Teva Pharmaceutical Industries Limited (TEVA) shares extended their decline by more than 6% during Wednesday's session following alleged price fixing among generic drugmakers, including Teva, Novartis AG (NVS), Milan N.V. (MYL), Pfizer Inc. (PFE) and 16 others. The lawsuit, brought by a coalition of 44 states, details a broad, coordinated and systematic campaign to conspire with each other to fix prices, allocate markets and rig bids for more than 100 different generics.
Wells Fargo analyst David Maris believes that the lawsuits will weigh on drugmakers in the near term and create long-term overhang issues. While penalties and damages are mere speculation at this point, the analyst believes that the penalties could be material. The move also comes as Teva faces an existing overhang from opioid litigation that has been weighing on shares in recent months. However, the true extent of the damage remains to be seen.
From a technical standpoint, the stock broke down from a descending triangle pattern earlier this month before hitting Fibonacci support levels during Wednesday's session. The relative strength index (RSI) moved further into oversold territory with a reading of 18, while the moving average convergence divergence (MACD) experienced a bearish crossover that could point to more downside ahead. These indicators suggest that the stock could see some near-term consolidation, but the long-term trend remains bearish.
Traders should watch for some consolidation above Fibonacci support at around $11.30 over the near term. If the stock breaks higher, traders could see a move toward Fibonacci resistance at around $13.00 or trendline resistance at around $14.00. If the stock breaks down lower, traders could see a move to fresh 52-week lows over the coming sessions. The overall trend and technical indicators still favor a bearish scenario over the intermediate to long term.
The author holds no position in the stock(s) mentioned except through passively managed index funds.