The announcement on Tuesday set off the worst day for AbbVie’s stock since it was spun off from its parent company, Abbot Laboratories, closing down 16% to $65.70 per share. By Wednesday morning, it had recovered somewhat to about $67 a share, but still traded at an almost two-year low.
Allergan shares, on the other hand, were up 25%, to $162.43 on Tuesday, inching upward to $164.51 on Wednesday morning trading.
Details of the Deal
AbbVie will pay $188.24 a share in cash and stock, according to a statement from the companies. That’s a 45% premium over Allergan’s closing price on Monday. AbbVie shareholders will hold 83% of the combined company’s stock, and Allergan shareholders the remainder, according to information AbbVie released with the announcement.
Under terms of the merger, Allergan chairman and CEO Brent Saunders will join AbbVie’s board of directors when the deal closes, while AbbVie’s Richard A. Gonzalez will remain chairman and CEO of the combined company. Closing is expected in early 2020.
AbbVie’s rheumatoid arthritis injection, Humira, is the world’s biggest-selling drug, with about $20 billion in sales last year. Allergan, which has relied heavily on sales of Botox, will offer shareholders a profitable exit after a four-year downward trend, according to a report from Bloomberg.
“This is a transformational transaction for both companies and achieves unique and complementary strategic objectives,” Gonzalez said in a statement. The strategy will allow AbbVie to diversify while sustaining a focus on “innovative science and the advancement of our industry-leading pipeline well into the future.”
“This acquisition creates compelling value for Allergan’s stakeholders, including our customers, patients, and shareholders,” Allergan’s Saunders said in a press release. “With 2019 annual combined revenue of approximately $48 billion, scale in more than 175 countries, an industry-leading R&D pipeline, and robust cash flows, our combined company will have the opportunity to make even bigger contributions to global health than either can alone.”
Where Eye Care Fits In
Humira comprises about 60% of AbbVie’s sales, but that would drop to about 40% in the combined company. In an investor presentation, AbbVie showed its growth portfolio incorporating Allergan’s products would double from $14 billion to more than $29 billion. For Allergan, eye care represents the second largest durable growth area in its portfolio with a value of $2.3 billion (medical aesthetics at $4.3 billion is the largest asset).
“Our fast-growing therapeutic areas, including our world-class medical aesthetics, eye care, CNS [central nervous system], and gastrointestinal businesses, will enhance AbbVie’s strong growth platform and create substantial value for shareholders of both companies,” Saunders said in the press release.
An Allergan representative, in an email to eye-care providers, said the move will not significantly impact the company’s ophthalmic portfolio, and that Allergan’s Irvine, CA, campus will remain a major headquarters.
Both Humira and Botox are essential elements of the respective companies’ portfolios, so the firms have done everything possible to safeguard their patents and ward off rivals, according to a report in Fortune. Gonzalez noted that Botox’s immunity from competition was a significant rationale for the deal, Fortune reported. “It’s very unlikely we’ll see a Botox biosimilar for a long, long time, if ever,” he said.
According to Fortune, a recent trend in pharma mergers and acquisitions has been to focus on niche therapies with high price points and a reliance on list price hikes, alongside “bolt-on acquisitions and in-licensing products from leaner biotechs.” Whether this is a $63 billion case study in how some large drugmakers grapple with an “innovation gap” remains to be seen.
OIS Weekly contributing editor Rich Kirkner contributed reporting to this article.
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