AbbVie announced it will buy Allergan for $63 billion, combining the companies behind Humira and Botox and creating yet another pharmaceutical behemoth.
Allergan, with 2018 revenue of $15.8 billion, focuses on medical aesthetics, eye care, central nervous system disorders and gastroenterology. Its most famous drug is Botox, which is used to treat muscle spasms and migraines but is also commonly used as a cosmetic agent to reduce skin wrinkles.
The deal comes as AbbVie (ABBV) tries to lessen its dependence on Humira, the bestselling drug in the world, which helps patients with autoimmune diseases like rheumatoid arthritis and Crohn’s disease. Sales of Humira were nearly 20 billion in 2018, equal to about 61% of AbbVie (ABBV)’s revenue.
Humira is set to lose US patent protection in 2023. It has already lost patent protection in some other markets, including the much of the EU this past October.
AbbVie said combining with Allergan will give it a “diversified product portfolio [that] meets our strategic goal to reduce reliance on Humira.”
The estimated purchase price of $188.24 per share represents a 45% premium over Allergan’s closing price on Monday. Those shares had already risen more than 12% in the last week in anticipation that a deal might be in the works. Shares jumped nearly 30% at the start of trading Tuesday on the news to $167.
But the $63 billion price tag is less than half of what Allergan nearly sold for three years ago.
Ireland-based Allergan (AGN) was nearly purchased by Pfizer in 2016, in what would have been the largest pharmaceutical deal at that time. The estimated value of that acquisition ranged from about $150 billion to $160 billion while the companies sought to complete the deal.
A major incentive for that purchase was a plan for Pfizer (PFE) to use the acquisition to shift its corporate headquarters to Ireland and reduce its tax bill. The deal would have been one of the largest examples of a so-called inversion, in which US companies buya foreign company to move their corporate homes overseas to avoid taxes. Then President Barack Obama’s Treasury Department changed how the ownership percentage of the foreign company is calculated, making inversions more difficult to do. Pfizer (PFE) explicitly said the 2016 rule change scrapped the merger plans.
There will be no inversion in the deal announced Tuesday. AbbVie will keep its incorporation in Delaware and its corporate offices in suburban Chicago.
Even with Tuesday’s jump, Allergan shares are still worth only about half of the all-time high of $335 they reached in the summer of 2015 ahead of its planned deal with Pfizer.
Mergers and acquisitions in the pharmaceutical industry have ramped up recently. Pfizer announced last week that it would buy Array (ARRY) for $11 billion. Bristol-Myers Squibb announced in January that it would buy Celgene (CELG) in a $74 billion deal. But Bristol-Myers’ stock tumbled Monday on reports that its deal could face antitrust scrutiny.
