What's going on?
On Tuesday, American drug kingpin AbbVie announced that it has agreed to purchase Ireland-based pharmaceutical firm Allergan for $63 billion.
What does this mean?
Allergan’s best known for Botox – but it has a range of other drugs used to treat nervous system, eye, and gut disorders. AbbVie, on the other hand, is recognized for making the world’s bestselling drug: Humira (a treatment for arthritis). But Humira’s US patent expires in a few years, exposing it to competition from rivals’ cheaper “generic” products that do the same thing. That’s already happening in Europe – and, Stateside, raising drug prices is becoming a more difficult prospect.
An acquisition, therefore, was perhaps an attractive choice for AbbVie: building “scale” – i.e. producing more drugs while incurring fewer costs across both businesses – should help the combined company continue to grow.
Why should I care?
For markets: Investors took their medicine.
Allergan’s stock took the green pill – it rose almost 30%, reflecting the premium AbbVie’s paying to take it over. Investors fed AbbVie’s stock the red pill, however: it fell 14%. Perhaps they’re worried about the challenges ahead, even as a bigger company. And AbbVie’s plan to continue to reduce its debt may not ignite investors’ excitement – it’ll mean less cash available to invest in research and development of new products.
The bigger picture: AbbVie’s keeping regulators sweet.
The two firms currently have a limited product overlap, restricting the scope of potential cost-cutting synergies. Perhaps AbbVie was beset by the “corporate imperative”, having seen several other pharma companies pen large deals this year – then again, that very drawback may help the tie-up gain competition regulators’ approval (tweet this). Shares of Bristol-Myers Squibb fell on Monday after the company said its $74 billion purchase of Celgene would be delayed while it cleaves off some existing drugs to satisfy regulators.