Fed Reportedly Opens Criminal Investigation On Opioid Makers

A criminal investigation has been launched by federal prosecutors in Brooklyn on opioid manufacturers and distributors who are being blamed for aggravating the country’s opioid epidemic, per a Wall Street Journal (WSJ) report on Tuesday.

Reportedly subpoenas have been sent by the U.S. Attorney’s office in the Eastern District of New York to drug manufacturers, Teva pharmaceuticals (NYSE:TEVA) , Mallinckrodt (NYSE:MNK) , Johnson & Johnson (NYSE:JNJ) and Amneal Pharmaceuticals (NYSE:AMRX) besides two wholesale drug distributors McKesson Corporation (NYSE:MCK) and AmerisourceBergen (NYSE:ABC) . Some of these companies have reported having received subpoenas in their recent regulatory filings.

The WSJ story also mentioned that subpoenas may be sent to some more companies and the probe is only in its early stage.

Shares of all the above companies were in the red yesterday in response to this report. Teva declined around 8% while Mallinckrodt was down 3.9%. AmerisourceBergen dipped 3% and Amneal dropped more than 10% while McKesson fell roughly 5%. J&J’s stock also saw a marginal slip. Endo Pharmaceuticals (NASDAQ:ENDP) , which has also been named in opioid lawsuits but not cited in the latest WSJ report, also slid 5.5% on the same day.

Opioid drugs, which are used as painkillers, have high abuse potential. Use of drugs like morphine, codeine, oxycodone and fentanyl are opioid-based and highly controlled by the FDA.

Going by the Centers for Disease Control and Prevention estimate, in the past two decades, death toll rose to 400,000 due to opioid-based drug abuse. The report also states that 130 Americans die annually, on average, from an opioid overdose.

With significant increase in the number of deaths or instances of such substance abuse and high costs related to opioid overdose, the issue has intensified into a public menace. Several government organizations are taking steps to contain the widespread abuse of drugs. Lawsuits have been slapped against pharma companies across multiple states holding them responsible for the opioid epidemic crisis and deaths due to opioid overdose.

Many states aim to generate funds through penalties for abatement plans. A few of these companies have been penalized with hefty fines by district courts in some states. Meanwhile, others preferred out-of-court settlements by shelling out lump sum amounts to avoid trials.

Per the Controlled Substances Act, opioid manufacturing drugmakers are supposed to report large/infrequent or suspicious orders of controlled substances like opioids to the government, which may imply that the drugs are in use for nonmedical purposes. The federal prosecutors are enquiring if this rule was violated by the drugmakers/distributors who are brought to book.

The investigation may induce criminal charges, which will further escalate these companies’ already exorbitant legal costs due to the lawsuits.

J&J, Teva, Mallinckrodt, McKesson and AmerisourceBergen carry a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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