AbbVie Inc. will catapult up the list of the world's biggest pharmaceutical companies should its $84.2 billion bid for Allergan PLC close.
With combined 2018 revenue of $48.54 billion, AbbVie/Allergan will land below Novartis AG, which made just over $53 billion in 2018, according to S&P Global Market Intelligence pro forma data. Only Johnson & Johnson, Roche Holding AG and Pfizer Inc. had higher revenues that year.
The combined company will leap frog past Bayer AG, Merck & Co. Inc., Sanofi and GlaxoSmithKline PLC. It would also land even higher than the combined revenue that would result from the year's most talked about megadeal, Bristol-Myers Squibb Co.'s $95 billion bid for Celgene Corp.
The total transaction value of $84.2 billion includes equity, the value of assumed liabilities net of current assets.
AbbVie's reasons for picking up Allergan, the maker of Botox, has been no secret to healthcare industry watchers. The company's flagship product Humira — the best-selling drug in the world with $20 billion in sales in 2018 — will face intense biosimilar competition in the U.S. in 2023, dropping AbbVie's prospective revenue well below its current standing.
Digging deeper
The Allergan buy will be a Band-Aid on AbbVie's pending revenue shortfall, as the acquisition will still not completely cover for the loss of exclusivity on Humira, analysts and executives have said. Moreover, the degree to which the blockbuster arthritis drug's profits will slide in 2023 are up to market forces and the success of the biosimilars' launches that year.
Analysts have noted the lack of innovation in Allergan's pipeline assets as a risk in the transaction, but AbbVie will receive several already-marketed products to diversify its holdings.
Allergan's medical aesthetics franchise is its most valuable, with Botox leading the lineup, plus skin treatments Juvederm, Coolsculpting and AlloDerm. The entire franchise is worth more than $4 billion per year, executives said on a June 25 call.
AbbVie CEO Rick Gonzalez said the company would "aggressively fund" the neuroscience division that comes from Allergan, which includes Botox's therapeutic uses for migraine and limb stiffness. Allergan also has the bipolar drug Vraylar, which had revenue of $143.7 million in the first quarter of 2019 — a more than 70% increase from the prior year. Allergan's assets in the space add to AbbVie's depression drug Viibryd and Parkinson's disease treatment Duopa.
The addition of Allergan's immunology holdings also beef up AbbVie's already industry-leading position in the market, bringing in irritable bowel syndrome drugs Linzess and Viberzi. Beyond Humira, AbbVie also sells the psoriasis medicine Skyrizi.
Allergan will not bring any new cancer prospects to AbbVie's existing line up of Imbruvica and Venclexta, which have recently picked up positive trial results supporting potential new indications.
Rounding out the combined portfolio would be therapies in hepatitis C, women's health and eye care.
For the deal to close, AbbVie will need to secure clearance from the U.S. Federal Trade Commission, which will examine the companies' portfolios and determine if any areas of overlap are of concern. Bristol-Myers, for instance, said on July 24 that its takeover of Celgene will be delayed by at least a quarter after the agency raised concerns about combining the two companies' psoriasis portfolios. The buyer has opted to sell Celgene's Otezla to ensure the deal proceeds smoothly.
That Otezla was a matter of concern for the FTC was a surprise to some analysts, and Evercore analyst Josh Schimmer noted on AbbVie's call that the agency appears to have taken a broader stance on the definition of competition in recent rulings.
AbbVie executives on the call said they have "a few small products to divest, but don't anticipate any issues" from antitrust litigation.
Evercore analysts pointed to overlaps in investigative products at both companies for Crohn's disease and ulcerative colitis, namely AbbVie's Skyrizi and Allergan's brazikumab. AbbVie's Orilissa and Allergan's Esmya both treat uterine fibroids, but Esmya was rejected by the U.S. Food and Drug Administration near the end of 2018, which would make that divestment more straightforward, the analysts said.
Smaller products that treat obesity, pancreatitis, thyroid diseases and hormonal dysfunction may also lead to anti-competition concerns down the road as well, the analysts noted.
Long and winding road
AbbVie swooped in to pick up Allergan amid a steady share price decline and leadership trouble at the Dublin-based company. Shares have dropped from $312.46 to $129.57 in the time since Pfizer made a $190 billion bid for Allergan more than four years ago, and when AbbVie put up its offer.
Pfizer's November 2015 deal ultimately fell through within five months, and was followed by a string of confidence-shattering developments for investors.
Allergan sold its generics arm to Teva Pharmaceutical Industries Ltd. in 2016, after which its shares dipped and recovered over the next year.
But investors lost confidence in 2017 when the company pursued an ill-fated partnership with the St. Regis Mohawk tribe to take advantage of a loophole that would protect patents for its eye medicine Restasis before competition carved out a portion of sales. A U.S. court ruled against Allergan in 2018.
Shares continued to slip beyond control for the company at the beginning of 2019 when a Botox rival from Evolus Inc. hit the market. Investors began to revolt against Allergan's leadership, particularly CEO and board chairman Brent Saunders, and talks of a split between the company's aesthetics and therapeutics arms ensued and continued up until just a week before the announcement from AbbVie.
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