Volatile health care stocks are nothing new; in fact, it’s a fairly mundane occurrence. But Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is in a class of its own. Since the opening trade of 2016, TEVA stock has neatly lost half of its market value. This year has brought no confidence, with shares down nearly 11%. But the company’s string of unfortunate events is particularly distinct.
Teva Pharmaceuticals stock just can’t catch any breaks.
According to InvestorPlace contributor Lawrence Meyers, “There are now forty states which are suing Teva stock, along with other generic companies, for allegedly colluding to push up the prices of an antibiotic and a diabetes drug. Analysts at Argus project generic prices to fall 7%-10% this year. Copaxone went off-patent. Worst of all, the CEO stepped down after it was disclosed a Department of Justice investigation into bribery in Russia and Mexico.”
This is the kind of news often associated with fly-by-night or morally bankrupt operations. Yet Teva Pharmaceuticals is one of the most respected names in the industry.
First, it’s the world’s largest generic drug maker — that has to count for something. Second, the company has tremendous coverage in specialty therapeutics, like Parkinson’s disease and narcolepsy. TEVA stock is also one of the first publicly traded businesses in Israel.
Because of its enormous reputation, both speculators and regular, everyday investors are considering taking a shot on Teva Pharmaceuticals stock. But is the risk worth the reward?
Teva Pharmaceuticals: Off-Patent Copaxone Is a Big deal
Before diving in, it’s well worth your time to read InvestorPlace contributor Ian Bezek’s analysis. He breaks down TEVA stock into three pros and cons. Of the risks, the patent protection expiration of the drug maker’s flagship Copaxone multiple sclerosis treatment is the most worrisome.
Copaxone represents a big chunk of TEVA profits at around 20%. Recently, the 20 milligram version has gone generic, and will now be subject to copycat competition. Teva Pharmaceutical faces an especially pronounced risk due to the nature of multiple sclerosis.
According to Statistic Brain, 2.5 million suffer from the disease. Of that figure, 400,000 cases, or 16%, are right here in the U.S. Obviously, we’re a big market for the Copaxone treatment.
More critically, the average age of clinical onset is between 30 to 33 years old, and the average age of diagnosis is 37. Only 10% of cases are diagnosed after 50 years of age. Furthermore, 80% of patients survive more than 20 years after the initial diagnosis.
The brutal reality is that multiple sclerosis is a young person’s disease and requires a lifetime of treatments. Although it’s cynical, I wouldn’t be surprised to find out that Copaxone is on the business end of the competition.
I say this too because investors should realize how fierce the multiple sclerosis treatment market really is. This is not a speculative experiment for some rare disease. Millions are suffering and seemingly, earlier in life.
Because it’s such a lucrative sector in health care, TEVA stock speculators will need to get some help from the fundamentals. In other words, this isn’t just a play on devalued technicals.
Technicals Are Favorable for TEVA Stock
With that said, the stock can make a strong technical case for itself.
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In the second quarter thus far, Teva Pharmaceuticals is looking at a comparatively modest 2.5% loss.
Granted, a steadily declining stock is still a lagging one. Nervous investors will eventually want to see some upside movement. But as we know from science, an object can’t reverse its trajectory until its velocity first hits zero. And the argument the bulls are making is that shares are close to this “zero point.”
Here’s the bottom line: a series of unfortunate events have gutted the company. As a result, its shares trade at ridiculously low multiples against earnings. This appears to be a classic contrarian case of a good company going through hard times. Although it’s risky, TEVA may prove to be a shrewd move for the iron-willed.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
