Mega Merger
In one of the biggest mergers in the healthcare sector this year, AbbVie has made a deal to acquire Allergan for approximately $63 billion. The two drugmakers appear to be betting that “a combination will deliver new sources of growth that they have struggled to find on their own,” according to an article by Cara Lombardo, Jonathan D. Rockoff and Dana Cimilluca in the Wall Street Journal.
The deal, which is valued at about $80 billion including debt, represents the second time this year that two huge pharmaceutical companies have come together. Earlier in 2019, Bristol-Myers Squibb Co. reached an agreement to pay $74 billion for Celgene Corp., a cancer drugmaking competitor. By buying Allergan, AbbVie would gain a dominant position in the $8 billion-plus market for Botox and other beauty drugs, in addition to eye care products, as AbbVie faces the end of patent protection for the world’s top-selling drug, Humira.
AbbVie has been looking to diversify beyond Humira since it was split from Abbott Laboratories in 2013. Humira, which is used to treat rheumatoid-arthritis, was responsible for $19.1 billion of AbbVie’s $32.8 billion of revenue in 2018. It faces competition from lower-priced biosimilars, which are available in Europe now and will be available in the U.S. in 2023. Both companies have products to treat brain, women’s health, stomach and other disorders, but Allergan also offers frown-line smoothing, eyelash lengthening and double-chin removal. Allergan’s annual revenue of $16 billion would supply AbbVie with cash to find a new generation of products.
AbbVie tried to buy rare-disease drugmaker Shire for $54 billion in 2014, but AbbVie called off the deal later that year. AbbVie did buy Pharmacyclics Inc., the maker of the Imbruvica cancer therapy, for $20 billion in 2015. The company shares the treatment’s rights with Johnson & Johnson. It cannot compensate for the impending loss of Humira sales.
Allergan’s shares soared four years ago after some bold acquisitions, but the only bright spot recently has been the aesthetic-medicine business. The company, which started as a California pharmacy and then became known as an eye-treatment business, got into the spotlight when it started selling Botox for smoothing frown lines and wrinkles. A combination with Irish drugmaker Actavis in 2015 was a major transformation. Pfizer Inc. had planned to buy Allergan for approximately $150 billion, but that transaction fell through. Investors were concerned that Allergan could not replace sales from the eye drug Restasis, which was losing its patent protection.
Investors also lowered the stock on a failed plan to beef up Restasis by selling its patent rights to an Indian tribe, in addition to mixed messages from management about Allergan’s prospects. Competitors are trying to do something to dethrone Botox, and Allergan’s attempts to develop new drugs, such as a depression treatment, have not succeeded.
Time will tell whether the merger produces the desired results. Merging giants does seem to be a trend in pharma this year.
