Mutual Fund Chaos After Investments In Opioid Companies Plunge

Earlier on Monday morning, we detailed how the embattled US drugmaker Purdue Pharma filed for Chapter 11 bankruptcy protection, a long-anticipated move aimed at shielding the company and its owners, the Sackler family, from financial ruin as they shoulder the brunt of the blame for igniting the opioid crisis with their aggressive marketing tactics of OxyContin.

Now we're starting to hear additional reports, specifically in recent filings, that the bust of Purdue and other big pharmaceuticals, thanks to nearly 2,000 litigants, has resulted in at least five mutual-fund companies reporting their returns have been affected after they made risky bets in pharmaceutical companies with opioid-related businesses.

Nick Mazing, the research director at investment research platform Sentieo Inc., told The Wall Street Journal that the number of times companies had mentioned opioids in their annual shareholder reports is up 300% in last eight years.

Walmart Inc., which operates pharmacies across the country, was forced to start disclosing opioid-related litigation as a risk in early 2018, and insurance company The Travelers Companies, Inc. began to disclose opioid-related litigation earlier this year.

Mazing said 55 companies mentioned opioids in their annual shareholder reports filed with the Securities and Exchange Commission as a significant risk factor. This is up from 41 last year and 37 in 2017.

At a time when some 130 Americans are dying every day from opioid-related overdoses, drugmakers like Purdue Pharma, Mallinckrodt, and Endo International are being sued by thousands of municipalities across the country and even individual states.

Mutal funds are worried that their investments in these drugmakers could be severely impacted, as those companies are now paying hundreds of millions of dollars, if not billions, to settle with litigants. In some cases, like Purdue, these companies are filing for bankruptcy.

Miller Value Partners LLC said its Miller Opportunity Trust fund had lousy performance in the last six months, mainly because it had too much exposure to Endo and Teva, two companies that have been cited as significant contributors in the opioid crisis.

"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."

Ohio National Fund said it cut Teva from a foreign-stock portfolio because the shares have been in a bear market for more than one year after a settlement of an opioid-related lawsuit.

Penn Series Funds Inc., an affiliate of Penn Mutual Life Insurance Co., said the 91% crash in Teva's stock in the last 50 months has absolutely "decimated" the company's midcap value fund.

American Funds Insurance Series, which is affiliated with Capital Research & Management Co., and Franklin Templeton Investments were others who saw depressed returns thanks to their exposure to opioid-related pharmaceutical companies.