How Will the US Opiate Settlement Affect Israeli Pharma Giant Teva?

The opioid crisis has been in the US news for quite a while now. During the first few years of the epidemic, the focus was on the more than 400,000 people who’ve died since its onset. More than 70,000 of these deaths occurred in 2017. This marks a six-fold increase of opioid-related deaths over the number reported in 1999, which is generally considered the first year of the surge in opioid addiction.

Lately, this focus has shifted to the drug companies, as one after the other incurs heavy penalties for what addiction experts and lawmakers say is their part in creating the problem. It could be a PR nightmare for many of the pharmaceutical giants.

The Financial and Social Effects of the Opioid Crisis

There’s no denying that the opioid crisis has affected people at every level of society and incurred a huge cost socially and financially on families, medical practitioners, and opioid manufacturers. What’s arguably at the center of the issue is where to cast the blame.

Although the number of opioid prescriptions dropped by 13 percent between 2013 – 2015, death rates actually rose during those two years of the FDA study. This points to underlying causes like socio-economic factors and lack of access to alternative pain management as major contributors to the crisis.

Since these factors are much more complex and difficult to address, many have aimed their anger and frustration toward the deep pockets of manufacturers in the quest for solutions. This concerted effort has paid off in the form of multi-billion dollar settlements, and the drug companies themselves are stepping up to work on mitigating the effects of addiction on families and communities.

How Will the Settlement Affect Teva?

It’s felt that the recent settlement in Ohio will open the floodgates for more legal jeopardy for drug makers. There are currently more than 2,600 separate lawsuits pending in courts across the US.

Corporate reputation management professionals already have their plates full with fears of data leaks and ransomware exploits. For Big Pharma, being forced to accept culpability for the opioid epidemic was another sharp stick in the eye. The interesting thing is that, although adverse publicity hurts many companies, Teva seems to be bouncing back.

Their stocks have surged in the wake of the settlement agreement, offering hope to many of the company’s stockholders, including legendary buy-and-hold mogul Warren Buffett. As of the opening of global markets for the week beginning October 21, 2019, shares in Teva rose more than 11 percent on the Tel Aviv Stock Exchange and 8.67 percent in NY. This is cause for optimism, as the drug manufacturer has seen overall shares drop by 50 percent since this time last year. 

Now that Teva is part of the Buffett brand, investors can buy into its recovery through Buffett’s principal investment vehicle, Berkshire Hathaway. As always, keep in mind that ANY investment comes with risk. You could lose everything. Study and understand the fundamentals and technicals of any company before you put down money for even a single share.    

Due to the close historic relationship and interconnection of the populations of Israel and the US, what happens to companies in one country affects finances in the other. Overall, the Israeli economy looks sound, moving up 14 places in the World Bank’s annual “Doing Business” report. This is good news for citizens and business investors alike.

But, what’s in the settlement, and what does this all mean for company profits and stockholder confidence?

What’s in the Settlement?

The October 21 decision in Ohio revolves around an agreement between the state and four pharmaceutical companies, including Teva. In May, the company reached an agreement with the state of Oklahoma to pay a one-time fine of $85m to settle that case.

While agreeing to the settlement, Teva denied any culpability in the rate of opioid abuse in that state. As of June, Teva held corporate debt in the amount of $28.726b.

Putting the Money to Good Use

Much like the decision in May, Teva denies any wrongdoing with regard to opioid-related deaths and addiction rates in Ohio. The company does hope that reaching these agreements will be a turning point in the fight against opioid abuse.

Lawyers for the pharmaceutical companies involved in Monday’s decision released a joint statement after court concluded:

“While the companies strongly dispute the allegations made by the two counties, they believe settling the bellwether trial is an important stepping stone to achieving a global resolution and delivering meaningful relief.”

What will the money gleaned by the settlements do to help families and communities shattered by the opioid epidemic?

It’s hoped by the drug companies that bulk of the settlement will go toward initiatives that include treatment, including better access to addiction treatment and mental health services, and drug education.

However, the families of the dead and recovering addicts are more specific in their ideals. They suggest a four-pronged effort to attack the heart of addictive behavior and provide better outcomes for those in recovery.

Advocates believe this should involve:

• Better funding for drug-abuse prevention programs, including outreach toward children who are at-risk for addiction and counseling for families and substance abusers
• Programs to wean users off of opiates or reduce their abuse
• Reducing harm through initiatives like clean syringe services, wider availability of Naloxone and other emergency overdose reversing drugs, and decriminalization to remove fear of calling for assistance if someone is overdosing.
• Recovery support services that help people in recovery rebuild their lives over the long term. This includes housing and job assistance, reuniting families, and offering community support.
• Helping substance abusers navigate the criminal justice system and avoid relapses

For its part, Teva’s contribution in the Ohio case includes a $20m dollar cash settlement, and an additional in-kind donation of $25m in the medical maintenance drug, Suboxone.

It’s hoped that by shifting the focus from punitive civil and criminal lawsuits to treating the epidemic like a public health emergency, we can prevent drug addiction, curb the effects of abuse, and turn the corner on the opioid crisis once and for all.

Final Thoughts

Shareholders and other interested parties are waiting for the release of the company’s third-quarter financials on November 7, 2019. As of today, it appears that Teva has begun to mitigate some of the stigma that haunts other pharmaceutical companies. However, it may take some time before we fully understand the long-term effects of these settlements on Teva and other drug manufacturers.