FOCUS-Teva’s proposed opioid settlement could cost drugmaker pennies on the dollar
(Repeats to widen distribution)
By Michael Erman and Nate Raymond
NEW YORK/BOSTON, Oct 23 (Reuters) - Teva Pharmaceutical
Industries Ltd's proposed $23 billion drug giveaway to settle
thousands of U.S. opioid lawsuits will likely cost the company a
fraction of that figure due to how it has valued those
medicines, according to a Reuters review of pricing data and
When Teva announced the value of the donated
medicine - a generic version of opioid addiction treatment
Suboxone - it based the figure on the drug's list price, which
does not account for significant discounts routinely provided by
If based on the estimated cost to manufacture the drugs, the
value could be as low as $1.5 billion, drug pricing consultants
and industry analysts say. A Teva spokeswoman declined to
comment on the cost analysis for generic Suboxone, a combination
of buprenorphine and the opioid reversal agent naloxone.
In interviews with Reuters, lawyers representing local
governments in the opioid litigation said the figure proposed by
Teva inflates the real value of the drugs. They said the
proposal will not be enough to address a nationwide addiction
crisis that has claimed some 400,000 lives over the last two
The deal is "overvalued to make the settlement look better,"
said Hunter Shkolnik, a lawyer on the plaintiffs executive
committee that is managing more than 2,300 federal lawsuits
consolidated in the U.S. District Court in Cleveland.
"I don't believe a no-cash payment from Teva, one of the
largest generic manufacturers in the world, is appropriate," he
Israel-based Teva is looking to reach a nationwide
settlement over its role in selling opioid painkillers, together
with drugmaker Johnson & Johnson and the three largest
U.S. drug distributors, AmerisourceBergen Corp, Cardinal
Health Inc and McKesson Corp.
Negotiations between these companies and four state
attorneys general leading the talks on behalf of their
counterparts have focused on a total settlement value worth
about $48 billion, including cash and free
On Monday, Teva signaled progress in talks over its
contribution aimed at directly helping addiction victims of this
major public health crisis. Attorneys general of the four states
had agreed on a proposed settlement under which Teva would
provide $23 billion worth of generic Suboxone and pay $250
million in cash over 10 years, the company said.
Teva said the donated drugs should meet most of the
currently estimated U.S. patient need for the next decade.
The free drugs in lieu of cash would also help Teva avoid
adding new debt to its balance sheet at a time that it is
struggling to return to growth.
Teva shares rose 8% after it disclosed details of the
The company denies any wrongdoing in its sale of opioids,
saying it did not actively promote its generic versions of the
painkillers with doctors. Many of the current lawsuits accuse
drugmakers of aggressively marketing the medicines in a way that
downplayed their potential addiction risk.
INFLATED LIST PRICES
Scrutiny of Teva's proposed settlement followed the
company's disclosure on Monday that it would use a benchmark
called “wholesale acquisition cost” (WAC) to determine the value
of the drugs provided for free.
WAC - frequently referred to as the list price of a drug -
does not include discounts or rebates and is often several times
higher than what patients actually pay at the pharmacy.
"WAC cannot be trusted as a pricing benchmark for generic
drugs," said Eric Pachman, founder of pharmaceutical consultancy
3 Axis Advisors.
According to 3 Axis data, Teva's list price for its generic
Suboxone ranged from 3 to 5 times what retail pharmacies paid,
on average, for it in August. And that price represents a
premium over the company's manufacturing costs.
Jefferies analyst David Steinberg estimated that the cost of
the donated drugs would be around $1.5 billion, while Bernstein
analyst Ronny Gal suggested they could cost about $2.3 billion
to produce. JP Morgan analyst Chris Schott's estimate of
manufacturing costs for generic Suboxone was higher, ranging
from $5.75 billion to $9.2 billion, still a long way from the
company's projected $23 billion value.
Avoiding significant cash costs is important for Teva, which
is working to pay down nearly $27 billion in net debt, a legacy
of its ill-timed 2016 purchase of Allergan Plc's generic
drugs business Actavis generics. The profit margin for generic
drugs has fallen sharply since.
Ori Hershkovitz, an independent consultant to pharmaceutical
companies, previously held a mostly short position in Teva while
at Nexthera Capital, a New York-based healthcare-focused
Teva's proposed settlement, if accepted, should help allay
investor concerns over the opioid cases, Hershkovitz said. But
he still doubts the company will be able to correct its most
"The high debt load and the situation in the generics market
will make it impossible to repay this debt," he predicted. "They
might have won the opioid battle but they are going to lose the
(Reporting by Michael Erman and Nate Raymond;
Additional reporting by Tom Hals in Wilmington, Delaware, Tova
Cohen and Steve Scheer in Tel Aviv; Editing by Michele Gershberg
and Bill Berkrot)
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