Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

It's finally (probably) done. Now comes the tough bit.

After a series of delays, extra divestitures, and months of uncertainty, Teva's $40.5 billion purchase of Allergan's generics unit might finally be finalized.   

On a call with investors Wednesday morning, Teva CEO Erez Vigodman said the deal should close "any time now." It's down to an expected FTC thumbs-up, which may come in the next two weeks. Teva also pre-announced second quarter results that beat analyst expectations and released ambitious guidance through 2019, sending its ADRs up 4.5 percent Wednesday. 

Releasing three years of projections is a vote of confidence in this deal. But the longer-term numbers reflect risky assumptions about Teva's business and the Allergan drugs it is acquiring.

Closing Time
Teva's shares are up on the prospect that its purchase of Allergan's generic business might close soon and its early release of positive second quarter results.
Intraday times are displayed in ET.

The rationale for the transaction is the same as it ever was: It makes Teva a generics behemoth with an enviable pipeline of drugs. The company maintained it will realize $1.4 billion in synergies, but said it won't achieve the full amount until 2019 due to deal delays, adding a year to previous guidance. 

Teva also cut its revenue expectations for 2018, but it's still quite optimistic. Teva projects revenue will rise from $19.7 billion last year to as high as $22.5 billion next year. By 2019, its high-end revenue estimate is $27.8 billion. It expects Ebitda to grow from $6.6 billion last year to as high as $11.5 billion in 2019. 

Rocket Ship
Teva expects robust revenue growth over the next 3 years as it integrates Allergan's generics business.
Bloomberg

But there are plenty of potential potholes ahead.

Teva's guidance still does not include generic competition for the most important version of its MS drug Copaxone -- its best-selling product at about $4 billion last year and the source of 20 percent of its revenue. Analysts disagree, expecting Copaxone sales to decline by nearly $1 billion from 2015 to 2017. 

Copaxgroan
Analysts expect sales of Teva's best selling drug to start declining precipitously in the years to come.

Another issue? Teva's assumptions about Allergan's generics business and pipeline are based on limited information. Until the deal actually closes, Teva has low visibility into the unit's drugs in development. Projecting three years of financial figures without that information (and a few weeks before Teva is set to get it) seems speculative and a bit strange. Teva may have to shift expectations relatively quickly if some of its guesses are off. 

Teva also said generic drug prices seemed pretty stable in the second quarter, and its guidance assumes stability will last the year -- even though other companies have been suffering revenue shortfalls due to pricing. Allergan's generics unit is among the suffering, according to Wall Street consensus, Morgan Stanley analyst David Risinger mentioned on Wednesday's call.

And then there are your standard merger concerns, which are always heightened for big international deals. Integration could be rocky, and expected synergies may never fully materialize.

Teva's almost out from under the shadow of deal-closure uncertainty. But the sun afterwards might be pretty hot. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net