Allergan: AbbVie’s expensive facelift

Pharma giant AbbVie is buying Botox maker Allergan for $63bn. That’s a huge sum given the target’s uncertain prospects. Matthew Partridge reports.

Woman getting botox injection in her face.
Botox is facing stiff competition

Yet another "pharmaceutical behemoth" looks set to emerge, says Chris Isidore on CNN. AbbVie (NYSE: ABBV) has announced that it will buy Allergan (NYSE: AGN) for $63bn. The latter's shares jumped nearly 30% on the news. Takeover activity in the sector has intensified recently, with Pfizer announcing an $1bn takeover of Array a few days ago.Earlier this year, Bristol-Myers Squibb offered $74bn for Celgene, though that deal has yet to be approved.

There is strategic logic to the deal, says The Wall Street Journal. Buying Allergan would allow AbbVie to dominate the $8bn-plus market for Botox and other beauty drugs, along with several "popular eye treatments". Along with "some overlap in treatments for brain, women's health, stomach and other disorders", the combination "would take AbbVie into the new realm of frown-line smoothing, eyelash lengthening and double-chin removal". What's more, Allergan's nearly $16bn in yearly revenue "would also give AbbVie another source of cash to hunt for a new generation of products".

Propping up the pipeline

If AbbVie assumes that buying Allergan will help it improve its pipeline, it should think again, says Max Nisen on Bloomberg. Allergan is notorious for its "ageing products, questionable deals, and research failures", which have prompted Allergan's own investors to call "for a breakup of the company or a change in management". For instance, despite Botox's "impressive brand recognition and a solid grip on the market", its long-term potential is uncertain owing to new drugs from competing firms, which aim to tackle both wrinkles and migraines (the other medical use for Botox).

Not only does Allergan fail to provide more than "a temporary facelift" but the 45% premium to the current price makes it "excessively expensive", says Robert Cyran for Breaking Views.

Even if the deal delivers the projected annual savings of $2bn, this still doesn't justify the $20bn cost of the transaction, not to mention the "hefty" $60bn in assumed and newly raised debt. Given the fact that Big Pharma "has a miserable track record delivering value from large deals", it's no surprise that the announcement of the deal has wiped $15bn off AbbVie's market value.

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Robin Geffen: dividend cuts aren't all down to Covid
Stockmarkets

Robin Geffen: dividend cuts aren't all down to Covid

The seeds of recent dividend cuts and cancellations were sowed many years ago, says veteran investor Robin Geffen.
25 Oct 2020
Dividend payments will take a long time to recover
Income investing

Dividend payments will take a long time to recover

Companies are gradually resuming dividend payouts, but we can expect only a modest rebound in 2021, says Cris Sholto Heaton.
25 Oct 2020
“Big Finance” comes out of its decade-long slump as bankers bounce back
Stockmarkets

“Big Finance” comes out of its decade-long slump as bankers bounce back

The financial sector was hammered by the crisis of 2008. Now, bankers are rediscovering their swagger, says Matthew Lynn.
25 Oct 2020

Most Popular

Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020
UK post-Covid recovery stocks: these 20 companies could be set to rocket
Share tips

UK post-Covid recovery stocks: these 20 companies could be set to rocket

Finding stocks with the potential to rise tenfold or even further is far easier said than done. But the pandemic has produced the most promising backd…
22 Oct 2020
Big spending government is here to stay – just ask Rishi Sunak
UK Economy

Big spending government is here to stay – just ask Rishi Sunak

Governments around the world are splashing huge amounts of cash as they do “whatever it takes” to prop up their economies. John Stepek looks at where …
23 Oct 2020