AbbVie Inc. is jumping on this year’s pharmaceutical merger bandwagon with a $63-billion bid for Botox maker Allergan that is meant to spur future growth.
AbbVie, a specialty drugmaker, said Tuesday that adding Allergan’s aesthetics products and eye care and other medicines will help AbbVie shore up revenue as near-identical biosimilar drugs begin eroding sales of its blockbuster immune-disorder treatment, Humira.
Humira logged $20 billion in sales last year, or about 61% of AbbVie’s revenue. That dangerous dependence on one drug pushed AbbVie to make a big move. Allergan’s management likewise has been under pressure to reverse a long stock plunge, from $340 a share in July 2015 to about $130 on Monday.
The combination could solve those problems for AbbVie, based in North Chicago, Ill., and Allergan, which on paper is based in Dublin — a tax-saving strategy — but operates from headquarters in Madison, N.J. The acquisition should also mean Allergan officially moves back to the United States.
The deal follows a familiar formula: Snap up a smaller drugmaker to boost revenue and cut jobs and other costs in the short term, while acquiring potential new drugs in testing that will improve results and accelerate growth down the road.
That consolidation has the potential to boost prices, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business who follows the pharmaceutical industry.
AbbVie has repeatedly hiked Humira’s monthly list price, from $1,524 in 2009 to $5,174 this year, to squeeze extra billions of dollars from it.
AbbVie Chairman and CEO Richard Gonzalez told analysts Tuesday that the deal essentially involves “buying the assets that replace [Humira as the world’s top-selling drug] over the long term.”
Those include Botox, whose sales jumped 50% last year to $3.5 billion; dry eye blockbuster Restatis; and medicines for dermatology and gastrointestinal disorders.
Sales of Humira — which treats rheumatoid arthritis, psoriasis and colitis — slipped in the first quarter due to growing biosimilar competition overseas. It will face at least half a dozen biosimilar competitors in the United States — by far its largest market — in 2023.
Gonzalez said AbbVie examined Allergan’s portfolio “product by product” and was impressed with the job Allergan has done with Botox. Along with reducing wrinkles temporarily, Botox is approved to treat a growing number of medical conditions, including migraines and muscle spasms.
Industry analysts had been anticipating a move by AbbVie.
“We are unsurprised by the timing and the target of the deal given [AbbVie’s] Humira patent cliff,” wrote Citi analyst Andrew Baum.
Morningstar analyst Damien Conover wrote that the deal will partially alleviate worries about Humira. He believes AbbVie also is taking advantage of Allergan’s low stock price.
Shares of AbbVie are down 16% over the past year and shares of Allergan have fallen 24%, amid declining sales growth over the past three quarters and the failure of an experimental depression drug in March.
On Tuesday, Allergan shares jumped 25.4% to $162.43 while AbbVie shares slid 16.3% to $65.70.
AbbVie is to pay $120.30 in cash and a portion of AbbVie stock for each Allergan share. That amounts to $188.24 a share, a 45% premium to Allergan’s Monday closing price.
Gonzalez will remain chairman and CEO at AbbVie. Allergan Chairman and CEO Brent Saunders, plus a second Allergan board member, are to join AbbVie’s board.
The deal is subject to regulators’ and Allergan shareholders’ approval — hardly a slam-dunk, as regulators have been increasingly tough on pharma deals.