Israeli company Teva Pharmaceutical (TEVA -1.06%) has been a leader in the healthcare industry for more than 40 years with offerings ranging from generics, to specialty drugs like neurodegenerative and oncological medicines, to groundbreaking biosimilars. Teva is the single largest producer of generic medicines across the globe, with a footprint that extends to over 60 countries. 

But its days as the pharmaceutical golden child could be waning. 

Teva stock has experienced a massive decline over the past few years, and ongoing debt issues continue to weigh the company down. It also faced an onslaught of legal actions ranging from opioid scandals to a recent whistleblower lawsuit, and at the time of this writing, the litigation debacle rages on. 

One of the reasons Teva has continued to interest investors despite its recent challenges is the low price of its stock. In this case, though, the risks of purchasing it may far outweigh the potential rewards. 

Money and pills on two opposite sides of a scale

Image source: Getty Images.

Teva is deeply in debt

In 2016, Teva purchased Actavis Generics, a branch of the pharmaceutical firm Allergan. This hallmark buy cemented Teva as one of the leading pharmaceutical companies in the world since Allergan generics ranked No. 3 in the drug market by sales at the time.

Teva paid approximately $40 billion for Actavis Generics and projected that the transaction would increase its net assets by roughly $1.4 billion in the coming years. By 2019, the company forecast revenues would be around $27 billion. 

In reality, the Actavis acquisition left Teva so mired in debt that it has yet to recover. The Q3 2019 report confirmed its financial quagmire, with a debt total of just under $27 billion as of September. The company's free cash flow in Q3 was $551 million compared with its total revenue of $4.3 billion. 

2019 was not a great year for the drugmaker as a whole, with a reported 6% revenue decline in Q3 alone. This was largely because of increased rivalry in the generics sector and diminished sales in its Russian, North American, and Japanese markets.

To avoid bankruptcy, Teva began layoffs at the end of 2017 in a series of restructuring efforts. The company also revamped its leadership, most notably by appointing veteran financial expert Eli Kalif as its new CFO in November 2019. 

At the time of the appointment, CEO Kare Schultz expressed his hopes that Kalif would help to increase the company's solvency while cutting its debt ratio, stating, "With deep functional expertise and technical knowledge in all aspects of corporate finance, financial planning, and accounting, I believe Eli has the required leadership capabilities to strategically manage our debt, enabling the company to move forward from the restructuring phase to optimizing Teva for success and future sustainable growth."

Is this all too little too late? It's highly unlikely that Teva will execute a massive turnaround in 2020; it will release its Q4 report at the end of February, giving investors a complete picture of 2019's financials in review.

The company's legal situation is deteriorating

Another factor contributing to Teva's debt is its legal trouble. It has been hit with a succession of scandals, revolving primarily around allegations that the company fixed generic drug costs and tried to hide its role in fueling the opioid epidemic. The alleged price-fixing is particularly noteworthy, since Teva has been accused of trying to drive up its share value by crediting its revenue to internal growth. 

At the beginning of January, Teva agreed to a $54 million settlement in a whistleblower lawsuit claiming that the company had bribed doctors to peddle prescriptions for two of its drugs. 

While settlements appear imminent in many of the legal actions Teva faces, they are costing the company billions. In 2019, it reserved about $1.2 billion to pay for case settlements.

Teva shares have plunged by more than 70% in just a few years

As if the debt and legal troubles weren't enough, shares have plunged by a staggering amount in a matter of years. In 2015, before the Actavis Generics acquisition, Teva stock was considered a good buy at about $70. Today, shares are sitting at a 52-week high of $20.21 and a 52-week low of $6.07, and the future looks far from promising. In its Q3 report, Teva reported EPS at $0.58, a 14.7% year-over-year slump.

Given the extreme volatility of its shares, its serious debt problem, and ongoing legal woes that are only deepening the financial hole the company finds itself in, now is not the time to be investing in Teva stock.