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

VALUA-VITALY

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.

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