Analyst Marc Goodman of UBS has come out in praise of the deal whereby Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) is to acquire Auspex Pharmaceuticals Inc. (Nasdaq: ASPX) for $3.2 billion.
"The key asset is SD-809, which is in Phase 3 for Huntington's disease, Phase 2/3 in TD, and Phase 1 in Tourette's Syndrome. Management expects approval to be in 2016 for Huntington's and peak sales for all 3 indications of over $2 billion. Management also indicated that the deal should be accretive once sales are over $150 million in 2017," Goodman notes, and goes on to write, "While this is not the highly accretive deal that investors have been focused on, we think this is the type of deal that Teva should be doing.
"Teva needs a pipeline, especially low-risk, orphan CNS assets. Teva needs earnings growth in the medium term, and we think absorbing some dilution for the next year or so until launch is not an issue at all. We are not sure if this drug can ultimately reach $2 billion, but we would view even half that goal as a very positive outcome. If Xenazine can do $300 million for one indication with its AE profile, our initial reaction is why couldn't this be a $1 billion drug. However, we need to do some work to get to know these markets and the drug before putting out a sales forecast. And there is a core technology and additional pipeline assets that have the potential to drive longer-term upside."
Goodman's conclusion is that "this is a smart, strategic deal, and investors not only understand its merits but also understand that there is more M&A to follow."
UBS maintains its "Neutral" rating for Teva, with a price target of $57.
Published by Globes [online], Israel business news - www.globes-online.com - on March 31, 2015
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