Drug stocks McKesson (MCK), AmerisourceBergen (ABC) and Cardinal Health (CAH) popped Tuesday on reports they could pay $21 billion to settle claims they helped fuel the nation’s opioid epidemic.
The potential settlement would lift an overhang on these names, Evercore ISI analyst Elizabeth Anderson said. According to Reuters, the three drug distributors would pay $21 billion over 18 years. Drugmaker Johnson & Johnson (JNJ) would be on the hook for $5 billion.
“There have been reports that a settlement could be close for the last few months,” she said in a note to clients. “An announced settlement will help release a major overhang for these names, though there may be some fluctuation in the ultimate number of states that do join the settlement.”
New York is also expected to announce a $1 billion settlement with the three distributors, she said.
On today’s stock market, the four drug stocks rose. McKesson stock jumped 3.1% to 194.24. AmerisourceBergen shares leapt 3.4% higher to 116.49. Cardinal Health stock surged 3% to 57.69. J&J shares inched up a fraction to 168.45.
Drug Stocks Pop On Potential Deal
The agreement would end thousands of lawsuits and years of litigation facing the four drug stocks. More than 40 states are expected to sign onto the deal, according to Reuters. Others could reject it in the hopes of securing a bigger payout through their own litigation.
Each state can accept just J&J’s offer or the distributors’ offer, Bloomberg reported, citing people familiar with the matter. The companies will pay bonuses to states that get more local governments on board. Most of the money will go toward addiction treatment and prevention programs.
Other companies have already resolved their opioid cases. Purdue Pharma and Mallinckrodt are in bankruptcy court. Teva Pharmaceutical (TEVA) and AbbVie (ABBV) subsidiary Allergan are on trial. Plaintiffs say the drugmakers, distributors and pharmaceutical chains all played a role in the opioid epidemic.
Drug stocks Teva and AbbVie also advanced. Teva stock rose 4.8% to 8.78. AbbVie shares lifted 0.6% to 116.05.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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