Cognizant, HCL Tech may feel the pain of US opioid lawsuits

IT services firms face hurdles due to possible client bankruptcies or cut in spending to pay settlements.

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Cognizant has had a long association with Purdue, managing its SAP platform and business applications.
BENGALURU | MUMBAI: A bunch of US lawsuits related to opioid painkillers could hurt at least two Indian IT companies, as clients face possible bankruptcy or cut discretionary spending to pay for legal settlements.

Forty-eight US states and more than 2,000 local governments have sued drug makers and retailers for being negligent in marketing and distributing opioids — painkillers derived from opium — which has sparked an addiction crisis.

Purdue Pharma, which is being primarily blamed for the opioid epidemic and is in settlement talks, is expected to pay as much as $12 billion and file for bankruptcy to re-emerge as a public trust, with owners, the billionaire Sackler family, set to lose control of the company.


Cognizant and HCL Tech are IT services vendors to Purdue Pharma. ET could not independently ascertain the extent of their exposure to the company. Cognizant declined to comment for this story, while HCL Technologies did not respond to ET’s request seeking comment.

“Given that several other pharma companies could also face huge losses from the opioid issues, we may see other firms file for bankruptcy or find that they have to cut discretionary spending to pay for the liabilities,” Peter Bendor-Samuel, CEO of IT consultancy Everest Research, said.

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Earlier this week, a judge ordered Johnson & Johnson to pay $572 million in the first trial of the more than 2,000 lawsuits targeting drug manufacturers. Those facing suits include drug makers Allergan and Endo International, distributors McKesson, Cardinal Health and AmerisourceBergen, and retailers like Walmart, CVS and RiteAid. The US Centers for Disease Control and Prevention has tallied more than 400,000 opioid-related deaths across the US since 2000.

The potential settlements impact companies’ spending on IT. After US banks were forced to pay out billions of dollars in settlements in the wake of the 2008 financial crisis, IT spending in that sector took a hit.

For Indian IT services firms, the Life Sciences and Healthcare vertical forms a large part of revenue, although challenges with insurers have crimped some growth. Cognizant, in particular, has struggled with revenue in this space, with four clients merging and one lifescience’s company insourcing business. Cognizant has a bigger share, with around 29% of business coming from the vertical, while for HCL Tech the share has been around 13% on average in the last few quarters, according to Mrinal Rai, principal analyst at ISG, a global technology research and advisory firm.

Cognizant has had a long association with Purdue, managing its SAP platform and business applications. “Cognizant does core ERP work for Purdue, even in bankruptcy that will have to continue. The actual monetary exposure is minimal,” a source with direct knowledge of Cognizant’s exposure said.

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Rai also said Cognizant may see limited impact from the impending bankruptcy. “It is not expected to impact Cognizant much. Cognizant has similar engagement with other pharma customers, too, who are four times the size of Purdue."

On the other hand, HCL’s multi-million dollar deal with Purdue was signed in 2014, and revolves around managing its IT infrastructure, including data centers and cloud.

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Both the IT services providers would have mechanisms to protect against such events, Rai added. “Service providers maintain certain insurances to meet such unexpected instances. So, it would have little impact on them.”

“The only real concern is in the event that the services are not critical or they are viewed as well over market,” Bendor-Samuel said.
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