AbbVie’s Big Bet to Diversify with Allergan Pays Off So Far

Now that it has closed on its $63 billion acquisition of Allergan, AbbVie has significantly expanded its revenue base, which could help cushion the blow from when Humira, its best-selling product, comes off patent in 2023.

Barron’s analyst Bill Alpert predicts that Humira will go from 63% of AbbVie’s revenue to 40% with the addition of Allergan. Eye care represents the second largest durable growth area in Allergan’s portfolio with a value of $2.3 billion. Medical aesthetics, including Botox, is the largest asset at $4.3 billion.

Time to Buy?
According to The Street, AbbVie stock has done well since the deal closed, and it may be a good time to consider buying due to its “stronger and more diverse lineup.” On the day the acquisition closed, AbbVie stock went to $84.01 per share and has mostly traded above $90 since.

The Motley Fool has a mixed view of whether or not AbbVie is a buy. The Fool points out that Allergan brings more than 120 products that generated more than $16 billion in sales last year, including abicipar.

However, two abicipar trials, reported last week online in the journal Ophthalmology, had what Reuters Health Information describes as “mixed results.”

The Fool also notes that Allergan brings some baggage to the table, including a long-term debt of close to $17.6 billion and several products for which sales are in decline, notably eye-disease drugs Restasis, Alphagan, and Lumigan.

Overall, the Fool says the deal is good for AbbVie in managing the loss of US patent exclusivity for Humira, which generated nearly 55% of AbbVie’s total revenue in the first quarter this year. The Fool agrees with Barron’s projections that with the acquisition, Humira should contribute less than 40% of total revenue.

FiercePharma calls AbbVie “a colossus with a bustling drug portfolio,” and notes that SVB Leerink analyst Geoffrey Porges said that an abundance of cash flow along with a portfolio not so Humira-dependent make AbbVie worth more than its share price suggests, describing the stock as “unsustainably cheap.”

Moving Forward

In connection with the closing of the transaction, AbbVie elected Thomas C. Freyman, retired executive vice president and chief financial officer of Abbott, to the board. Freyman also recently served on Allergan’s board.

“The new AbbVie will be a well-diversified leader in many important therapeutic categories, with both on-market and pipeline assets, and our financial strength will allow us to continue to invest in innovative science and continue to serve unmet medical needs of patients that rely upon us,” said AbbVie chairman and CEO Richard A. Gonzalez.

Under the terms of the transaction agreement, Allergan shareholders received 0.8660 AbbVie shares and $120.30 in cash for each Allergan share, for a total of $193.23 per share (based on the closing price of AbbVie’s common stock of $84.22 on May 7, 2020). Allergan common stock ceased trading on the New York Stock Exchange as of the close of trading on May 8.