Tuesday was a nasty day for biopharmaceutical stocks, as for the most part, share prices for a number of generic drug makers ended up tumbling significantly after Bloomberg reported that a number of state attorney generals had demanded a massive $45 billion from three leading drug distributors in the U.S. to settle pending litigation over opioids.
The report went on to say that in response, the drug makers in question counter proposed a $10 billion settlement. The supposed offers were made in the negotiations between the National Association of Attorney Generals and Cardinal Health (NYSE: CAH), AmerisourceBergen (NYSE: ABC), and McKesson (NYSE: MCK).
While investors were aware that a settlement offer was in the works, what they weren’t expecting was that the figure would be so high. Instead, most figured the three-drug companies would pay only $5 billion instead.
“With the distributors proposing $10 billion, the final number is likely to be higher (potentially even more than double),” wrote Evercore ISI analyst Ross Muken, who had personally spoken with investors of these companies and had told him they weren’t expecting such a massive settlement from authorities.
It’s unclear of precisely what this settlement described in the Bloomberg report, but overall, the drug makers will also be facing 2,000 additional lawsuits brought by local governments consolidated in a massive federal proceeding known as a multidistrict litigation.
It’s not sure whether the $45 billion requested from attorney generals would have settled just the claims brought by them, or if it would end up settling the entire combined litigation effort. If in the former case, investors would have to face even further settlements down the road for all these smaller, individual lawsuits being leveled against opioid makers.
So far, defendants in the opioid litigation haven’t been willing to settle the claims in a piecemeal fashion. Instead, they are choosing to work together to have more negotiating power collectively.
At the same time, the judge overseeing the federal multidistrict litigation, Dan Polster, heard arguments over a proposal that would create a legal structure that would allow defendants to negotiate with a single committee on behalf of all counties and cities in the entire country.
While state attorneys actually opposed this arrangement, the judge seemed supportive of the proposal during the hearing but went on to say that he would consider the arguments under advisement.
All three drug makers saw their share prices drug in response to these fears. With investors now spooked, stock prices of Cardinal, McKesson, and AmericsourceBergen all fell by 6.4, 5.9 and 6.1 percent respectively.
However, even worse hit were other generic-drug makers who aren’t as well-capitalized as their wealthier competitors and would be more seriously hurt by an unexpectedly large settlement. Shares of other pharmaceuticals such as Teva Pharmaceutical Industries, Mylan, Endo International, and Mallinckrodt, all were down 8.7, 6.6, 19 and 11.7 percent over the course of the day.
What does seem certain is that these cases are not going to be resolved quietly and that it’s going to be a costly affair for drug makers no matter what they do too.