On May 18, Teva Pharmaceuticals (TEVA 0.66%) announced that it was planning to execute a strategic pivot that would return the company to growth after a long period of stagnation. Between the upcoming fruits of its biosimilar generic medicines pipeline and its anticipated investments in expanding its pipeline assets, management is hoping to mark a turnaround point within the next few years and meet its financial targets for 2027.

But upon closer inspection, much of Teva's plan calls for doing more of the same. So is Teva approaching an inflection point, which might make it worth buying, or is it more likely to continue languishing? Let's check it out. 

Why this business needed a new strategy

Generally, generic drug manufacturers are companies that enjoy stable demand for cheaper copies of critical medicines. This, in turn, leads to stable cash flows that are returned to shareholders via a conservative dividend -- making for a low-volatility stock that's relatively low risk.

Teva hasn't exactly lived up to the promise. The total return of its shares is down 45% in the last three years, and it hasn't paid a dividend whatsoever since late 2017. It isn't consistently profitable, and in the first quarter of 2023, it brought in $3.7 billion in revenue -- practically the same as its sum of $3.6 billion from a year prior.

There's no one culprit to blame for this company's struggles. While it's true that diligent efforts to pay down its debt load of $18.5 billion have led to a vast improvement over the $34 billion in debt it held in Q3 of 2017, growth and profitability have both been a problem for quite some time. Teva's top line is smaller than it was 10 years ago, but it's also more unprofitable too.

And that's why its leaders are keen to kindle a turnaround and perhaps eventually a revitalization. 

The new plan might not fix much

The new strategy will feature beefing up Teva's pipeline of novel medicines that have a chance to be best-in-class or first-line treatments. Its collection of those assets is currently quite small, even when adjusting for the fact that Teva is a generic drug manufacturer rather than a primary drug developer.

For example, it has one program in phase 2, a treatment for ulcerative colitis, and only two programs in phase 3 -- one that treats schizophrenia and one that treats asthma. Its research and development costs rose by 4% year over year in the first quarter, but that might not be enough to create more than a gradual increase in its number of pipeline programs, which could take years to pay off.

Perhaps the most important element of Teva's upcoming pipeline of generic medicines is its biosimilar to Humira. The rheumatic arthritis drug made AbbVie $21.2 billion in 2022 alone, and billions and billions more over the course of its lifetime. Regulators are currently reviewing Teva's application for commercialization, and they should weigh in by the end of June. If Teva gets the green light, its top-line growth problems may be mitigated for a few years. 

Aside from expanding its pipeline capacity, management is anticipating that improvements to the supply chain will help to shore up Teva's gross margin of 43% over the next few quarters. That will be key to help the company return to profitability under generally accepted accounting principles (GAAP), which it missed in the first quarter with losses of $205 million. It's also closing down three more of its manufacturing sites in 2023, and at least four more after that, joining the 28 sites that have shuttered since 2018. More streamlining is likely on the way, which will cut costs further.

But none of the above means you need to be rushing to buy Teva's stock. Remember, it still hasn't demonstrated the kind of appeal that investors expect of generic drug manufacturers. And it probably won't do so for at least a few more years, during which there's absolutely no guarantee of an investment holding its value, never mind growing. And management's new strategy doesn't quite explain how the company's upcoming medicines will be able to find a home in competitive drug markets.

So for the moment, it's best to avoid buying Teva stock.