International credit rating agency S&P Global believes that the lawsuit filed by 44 US states against Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) and other pharmaceuticals companies alleging price fixing in relation to generic drugs is negative for Teva's debt rating, but at present S&P is not changing the rating itself. S&P rates Teva's debt BB with a negative outlook (considered a "junk bond" rating).
S&P Global analyst Matthew Todd writes that at this stage the size and timing of the financial outcome of the lawsuit are uncertain, and that the lawsuit has no immediate effect on the rating or rating outlook of the companies concerned (besides Teva, Mylan, Novartis and other companies have been named).
Todd sees the amended antitrust complaint as a negative factor for the companies' credit ratings, "because of the increase in the number of drugs referenced in the complaint (around 100, up from only a few previously) and the more explicit references to evidence, including emails, text messages, phone call records, and unidentified witnesses.
"Although we generally view allegations of collusion and racketeering as difficult to prove," he adds, "we believe the states' case against these companies has strengthened, which increases the likelihood of a significant settlement."
On Teva in particular, Todd writes: "Teva is at the center of the complaint, we suspect the company could face the greatest potential liability. Our long-term issuer credit rating on Teva is contingent on its continued debt repayment over the next two years. Therefore, a significant near-term cash outflow and/or a multi-billion dollar litigation liability, which we view as unlikely at this time, could pressure our rating on the company."
Also last week, HSBC commented on the scale of this affair, and cut its share price target for Teva to $10 from $13, on the basis of the assumption that Teva will have to pay about $3 billion to settle the US lawsuit.
Published by Globes, Israel business news - en.globes.co.il - on May 19, 2019
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