Teva Pharmaceutical Industries Ltd.

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TEVA Refi Timeline

It’s been nerve-wracking as analysts with an OW (since early September) on near term maturities to see other companies settle the Ohio MDL case, but not Teva.

Yesterday, we got the first detailed reports about what a Teva settlement might look like, not just in Ohio but potentially much broader. The reporting by no means assures that Teva will get a “global” resolution; getting plaintiffs’ consensus let alone virtual unanimity will be challenging. But the reports are still favorable for Teva creditors.

Teva’s apparent offer of $15bn of pharma products over 10 years raises the question: what might be the cash costs of providing them? We figure COGS of 40-60% is a reasonable assumption. As an illustration, $1.5bn of product annually with a 50% cash cost would reduce Teva earnings by $750mm/year, a PV of just over $5bn. That’s higher than our assumed $1-3bn for EACH of Teva’s opioid & price-fixing exposures. So less available for the latter, but if a global resolution along these lines can be had, Teva can more readily access the refinancing markets.

Our cash cost assumption % could be too high if a lot of branded product is included in the $15bn, and too low if it’s 100% low-margin generics, but we think 50% is a decent placeholder for creditors to use.

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Teva, Opioid Drugmakers Climb on Settlement Talk Hopes (1)

 

Drugmakers with ties to opioid painkillers -- including Teva Pharmaceutical Industries Ltd, Mallinckrodt Plc and Endo International Plc -- climbed in U.S. trading as settlement talks appeared to advance.

The New York Times reported that drugmakers and distributors were nearing a $50 billion settlement that would release AmerisourceBergen Corp., Cardinal Health Inc., McKesson Corp., Johnson & Johnson and Teva from lawsuits. With four chief executives summoned to meet with the judge, according to an earlier Bloomberg report, settlement talks may be moving closer to their conclusion.

The increased chances of a global opioid settlement and rock bottom valuations were enough for one Gabelli analyst to raise his rating on Teva. The generic drugmaker was upgraded to a buy from a hold.

Even with a liability estimate of $10 billion, Gabelli’s Kevin Kedra said Teva is trading at less than half of his estimated 2020 private market value of $22 -- the price at which the drugmaker could be taken private.

He expects the $15 billion in free drugs Teva offered in the reported settlement talks may be worth $5 billion to $7 billion on a net sales basis, with some of the supply coming from medicines Teva would not have sold anyway.

A settlement could be months away, if not years, Kedra cautioned. The trial is scheduled to start Oct. 21, and UBS said previously that the judge would only delay the start “if real progress had been made toward settling.”

Teva’s American depositary receipts jumped as much as 6.6% intraday in New York on Thursday. Endo gained as much as 16% to the highest since June 11, while Mallinckrodt added 6%.

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Teva Settles Track 1 Opioid Cases and Reaches Agreement on Framework to Settle Remaining Litigation

Business Wire

PARSIPPANY, N.J. & JERUSALEM -- October 21, 2019

Teva Pharmaceutical Industries Ltd. and its affiliates today announced a settlement agreement with both Cuyahoga and Summit counties of Ohio. The settlement resolves the counties’ claims and removes Teva from the Track 1 opioid litigation. Under the terms of the settlement, the Company will provide the two counties with the critical opioid treatment medication buprenorphine naloxone (sublingual tablets), known by the brand name Suboxone®, valued at $25 million (at wholesale acquisition cost) and distributed over three years to help in the care and treatment of people suffering from addiction (to be allocated at each county’s discretion) and a cash payment in the amount of $20 million, to be paid over three years.

The Company also confirms that there is an agreement in principle with a group of attorneys general from North Carolina, Pennsylvania, Tennessee and Texas, as well as certain defendants, for a global settlement framework. The framework is designed to provide a mechanism by which the Company attempts to seek resolution of remaining potential and pending opioid claims by both the states and political subdivisions. Under this agreement, Teva would donate buprenorphine naloxone (sublingual tablets), in quantities of up to the amount needed to meet the majority of the currently estimated U.S. patient need over the next 10 years, with a value of approximately $23 billion (at wholesale acquisition cost). Buprenorphine naloxone is the primary drug used to treat opioid addiction. The Teva product donation will significantly contribute to the care and treatment of people suffering from addiction and assist impacted communities. Teva would also provide a cash payment of up to $250 million over 10 years.

The Company is pleased to positively contribute to solving the nationwide opioid epidemic. Teva has consistently committed to complying with all laws and regulations regarding its manufacture and sale of opioids. Neither settlement includes an admission of liability.

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{IS} TEVA {IS} Settlement

 

* Teva has agreed to a $23.25bn global settlement with key states and municipalities.

 

* "Payment" will be in the form of:

- Cash payable over ten years of $250mn

- An estimated $23bn of Suboxone (opioid addiction treatment) to be supplied over the next ten years.

 

*** Bottom Line ***

* This is a good outcome, relative to expectations, for TEVA

1) It should simply address the uncertainty surrounding this matter

2) The $23bn headline number has an economic cost of much less than $23bn as it is based on wholesale acquisition costs. I'd estimate estimate that the actual cost to TEVA might be about 60% of the headline figure as TEVA's overall COGS is about 56%.

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Teva Pharmaceutical Industries Ltd -- Moody's: Teva's proposed opioid framework credit negative, but cash outlays are modest

Moody's•October 22, 2019

Moody's Investors Service commented that the announcement by Teva Pharmaceutical Industries Ltd. ("Teva") of a proposed framework to resolve outstanding opioid litigation is credit negative because of its adverse effect on the company's earnings and deleveraging. This is primarily because of the costs Teva would incur in supplying buprenorphine naloxone tablets -- a treatment for opioid dependence -- for a period of 10 years. There is currently no impact on Teva's ratings including the Ba2 Corporate Family Rating or the negative outlook

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UniCredit

von gestern (!)
 

Teva (Buy)

Yesterday evening, a landmark opioid settlement (bellwether trial) that included Teva (Ba2n/BBn/BB-n) and three other

companies has increased the probability of a global opioid settlement in our view, which is credit positive. Teva and the drug

distributors AmerisourceBergen, Cardinal Health and McKesson, which handle around 90% of US prescription drugs, will

together pay USD 215mn immediately. Teva is paying USD 20mn in cash to be paid over three years and will provide the two

Ohio counties who brought the suit with the critical opioid treatment medication, Suboxone, valued at USD 25mn and distributed

over three years, to help in the care and treatment of people suffering from addiction. The deal settles claims brought by Ohio’s

Cuyahoga and Summit counties, which had accused the companies of fueling a nationwide opioid epidemic. This so-called

bellwether trial should lend support to a broader settlement of 2,600 lawsuits pending over the opioid crisis. Teva has also

confirmed that there is an agreement in principle with a group of attorneys general from North Carolina, Pennsylvania,

Tennessee and Texas.

 

We confirm our buy recommendation on Teva. Since 17 October 2019, spreads of TEVA issues (Ba2/BB/BB-) denominated in

EUR have already tightened by around 15bp to 25bp. Both Bloomberg and Reuters had reported that Teva had offered to give

away generic drugs valued at USD 15bn for free as part of a deal to resolve the opioid litigation cases against it. In our view,

TEVA issues are already factoring in a worst-case scenario, and spreads are trading at the upper end of BB rated issuers and

into the single-B area. In our view, spreads already reflect more than a one-notch downgrade by Moody’s, S&P and Fitch, all of

which have a negative outlook.

 

 

Dennoch stellen sich Fragen:

 

Teva bonds performed strongly yesterday while the stock was unchanged. We’re keen to learn more about what Bloomberg describes as a proposed global settlement that would “allow the defendant companies to exit any remaining litigation and foreclose further liability for the crisis.” We’d also like to learn more about the type and source and cost of the stated $23bn in Suboxone that Teva says it’s prepared to supply to help resolve litigation.