Investors guided by Highfields Capital told a Connecticut federal court that Teva Pharmaceuticals can't escape their claims that its alleged collusion with other drugmakers to artificially inflate the price of generic drugs also inflated stock prices, reasoning that Teva executives falsely attributed the company's performance to factors other than the alleged price-fixing.

Three separate Highfields funds said prudent investors are skeptical of profits driven by generic-drug price hikes since, in a competitive market, the hikes would decrease demand and drive buyers to cheaper alternatives. So when Teva executives told the public that their profits were due to the company's "secret sauce" rather than collusion with other drugmakers to keep prices high, they falsely kept stock prices higher than they were when the scheme was gradually revealed, the investors said in their Friday brief.

"Investors are wary of profit growth resulting from price increases because such increases are believed to be unsustainable over the long term," the investors said in opposing Teva's motion for summary judgment. "Although defendants knew that price increases were an important driver of profit growth in Teva's generics business, they affirmatively misled investors to believe they were not. Specifically, Teva executives publicly attributed the profitability of the generics business to factors other than pricing."

The investors argued that there were enough issues of disputed fact for their claims against Teva to go to a jury.

According to the brief, Teva had colluded with other drugmakers since 2012 to "buck the trend" of generic-drug prices eroding as competitors entered the market, which the investors said was gradually brought to light through investigations by state attorneys general, federal authorities and media reports.

The business paid $650 million for a deferred prosecution agreement to resolve criminal charges, and $420 million to settle a separate class action, the brief noted. As investors caught news of the settlements, shares fell.

"Between August 4, 2016 and May 13, 2019 ... Teva stock lost more than 75% of its value" as a result of "corrective actions" like news about government investigations, disclosures of poor financial performance, and the termination of Teva executives, the brief said.

Teva argued that its executives' statements weren't provably false or material to investment decisions, but the investors contested that.

"Defendants' statements attributing profit increases or decreases in Teva's generics business solely to factors other than pricing were either untrue outright or actionable half-truths," their brief said. "When defendants reported the profit figures publicly, they omitted (or flat-out denied) that pricing had any impact on profitability at all."

And because the alleged deception over price increases concealed the real reasons for Teva's financial performance, it was material to investors, the investors argued.

"Because Teva did not disclose the extent to which price increases offset price erosion on its base business — such that it was impossible for investors to calculate based on publicly available information — defendants' representations that Teva's profit was growing as a result of factors other than pricing was a material omission," they said.

Teva had also argued that the investors had to prove collusion on a drug-by-drug basis, similar to the plaintiffs in a suit against Mylan.

But the investors countered that the Mylan case was different because the plaintiffs there had based their claims on antitrust violations.

"Plaintiffs proceed under a much broader theory ... that defendants defrauded them about the nature of Teva's generic profit growth, representing to investors that it was the result of Teva's competitive advantages and business acumen rather than the price-hike strategy, which involved collusion and was vulnerable to government enforcement and unsustainability even if it was not technically illegal," the brief said.

The investors also argued it was fundamentally a fact-intensive question requiring a jury to determine whether Teva executives knew they were misleading investors, and whether investors relied on the executives' statements when making their investment decisions.

In particular, Teva had argued the Highfields investors were more sophisticated than most, and even had a "contrarian" strategy of investing in undervalued securities, so they were not relying on the executives' statements.

"Even a sophisticated investor who seeks to beat the market by buying the undervalued stocks and selling the overvalued ones enjoys the fraud-on-the-market presumption because such investor implicitly relies on the fact that a stock's market price will eventually reflect material information and, in analyzing whether those stocks are undervalued or overvalued, can be skewed by a market price tainted by fraud," the investors said. "Professional investors like Highfields attempt to investigate large amounts of public information. ... Such information is ordinarily expected to 'verify' what company management is telling the market, not to somehow contradict or disprove management's statements."

Counsel for the investors and for Teva did not respond to requests for comment Tuesday.

The investors are represented by David A. Ball and Ari J. Hoffman of Cohen and Wolf PC, and Lawrence M. Rolnick, Michael J. Hampson and Jeffrey A. Ritholtz of Rolnick Kramer Sadighi LLP.

Teva is represented by Andrew L. Schwartz, Sarah Leivick and Sheron Korpus of Kasowitz LLP, Emily E. Renshaw and Jason D. Frank of Morgan Lewis & Bockius LLP, and Jill M. O'Toole of O'Toole & O'Toole PLLC.

The case is Highfields Capital I LP et al. v. Teva Pharmaceuticals Industries Ltd. et al., case number 3:19-cv-00603, in the U.S. District Court for the District of Connecticut.