Most investors tend to be allergic to uncertainty and high risk portfolios, and when TEVA started treading on the path of uncertainty last year in August; investors started to push down its share pricing by dumping it. With a dual listing at the New York Stock Exchange in the US and Israel; one would have expected some investors who are loyal to the stock to opt for a transfer of funds to Israel and buy its shares at the Tel-Aviv Stock Exchange in order to hedge their falling gains in at the NYSE.

However, TEVA being one of the leading generic drugs company globally, it attracts investors with a global investment strategy and hence leveraging on the two different stock markets to diversify the risk would not have been successful. In both markets TEVA share price has been on a downward trend that appear to mirror each other; a proof that investor sentiment about the stock seem to be the same in both the US and in Israel.


Patents Invalidation

The dark cloud started spreading over TEVA in August last year when the US Patent Office made a ruling that invalidated two patents owned by the company. This came after Mylan filed four claims related to one of the generic drug produced by TEVA called Copaxone 40 mg.  At that time, TEVA CEO issued a statement saying that “We remain confident in the strength of our intellectual property surrounding COPAXONE 40mg." He further added that his company was "prepared to defend the full suite of our intellectual property... regardless of the time required." However, the third patent was also invalidated later on in September by the US Trial and Appeals Board.

The loss in patents was a big blow to the company since in total this represented a loss of about USD 4 billion in revenues when all the pending court cases are finalized. From an investor perspective, this was not good news since it meant the company will in the future be reporting lower returns due to the permanent loss of the patents rights.  With a decreasing bottom line in the offing, investors started selling off TEVA stocks and the price unlocked its downward trend officially.


Price-fixing investigations

As if the invalidation of patents was not a blow big enough for TEVA; in November it was made public that TEVA was among the generic drugs companies that were being investigated by the Department of Justice on price-fixing allegations. The state attorneys general accused TEVA of price fixing alongside its giant counterpart in the industry Mylan and four other smaller companies. This came after 20 states filed a civil complaint accusing the companies of having conspired to artificially inflate the price of antibiotics and diabetes drugs. 


In the civil complaint filing, the 20 states said that the executives of the companies had coordinated the artificial price inflation through informal meetings and personal communications via text messages and calls. In a statement during an interview in December 2016, George C. Jepsen, Connecticut’s attorney general, whose office started the inquiry that led to the charges said that ““We believe that this is just the tip of the iceberg.” He further added that “I stress that our investigation is continuing, and it goes way beyond the two drugs in this lawsuit, and it involves many more companies than are in this lawsuit.”

Faced with these two huge lawsuits, TEVA has been obviously sailing in a very rough wave. Investors on the other hand are projecting a more deem future for the company in terms of earnings which will hurt their dividend payout as well as dent their capital gains. This has made most of them start exiting early when there is still some gains to bag home; a trend that is pushing the TEVA stock price further down.

All hope is not lost though, with the stepping down of the CEO Erez Vigodman, the change in management is expected to bring on new growth prospects. Investors are now looking forward to see the changes that the new CEO Dr. Yitzhaf Peterburg will put in place to restore their faith in the continued growth of the company and saving it from the ongoing lawsuits. New management is always expected to have a turnaround strategy; and for TEVA we can only wait and see how things will play out.