Takeover deal will create world’s fifth-largest pharma company

Dublin-headquartered Allergan is to be acquired by the US pharma company AbbVie. The cash-and-stock transaction values Allergan at $63 billion (£49.6 billion). Shareholder reaction was mixed: AbbVie’s share price dropped by about 15% on the announcement; Allergan’s rose 27%.

The takeover will create the world’s fifth-largest drug company, with an estimated $48 billion revenue in 2019. About $2 billion in cost synergies are expected in the third year after the deal closes, which is expected in early 2020. The new company will retain AbbVie’s US headquarters, bringing Allergan back to its home country; there are now no tax advantages in being headquartered in Ireland.

AbbVie’s chief executive Richard Gonzalez will continue his role after the merger completes. Two Allergan board members will join the AbbVie board, including chairman and chief executive Brent Saunders. ‘The acquisition of Allergan represents a rare and unique opportunity for AbbVie to accelerate the progress of the growth platform by adding highly valuable assets with leadership positions across the growth segments,’ says Gonzalez.

The takeover comes three years after Pfizer’s takeover bid for Allergan failed, and the intervening years have seen turbulent times for Allergan’s business; its current valuation stands at around $100 billion less than Pfizer was going to pay in 2016.

AbbVie itself has been under pressure to offset losses incurred by biosimilar competition to its arthritis treatment Humira (adalimumab). Last year, the near-$20 billion brought in by Humira represented about 60% of the company’s worldwide sales, but its patents expired in Europe in late 2018, and four competitor products are already on the market. Its US patent expires in 2023. Acquiring Allergan, with an annual revenue of $16 billion, goes a long way towards plugging this hole in its balance sheet.

‘Perhaps AbbVie has been too reliant on [Humira], but knowing that its main source of revenue is at risk of sales erosion from biosimilars means that a merger can provide a rapid source of new revenue streams to secure long-term growth,’ says Maura Musciacco, senior director of neurology and ophthalmology at analysts GlobalData.

It is perhaps surprising that AbbVie is looking to acquire a diversified company such as Allergan, Musciacco suggests. ‘The deal is expected to transform the company’s portfolio,’ she says. ‘Importantly, the deal will also lower its reliance on Humira, meaning that just 41% of the combined company’s sales would be generated by this drug.’

About half of Allergan’s sales are in neurology, and its biggest seller is Botox (onabotulinumtoxin A), which has medical indications as well as its cosmetic uses. Allergan’s pipeline also contains several potential revenue drivers, including two oral calcitonin gene-related peptide receptor antagonists, atogepant and ubrogepant, which are in late-stage development for migraine.

According to Olaf Tölke, head of corporates research at Scope Ratings, US corporate tax reform under President Donald Trump has encouraged pharma companies to repatriate cash from abroad, leaving them well placed to make takeover deals to offset losses from patent expiry. ‘US companies like AbbVie are likely to remain more proactive than European counterparts in seeking acquisitions in anticipation of losing future revenue,’ Tölke says.