Shares of big pharma companies, including Teva Pharmaceutical, Mallinckrodt and Endo International soared right after Johnson & Johnson was ordered to pay a much smaller-than-expected fine in the biggest opioid trial so far.
What is the U.S. opioid epidemic?
Today, the United States is suffering one of the most devastating health crises in history. It all began in the late 1990s, when pharmaceutical companies increased opioid prescriptions by 300%, reassuring medical community that people wouldn’t become addicted to opioid painkillers.
As a result, increased prescription of opioid drugs led to widespread misuse. Before it became clear that these medications are highly addictive, the problem has transformed into a national crisis.
Today, over 600 state, county and city governments in the United States filed opioid-related lawsuits, declaring the fight against the opioid crisis.
Fight against the opioid crisis
According to the most recent estimates, more than 55,000 Americans die every year from drug overdose, which has already become a primary cause of death for people under the age of 50. 60% of these deaths are caused by opioids, which is three-times higher than 15 years ago.
Hundreds of governmental entities have filed lawsuits against opioid drug manufacturers and wholesale distributors with the aim to get reimbursements for government spending on fighting overdoses and opioid addictions.
The defendants of these nation-wide struggle against the big pharmaceutical companies include McKesson Corporation, Purdue Pharma, Janssen Pharmaceuticals (a subsidiary of Johnson & Johnson), Teva Pharmaceutical, Endo International, Watson Pharmaceutical and others.
Drugmakers held responsible for opioid crisis
Opioid lawsuits usually accuse wholesale distributors, who supposedly violated the Federal Controlled Substances Act by failing to notify the Drug Enforcement Administration of suspicious opioids purchases – orders of unusual frequency and size.
They say big pharma companies exaggerated the benefits of hazardous medications, knew the drugs were prescribed excessively and didn’t warn the doctors of the extremely addictive nature of opioid painkillers.
Moreover, drug manufacturers are accused of bribing doctors and artificial increase of opioid usage. For example, only in Ohio there have been 793 million prescribed doses, which is 60-times larger than the state’s overall population.
In 2017, McKesson corporation – one of the leading American distributors of pharmaceuticals – paid a $150 million civil penalty for violating the Controlled Substances Act. The company failed to report suspicious orders of hydrocodone and oxycodone.
The same year Mallinckrodt – a large pharmaceutical corporation, producing oxycodone – agreed to pay $35 million to end a U.S.-led investigation into the company’s reporting of suspicious orders of controlled substances.
Earlier in 2019, Purdue Pharma and Teva Pharmaceutical, also accused of being responsible for the drug crisis, settled with the state before the trial began and agreed to pay $270 million and $85 million respectively.
The only defendant who actually went to court was Johnson & Johnson. It was the largest and the most closely watched lawsuit against any opioid manufacturer. In an eight-week trial, Johnson & Johnson became the first drugmaker to be held responsible for the opioid crisis.
Pharma stocks surge after smaller-than-expected opioid fine for Johnson & Johnson
An Oklahoma judge Thad Balkman ordered Johnson & Johnson to pay a $572 million fine, which is significantly less than the $17 billion requested by the prosecutors. It was the first attempt to hold a drug-manufacturer accountable for boosting the nation-wide opioid epidemic.
The company that has built a reputation as a family-friendly and responsible manufacturer of baby powder and soap, was found guilty in “false, misleading and dangerous marketing campaigns that had caused exponentially increasing rates of addiction, overdose deaths”.
The J&J lawyer Sabrina Strong expressed the company’s readiness to file an appeal. In its public statement to CNBC, Johnson & Johnson claimed that “Janssen did not cause the opioid crisis in Oklahoma, and neither the facts nor the law support this outcome”.
Although the J&J case became the first trial of a drug manufacturer for the damage brought by prescription painkillers, the size of the fine – $572 million instead of $17 billion – caused a surge in the company’s stock.
Johnson & Johnson shares jumped more than 5%, which resulted in a $13.5 billion market cap gain.
Teva Pharmaceutical stock also rose by 5%. Initially, Mallinckrodt jumped 7%, but retraced its gains soon after.
Commenting on the recent Oklahoma ruling, Johnson & Johnson general counsel Michael Ullmann said “We recognise the opioid crisis is a tremendously complex public health issue and we have deep sympathy for everyone affected. We are working with partners to find ways to help those in need.”
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