Opioids - Teva reached an agreement with Louisiana: will pay $ 15 million over 18 years

Good news for the pharmaceutical company Teva. Teva's subsidiary in the United States has reached an agreement with the state attorney general of the state of Louisiana, which settles the state's lawsuits dealing with opioids. The agreement is subject to final approval by the state on November 1st. Under the agreement all the counties in the state release Teva from the claims as part of the arrangement.
Under the terms of the arrangement, Teva will pay Louisiana $ 15 million over 18 years, and will provide an additional contribution of life-saving drugs, valued at $ 3 million (at retail price), to aid opioid addiction and recovery.
This is a relatively low amount whose current value is significantly lower than its nominal value due to the long duration (18 years). In practice, the effective cost to nature probably amounts to about $ 7-8 million. This amount is the opening shot against the other countries where the situation for Teva is more serious, but even if we refer to higher compensation, it is a price tag that imposes fines and compensation on Teva that it can meet.
Two years ago, Teva proposed a compromise settlement to end the legal proceedings against it in the context of the opioids - the payment of cash compensation in the amount of $ 250 million, along with the contribution of drugs to treat opioid addictions with a decade of sales.
The opioid affair actually determines Teva's future and the behavior of its stock. The financial implications can indeed be dramatic: At Teva's current price level, it can be roughly estimated, as a rule of thumb, that every $ 1 billion in potential compensation Teva will bear, given the company's current level of financial leverage (EBITDA ratio of 5 ), Translates to a one-whole subtraction of a single dollar in the price per share. That is, for example, a potential $ 4 billion payment in compensation reduces an order of magnitude of $ 4 from Teva’s stock value.
It seems that if in the past estimates were around $ 2-3 billion at current values ​​then today's announcement may signal lower compensation, and perhaps more importantly - it heralds progress in matters of compromise. As for Teva's pricing, the market is already pricing a certain amount of compensation at the current price, so that notices of compensation may actually contribute to the share, mainly due to the certainty in the matter. The capital market is known to prefer certainty over uncertainty, even when the certainty is difficult.
The company said: "Teva continues to negotiate in the US, and at the same time is open to promoting opportunities with individual countries in the spirit of the arrangement published today, as long as such arrangements are in line with the national outline. The company will also continue to defend itself in court in states like New York and California, where it has not yet reached a settlement. Teva believes that the famous arrangement today with Louisiana is a positive step forward towards bringing life-saving drugs to people suffering from opioid addiction. "