Teva Settles With Oklahoma, Shares Fall Following Downgrade

Shares of Teva Pharmaceutical Industries Limited (NYSE:TEVA) fell almost 12.4% on May 28 following media reports of a rating downgrade of the company by an analyst at UBS Group AG (NYSE:UBS) . The analyst downgraded the company following the announcement of a settlement with the state of Oklahoma related to abuse of opioids. The analyst believes that Teva’s litigation costs related to opioid abuse and price fixing of generic drugs can run into several billions of dollars.

On May 26, Teva agreed to pay $85 million to resolve Oklahoma’s claim that the company was among the entities responsible for opioid epidemic in the state. The settlement comes just before the start of the trial against the company as well as J&J’s (NYSE:JNJ) subsidiary, Janssen in the opioid abuse case.

While J&J fell 1.3% on Monday, Mylan (NASDAQ:MYL) , another company accused in the drug fixing litigations, declined 5.7%. The decline in Mylan’s shares was likely due to anticipated rise in litigation cost as well.

In the press release, Teva stated that the settlement with the state does not establish the allegation against the company but was rather part of the company’s strategy to focus on long-term stability by removing the court trial overhang.

Moreover, the company defended itself by stating that the company’s approval for a generic version of naloxone spray last month will help it fight opioid epidemic. The drug is widely recognized as an essential lifesaving medication to combat opioid abuse.

Teva’s shares have declined 29.5% so far this year compared with the industry’s decline of 7.6%.

In a separate press release, the company announced that it has received approval for Ranexa extended release tablet, which is indicated for the treatment of chronic angina. Sales of the drug in the past 12 months ending February 2019 were $938 million, representing a significant market in the United States.

Teva has a strong pipeline of generic drugs with several pending regulatory filings in the United States and Europe. This should help the company maintain its strong position in the global generics market. The company is focusing on expanding into emerging markets, which have higher potential as penetration remains low. The company is also undertaking several restructuring initiatives, which are expected to generate $3.0 billion in savings by the end of 2019, improving margins.

However, Teva is facing multiple challenges, which can hinder its growth, including accelerating generic competition for multiple sclerosis drug, Copaxone, and new competition for branded products as well as pricing erosion in the U.S. generics business. The company also has a huge debt load.

Zacks Rank

Teva currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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