By Josh Nathan-Kazis
After more than two years of relative stasis, the sprawling litigation that seeks to hold companies responsible for the U.S. opioid crisis is rushing toward a conclusion. Near-daily developments in recent weeks will finally bring answers for investors, and for the state and local governments seeking cash to pay for the epidemic's toll.
Recent weeks have seen major developments for defendants including CVS Health (ticker: CVS), Teva Pharmaceutical Industries $(TEVA)$, Walmart $(WMT)$, and others. The litigation is far from over, and appears likely to stretch on for years. Some of its biggest unknowns, however, are finally approaching a resolution.
The opioid crisis itself is showing no signs of abating. There were more than 80,000 overdose deaths involving opioids in the U.S. in 2021, up from 70,000 in 2020, according to the Centers for Disease Control and Prevention.
Efforts by state and local governments to hold companies responsible for that devastation have been under way since at least 2014. The threat of massive payouts had a substantial effect on the share prices of some defendants, particularly on generic drugmakers like Teva, as investors worried about the impact of large settlements piled on top of already heavy debt loads.
The companies have generally denied responsibility for the crisis and argue, among other things, that they were legally selling approved prescription drugs.
The theme of the litigation for investors has been uncertainty over how much companies like CVS and Endo International $(ENDP)$ may eventually be forced to pay. In 2019, as the litigation built up a head of steam, answers seemed around the corner.
Then the pandemic put everything on hold. Consider Teva, which in late 2019 reached a tentative nationwide deal involving a small cash payment and tens of billions of dollars worth of drugs used to treat opioid addiction. Months later, in the summer of 2020, Teva CEO Kåre Schultz acknowledged that "not much" had happened since the pandemic struck. That deal was never consummated.
One issue was that pandemic-related trial postponements eased the pressure on the parties to come to settlements. Settlements often happen on the eve of a trial; without trials, there were no deadlines.
Today, trials have long since resumed. Answers to the questions posed by the litigation are finally in sight.
The latest development came late Wednesday, when the federal district judge overseeing a combined proceeding that pulls together more than 3,000 opioid cases ordered CVS, Walmart, and Walgreens Boots Alliance ( WBA) to pay a combined $650 million over 15 years to two Ohio counties.
In his order, Judge Dan Polster, who sits in the Northern District of Ohio, wrote that he "must do something no federal Judge in history has had to do: determine in equity the scope and cost of the measures necessary to address a small piece of a terrible and tenacious and escalating national tragedy."
The two Ohio counties had asked for a combined $3 billion from the three companies to abate the harm caused by the opioid crisis. Polster cut that down, citing a number of reasons, and saying the counties asked for "the sun and the moon."
The companies will appeal. But the ruling by Polster gives investors another benchmark by which to estimate the total the three companies could eventually need to pay overall, either through a judge's order or a nationwide settlement.
In a note out on Wednesday, Evercore ISI analysts Elizabeth Anderson and Michael Newshel said it was unlikely that a nationwide settlement would match the implied per-population rate of the Ohio settlements, and said they model $5.5 billion in fines and settlements each for CVS and Walgreens.
The CVS judgment follows right on the heels of Endo's long-awaited bankruptcy filing. As part of the filing, the company proposed a fund to pay off opioid claims that would be funded up to $550 million over 10 years. A number of state attorneys general announced an agreement in principle with Endo on Tuesday for a $ 450 million nationwide settlement.
That came after a long-awaited settlement announced last month in which Teva agreed in principle to pay up to $4.4 billion, mostly in cash, but also including $1.2 billion of Teva's generic version of the overdose-reversing drug Narcan. That deal remains contingent on local governments agreeing to sign on. Days after the Teva deal, AbbVie $(ABBV)$ subsidiary Allergan reached a similar agreement in principle over a $2.4 billion settlement.
This most recent wave of deals comes after a massive agreement completed in February under which Johnson & Johnson $(JNJ)$, McKesson $(MCK)$, AmerisourceBergen $(ABC)$, and Cardinal Health $(CAH)$ agreed to pay a total of $26 billion in a nationwide settlement deal.
Today, many of the main players in the litigation have settled. The pharmacies, who were the subject of the Wednesday ruling, remain in play. But for investors, much of the overhang the litigation represented is fading into the rear view.
The crisis itself, however, is going nowhere.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com
$(END)$ Dow Jones Newswires
August 18, 2022 10:20 ET (14:20 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.
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