AbbVie and Allergan Strike $63 Billion Deal

The drug maker 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.

“This is the age of blockbusters,” said David Maris, an analyst for Wells Fargo who follows the drug industry. “And when blockbusters start to go away, companies don’t have too many things they can do.” The deal is the second-biggest takeover in the pharmaceutical industry announced this year, after Bristol-Myers Squibb agreed to buy Celgene, a maker of anticancer drugs, for $74 billion, against the backdrop of the health care industry’s mounting interest in such deals.

But the AbbVie Allergan deal isn’t just a story about health care consolidation – it’s one about the state of innovation among big, legacy biopharma companies scurrying to find ways to plug future holes in their revenue streams. Both companies have bled market value in the past year as investors questioned whether AbbVie can make up for falling sales of its blockbuster psoriasis and arthritis treatment Humira, which rang in nearly $20 billion in 2018 revenues alone, and pushed for a breakup of Allergan amid pipeline struggles.

AbbVie CEO Richard A. Gonzalez heralded the deal as “transformative.” “This is a transformational transaction for both companies and achieves unique and complementary strategic objectives,” he said in a statement. “[T]his strategy allows us to diversify AbbVie’s business while sustaining our focus on innovative science and the advancement of our industry-leading pipeline well into the future.

Allergan chief Brent Saunders will join AbbVie’s board if and when the deal closes while Gonzalez will remain chairman and CEO of the combined company. While Saunders has a reputation as a prolific deal maker who chases bolt-on acquisitions, growth from recent drug pipeline additions has been hard to come by.

Todd “Bubba” Horwitz