Teva Pharmaceutical Industries is "a drug company you absolutely need to avoid," Jim Cramer said Thursday.
A few years ago, the "Mad Money" host liked Teva and his charitable trust even owned the stock. The trust closed out of its position in 2010, though, when he noticed the drug company was struggling. Since then, the stock has dropped 22 percent to around $39 a share, while the S&P 500 has climbed 29 percent over the same time period. Cramer thinks the stock could continue to fall, which is why he put it on the "Sell Block."
So what happened?
"Teva made a killing a huge branded drugs went off patent and they were able to move in and take huge share with generic versions. This company was an early mover in the generic space and they were savvy and quick in getting generic indications approved," Cramer said. "But now Teva has two main problems: one with the generic side of the business and one with the branded side."
Today, the branded drug business accounts for 40 percent of the company's sales, Cramer said. Its biggest drug, Copaxone, did $3.8 billion in sales last year and accounted for about 19 percent of its total revenues. But the drug is about to face some tough competition from Biogen Idec, which has a rival drug for multiple sclerosis. And Copaxone's patent only lasts through 2015, with some of the terms expiring in 2014.
"Teva is about to fall off a gigantic patent cliff, as other generic drug makers swoop in to copy Copaxone and crush the price of a drug that now represents nearly a fifth of the company's sales," Cramer said. "Teva is now on the other side of the patent expiration game, and I'm sure they don't like it one bit."
The generic side of Teva's business accounts for a little more than half of all sales, but Cramer said it's just not what it used to be. Big pharma isn't solely concentrating on making big blockbuster drugs anymore, so Teva isn't able to swoop in and make off-label versions.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? email@example.com
Questions, comments, suggestions for the "Mad Money" website? firstname.lastname@example.org