Teva Analyst Estimates $1B In Price-Fixing Liability Following DOJ Indictment
On Tuesday, the Wall Street Journal reported the U.S. Justice Department has indicted Teva Pharmaceutical Industries Ltd (NYSE: TEVA), alleging the company participated in three different drug price-fixing conspiracies.
On Wednesday, one Wall Street analyst said the price-fixing
charges are just the latest in a growing list of reasons why investors should
avoid Teva stock.
The Teva Analyst: Bank of America analyst Jason Gerberry has
reiterated his Underperform rating and $8 price target for Teva.
The Teva Thesis: The Teva indictment didn’t come completely
out of the blue considering the DOJ subpoenaed several generic drug companies
back in 2015 and 2016 related to pricing practices. Gerberry said the timing of
the Teva indictment is also not surprising given these drug companies were
approaching the potential five-year statute of limitations related to the
2015-2016 investigations.
Gerberry said Taro Pharmaceutical Industries Ltd. (NYSE:
TARO), Sandoz and other drug companies that operate in Teva’s markets have
already been indicted or pled guilty to price fixing, but the DOJ has yet to
win a case in court proving criminal or civil misconduct.
Given the high bar for establishing such conduct in court
appears to be high, Gerberry said the real risk associated with the indictment
for Teva investors will be the costs associated with a potential multi-year
legal defense and/or a settlement.
“Based on prior settlements we assume $1bn in contingent
liability for TEVA for generic price fixing matters,” Gerberry wrote in the
note.
Another potential $1 billion in charges is more bad news for
Teva investors, who already litigation challenges tied to the opioid epidemic.
Benzinga’s Take: A potential $1 billion price-fixing
settlement might not be as tough a pill to swallow for investors if Teva’s
business were otherwise healthy. However, the company is already struggling
with lackluster branded drug sales growth and reported a 7.3% decline in
revenue in the most recent quarter.
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