Teva Shares Undervalued Despite Opioid Case

Soo Romanoff: Within the backdrop of the politically charged opioid epidemic, individuals, cities, counties, and states have come forth to accuse drug manufacturers, distributors, and pharmacies of aggressively marketing or failing to report suspicious opioid drug use. This complex matter is more than a decade old, and has escalated to over 2,000 cases in the federal court system that are now being referred to as a special legal procedure referred to as a multidistrict litigation. This is similar to the landmark asbestos MDL in 1991 involving over 100,000 cases.

A major complication in reaching a global settlement for the opioid MDL, covering over 2,000 cases and tens of thousands of plaintiffs, has been the strong interests and personalities involved. Also complicating matters is the outlier Purdue settlement which resulted in a bankruptcy. Track one of the highly anticipated landmark federal court case was settled at the 11th hour where the three major distributors and Teva agreed to a cash settlement with Cuyahoga and Summit counties in Ohio for $260 million in cash. These two counties are said to have been hurt most by the opioid epidemic, and the settlements will likely be considered a bellwether and influence future settlements.

Teva's shares have come down sharply and have declined nearly 70% from the 52-week high with the rise of opioid litigation as the company is highly levered and has been negatively impacted by generic deflation. With the progression toward a global settlement, traction on its innovative drugs, stabilization of generic pricing coupled with its cost savings initiatives, we view the going-concern issue to be overblown and view Teva shares as undervalued.