Here's Why Teva Pharmaceutical Is Sinking Today

A larger-than-expected legal settlement might be a harbinger of things to come.

Maxx Chatsko
Maxx Chatsko
May 28, 2019 at 1:11PM
Health Care

What happened

Shares of Teva Pharmaceutical Industries (NYSE:TEVA) fell over 11% today after the company announced it had agreed to pay $85 million to the state of Oklahoma for its role in the American opioid crisis. While the business can comfortably afford the higher-than-expected payout, analysts are worried that the settlement marks only the beginning. 

That's because the generic drug manufacturer is involved in legal disputes with many states for its opioid distribution practices. Separately, attorneys general from 44 different states are pursuing legal action against many companies in the generic drug industry for an alleged price-fixing scheme. Teva Pharmaceutical was identified as the conspiracy's leader.

As of 12:43 p.m. EDT, the stock had settled to an 11.1% loss.

A declining stock chart on a chalkboard.

Image source: Getty Images.

So what

How painful could litigation become for Teva Pharmaceutical? UBS analyst Navin Jacob thinks the Oklahoma settlement is an indicator of future payouts, estimating that the business could be forced to spend as much as $4.1 billion to settle ongoing opioid and price-fixing lawsuits. That marks a significant increase from the roughly $1 billion previously expected. The business held just $1.97 billion in cash and cash equivalents at the end of March.

Now what

It's been an awful year for Teva Pharmaceutical stock -- and investors haven't even made it through May. Shares of the generic drug manufacturer are down 37% year to date and more than 81% in the last three years. Whether or not the $4.1 billion estimate proves true, investors don't need much of an imagination to see that there's a significant amount of uncertainty hanging over the business. That suggests volatility is here to stay.