Opioid Lawsuits and the Drop in Drug Stocks

Opioid Lawsuits and The Drop in Drug Stocks

The opioid crisis in the United States is a serious tragedy that’s taken the lives of many. The epidemic is a complex societal and medical issue without an easy fix. Now many government entities and states are taking legal action to get compensated.

Pharmaceutical companies that manufacture or distribute opioids have had a sharp drop in share price. The drop in generic-drug makers has been especially dramatic since they have smaller cash reserves and some face additional litigation over price-fixing.

Despite the harmful effects of opioid abuse, our population still relies on medicines made by these companies. So does this present a buying opportunity or should investors stay away? 

The Opioid Lawsuits

The trial in Oklahoma was the first public trial to take place out of the sea of lawsuits. The state claims opioids are a public nuisance and have already received settlements from two companies. Teva pharmaceutical settled for $85 million and Purdue Pharma (the maker of OxyContin) settled for $270 million. Both companies denied any wrongdoing and stated they followed the laws governed by the FDA.  

Megacorporation Johnson & Johnson (JNJ) decided to fight the lawsuit in court. Oklahoma claims Johnson & Johnson is the Kingpin of the opioid epidemic and is seeking a payout of $17 billion. The trial wrapped up in mid-July of this year and a verdict is expected by Judge Balkman sometime this month. The verdict is highly anticipated as it will set the tone for the additional upcoming trials. 

One case in North Dakota against Purdue Pharma was dismissed. The judge stated, “Purdue cannot control how doctors prescribe its products and it certainly cannot control how individual patients use and respond to its products, regardless of any warning or instruction Purdue may give.” The next big trial will be in the state of Ohio and is set to begin October 21st. Some companies included in the case are Johnson & Johnson, Purdue Pharma, and Ohio’s Cardinal Health. 

The Drop in Drug Stocks

Fentanyl producer Insys Therapeutics has filed for chapter 11 bankruptcy after a $225 million-dollar settlement from the justice department. The shares have fallen over 95%. Shares of Johnson and Johnson have remained largely unaffected. Although that can change depending on the outcome of the Oklahoma and Ohio trials. Purdue Pharma is a private company and its shares are not publicly traded.

Share prices of generic-drug makers like Teva (TEVA), Mylan (MYL), Mallinckrodt (MNK) and Endo (ENDP) have fallen 40%-60% or more. Investors fear if the settlements get out of control, these companies could have trouble staying afloat.

Should Pharmaceutical Companies Take All the Blame?

There were over 400,000 opioid-related deaths in the United States from 1999 through 2017, according to the U.S. Centers for Disease Control and Prevention. While prescription opioids have caused a number of these deaths, you can see in the chart below that illicitly manufactured synthetics like fentanyl and tramadol have taken a much larger role.

The liability from the companies getting sued is unclear. The companies that manufactured the opioids did so within the scope of the FDA. The opioid lawsuits are being compared to the ligation against cigarette makers back in the 1990s. But, the addiction risks of opioids have been pretty clear, and unlike cigarettes, they are legally prescribed by doctors.

Who is accountable? Is it the individual who ignored the risks and continued to abuse the prescription? Is it the doctors who overprescribed or incorrectly diagnosed patients? What about the distributors or pharmacies themselves? Americans are sometimes quick to place blame for their issues instead of holding themselves accountable.

Are the states that are suing these companies doing so for the benefit of opioid victims or are they trying to fill their own pockets? How much of the settlement money will go towards recovery programs and aid for the opioid crisis? If Oklahoma wins its “Public Nuisance” case against Johnson and Johnson, what’s next? Wouldn’t this open up the flood gates for states seeking compensation outside of taxation? Alcohol could then be considered a nuisance, hell even fast food for its role in obesity and health problems.

If generic pharmaceutical companies go bankrupt due to opioid lawsuits, the average American will end up paying more for prescription drugs. Addicts will unfortunately still find sources of opioids and continue to abuse them. It seems suing pharmaceutical companies may be more about exploiting a crisis than actually trying to solve it.

Uncertainty Remains 

The opioid lawsuits are estimated to go on for several years. Many investors are on the sidelines and waiting for the uncertainty to clear. The upcoming elections and political aim at healthcare costs heighten the uncertainty for many pharmaceutical companies. Making the fear and pessimism very high for generic drug makers with lighter pocketbooks.

Value investors with a lot of patience could find some deals amid this uncertain time. Even the enormous settlement against the tobacco companies didn’t mean the end for tobacco like investors feared. Things may not be as bad as Wall Street is predicting. Those willing to buy the fear could end up being rewarded down the road. 

Disclosure: The information and data provided have been obtained from sources which we believe to be reliable, however, we do not represent that it is accurate or complete, and it should not be relied upon as such. All opinions expressed and data provided are subject to change without notice. At the time of this writing, I have a position in Teva stock. The opinions provided are of my own and are only for informational purposes. They should not be construed as an offer, or recommendation to buy or sell any product.