Teva Shares Crash as Settlement Plan for Opioid Suits in the U.S. Is Proposed

Israeli drug giant's shares dropped more than 13% on the Tel Aviv Stock Exchange the same day the company's chief financial officer announced his resignation

A Teva Pharmaceuticals logistic center in Shoham, Israel.
Dan Balilty/AP

Teva Pharmaceuticals saw its share price plunge by more than 13% in Tel Aviv trading on Wednesday, closing at 22.90 shekels per share ($6.56).

The steep losses came after the company’s chief financial officer announced on Wednesday that he was leaving, as well as news Tuesday of a compromise in government-sponsored lawsuits in the United States against drug companies blamed in the American opioid epidemic.

The dual-listed share started trade in Tel Aviv on Wednesday with a negative arbitrage gap after losing nearly 10% on Wall Street on Tuesday. It opened Wall Street trading with losses of another 9% on Wednesday.

In addition, Teva released its second-quarter financial results on Wednesday, revealing a smaller than expected drop in profit.

>> Read more: Teva’s legal woes threaten its ability to repay heavy debt | Analysis ■ The price-fixing claims look worse for Teva than they really are | Analysis

Chief Financial Officer Michael McClellan told analysts he was leaving for personal reasons but that he couldn’t stop people from giving his move their own interpretations. As expected, the capital market interpreted his departure as a jump from a sinking ship, leading the dual-listed share to open on Wall Street deep in the red.

The company’s second-quarter results backed this interpretation. The company lost $689 million in the second quarter, compared to $241 million in the same quarter of 2018, based on U.S. GAAP accounting standards.

The massive loss is due to a $1.3 billion writeoff, including $646 million due to legal settlements and loss contingencies related to the opioid lawsuits. The company paid $85 million to settle litigation brought by the Oklahoma attorney general.

The company said the Oklahoma settlement, being the first one, came with a premium.

“For tactical reasons we deemed that it was best to settle there,” Chief Executive Kare Schultz told Reuters. “That does no way mean that we would be interested or willing to settle for the same amount with all the other states.”

Schultz, who joined Teva in November 2017, reassured investors that he intended to stay at least through the end of his five-year contract.

On Tuesday, it emerged that the major U.S. drug distributors — McKesson, Cardinal Health and AmerisourceBergen have offered up some $10 billion in order to settle lawsuits in 35 U.S. states.

The National Association of Attorneys General, negotiating on behalf of more than 35 states, countered with a demand for $45 billion to cover costs, according to Bloomberg.

This is the first time these three companies have given an offer of what they’re willing to pay.

Billions of dollars?

Teva may find itself forced to pay a settlement totaling billions of dollars at a time when it’s struggling to pay off tens of billions in debt; the company had $26.7 billion in debt as of March 2019. It took on the debt to acquire Activis Generics in August 2016 for $39 billion. Activis was responsible for manufacturing some 35% of the narcotic painkillers sold in the United States between 2006-2016, which means Teva may find itself on the line to pay a very large settlement.

On Tuesday, a U.S. federal judge expressed support for a novel plan by lawyers representing cities and counties suing drug companies over the U.S. opioid epidemic that would bring every community nationally into their settlement talks despite objections from most states.

U.S. District Judge Dan Polster said during a hearing in Cleveland, Ohio that while the idea was unprecedented, it could allow companies accused of fueling the epidemic in nearly 2,000 lawsuits before him an ability to obtain “global peace.”

“There has to be some vehicle to resolve these lawsuits,” said Polster, who added that he planned to rule quickly.

The Ohio proposal calls for creating a class of up to 3,000 counties and 30,000 cities, towns and villages that could vote on whether to accept any settlement the plaintiffs reach with defendants in the opioid litigation.

Attorneys general from 37 states and the District of Columbia pursuing related cases and probes have objected, saying the plan would likely face future court challenges that could derail all settlement efforts.

Paul Singer, a lawyer with the Texas Office of the Attorney General, said the plan also interfered with the states’ ability to decide how money is spent within their borders by setting a formula for allocating settlement funds among local governments.

Polster thought the allocation system was a strength of the proposal as it “gets the money to where the harm is” to help address the opioid epidemic’s effects in communities nationally.

400,000 overdose deaths

Opioids were involved in 400,000 overdose deaths from 1999 to 2017, according to the U.S. Center for Disease Control and Prevention.

Thousands of lawsuits by states and local governments have accused drug makers like OxyContin maker Purdue Pharma of downplaying the risks of opioids in their marketing, and accuse drug distributors of failing to halt suspicious opioid orders.

Most of the lawsuits are before Polster, who has pushed for a settlement before an October trial. Plaintiffs have claimed it could cost about $480 billion to address the epidemic.

State attorneys general are pursuing their own cases in state courts as well in investigations and settlement talks, which Singer called “active.”

Bloomberg News, citing people familiar with the matter, reported on Tuesday that drug distributors McKesson Corp, Cardinal Health Inc and AmerisourceBergen Corp had proposed paying $10 billion to resolve the states’ claims.

The states have proposed the distributors pay $45 billion, a person familiar with the matter told Reuters. Those companies oppose the plan Polster is considering.

McKesson said it “has made no settlement offers.” AmerisourceBergen said it is vigorously defending itself, while Cardinal declined to comment.

Shares of all three were down about 6% on an up day for the broader market.