Deal value: $63 billion
Date announced: June 25, 2019
AbbVie investors have long pressed management for a clear growth path as its bread-and-butter Humira goes off patent. The TNF inhibitor, whose $19.9 billion haul accounted for about 60% of the company’s total in 2018, started declining in the first quarter as cheaper biosimilars ate away at European market share.
Meanwhile, Botox maker Allergan has struggled with key clinical trial flops, a legal defeat for its controversial Restasis tribal licensing deal, a failed women’s health asset sale and other competitive threats. Fed up with all those setbacks, disgruntled shareholders have called for major shake-ups, including a split of Brent Saunders’ CEO and chairman jobs.
Solution? A merger between the two challenged businesses.
When the deal was unveiled in June, though, Allergan investors cheered as AbbVie’s stock price sank. Analysts also have their doubts. While most viewed the combo as welcome news for Allergan—dubbing the sale a “graceful exit” for a “beaten-up name”—they raised multiple concerns for AbbVie, the buyer.
AbbVie CEO Richard Gonzalez made it clear that the acquisition isn’t about Allergan’s pipeline but its existing portfolio, which could offset Humira’s future decline. “Essentially, Humira is buying the assets that replace it over the long term,” he said. However, UBS analyst Navin Jacob at the time called AbbVie’s move a “shift away from its positive momentum in innovation.”
Combining the two will create the world’s fourth-largest drugmaker, but whether that creates value remains an open question. Piper Jaffray analyst Christopher Raymond, for one, questioned whether tying up two challenged businesses will change anything.
Obviously, AbbVie investors could get the diversification they asked for; the deal would reduce AbbVie’s reliance on Humira to less than 40%. But the marked difference between the two companies’ therapeutic areas raised integration concerns. According to Credit Suisse analyst Vamil Divan, M.D., in a note right after the announcement, AbbVie plans to keep Allergan’s medical aesthetics business as a “self-contained” unit.
Some analysts have praised the deal. SVB Leerink’s Geoffrey Porges, for example, viewed AbbVie’s branching into aesthetics as a positive. “Allergan’s aesthetics business is one of the most enduring franchises in the industry, and is unlikely to be adversely affected by many of the risks facing the traditional branded drug business (patents, pricing, reimbursement, importation, etc.),” Porges wrote in the July note.
Botox is not without competition, though it has stayed steadfast so far. In cosmetics, Evolus recently launched a new neurotoxin, Jeuveau, which collected $13.2 million in its first full quarter on the market, well ahead of the consensus of $4 million. And in migraine, the new CGRP class could also threaten Botox.
Meanwhile, AbbVie’s own new launches are not to be sneezed at. With what analysts viewed as “best-in-category efficacy,” psoriasis drug Skyrizi nabbed its FDA go-ahead in April, and JAK inhibitor Rinvoq snared its green light for rheumatoid arthritis in August. In a recent note to clients, UBS’ Jacob projected the two drugs could hit $11 billion in peak sales.
All the bull-bear analysis aside, AbbVie and Allergan need to first close the deal. That effort, however, recently hit an antitrust snag.
Like several other recent multibillion-dollar biopharma deals this year, AbbVie/Allergan was dealt extra scrutiny by the U.S. Federal Trade Commission (FTC). The so-called second request for more information came as a surprise, because Allergan had already offered to divest two drugs, brazikumab and Zenpep, due to their overlaps with AbbVie’s Skyrizi and Creon, respectively.
Public interest groups and lawmakers have also asked the FTC to scrutinize the deal, arguing it will hurt competition given the companies’ history of hiking prices and taking aggressive measures to extend patents.
Despite the additional roadblocks, though, AbbVie has insisted that it expects to wrap up the deal in early 2020.