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Teva Pharmaceuticals (NYSE:TEVA) is in free-fall. The stock fell 19%, continuing its yearly downtrend that send the stock 55% lower. After closing at $11.63 last week and responding to the four U.S. States filing a lawsuit against it on price fixing, when will the stock stop falling?
Teva's cash flow growth goals are in danger of stalling. If the States suing it for fixing drug prices –as high as 1000% in some cases – prevail, Teva could face heavy fines. Paying for damages, civil penalties, and new rules that increase competition will all weigh on Teva's turnaround plan.
The company has $26.7 billion in debt (at the end of March), down from $35 billion a year ago. And its generic drugs continue to face downward pricing pressure. If anything, the suit against it will not hold up if Teva proves that its business faces natural market competition that is driving generic drug prices lower.
Business Model Broken
Teva's massive debt obligations are due to its acquisition of the Actavis Generics. So if prices keep falling and the States are accusing it of price-fixing but the generic drug unit loses money, Teva is not an appealing investment. Value investors should exercise caution holding the stock and betting on a turnaround anytime soon.