The 7% decline in the price of Teva Pharmaceuticals shares in the early days of 2020 is a painful sight for investors who thought the Israeli drug maker’s worst days were behind it.
Two traumatic years saw Teva stock value plunge 80%, but prices started rising again in mid-August 2019, and by the end of the year, had risen 60%.
A major reason for the turnaround was the agreement in principle, signed at the end of October, between six makers and distributors of opioids, including Teva, and the attorneys general of four U.S. states.
The agreement involves $48 billion of compensation, in cash and kind, to opioid victims. Three large distributors and Johnson & Johnson will pay $22 billion over 18 years. Teva, which is the biggest maker of opioid addiction treatment drugs, would provide $23 billion of products over 10 years, and pay another $250 million in cash.
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But analysts say the actual cost to Teva would be considerably less. The list price for its generic Suboxone is three to five times the average it would charge a pharmacy, which would represent a considerable premium over the company’s manufacturing costs.
Jefferies analyst David Steinberg estimated that the cost of the donated drugs would be around $1.5 billion, while JP Morgan's Chris Schott put it at between $5.75 billion to $9.2 billion. Kare Schultz, Teva’s CEO, added to the bullishness when he predicted a final agreement would be reached by the end of 2019.
Schultz is now paying for his lack of caution. No agreement has been signed and some of the attorneys general, dealing with an addiction crisis has claimed some 400,000 lives over the last two decades, now seem to believe the Teva deal might have been too sweet.
More importantly, that view is apparently shared by the private lawyers involved in the plethora of opioid lawsuits. Their fees are based on a percentage of the settlements they win from Teva and the other drug companies.
The cost of treating opioid addiction, rehab and the care of orphaned children has been estimated at $630 billion just for the last four years. That cost has been borne by cities and state governments. It’s doubtful that they will be satisfied with a mere $250 million in cash from Teva.
Teva is now waiting for the January 20 opening of a second state-level trial for claims brought by the New York State attorney general and the Long Island counties of Nassau and Suffolk.
Meanwhile, the U.S. Justice Department has begun investigating whether Teva and other pharmaceutical companies intentionally allowed opioid painkillers to flood communities. Teva and other drug-makers are also facing another long-running criminal antitrust probe into a potential price-fixing scheme for generic drugs.
On Monday, Teva managed to settle whistle-blower claims that it bribed doctors to write prescriptions for the company’s drugs treating multiple sclerosis and Parkinson’s disease. It agreed to pay $54 million.
A lawsuit filed by two ex-sales representatives accusing executives of paying doctors who prescribed Teva’s Copaxone and Azilect drugs thousands of dollars in sham speaker’s fees to have dinners attended only by company officials, lawyers for the whistle-blowers said Monday.
One small legal problem is over, but a big, dark legal cloud continues to hang over the company and it is no longer trading cheaply. Investors looking for exposure to generic drug stocks could find a safer bet.