Walgreens, CVS, Rite Aid, and Walmart face $30 billion-35 billion in liabilities.
August 14, 2020 – Capstone believes the focus of state attorneys general and municipalities opioid litigation will shift to chain pharmacies—primarily Walgreens Boots Alliance Inc. (WBA), CVS Health Corp. (CVS), Rite Aid Corp. (RAD), and Walmart Inc. (WMT)—as opioid distributors and several opioid manufacturers resolve the majority of their outstanding litigation via a settlement by the end of 2020. This shift will result in these companies facing increased outstanding litigation, more trial dates at both the federal and state court levels, and intensified negative public sentiment toward these chain pharmacies for their alleged role in perpetuating the opioid crisis. Ultimately, we believe a global settlement is a near inevitability, and the big four chain pharmacies face $30 billion to $35 billion in liabilities—a larger settlement than the $22 billion to $25 billion we expect the opioid distributors will settle for. Walgreens is particularly ill-positioned given its larger market share as a distributor and retailer.
We believe the chain pharmacies face a larger settlement price tag than the opioid distributors because of their greater, combined financial resources—relative to the distributors—and the factual strength of the allegations, which accuse them of violating their legal obligations as both distributors and retailers of prescription opioids.
Opioid Distributors and Johnson & Johnson Settlement: We believe the three major opioid distributors—McKesson Corp. (MCK), Cardinal Health Inc. (CAH), and AmerisourceBergen Corp. (ABC)—and opioid manufacturer Johnson and Johnson (JNJ) are likely to settle the majority of their outstanding litigation with state attorneys general and municipalities by the end of 2020. We expect distributors to settle for between $22 billion and $25 billion over 15–20 years, with Johnson & Johnson agreeing to pay $5 billion over a two-year period.
Other Opioid Manufacturer Settlements: We believe additional opioid manufacturers such as Endo International Plc (ENDP) and Teva Pharmaceutical Industries Ltd. (TEVA) will similarly be able to settle the majority of their outstanding opioid litigation shortly thereafter, using the distribution platform created by the opioid distributor and Johnson & Johnson settlement. We believe a settlement is likely because states and local government officials have lowered their ask and are in need of both a political win and additional funding for government programs in the wake of the COVID-19 pandemic. Additionally, we believe delays in near-term opioid jury trials and a weakening macroeconomic environment limits plaintiffs’ negotiating leverage and willingness to maximize potential settlement dollars of opioid distributor and manufacturer defendants.
Chain Pharmacy Opioid Litigation: We believe opioid plaintiffs have become more confident in their ability to extract a large settlement from the chain pharmacies, further accelerating their interest in finalizing opioid distributor and manufacturer settlements and freeing legal resources to concentrate on the chain pharmacy litigation. Plaintiffs believe chain pharmacies face liabilities as both a distributor of opioids to their own pharmacies and as pharmacy operators under the federal Controlled Substances Act (CSA), as well as state laws and regulations. We expect additional lawsuits will be filed against the four major chain pharmacies—Walgreens, CVS, Rite Aid, and Walmart—in addition to certain regional chains, depending on the jurisdiction.
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