Controversial billionaire George Soros may no longer be actively managing his namesake fund, Soros Fund Management, but the fund's quarterly activity remains a focal point for investors. The Soros Fund Management, after all, has consistently beat the broader markets since its inception in 1969.

So, what has the fund been up to in recent quarters? Interestingly enough, one of the Soros Fund's largest moves in the third quarter of 2017 was to buy additional put options for struggling drugmakers Valeant Pharmaceuticals International (BHC 0.76%) and Teva Pharmaceutical Industries Ltd. (TEVA 1.09%).

Man holding statues of a bear and a bull.

Image source: Getty Images.

If you're unfamiliar with this strategy, an option (either calls or puts) is a contract that gives an investor the right, but not the obligation, to sell a certain amount of a stock within a specific time frame. Puts, in particular, are a bearish bet that pays off if a stock moves lower as the contract's expiration date approaches.

In other words, the Soros Fund Management has been making some rather hefty bets that both Valeant and Teva's share prices would continue to slide (see table below).

Company Total Value of Puts  Position Initiated
Valeant Pharmaceuticals International $30,953,000 Q4 2016
Teva Pharmaceutical Industries Ltd. $20,944,000 Q1 2017

 Data source: SEC FILINGS.

However, the Soros Fund Management in general, and George Soros in particular, are not always correct in their assessments regarding individual equities. As such, it's certainly worthwhile to consider if these two pharma stocks might be worth buying as contrarian plays heading into 2018. Let's dig deeper to find out. 

Valeant has come roaring back

After losing over 97% of its value over the course of 2015 to 2016, Valeant has started to rebound in 2017 in a big way. The drugmaker's nearly 52% rise so far this year is the direct result of CEO Joe Papa's aggressive approach to paying down debt by divesting noncore assets, and bringing new growth products online, such as the glaucoma treatment, Vyzulata, that's forecast to be a potential blockbuster medicine within a decade.

Most critically, CEO Papa hasn't been forced to dump the company's main growth drivers -- Bausch & Lomb and Salix Pharmaceuticals, respectively -- to avoid defaulting on its long-term debt obligations. As such, Valeant has started to attract bargain hunters, and a handful of large institutional investors in recent quarters. 

Even so, the Soros Fund Management's bearish bet against this stock is largely in lockstep with Wall Street's pessimistic outlook. According to the latest figures, Valeant's short interest as a percent of the float remains at over 10.4%, despite the stock's strong momentum of late.

That's a sizable short interest for any stock -- implying that a large swath of investors remain unconvinced that Valeant can ultimately avoid divesting one or more of its core assets. The drugmaker is starting to run out of pieces to sell off to manage its monstrous debt load, and there's no guarantee the company's free cash flows can rise quickly enough to pick up the slack, after all.

Teva's in a tailspin with no end in sight

Generic drug giant Teva has shed over half its value this year, thanks to its $35 billion in debt, plummeting Copaxone revenues, steep dividend reduction, combined with the general price erosion across the generic drug space at large. As a result, the drugmaker's credit rating has also taken a serious beating this year, forcing the company to enact a vast restructuring program. In fact, Teva is reportedly in the process of laying off up to half of its Israeli workforce to reduce costs.

Can Teva step back from the brink? While Teva's ongoing cost-cutting measures should help the drugmaker to service its monstrous debt load, the bigger problem is that the company's free cash flows going forward may not be sufficient to lay the groundwork for a comeback. Copaxone, after all, is now facing biosimilar competition for both its 20 mg and 40 mg doses, and generic drug prices are forecast to continue falling well into 2018. As a direct result, Teva's top line is expected to decline by an unsightly 8.8% next year.

All told, Teva may look like a bargain after its marked decline this year, but there's not a whole lot to like about this stock from either a growth or fundamental standpoint.

Are either of these pharma stocks worth buying?

Valeant might turn out to be a worthwhile contrarian buy based on its significant progress so far. But CEO Papa still has a lot of work to do to solve the company's underlying debt problem. And until then, this stock is arguably a bit too risky for all but the most aggressive of investors.

Teva, on the other hand, is a falling knife not to be grabbed at this point. There's no telling when the generic drug space will start to stabilize, and the company has zero financial flexibility to bring in new blood, so to speak. That's a recipe for disaster.