Opioid crisis: this is going to hurt
Litigation will be long and tortuous, with billions of dollars at stake
Americans are more likely to die from an accidental opioid overdose than in a car crash. The odds are one in 96, according to the National Safety Council. No wonder the federal judge overseeing 1,500 lawsuits against drugmakers and distributors described the opioid epidemic as a “man-made plague”. Late last year, he refused to dismiss claims, paving the way for a trial this autumn. Billions are at stake.
A similar spate of lawsuits led to a $206bn master settlement with tobacco companies nearly 20 years ago. Sales of opioids are a small fraction of those of tobacco products. But there are parallels, not least in the way businesses allegedly downplayed the risks. One opioid attorney claims to have evidence capable of securing a $100bn judgment. Analysts at Berenberg argue that the bill for manufacturers could be up to $50bn.
Privately held Purdue would be most exposed, as it has the largest market share. Its liability is estimated at $27bn. Next is US-listed Endo Intl at up to roughly $10bn, believes Bloomberg Intelligence. The rest, including Johnson & Johnson, Teva and Insys could be at risk for another $13bn. These are big numbers. The liability for Purdue and Insys could amount to more than 13 times their sales, it is said.
Markets are understandably nervous. Over three months, Teva’s share price has dropped 15 per cent, while Endo and Insys have fallen by nearly a half. The S&P 500 pharmaceuticals index is down 4 per cent over the same period.
The companies intend to push back strongly. They point out regulators approved their drugs. Overdoses often involved pills bought on the black market. Litigation will be long and tortuous. But with 130 Americans dying every day from an opioid overdose, the sector is to be avoided.
That takeaway is obvious enough. The subtler lesson is that supposed medical breakthroughs — powerful but non-addictive painkillers, for example — regularly prove to be nothing of the sort. Investors can thank their lucky stars they only bear the financial risks of such failures.