Opioid Reckoning Hits Money Managers
September 13 2019 - 8:29AM
Dow Jones News
By Becky Yerak
Exposure to drug companies with potential liabilities stemming
from widespread opioid addiction is damaging investment returns at
several money managers as pain from the national drug crisis
spreads.
So far this month, at least five mutual-fund companies have told
investors that their holdings in businesses with connections to
opioid painkillers have detracted from overall returns, making
money managers one of the latest sectors to feel the effects of
growing attention on the addiction problem.
The number of annual shareholder reports mentioning opioids as
business risks has more than tripled since 2011 and now appear
beyond health-care companies, said Nick Mazing, research director
at investment research platform Sentieo Inc. Walmart Inc., which
operates pharmacies, began disclosing exposure to opioid-related
litigation as a risk in early 2018, and insurance company Travelers
Cos. Inc. began doing so earlier this year.
So far this year, 55 companies mention opioids in the
risk-factor section of their annual shareholder reports filed with
the Securities and Exchange Commission, Mr. Mazing said, up from 41
last year and 37 in 2017.
More than 2,000 lawsuits have been brought by U.S. states,
municipalities, Native American tribes and others accusing major
players in the pharmaceutical industry of driving addiction, making
them targets for negative bets on Wall Street. Drugmakers Purdue
Pharma LP, Mallinckrodt PLC and Endo International PLC are among
those named in many of the lawsuits, which seek to recover past
profits to cover communities' costs in treating addicts.
Purdue and its owners, the Sackler family, have been negotiating
settlement terms with state and local governments that have accused
the company of misrepresenting addictive risks of its OxyContin
painkiller and aggressively marketing the drug to doctors. Purdue
has gotten support from 23 states and thousands of local
governments for a multibillion-dollar deal to resolve much of the
opioid litigation through a bankruptcy filing, though the situation
is still fluid.
While some investors see the risks of big settlement payouts
from these companies as manageable, others have been burned.
Miller Value Partners LLC said last week that its Miller
Opportunity Trust fund had a "lackluster" performance in a recent
six-month period, mainly because of one mistake -- "too much
exposure" to Endo, Mallinckrodt and Israeli drugmaker Teva
Pharmaceutical Industries Ltd.
Miller Value said it invested in those shares for different
reasons, including the quality of management or promising new
strategies, though all of the stocks were considered cheap.
"We considered the prospective opioid liabilities but judged
them manageable," Miller Value said in its semiannual report for
the period ending June 30. "We didn't anticipate just how
myopically focused the market would become on this point, which was
our main error."
Miller Value said it hopes the stocks perform similarly to Bank
of America Corp.'s shares after the financial crisis. The bank's
stock sank below $5 in 2011, even after Warren Buffett became a
major investor. The following year, Bank of America turned out to
be one of Miller Value's best performers.
In an interview Wednesday, Samantha McLemore, a Miller Value
portfolio manager, noted that Endo stock over the past week has
gone from the $2 range to the $4 range. It had also ended June in
the $4 range.
Ohio National Fund said last week that Teva had detracted from a
foreign-stock portfolio's returns, saying the shares slumped after
the settlement of an opioid-related lawsuit.
Penn Series Funds Inc., an affiliate of Penn Mutual Life
Insurance Co., also said its Teva stockholdings in a midcap value
fund were "decimated" by a renewed focus on opioid litigation.
Teva shares are currently trading around $29. Its year-to-date
high was about $73 in January, and its low was about $22 last
month.
Other investment firms that said their portfolios got dinged
because of their holdings in opioid-related companies in the period
ended June 30 include American Funds Insurance Series, which is
affiliated with Capital Research & Management Co., and Franklin
Templeton Investments, according to regulatory filings.
Write to Becky Yerak at becky.yerak@wsj.com
(END) Dow Jones Newswires
September 13, 2019 08:14 ET (12:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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