AbbVie’s shares tanked after announcing its plans to acquire the drugmaker Allergen…
Shares of AbbVie fell more than 15% on Tuesday after the company announced it plans to acquire the drugmaker Allergan for $63 billion. The price represents a 45% premium over Allergan’s closing price on Monday.
AbbVie’s shares were trailing even before the announcement as investors became increasingly concerned about declining sales. The Allergan announcement simply added more fire to these concerns.
However, this announcement was good news for Allergan shareholders, who have been pushing for the company to either split or be sold. Allergan’s stock soared more than 26% on Tuesday.
Details about the acquisition
Allergen produces a number of well-known drugs including Botox and Restasis. However, the company has struggled over the past few years and lost roughly half its value since 2017.
The trouble started for Allergan when its 2016 deal with Pfizer fell through due to pushback from the Obama Administration. Since then, the company’s drugs have faced stiffer competition in the market.
For instance, Botox faces competition from a newly released drug called Evolus. Evolus was recently approved by the FDA and is less expensive than Botox. Restasis has also dealt with competition from generic drugs.
AbbVie has faced similar problems in the market. Humira, a breakthrough treatment for rheumatoid arthritis and psoriasis, is the company’s leading drug. And in 2023, AbbVie will lose its patent protection in the U.S for Humira.
When this happens, lower-priced versions of Humira will be available. Humira accounted for 60% of the company’s sales in 2018 so acquiring Allergan could be a good way to diversify the company’s drug lineup.
Final thoughts
In spite of the negative reactions from AbbVie investors, this acquisition could be good news for the company. AbbVie needs to make some major changes to its existing business structure, to ease investor concern.
Acquiring Allergan will allow the company to continue to develop new products. AbbVie’s shares were up 2% on Wednesday morning, suggesting that there may be a chance for the stock to bounce back.
The acquisition is not a done deal yet as the sale still has to be approved and there are certain regulatory hoops the company will have to jump through. But if all goes according to plan, AbbVie expects the sale to be finalized in 2020.
