Was Teva on the way to a compromise agreement with the...

Yesterday it was reported that Fredo Pharma, the maker of OxyContin, the painkiller that turned out to be addictive, had reached a compromise with the US administration. The company will pay more than $ 8 billion and close the company. The money will be transferred to an opioid treatment and rehab program. The private company agreed to pay a $ 3.5 billion fine as well as an additional $ 2 billion on past profits. These sums will be added to the $ 2.8 billion civil lawsuit.

The company does not have $ 8 billion in liquidity to pay the fines, so Fredo will dissolve as part of the arrangement, and its assets will be used to create a “new public benefit corporation,” run by a public trustee. The future income of the new company will be transferred for the purpose of paying fines and penalties, and for the purpose of continuing the fight against the opioid crisis. The Ministry of Justice has promised that the whole company will work for the benefit of the public instead of trying to maximize profits.

This compromise does not go smoothly. The administration’s compromise ahead of the election may be seen as an attempt by Donald Trump to show he is fighting the drug companies, but in practice some of the plaintiffs who actually “took” the lawsuit from them would have liked to get more. There are thousands of lawsuits in different countries and therefore the arrangement and the way to compromise are also very complex. Once the administration “takes over” then on the one hand they reach a compromise faster, but on the other hand there will be those who will not be satisfied.

This compromise has a very large impact on the claims against Teva. First, the very fact of reaching a compromise increases the likelihood of a compromise with other companies that were involved in the production and distribution of painkillers, including Teva, and beyond that – determines the cost. Compensation of over $ 8 billion for Fredo will become a kind of benchmark.

For Teva, this is very good news. Many investors ignore investing in nature due to the fear that the lawsuits against it are a huge disappearance that could burden and even collapse the company. Total painkiller claims exceed $ 20 billion. The company’s value is $ 10.5 billion – that is, $ 20 billion is a death blow to nature. But the plaintiffs want Lar to die. Wildlife is worth a lot more money to them. If Fredo had not been a dying company, a higher amount could have been obtained from it.

So the chances of a compromise now seem to be rising, though it is important to make clear that officially nothing has changed. The administration did not address the other companies involved in the affair and neither did the companies themselves report progress on the compromise. Beyond that, there are thousands of lawsuits and although the administration’s move to a sort of unification into one big lawsuit in Fredo’s case, it’s not sure it would be possible in other cases. Fredo as mentioned was a kind of “walking dead” and had an interest in ending the matter quickly.

And yet even given that the plaintiffs and defendants have sat and debated in the past about a compromise, it is very likely that there will be progress in the matter. The question is how will this affect nature?

It is difficult to estimate the extent of the compromise, but we will take you back a year. So in the midst of the lawsuit against Fredo, the other companies tried to reach a settlement with the plaintiffs. Teva, which manufactured and marketed such drugs and was, according to the indictments, part of the mechanism of aggressive marketing of addictive drugs, offered a compromise on the order of $ 12-15 billion, following which according to various publications the amount of the compromise was doubled.

This is a cost that will be provided with drugs, especially to those addicted to these pills, over ten years. In other words, it is not a real / monetary cost to nature, but the value of the benefit it will provide to patients. Beyond that, we are talking about delivery over 10 years. By the way, this is also the agreement with Fredo.

This means that in economic terms this is a significantly lower cost. If the compromise is on a sum of 12-15 billion in future drugs, the real cost is 2-3 billion dollars. If it is a double amount, the cost will be $ 4 billion to $ 6 billion. Big money, but not one that would collapse Teva, which already has a net debt of $ 24 billion.

Such a compromise, is still not a solution to all of Teva’s legal problems. The company is also involved in the price coordination issue. The name of the US administration examines a number of generic companies, and recently there have been compromise agreements of several companies with the administration. Here, too, it seems that Teva will have to put its hand in its pocket, and yet it will not be a sum that will take it out of the game.

These are the big legal issues. At the business level, Teva is fighting a decline in Copaxone sales, but the results in recent quarters are in line with expectations. On the face of it, Teva trades at a tempting price – a profit multiplier of about 3.5-4, but to that must be added the annual costs of compromise agreements (if any) and the risk that there will be no compromise agreements and then the future is really shrouded in mist.

And although the chances of a compromise agreement increase. It should be remembered that there is a huge resistance to reaching a compromise with them. Yesterday in the wake of the agreement with Fredo, the Connecticut Attorney General said: ‘The federal government had the power to put the criminals in jail, and they did not. Instead, they received fines and penalties that will never be paid in full. ”