Teva Pharmaceutical (NYSE:TEVA) was one of the worst stocks to be in during 2019.
The Israel-based generic drug maker was hit by a series of scandals on subjects ranging from opioids to kickbacks.
The company’s value was cut in half, marking a loss of 48.5%. Teva shares opened for trade Jan. 8 at $9.10 each. At that price the company’s market capitalization is just $10 billion, on trailing year sales of $17.5 billion.
The reaction by most InvestorPlace writers has been to tell you stay away. Even the Israeli media has turned against Teva, noting a 7% decline in the stock price just since the start of the year.
The Bear Case
It’s very easy to make a bear case for this stock.
The main reason is opioids. There are thousands of lawsuits involving how Teva, and other companies like Johnson & Johnson (NYSE:JNJ), Mallinckrodt (NYSE:MNK) and Endo International (NASDAQ:ENDP) marketed these painkillers, and the addictive damage that resulted. Teva made generic OxyContin (oxycodone).
A framework for a global settlement was announced in October. This would have Teva donate anti-addiction drugs and pay a $250 million fine. But the company is not out of the woods, as InvestorPlace’s Vince Martin has written. Plaintiffs and states are objecting to the terms, calling them too generous to the defendants.
Then there’s the price-fixing scandal. As David Moadel writes, Connecticut says Teva was the leader in a 20-company price-fixing consortium on generic drugs. The suit names Teva’s chief commercial officer for North America. The case involves 100 drugs and could expand to as many as 300.
Teva’s debt is another big problem. The company recently rolled over some of its short-term debt at 6.5%, using bonds to repay notes previously paying 0.4%. The result will be additional interest costs of $75 million per year.
InvestorPlace’s Thomas Niel believes these problems are still not fully priced in to Teva stock. Based on its enterprise value and earning power, it’s still more expensive than rival Mylan (NASDAQ:MYL), he writes. The framework for the opioid settlement is not the last word on that subject. Criminal charges may be coming.
The Bull Case
There is a bull case on Teva stock.
It’s based on the idea that it’s taking its legal medicine and coming to grips with its debt problems.
The company recently paid a $54 million fine over “sham” conferences for drugs designed to treat multiple sclerosis and Parkinson’s. It paid $85 million to settle Oklahoma’s lawsuit over opioid marketing. The criminal charges on opioids so far are only being made against distributors, not manufacturers.
Teva has also restructured the debt so that it won’t go bankrupt in 2021. Absent its legal and debt problems, the argument goes, Teva can make money. If present trends continue, the bulls see 50% upside.
The Bottom Line on Teva Stock
Even at these levels, Teva stock is not an investment. It is a speculative trade.
Josh Enomoto notes that, for all Teva’s legal difficulty, generic drug makers are still essential protection against price-gouging. Merck (NYSE:MRK) and other companies have recovered from problems.
At some point Teva will hit a bottom. All its problems will be priced into the stock, and the earning power of generics will come forward. Is it at half the company’s sales, where it’s trading now? Or is it after a pre-packaged bankruptcy filing which leaves current shareholders with nothing?
No one knows at this point. You can buy Teva hoping for better headlines. But if you do, keep an eye on it, and keep a finger poised on the button marked “sell.” You may have to get out in a hurry.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
