What happened

Shares of Teva Pharmaceuticals (NYSE:TEVA) fell 13% last month, according to data from S&P Global Market Intelligence. The stock has fallen 86% in the past five years, and the company's market cap has sunk from over $50 billion to below $8 billion in that period. 

The reasons are simple: deteriorating financials caused by deep competition in generic markets and risks stemming from the opioid crisis. Investors are increasingly worried about the potential fines Teva Pharmaceuticals may face from lawsuits related to the latter. Johnson & Johnson was told to pay $572 million in Oklahoma alone, Mallinckrodt is considering bankruptcy, and Purdue Pharma has offered to settle all claims for a whopping $10 billion in total compensation.

A steadily declining chart drawn on a chalkboard.

Image source: Getty Images.

So what

Teva Pharmaceuticals may not be able to survive the bill coming due for its legal risks related to the opioid crisis lawsuits. While settlements to date have been far lower than the worst-case scenarios for the companies involved, the generic-drug manufacturer has struggled to outrun operating inefficiencies and unrelated price-fixing allegations brought by 44 state attorneys general.

The business exited June with $2.1 billion in cash. It also reported an operating loss of $510 million and an operating cash outflow of $115 million in the first half of 2019. To be blunt, there's not much for investors to like about the state of the company. 

Now what

While it's tempting to think that Teva Pharmaceuticals is a value stock based on traditional stock evaluation metrics, investors need to analyze the situation with a healthy dose of nuance. The business has been struggling to compete in its core generic pharmaceuticals markets, is accused of being the ringleader in a massive price-fixing conspiracy, and is legally exposed to the opioid crisis. Those red flags are impossible to overlook.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.