The opioid epidemic is going to hammer MCK.

music selection:  “Pretending” — Eric Clapton

Each Friday I reveal something my research into corporate bonds turns up.  Recently, my bond research sent me down a rabbit hole with McKesson (MCK).  The bonds are safe and the company is not going bankrupt in my estimation.  But the stock is going to take a major haircut.

MCK is under investigation for some really shady practices in violation of some regulatory requirements to report suspicious behavior by pharmacies selling its opioid products.  A number of small pharmacies were clear pill-mills filling thousands of percent more opioid prescriptions that larger pharmacies in the same market.  This was profitable business for the local pharmacies and for MCK.

Unfortunately for MCK, the FDA has taken a closer look at their business practices.  This is not surprising as a key executive has paid an 8 figure fine before for opioid related violations.  He didn’t learn his lesson and clearly looked the other way in order to pump up profits.

The lawsuits are beginning to roll in and state attorney generals are starting to look into filing on behalf of their states.  These opioid class action lawsuits are going to be this generation’s Big Tobacco lawsuit of this generation in my opinion.  MCK has dominant market share and is going to be on the hook for many billions in payouts.  The stock is going to get hammered when the full extent of this liability starts to become clear to share holders.

I bought MCK210115P00100000 for 10.00 per share this morning.  This gives me a lot of time for the thesis to play out.  There will likely be opportunities to trade in and out of this position on volatility spikes.  Ravenous lizards playing the “home game” are cautioned against paying more than 10.50 per share for these puts.  Patience while stalking prey is the raptor way.

Devour your prey raptors!

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