Benzinga | Aug 26, 2020 03:36PM EDT

Teva Analyst Estimates $1B In Price-Fixing Liability Following DOJ Indictment

On Tuesday, the Wall Street Journal reported the U.S. Justice Department has indicted Teva Pharmaceutical Industries Ltd (NYSE:TEVA), alleging the company participated in three different drug price-fixing conspiracies.

On Wednesday, one Wall Street analyst said the price-fixing charges are just the latest in a growing list of reasons why investors should avoid Teva stock.

Related Link: US Indicts Teva Pharmaceutical In Generic Drug Price-Fixing Case

The Teva Analyst: Bank of America analyst Jason Gerberry has reiterated his Underperform rating and $8 price target for Teva.

The Teva Thesis: The Teva indictment didn't come completely out of the blue considering the DOJ subpoenaed several generic drug companies back in 2015 and 2016 related to pricing practices. Gerberry said the timing of the Teva indictment is also not surprising given these drug companies were approaching the potential five-year statute of limitations related to the 2015-2016 investigations.

Gerberry said Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Sandoz and other drug companies that operate in Teva's markets have already been indicted or pled guilty to price fixing, but the DOJ has yet to win a case in court proving criminal or civil misconduct.

Given the high bar for establishing such conduct in court appears to be high, Gerberry said the real risk associated with the indictment for Teva investors will be the costs associated with a potential multi-year legal defense and/or a settlement.

"Based on prior settlements we assume $1bn in contingent liability for TEVA for generic price fixing matters," Gerberry wrote in the note.

Another potential $1 billion in charges is more bad news for Teva investors, who already litigation challenges tied to the opioid epidemic.

Benzinga's Take: A potential $1 billion price-fixing settlement might not be as tough a pill to swallow for investors if Teva's business were otherwise healthy. However, the company is already struggling with lackluster branded drug sales growth and reported a 7.3% decline in revenue in the most recent quarter.