US biopharmaceutical company AbbVie Inc on Tuesday said that it would buy Botox-maker Allergan PLC for about US$63 billion, moving to diversify its product line as the industry faces pressure on drug prices.
The deal, the latest large transaction in pharma, broadens the product offerings for AbbVie, which has relied heavily on sales of Humira, a drug to treat rheumatoid arthritis that faces rising competition from generics.
Combining operations would allow annual savings of at least US$2 billion through trimming duplicative research and development spending and cuts in sales and marketing spending, the companies said in a statement. The deal is expected to close early next year.
“This is a transformational transaction for both companies and achieves unique and complementary strategic objectives,” AbbVie CEO Richard Gonzalez said in a statement. “With our enhanced growth platform to fuel industry-leading growth, this 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, which is based in Ireland, is best known for Botox, which reduces face wrinkles. The company specializes in the areas of medical aesthetics, eye care, central nervous system and gastroenterology.
Allergan, which grew quickly earlier in this decade, has faced pressure from Wall Street, in part due to worries over the hit from patent expirations of eye medication Restasis. Some analysts have called for the firm to be broken up.
The companies would have a combined annual revenue of US$48 billion and a presence in 175 countries, the statement said.
“This acquisition creates compelling value for Allergan’s stakeholders, including our customers, patients and shareholders,” Allergan CEO Brent Saunders said.
The offer represents a 45 percent premium over Monday’s share price of Allergan, whose management recommended the operation to shareholders.
Shares of Allergan on Tuesday surged 25.4 percent to US$162.43, while AbbVie fell 16.3 percent to US$65.70.
AbbVie has faced questions over patent expirations for Humira, which accounted for more than 60 percent of its revenue of US$32.7 billion last year.
Allergan made more sense to buy than some smaller targets with promising drugs under development, because it “meets our strategic goal to reduce reliance on Humira and allows us to continue expanding our focus on high-innovation science throughout the next decade,” Abbvie said.
“Smaller bolt-on acquisitions provide opportunities for future growth, but also require significant research and development investment amid scientific and clinical uncertainty,” the company added.
A report from Moody’s Investors Service earlier this month predicted more mergers in the pharma industry, citing the effect of patent expirations and a 2017 US tax reform that eased the burden of companies that take on debt for acquisitions.
The report also pointed to stepped-up pressure on drug manufacturers within the healthcare industry on pricing, “as well as the public backlash associated with implementing large price increases.”
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