Teva, denying 'any liability,' set aside $646M for opioid settlements. Here's why

When Teva reported first-quarter results in April, CEO Kåre Schultz said the company wouldn’t pony up any big settlements because it has a lot of debt and not a lot of money.

Shortly after, Teva offered to pay $85 million to resolve the first case to reach a trial.

Now, three months later, the company is setting aside $646 million for that deal and other potential settlements. And that’s the low end of what it could end up paying to wrap up its opioid lawsuits, even though the company denies liability.

"With all the evidence that we have in our hands, we deny any liability, because we have not seen any evidence of us having any misconduct," Schultz said on Teva's conference call with analysts Wednesday, referencing both the opioid issue and its other legal overhang—generics price-fixing allegations.

Still, it set aside $646 million for the opioid wrangle alone. How did the company reach that amount? Outgoing CFO Michael McClellan offered an explanation.

For one, the figure includes the $85 million Oklahoma settlement. And “once you've settled one of these cases, you do show a disposition at least to consider other settlements,” the CFO told analysts. The first deal usually carries a “premium,” he said. The company calculated a “wide range” of potential future liability by looking at various possible outcomes.  

"We still don't see that we have a huge liability in this case in terms of causing this epidemic, but we do know that there is a lot of cases going on and there is a likelihood that some of these could settle in the future,” McClellan said. 

RELATED: Why did Teva ink an $85M deal to sidestep the Oklahoma opioid trial? 

Last quarter, Schultz told analysts his company has a lot of debt, so plaintiffs will have to "find somebody else if they want big settlements." Schultz explained Wednesday why Teva chose to backtrack on that statement in settling the Oklahoma case.

It’s a “political situation where people are pointing to somebody to blame for the opioid epidemic," Schultz said. The Oklahoma case only involved three companies—Teva, Purdue and Johnson & Johnson. Purdue inked a settlement, so that left only Teva and J&J as defendants. It was the first opioid case among thousands to reach a trial, and it was in an Oklahoma state court, the CEO told analysts. 

With all those factors considered, the company saw a better chance of fighting or securing a global settlement in the federal multidistrict litigation in Cleveland’s federal court, where the majority of opioid cases are grouped up. The first trial there is scheduled for the fall.  

RELATED: A $10B settlement? Or $45B? Distributors, AGs go back and forth in opioid talks: Bloomberg 

Now, the company hopes to gain some clarity on what it might eventually owe, based on arguments that it isn't liable for generic opioid sales because those meds must follow branded labels, SVB Leerink analyst Ami Fadia wrote in a note to clients. Those arguments are set to play out this month and next.

For now, the opioid issue is hurting Teva’s ability to refinance debt that’s due in 2021 and 2023, the analyst wrote.

Clearly, Schultz has his hands full amid a massive restructuring at Teva, as revenues flag and legal uncertainties keep investors off balance; Teva's shares have lost nearly 90% of their value since the summer of 2015. On Wednesday, one analyst asked whether Schultz knew the extent of the opioid issue before joining Teva in November 2017. 

Schultz responded that he knew the company “had a long list of potential litigations” and that he knew the opioid issue was political. Still, he’s been “surprised” at the way the issue has played out. 

“I would say, I'm not the kind of guy who ever quits unless the job is done,” he said. “So of course I'll see it through; I'll get the job done. I have a five year contract. If I have to stay longer, I'll do it.”