Rimsa Companies or the Mexican market,” the lawsuit says.

“It has terminated virtually the entire management team. It unilaterally ceased manufacturing most of the Rimsa products. It has destroyed the Rimsa Companies and now wants its money back because, otherwise, Teva knows its management will be held accountable by its shareholders and other constituents for their negligence and incompetence,” the lawsuit states.

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