What happened
Shares of Teva Pharmaceutical Industries (TEVA +2.44%) are down 9.8% as 1:15 p.m. EDT after dropping by an even greater amount yesterday following disappointing second-quarter results and lowered guidance. Today's sinking stock price seems to be due to multiple analyst downgrades because of those results.
So what
Analysts' reports -- a day late and a dollar short -- shouldn't necessarily trip shares up, but maybe investors are digesting yesterday's release and deciding that they're worried about the long-term outlook for the generic drug industry.
The FDA has increased the speed that it's approving generic drugs, which is good for companies to get new drugs on the market, but also results in increased competition, allowing buyers to negotiate lower prices. Drug distributor AmerisourceBergen noted yesterday that it expects generic drug prices to decline by 7% to 9% during its fiscal 2017.
Teva Pharmaceutical took on debt to acquire the Actavis generic drug business from Allergan. With cash flow falling year over year, investors could be worried about the company servicing the debt. Teva cut its quarterly dividend to 8.5 cents per share, down from $0.34 per share in the first quarter, which should help pay off the loan, but won't make income investors happy.
Image source: Getty Images.
Now what
Teva will likely have to make some hard choices to adjust to its new reality. At the very least, the company will need to cuts costs, but it might also have to sell off some assets. Without a permanent CEO at the helm yet, it's hard to say how quickly and efficiently the company will be able to right itself. Investors should be careful trying to catch a falling knife until they know how big the blade is.
