Opioid Settlement Faces Objection From Attorneys General, WSJ Reports
Five major defendants said last fall that they had made progress, reaching a deal with four state attorneys general to give cash and free pharmaceuticals in return for a settlement. Now, segments of that deal seem to be facing serious trouble.
The state attorneys general want drug distributors McKesson, AmerisourceBergen, and Cardinal Health to pay more money than they would have paid under the framework agreement, according to the Wall Street Journal.
The Wall Street Journal reported mid-morning that a group of 21 state attorneys general had written a joint letter rejecting a proposed deal between a handful of drug companies and a group of four state attorneys general that would have settled thousands of opioid cases.
The state attorneys general want drug distributors McKesson (ticker: MCK), AmerisourceBergen (ABC), and Cardinal Health (CAH) to pay more money than they would have paid under the framework agreement, according to the Journal.
States, counties, cities, and drug companies have been working for months toward global settlements that would end the thousands of lawsuits seeking to make companies pay for the opioid crisis. Those settlements have been elusive, however, due in part to the extraordinary complexity of the litigation.
Five major defendants said last fall that they had made progress, reaching a deal with four state attorneys general to give cash and free pharmaceuticals in return for a settlement. Questions lingered around the viability of the deal, however, with lawyers representing local governments that would need to sign saying from the beginning that they didn’t like aspects of it. Still, it was enough to give investors hope, and opioid defendant stocks were buoyed in the tail end of 2020.
Now, segments of that deal seem to be facing serious trouble. Under the terms of the framework, the three drug distributors had agreed to pay $18 billion in cash. The Journal report says that the 21 state attorneys general opposing the framework deal now say they want between $22 billion and $32 billion in total from the three companies.
Drug distributor stocks fell sharply after the Journal’s article was published, though recovered within minutes. Shares of AmerisourceBergen fell from $93.53 to $90.46 in the minutes after the article was published, but have since recovered, and the stock is now down 1% on the day as of 10:40 a.m. Shares of Cardinal Health also fell sharply, from $59.13 to $57.75, before recovering, and are down 0.7% on the day. McKesson shares dropped, too, but are now down 0.7% for the day.
“With the three distributor stock prices reacting to the news (down ~2%) and then rebounding, the market is shrugging [off] today’s update as part of the inevitable back and forth of negotiating a deal between the distributors and the state AGs,” wrote Evercore ISI analyst Elizabeth Anderson in a Friday morning note. “However, with the passing of time since the original expectation of an October settlement and the continued back and forth, we see a low probability that the settlement happens by this summer.”
The framework agreement also included Johnson & Johnson (JNJ), which had agreed to pay $4 billion, and Teva Pharmaceutical Industries (TEVA), which had agreed to pay $250 million, and to donate $23 billion worth of suboxone, which treats opioid addiction. The Journal article did not address whether the objection from the 21 state attorneys general extended to the proposed deals with Johnson & Johnsons and Teva.
A Teva spokesperson said that the company had no comment. Johnson & Johnson also did not have a comment on the Journal story. Shares of Johnson & Johnson did not appear to respond strongly to the report, though shares of Teva were down 4.2% as of 10:45 a.m.
On Wednesday, Teva’s CEO, Kåre Schultz, said that he hoped that the framework agreement would be finalized in the near term in an interview with Barron’s.
“I’m cautiously optimistic this will end up in a firm settlement,” Schultz said at the time. “There is still ongoing work happening between the defendants and the state attorneys general.”
That outcome now faces more questions.
In a statement, McKesson said it was “focused on finalizing a global settlement structure that would serve as the best path forward to provide billions of dollars in immediate funding and relief to states and local communities.” The company said it was prepared to “defend ourselves vigorously if the litigation progresses.”
AmeriSourceBergen said in a statement that it was disappointed that “some states do not currently understand the merits of the global settlement framework that the distributors have been discussing with the attorneys’ general over the past many months..” The company said it was committed to a negotiated resolution, but was also preparing for upcoming trials and defending itself in litigation.
In a statement sent after this article’s publication, a Cardinal Health spokesperson said: “We continue to work toward a nationwide settlement that would bring substantial and immediate relief to communities impacted by the opioid epidemic.”
Write to Josh Nathan-Kazis at email@example.com
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