What happened

Shares of Teva Pharmaceuticals (TEVA 0.39%) rose over 18% last month, according to data provided by S&P Global Market Intelligence. The generic drug specialist reached a settlement with two Ohio counties related to its role in the opioid crisis, which averted the need to progress the case to a federal trial. The company agreed to pay $20 million in cash and donate $25 million in Suboxone, a drug used to treat opioid addiction. The cash payment was significantly lower than the amount several Wall Street analysts were expecting.

Investors breathed another sigh of relief when it was reported that the same formula used to determine the settlement payouts in Ohio could be applied to a global settlement, or one that would end all outstanding lawsuits across the United States. For its part, Teva Pharmaceuticals has offered to pay $250 million in cash and donate $23 billion in generic Suboxone over a decade. 

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Image source: Getty Images.

So what

Considering some analysts expected Teva Pharmaceuticals to make total cash payments measured in billions of dollars to settle lawsuits related to the opioid epidemic across the country, investors grew hopeful that the company might be able to avoid the worst-case scenario. 

While the proposed global settlement has not been finalized, it's worth pointing out that most settlements announced to date have come in much lower than the worst-case scenarios feared by Wall Street. That's primarily because local authorities want help combating the opioid epidemic now, not after dragging out lawsuits that could take years to conclude. Until a deal is struck -- if one can be agreed upon at all -- investors can't know for sure if the company will wrap up its legal and financial risks on terms deemed acceptable to shareholders.

Now what

Avoiding a multibillion-dollar cash settlement would certainly be welcome news for Teva Pharmaceuticals, but donating $23 billion in Suboxone would still significantly weigh on operations of this pharma stock for the foreseeable future. That price tag is calculated using the retail price of the drug, so the true cost to the business would be lower, calculated as total expenses incurred manufacturing, packaging, and distributing the drug (and the loss of profits on the donated product). Nonetheless, that would pose a significant headwind to Teva's business that investors cannot overlook.