IBI: $15b in free drugs would only cost Teva $2b-4b

Teva

IBI Investment House pharma analyst Steven Tepper has calculated that the cost to Teva of a $15 billion opioid settlement would be dramatically less.

In response to the report in "Bloomberg" that Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) has proposed offering $15 billion of generic drugs for free, in settlement of all the opioid lawsuits against it in the US, IBI Investment House pharma analyst Steven Tepper has explained that the cost to Teva would be considerably less.

He said, "On the face of it the amount sounds preposterous but in actual practice the amount would be just several billions."

Tepper explains that the payment would be made in free generic pharmaceuticals that might cost $15 billion according to the retail price list but in terms of manufacturing expenses for Teva would cost dramatically less.

Tepper says that although at this stage there is a lack of details about the plan, he is making several assumptions. Teva's revenue from the sale of generic drugs is 30-50% of the price to the end-consumer; reciprocal margins are 30%-40% reflecting sales costs to Teva of 60%-70%; expenditure for Teva to manufacture the drugs for free distribution would be recognized for tax deductible purposes (about 20%).

Tepper said, "In our estimate, the cost in practice to Teva would amount to a much more modest total that is expected to be in the $2 billion to $4 billion range. Moreover, the cost would be spread over 10 years and with the current cost of financing, we are talking about a considerable benefit."

"The bottom line," Tepper added, "on the assumption that this is the compromise agreement that is being formed, then this is very positive news that removes the heavy cloud over the company with damage in current values of less than $2 billion."

Following the "Bloomberg" report, Teva's share price is up 8.03% on Nasdaq at $7.53, giving a market cap of $7.95 billion.

Published by Globes, Israel business news - en.globes.co.il - on October 16, 2019

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