Shares of Teva Pharmaceuticals plummeted Wednesday after Moody's revised the Israeli firm's outlook down to Negative from stable and a U.S. House of Representative's oversight panel cited it as one of three drug makers called on to over documents as part of a congressional review of generic drug price increases.
Moody's reaffirmed Teva's rating at Ba2, but the Negative outlook means the credit rating agency expects to lower Teva's credit rating in the future, a move that would increase the Israeli drug maker's borrowing costs.
Moody's said that outlook downgrade reflects concerns over Teva "persistently high leverage and large refinancing needs in light of its rising exposure to opioid-related litigation."
Teva shares were down 10.51% at $6.30 on the New York Stock Exchange in New York.
Moody's said Teva has sufficient free cash flow to repay debt coming due in 2020. However, it said Teva would probably not generate sufficient cash flow to repay the approximately $4.2 billion of debt maturing in 2021 In the second quarter, 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.
"Further, the potential for litigation payments could delay the company's ability to deleverage by consuming cash that would otherwise be used for debt repayment," Moody's said, but added: "The magnitude of potential liabilities are unquantifiable at this stage, and timing is highly uncertain."
The most critical litigation Teva faces revolves around a lawsuit by a group of U.S. cities and counties that are suing drug companies over the U.S. opioid epidemic. A group of State attorneys general are pursuing their own cases in state courts as well investigations and settlement talks.
Meanwhile, U.S. House Oversight Chairman Elijah Cummings, along with U.S. Senator Bernie Sanders, the ranking member on the Senate Budget Committee, sent the letters to Teva, Mylan and privately held Heritage Pharmaceuticals, seeking the document sand a the companies of "apparent efforts to stonewall" the probe.
"Not only did your company's apparent obstruction undermine our investigation, but it may have caused further harm to patients and health care providers by delaying the discovery of evidence about the companies' price-fixing," Cummings and Sanders wrote.
Sanders, who is among those seeking the Democratic presidential nomination for the 2020 election, has made health care and drug prices a cornerstone of his campaign.
Mylan denied obstructing the inquiry and said it was prepared to make its case in a court of law, while Teva said it continues to fully cooperate with the investigations.