Why Teva Pharmaceutical Is Getting Hammered Today
What happened
Share of Israeli generic-drug giant Teva Pharmaceutical Industries (NYSE: TEVA) fell by an eye-popping 16.5% as of 12:56 p.m EDT today. What's causing this double-digit dip?
Teva's stock is cratering in response to the news that a whopping 44 U.S. states have filed an antitrust lawsuit against the company, as well as several other top pharma entities, over an alleged industrywide price-fixing scheme that occurred mainly from July 2013 to January 2015. Over the weekend, Teva denied any wrongdoing.
So what
Although Teva is far from the only household name to pop up in this lengthy court filing, the company is cast as the main culprit behind the conspiracy. That puts Teva in line to possibly receive a massive fine that could come in at around $2 billion, according to pharma analyst Steven Tepper.
Given Teva's poor financial health and anemic growth prospects, it can ill afford a fine of that magnitude. Fortunately, these types of lawsuits often take several years to work their way through the courts, giving the company some much-needed time to assess its options and form a legal strategy.
Now what
If you're thinking about buying Teva on this hefty pullback, you might want to think again. Teva's debt-to-equity ratio is among the highest in the healthcare sector, and sales of the company's flagship multiple sclerosis medication, Copaxone, haven't hit rock bottom quite yet. The company does have some promising new growth products like Austedo and Ajovy under its umbrella, but these two drugs simply aren't enough to change the company's underlying fundamentals -- at least not anytime soon. For the moment, you may want to avoid this falling knife.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.