5 Stocks That Could Get Crushed By Opioid Lawsuit Tidal Wave

Stock investors who think their portfolios escaped the wave of lawsuits stemming from the opioid crisis should look again. While privately-owned Purdue Pharma has suffered nearly all the bad press and financial damage thus far, five major public companies could still face tens of billions in liabilities that threaten to wipe out big chunks of their market value. They include CVS Health Corp. (CVS), Cardinal Health Inc. (CAH), Teva Pharmaceutical Industries Ltd. (TEVA), Mallinckrodt Plc (MNK) and Johnson and Johnson (JNJ), according to a major story in Barron’s as outlined below. All 5 already have fallen off their highs and are likely to move lower.

“Momentum has picked up significantly,” said Abbe Gluck, a professor of law at Yale University. “There are no significant parties that do not want to settle at this point, except maybe a handful of attorneys general.”

Difficulties in Assigning Fault

Over the six year period ended 2012, drug companies distributed 76 billion oxycodone and hydrocodone pills in the U.S., per the Drug Enforcement Administration database, and these 5 companies allegedly helped fuel the epidemic in various ways. For example, Johnson & Johnson subsidiaries processed the plants used to make opioids, and then refined them into pharmaceutical ingredients to sell to several customers, including Israeli drugmaker Teva, who in turn sold them to drug distributors such as Cardinal. The supply chain continues on to a CVS Health subsidiary, which purchased pills and sent them to pharmacies.

As governments across the country try to hold suppliers, drugmakers, distributors and pharmacies responsible for the opioid crisis, the companies argue that their operations were legal and that they are not responsible for the drug abuse itself.

Litigation 'Nearing Crescendo'

Now, market watchers say litigation is “nearing a crescendo,” per Barron’s. Few discrete settlements have been reached, and a landmark trial, which should set the tone for thousands of other proceedings, is scheduled in October. 

Analysts estimate that health care companies may have to pay as high as $150 billion to settle these suits. The financial impact of lawsuits like these is what caused Purdue, a major private company, to file for bankruptcy.

For generic drugmakers, the opioid litigation comes as drug companies try to manage a variety of challenges, including poorly executed acquisitions, a public backlash against higher drug prices, and mounting debt. Jefferies analyst David Steinberg calls Teva’s $40.5 billion deal for Actavis Generics in 2016 “one of the worst acquisitions of the past decade,” per Barron’s.

What’s Next

The worst-case scenario for drug companies may not be the cost of lawsuits. In August, Morgan Stanley analysts argued that the opioid settlements could present an opportunity for e-commerce giant Amazon.com Inc. (AMZN) to steamroll its way into the market as it's done in other areas. “If distributors face increased regulation as a byproduct of any settlement, the cost of doing business would go up, making it easier for a fourth competitor such as Amazon to enter the marketplace,” wrote analyst Ricky Goldwasser.