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Stock Strategist Industry Reports

What Opioid Litigation Means for Healthcare Stocks

It continues to inflict pain on drug manufacturers and distributors.

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Across the United States, there are thousands of civil cases, mostly in state courts, represented by state prosecutors to compensate families who have been hurt by the opioid epidemic. The plaintiffs in these cases are accusing drug manufacturers of actively marketing addictive drugs and pharmaceutical distributors of failing to detect or report suspicious opioid orders. Many of the defendants in these cases are generic drug manufacturers, pharmaceutical distributors, and retail pharmacies that we cover.

The three pharmaceutical distributors we cover--AmerisourceBergen (ABC), Cardinal Health (CAH), and McKesson (MCK)--handle roughly 90% of the drugs dispensed across the country. Their sophisticated IT infrastructure allows them to track and manage the supply and logistics of drugs. As a result, a key role of the distributors is to track drugs and provide copies of drug orders to the Drug Enforcement Administration. Historically, this role didn’t require policing, but in the opioid civil suits, distributors have been accused of marketing and profiting from the distribution of opioids. The prosecution teams allege that the distributors should have alerted the DEA of suspicious spikes in opioid volume, a step over and above the required reporting. Walgreens (WBA) was included with this group as the company has a generic sourcing joint venture with and more than a quarter equity stake in AmerisourceBergen. There has been considerable speculation that the distributors are in active discussions with prosecutors with proposed financial settlements ranging from $3 billion to $15 billion for each distributor. The distributors should be able to absorb the proposed fines as long as they are spread over multiple years.

Soo Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.