Isaac Kaye business activities

Isaac Kaye has a long history of involvement with drug companies and his career has been riddled with scandal.

This page provides details relating to his business activities. See Isaac Kaye main page for other information (such as his background and his involvements in politics).

Some background to Kaye's business activities

In South Africa during the 1970's, Kaye companies were CE Electro-Medical and Continental Ethicals (which were controlled through Alumina Development Corporation).

Kaye's first company in Britain was called Harris Pharmaceuticals (which Kaye became involved with in 1982), at the time Harris supplied their companies in South Africa. Harris was half-owned by companies in South Africa and the tax havens of Liechtenstein and the Channel Islands until it was sold to IVAX in 1990. Harris was then renamed Norton Healthcare, which was later changed to Ivax Pharmaceuticals UK. Kaye is reported to have 'made £23m from the deal and has a £12m stake in the parent company'. In 1985, Kaye was appointed as Chairman of IVAX Pharmaceuticals UK, a position he held until retiring in 2003. In 2003, he also retired from his position as deputy chief executive officer with the IVAX Corporation and announced his intention not to stand for re-election to the IVAX board.

The Ivax Corporation is a huge Florida-based health company. Norton Healthcare, the largest generic drugs company in Britain, is a subsidiary of IVAX. Kaye earned close to £600,000 at IVAX in 1999 (alongside a personal stake worth more than £12million), $550,301 at IVAX in 1998 (plus share options worth up to $1.5 million) and $521,520 in 1997. In 2001, Kaye cashed 93,750 of his shares and 'reaped more than a million dollars-nearly equaling his salary and bonus'. He is also reported to have cashed 30,000 shares in 2000 for US$ 34.44 each. He then 'exercised an option' on 200,000 more shares at the bargain price of US$ 21.13. This created an instant (on paper) profit of more than US$2.6million.

In 2006 IVAX was aquired by Teva which is described as 'Israel's largest company'. The aquisition is reported to have created 'the world's largest generics company'..

Kaye is reported to have stepped down as chairman of Norton Healthcare in 2003. Plunkett's Health Care Industry Almanac reports IVAX profits totalling $243,200,000 for 2001, $131,000,000 for 2000 and $70,700,000 for 1999. Their sales totals were $1,215,400,000, $793,400,000, and $656,500,000 respectively.

Gifts for influence

In South Africa during the 1970's, Kaye companies CE Electro-Medical and Continental Ethicals (which were controlled through Alumina Development Corporation) 'captured a large slice of the business for X-ray film and drugs from South African hospitals'. Alumina was sold for £8.5million to South African Druggists in 1977. Kaye was then involved with South African Druggists as a director until 1982.

The Guardian reported that...

'Kaye was caught up in a "gifts for influence" scandal in South Africa during the early 1980s amid claims that doctors were being rewarded with everything from cars and TVs to swimming pool equipment and chandeliers for prescribing drugs made by his then firm. He denied any impropriety, saying the giving of presents was not an inducement but an appreciation'.

Monbiot adds that the 'gifts' given by Kaye's drugs company (Alumina) went 'to people working in the health sector, including academics who sat on the South African government's advisory panels, the head of the Medical Research Council and the minister of health'. The list of 'gifts' also included shares and trips abroad. The official inquiry into the scandal found that Kaye had "no scruples about applying dishonest or unethical methods".

A report by the Express in 2000 lists gifts including company cars, payment of credit card and garage bills, swimming pool equipment, chandeliers, a radio control unit for a model boat, TV sets, trips to Europe, the Far East and shares in Kaye linked companies. These 'gifts' which were disclosed in 1983 were described by Kaye's Former employees as 'an essential part of an aggressive campaign "to win friends in high places"'.

Recipients are also reported to have included 'eminent professors of medicine at top South African universities and senior officials in charge of hospital supplies and services. One professor was the former personal physician to South African prime ministers and presidents'. The report continues by stating that 'Former executive Jimmy de Villiers said sweeteners of up to GBP 10,000 a year were paid to officials and doctors'.

After the scandal was exposed, Kaye admitted that 'gifts' had been given, but denied that it was to influence the officials or doctors to award supply contracts. He claimed that they were a gesture of 'appreciation' rather than an inducement. 'sweeteners' of up to £10,000 a year (as claimed by de Villiers) certainly seems a substantial sum if, as Kaye asserts, 'at no time' were gifts or favours offered with the expectation that anyone would 'favour' his company. This practice of 'gift' giving was denounced by the Pharmaceutical & Chemical Manufacturers Association and by the Medical Council of South Africa. There was also an investigation carried out by a commission of inquiry..

According to the Express, 'Kaye's success in Britain, the row over Norton's sales tactics and his support of the government in power mirrors exactly what happened in South Africa'.

In 1996, Norton Healthcare was severely condemned by the Association of the British Pharmaceutical Industry for offering "unnacceptable inducements" (including mountain bikes and Marks and Spencers vouchers) to pharmacists who increased their orders for Norton products.. It is reported that Labour's health minister complained that "it is completely unacceptable for pharmaceutical companies to encourage health professionals to use their products through free gifts and other sweeteners". The Sunday Times in 1998 reported that Norton 'offered chemists points that could be redeemed for vouchers for House of Fraser stores' through its Norton Advantage catalogue.

In 1998, the government announced that it was giving Norton a £990,000 Regional Selective Assistance grant to set up a new plant in London. The purpose of this grant is to boost employment in the local area and to promote "inward investment in the manufacturing sector". Yet, as The Guardian goes on to report, Norton's parent company revealed that it would stop manufacturing in the UK (and move to Ireland) the week before the government announced this funding! In October 1998 it closed down all its other manufacturing and packaging plants in South East England and moved them to Ireland, cutting 500 jobs in the process. This "re-structuring" helped the IVAX Corporation's share price to rise by 80% in 1998 - Kaye is the second largest shareholder, with a stake worth $136 million held by the I. Kaye Family Trust (via a Guernsey-based company called Charter Trust, which in turn hold the shares via another company called Azure Ltd).

NHS £400m rip-off?

When Frank Dobson (who Kaye donated £10,000 towards his London mayoral campaign - see Isaac Kaye main page) was Health Minister he called on the NHS to save money by buying cheaper generic drugs, rather than expensive name brands. However, as NHS spending shifted to the generic drugs, their prices increased too - for instance, by 1999 the price of a pack of Norton Healthcare Thyroxine tablets had increased from £6.84 12 months earlier, to £44.89! As a result the NHS doesn't save money, but the IVAX Corporation makes huge profits. As stated by Osler, 'Such tactics saw Ivax’s profits rise over 70% in 2000, despite a 12% decline in turnover'. IVAX's "Easi-Breathe" inhaler has been named a Millennium Product by the Government and is displayed in the Dome. Norton Healthcare is reported to be 'the biggest supplier of generic drugs to the NHS'.

In 2002 The Guardian reported that, Kaye's company was 'raided by police investigating an alleged £400m rip-off of the NHS' and was 'one of six firms suspected of being involved in a price fixing cartel to push up prices charged to the NHS'. IVAX denied any 'wrongdoing'. After initial enquiries carried out by the Counter Fraud Directorate of the Department of Health, The Serious Fraud Office (SFO) began an investigation 'into a suspected conspiracy to defraud the NHS in relation to prices charged by suppliers for prescribed penicillin based antibiotics and warfarin between 1st January 1996 and 31st December 2000'. One of the antibiotics (called amoxycillin) is described as 'one of Britain's most commonly prescribed drugs' which the companies allegedly conspired to raise the price of, 'by up to 260 per cent'. The NHS reportedly spends £39million a year on amoxycillin and in the Evening Standards 'Experts are reported to have said that the NHS 'could have been overcharged by as much as 30 million'. In April 2006, The Guardian reported that Norton had 'been named in three ongoing lawsuits relating to the supply of blood-thinning drug warfarin, penicillin-based antibiotics and a generic version of anti-ulcer pill Zantac'.

The six pharmaceutical companies being investigated by the Serious Fraud Office were:

• Generics UK Ltd.
• Kent Pharmaceuticals Ltd.
• Regent-GM Laboratories Ltd.
• Goldshield Group Plc.
• Norton Healthcare Ltd - a subsidiary of Ivax Corporation
• Ranbaxy (UK) Ltd - a subsidiary of Ranbaxy Laboratories Ltd

The Daily Mail reports that 'NHS investigators claim that in 1997 and 1998 senior representatives from the seven firms met near Heathrow and agreed to act together'. According to the NHS's Claim Form, 'A series of meetings followed at which the defendants negotiated a sophisticated scheme by means of which the prices and supply of penicillins in the UK market could be controlled and manipulated'. It is alleged that this involved 'raising prices and restricting supply' in order to 'almost quadruple the cost of the common antibiotic amoxicillin'. The allegations also relate to the price fixing of over 30 other drugs. The Independent also adds the claims that, at the Heathrow meeting, the senior representatives of the firms 'considered the possibility of arrangements designed to reduce competition in the UK..' and agreed to 'refuse to sell the drugs to the NHS below an agreed price'. The Sunday Times reported in 2002 that 'Executives are said to have held a secret meeting in offices in Kensington High Street, London, in July 1998 to review their plot and extend it to overseas markets. It is claimed the groups lied about supplies of warfarin to force the price up'. The report continues by stating that the 'Government alleges' that...

'In 11 months in 1997 Regent increased revenue on sales of warfarin by 140% though the volume of its supplies remained mostly the same. This gave the company Pounds 750,000 in extra revenue. Goldshield increased the price of one pack of drugs from Pounds 6.94 to Pounds 20.82 at around the same time'.

The SFO later (27th April 2006) reported that nine persons appeared in court on 'charges of conspiracy to defraud the National Health Service' along with 5 Companies (including Norton Healthcare) 'on conspiracy to defraud charges'. The 'persons' were Jonathan Raymond Close and Nicholas Mark Foster (both formerly of Norton Healthcare Limited) alongside Denis William O’Neill and John Stephen Clark (of Kent Pharmaceuticals Limited), Luma Auchi (formerly of Regent-GM Laboratories), Michael John Frederick Sparrow (formerly of Generics (UK) Limited), Anil Kumar Sharma (formerly of Ranbaxy (UK) Limited), Ajit Ramanlal Patel and Kirti Vinubhai Patel (of Goldshield Group Plc). On the 9th April 2006 (shortly before the companies appearance in court), Medical News Today reported that The Department of Health and Norton Healthcare Ltd and Norton Pharmaceuticals Ltd had 'jointly announce settlement of the claims'. Norton did not admit any liability in relation to the charges but did pay compensation to the NHS for the amount of £13.5 million. In the report, Jim Gee (Director of Counter Fraud Services for the Department of Health) stated that "Norton is the third of the defendant companies to have recognised the strength of the claim made by the NHS..." The £13.5million was paid out to the NHS in England and Wales.

It appears that the case was due to go to trial in September 2008 in what The Guardian describes as 'the biggest prosecution for alleged fraud ever launched in the United Kingdom'. However, in April 2008, it was announced that 'A drugs group has agreed a £2.8m settlement with the Scottish Government and health boards over the alleged price fixing'. Norton is reported to have agreed to the £2.8 million payment as a 'full and final settlement' and without admiting any liability. The report also mentions that the Goldshield Group paid £750,000 after agreeing a similar deal in March 2008.

Barring Union Activity - a violation of rights

Kaye refuses to recognise Trade Unions at Norton Healthcare because they are "not in line with company philosophy"! According to Osler, 'In May 2000, a Kentucky judge ruled that Norton unlawfully violated the rights of its nurses at one of its US hospitals, by barring them from union activity in their own time. This was held to be in violation of the National Labor Relations Act'.

Takeovers

In 2007, The Star in South Africa made reference to an offer made by Issac Kaye to Natie Kirsh (the controlling shareholder of Greatermans and uncle of Primedia chief executive William Kirsh) in an article which included a piece about takeover bids which are 'directed only at the holders of voting shares and not at the holders of non-voting shares'. The offer was made by Kaye and Dusty Miller to shareholder Kirsh only. It appears to have then been overturned by the High Court.

The Express in 2000 made reference to Kaye and Miller's Greatermans activities. Little details are given, however they do report that (in relation to the Greatermans sale)...

'The buyers cut the purchase price and later sued, claiming profits had been overstated and liabilities understated. There was also a police investigation but no prosecution'..

In 1978, The Economist refered to Kaye's purchase of Greatermans. It was reported that Norman Herber (who had run Greatermans since 1954) had sold control of his master company, Griffon Holdings. This was sold to a consortium which included Isaac Kaye, Dusty Miller, Herber's cousin Laurence and Federale Chemiese (Federale Chemiese is controlled by the quoted company Federale Volksbeleggings (FVB), the main industrial holding company of Sanlam)