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Goldman Sachs Sees 'Limited Upside' In Teva Regardless Of Acquisition Results

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Regardless of the completion of the deal with Allergan plc (NYSE: AGN), shares of Teva Pharmaceutical Industries Ltd (ADR) (NYSE: TEVA) would be adversely impacted by either elevated leverage or Copaxone uncertainty, Goldman Sachs’ Jami Rubin said in a report. She downgraded the rating on Teva from Buy to Neutral, while reducing the price target from $70 to $60.

Both Sides Of The Coin

The Allergan acquisition does represent strategic value and EPS accretion, analyst Jami Rubin mentioned. She added, however, that there is risk to the guidance provided by Teva on July 13, since it reflects a solid outlook for Allergan’s generic business and no generic competition to Copaxone 40mg through 2019.

The guidance has downside in case the Allergan deal does not go through or if the Copaxone patent challenge does not go favorably. “Our range of pro-forma estimates for revenue and EBITDA is below management guidance given our more conservative outlook on AGN generics performance and potential generic risk to Copaxone,” Rubin wrote.

In case the deal closes, focus is likely to shift to EV/EBITDA, a metric that is capital structure neutral. Potentially higher leverage would limit upside to Teva’s shares. On a standalone basis, Copaxone uncertainty would likely limit upside, the analyst said.

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