AbbVie strikes US$63B deal for Botox-maker Allergan

AbbVie Inc. agreed to pay US$63 billion for rival drugmaker Allergan, the latest merger in an industry where some of the biggest companies have been willing to pay a big premium to resolve questions about their growth prospects.

The price tag caused some heartburn on Wall Street, with AbbVie declining more than 16 per cent in New York, putting the stock on course for its worst single-session drop since the drugmaker was spun off from former parent Abbott Laboratories.

Allergan shares climbed as much as 30 per cent. AbbVie will pay US$188.24 a share in cash and stock, according to a statement, a 45-per-cent premium to Allergan’s closing price on Monday.

“Allergan, with its well-known Botox, is being used to smooth the wrinkles this time not of a face but of a company,” said David Maris, an analyst with Wells Fargo. “While this is a good alternative for Allergan versus the current share price, we are not convinced that this is a better long-term alternative for shareholders.”

The proposed takeover doesn’t give AbbVie a pipeline full of potential blockbuster drugs, but it buys the company time to develop more. Allergan provides AbbVie with a set of products big enough to diversify its revenue from Humira, the rheumatoid arthritis injection that is the world’s biggest-selling drug worldwide, with about US$20 billion in sales last year. Allergan, which is heavily reliant on the wrinkle reducer Botox, will get a profitable exit for shareholders after a four-year slide.

While they use cost savings from the deal to shore up profits, the companies will still be under pressure to show investors they can come up with the next big thing. AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge.

The companies have developed several potentially promising medicines for a range of diseases, though so far none have convinced investors that they can attract the vast pool of patients that take medications like Humira.

On a conference call announcing the deal, AbbVie chief executive Richard Gonzalez, who will lead the combined company, said the transaction should ease concerns about future competition to Humira, adding that the drug is lucrative enough to bankroll the purchase of its eventual successor.

“This is a transformation transaction that provides important strategic benefits for both AbbVie and Allergan,” Gonzalez said. “This will have a profound impact on AbbVie’s overall growth story.”

One drug considered to be a contender to replace some of Humira’s sales over the long term is AbbVie’s Skyrizi, a new psoriasis treatment that many patients may find more convenient than Humira, as it needs to be injected less frequently.

“Patients love Skyrizi, it’s a big contender,” said Mark Lebwohl, the Waldman chair of dermatology at the Icahn School of Medicine at Mount Sinai in New York. “It’s four shots a year and appears to be incredibly effective. AbbVie already knows how to sell this drug.”

The drop in North Chicago, Ill.based AbbVie’s shares Tuesday also reflects investors’ concerns over activist opposition and regulatory scrutiny. Earlier this year, Bristol-Myers Squibb Co. faced opposition from some top investors to abandon its US$74-billion acquisition of Celgene Corp. The transaction eventually won the backing of a majority of shareholders, but Bristol-Myers shares are still trading well below their pre-deal value.

On Monday, Bristol-Myers said that it had agreed to divest one of Celgene’s top products, the psoriasis pill Otezla, in order to appease regulators at the U.S. Federal Trade Commission. While there are few major areas of overlap between Allergan and AbbVie, the deal is almost certain to get a careful look from regulators.