A Bloomberg report on a potential settlement of the long-running antitrust probe related to price-fixing allegations against generic drugmakers drove shares of major players in the generic industry on Nov 25. The report stated that over the past six months, companies like Teva Pharmaceutical (TEVA - Free Report) and India's drugmaker Sun Pharmaceutical have been engaged in private negotiations with the U.S. Justice Department on price-fixing litigations against them.
A settlement related to price-fixing allegation will be a boon to the generic drugmakers as these cases are an overhang, increasing uncertainty among investors and legal expenses for companies. The news led to a rise in share prices of Teva Pharmaceutical as well as other generic players namely Mylan, Mallinckrodt and Endo International.
It was alleged previously that generic drugmakers conspired among themselves to keep the prices of major generic drugs high to boost their margins, costing the federal government’s health programs billions of dollars. These allegations have been made over the past several years and there have been hints about possible charges to be framed against the companies soon. Apart from federal inquiry, separate similar cases have been filed in the majority of U.S. states.
Although there is no clarity on the future course of the price-fixing allegation settlement, a deferred prosecution agreement is a possible solution as discussed with the authorities. A deferred prosecution agreement will allow companies to admit to certain allegations but will shield them from indictment. However, generic drugmakers have to co-operate with investigations and have to pay fines. A similar agreement was used to resolve allegations against the privately held, manufacturer of generic pharmaceuticals, Heritage Pharmaceuticals, in 2016.
Meanwhile, the federal government has been trying to broaden patients’ access to a wide range of medicines by making these affordable. In this scenario, a deferred prosecution agreement can be attractive to both government and the companies, as indicting a company may put certain restrictions on its marketed drugs, which can lead to higher prices of drugs due to lower competition. The companies will benefit from such an agreement and continue to do business as usual.
However, the Justice Department is yet to comment on the probe. The timeline for a possible solution remains uncertain. Meanwhile, the department may decide to indict any related company.
Separately, the ongoing multidistrict litigation in a U.S. District Court in Ohio, related to the abuse of opioid-based drugs, against some of the generic drugmakers is also nearing an outcome. The verdict in the Ohio litigation should pave the way for pending opioid litigations in other states. Although several companies have settled before the litigation, a positive verdict will be a major relief for the accused companies.
Investors can take a look at these three generic drug companies, which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have been witnessing rising share prices and positive estimate revisions, despite these uncertainties in the generic industry.
Bausch Health Cos Inc. (BHC - Free Report) )
This Canadian drugmaker has seen a 50% increase in its share price so far this year. The Zacks Consensus Estimate for the company’s 2019 and 2020 earnings have been revised 5.1% and 3.2% upward, respectively, over the past 30 days. The company carries a Zacks Rank #2.
Zynerba Pharmaceuticals, Inc. (ZYNE - Free Report) )
The Zacks Consensus Estimate for this Devon, PA-baseddrugmaker’s loss per share for 2019 and 2020 has narrowed 15.4% and 5.9%, respectively, over the past 60 days. Zynerba has a Zacks Rank #1. The stock has surged 120.5% so far this year.
Akorn, Inc. )
Shares of this Lare Forest, IL-baseddrugmaker has gained 18.3% so far this year. The Zacks Consensus Estimate for the company’s loss per share for 2019 has narrowed 35.3% and earnings per share has moved up 11.5% for 2020, over the past 30 days. It carries a Zacks Rank #2.
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