As the dust clears on the news of AbbVie’s $63bn takeover of Allergan, it seems the biopharma world is split between those who think it is a smart move, or a bit of a blunder.
On the one hand are those who think that AbbVie is making a good opportunistic play. Swooping on a beleaguered Allergan adds $16bn in annual revenues that will help the company preserve the bottom line as it prepares for the upcoming loss of US patent protection for $20bn immunology blockbuster Humira in 2023.
Allergan isn’t facing a significant patent cliff any time soon but has struggled to generate growth, and AbbVie can help make the most of its current portfolio.
On the other are those who fret that the deal is saddling AbbVie with even more debt and doing little to add to its pipeline of new therapies, at a time when Allergan’s biggest product Botox – which brought in $3.7bn last year – is facing tougher competition in the market from new migraine drugs and rivals in its medical aesthetics indications.
At the close of play yesterday the naysayers seemed to have edged the argument, with shares in AbbVie closing down 16%.
AbbVie’s chief executive Richard Gonzalez was upfront in admitting that the rationale for the transaction is to expand AbbVie’s non-Humira business on a conference call with investors and analysts yesterday, in which discussion focused mainly on Allergan’s on-market drugs rather than its fairly lean pipeline.
Richard Gonzalez
He downplayed the risks to Allergan’s Botox from branded rivals such as Evolus’ Jeuveau or biosimilars. Allergan has done a good job protecting the brand from the branded drugs, which have only taken a small bite out of its market share, and Gonzalez insisted that for technical reasons “it’s highly unlikely that we would see a biosimilar against Botox for a long, long time, if ever.”
Analysts meanwhile expressed surprise at the what was viewed as a change in direction for AbbVie, which has hitherto been focusing on smaller bolt-on deals to bulk up its pipeline, including a $21bn takeover of Pharmacyclics and $9.8bn deal for Stemcentrx.
Gonzalez said AbbVie has done plenty of pipeline-building deals and has a new generation of projects due to read out between 2020 and 2022, so the Allergan deal has a different purpose, allowing it gain “critical mass” in its growth platform.
That drives up profitability, and in turn creates a situation where the cash-flow generated from Humira can in effect pay for the mid- to late-stage development programmes.
“So, essentially, Humira is buying the assets that replace it over the long-term,” said Gonzalez. “If you look at a large bolt-on, you have a similar kind of risk, except it’s even more binary in its outcome,” he added.
“It’s hard to find a bolt-on that can give you $10bn to $15 bn of revenue to be able to advance that growth platform rapidly.”
In light of the regulatory difficulties experienced by Bristol-Myers Squibb in its proposed $73bn takeover of Celgene, AbbVie was quizzed about any potential issues that might emerge from the Federal Trade Commission (FTC) and counterparts in other areas of the world.
AbbVie’s chief legal officer Laura Schumacher told analysts “we don’t anticipate any significant issues with the FTC approval process,” but added there are “a few small product overlaps that we’ve agreed to divest promptly.”
Half of the $2bn in proposed savings from the deal will come from R&D, and AbbVie was forthright in saying that the majority of the value in the transaction comes from Allergan’s on-market products.
For AbbVie, Allergan’s most interesting programmes are a clutch central nervous system (CNS) candidates including antidepressant Vraylar (cariprazine) – which it says has blockbuster potential – as well as oral CGRP inhibitors that could complement Botox in migraine treatment.