February 10, 2020 02:43 PM ET
It appears more and more likely a case against opioid manufacturers and distributors will proceed to trial in New York state, keeping Bank of America bearish on the companies despite recent performance.
The recent denial of a motion to delay the case — which the state brought against the companies —and other factors make it look likely it will go to trial as scheduled March 20, BofA Securities analyst Jason Gerberry said in a Monday note.
That's leading Gerberry to keep Underperform ratings on industry stocks in his coverage, including opioid manufacturers Teva Pharmaceutical Industries Ltd (NYSE:TEVA) and Mallinckrodt PLC (NYSE:MNK), even though they've generally outperformed the market.
What To Know About The New York Opioid Case
Lawsuits against opioid makers and distributors from eight New York counties were consolidated into one case brought by the New York attorney general in 2017.
Initially the case was focused on Purdue Pharma, which New York accused of helping create the opioid epidemic, but the company went bankrupt. That led to the case changing focus to a broader list of allegations against other manufacturers and distributors.
Gerberry said the case has gotten investor attention recently as a trial has approached with no updates on potential settlements.
"The ongoing opioid litigation remains in its early innings and the financial risk remains difficult to quantify, which is a key reason we are Underperform rated on the companies with opioid exposure in our coverage," the analyst said.
Other Opioid Cases
So far, two other cases elsewhere in the country have ended in settlements. In another case, in Oklahoma, a judge ordered Johnson & Johnson (NYSE:JNJ) to pay more than $500 million for its alleged role in the epidemic.
A proposed $48-billion settlement framework was announced in October, but most states have declined to participate in the settlement approach.
Gerberry said downside risk isn't fully priced in to Teva and Mallinckrodt as the New York trial approaches, but also because other state litigation, including a case in Ohio, persists.
Also, it has been months since the settlement framework, but few states have seemed interested. Without a global settlement, even if states do settle in piecemeal fashion, it could stretch out costs over a long time, he said.
Gerberry also noted a recent buy-side survey that "suggests institutional investors are bearish on opioid-exposed names ahead of (the New York) case, which runs counter to recent outperformance."
Besides New York, other cases against the opioid industry that could go to trial in 2020 include those in Ohio, Alabama, Mississippi, Louisiana and Washington.
