A State lawsuit against major drug companies is spooking generic drug suppliers. If at least 16 companies and their 300 drugs are under review for alleged price-fixing, then the slump in shares of Teva Pharmaceuticals (NYSE:TEVA) and Bausch Health (NYSE:BHC) could last a while longer.
Teva trades at forward P/E of around 5.3 times. Management is diligently putting its cash flow at work by cutting debt levels. But with the stock at yearly lows, Berkshire’s investment in TEVA stock is proving wrong, at least for the short-term.
Endo International plc (NASDAQ:ENDP) is not doing any better. After topping $18, the stock is in the single-digits again and at a forward P/E of well under three times. A report about opioid distribution aired on CBS spooked investors.
Bausch Health fell in sympathy for the sell-off in generic drug companies. Markets are pricing in a revenue slowdown risk for BHC. Lower cash flow would slow debt repayments, which BHC must continue doing in the quarters ahead. The 21% weekly drop in BHC looks overdone, as does the 18% drop in Teva last week. Both firms continue to execute on a debt-reduction plan.
If drug sales continue at their pace, BHC and TEVA look like good, deep value plays from here.
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