Morning Briefing
Summaries of health policy coverage from major news organizations
Facing The Upcoming Loss Of Blockbuster Drug's Patent Protections, AbbVie Buys Allergan In Mega $63B Deal
The drugmaker AbbVie said on Tuesday that it planned to buy Allergan, the maker of Botox, for about $63 billion, in one of the biggest mergers in the health care industry this year. The deal represents a classic response to a perennial drug industry challenge: how to recover when a blockbuster drug is losing its patent protection. In acquiring Allergan, AbbVie gets to bypass the risky process of research and development by buying a portfolio of popular products as it faces the loss of patent protection for Humira, a treatment for rheumatoid arthritis that is the world’s top-selling drug. (Thomas and de la Merced, 6/25)
AbbVie has long been under pressure to diversify its portfolio and its shares have lost more than a third of their value since January 2018 over concerns about Humira. The world's top-selling drug brought in sales of $20 billion last year. But it now faces competition from cheaper versions in Europe and a 2023 expiration of its patents in the United States, by far the most profitable market. (Erman, Banerjee, and Steenhuysen, 6/25)
Humira logged a staggering $20 billion in sales last year, or about 61% of AbbVie’s revenue. That dangerous dependence on one drug forced 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 Inc., based in North Chicago, Illinois, and Allergan, which is based in Dublin on paper but operates from headquarters in Madison, New Jersey. The acquisition should also mean Allergan officially moves back home, after having switched its legal headquarters to Ireland in a tax-saving strategy. (Johnson and Murphy, 6/25)
The proposed takeover doesn’t give AbbVie a pipeline full of potential blockbuster drugs, but it buys the company time to develop more. Allergan provides AbbVie with a set of products big enough to diversify its revenue from Humira, the rheumatoid arthritis injection that is the world’s biggest-selling drug worldwide, with about $20 billion in sales last year. Allergan, which is heavily reliant on the wrinkle reducer Botox, will get a profitable exit for shareholders after a four-year slide. (Spalding and Griffin, 6/25)
Lately, Wall Street has been clamoring for change at Allergan, with its shares trading at a fraction of their peak of more than $330 in the summer of 2015. Analysts have been saying the company could split into two pieces, but few expected Chief Executive Brent Saunders to pull off a sale, especially at such a lofty premium. AbbVie CEO Richard Gonzalez said the company’s board about a year ago started discussions that led to a decision to pursue a large acquisition. AbbVie wanted to boost the size of its non-Humira business, Mr. Gonzalez said Tuesday on a conference call with reporters. (Lombardo, Rockoff and Cimilluca, 6/25)
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. (Johnson and Murphy, 6/25)
The deal comes as the latest in a string of acquisitions for the pharmaceutical industry. Other companies making deals recently have included Bristol-Myers Squibb and Eli Lilly. (Bomey, 6/25)
