A blockbuster merger of two large pharma companies will have an impact on the eye care market as AbbVie announced its plans to buy Allergan in a deal worth $63 billion.
Under the agreed terms, Allergan shareholders will receive 0.8660 AbbVie shares and $120.30 in cash for each share they hold, for a total consideration of $188.24 per share, which represents a 45% premium to Allergan’s closing price on June 24.The combined company will have annual sales of approximately $48 billion.
The deal comes as AbbVie seeks new sources of growth as it braces for the end of patent protection for the world’s top-selling drug, Humira. Humira represents about 60% of AbbVie’s sales and will represent about 40% of the combined company’s sales. While a main driver of the deal was Allergan’s medical aesthetics business, including Botox, the deal will give AbbVie a presence in eye care. In addition to Restasis, Allergan’s eye care portfolio includes glaucoma drugs Alphagan, Combigan and Lumigan; macular edema and noninfectious uveitis drug Ozurdex, and its Refresh brand OTC drops. Allergan also has several products in its eye care pipeline, including the Bimatoprost SR biodegradable implant for the reduction of IOP, and abicipar for patients with wet AMD.
“This is a transformational transaction for both companies and achieves unique and complementary strategic objectives,” Richard A. Gonzalez, chairman and chief executive officer, AbbVie, said in a company news release. “The combination of AbbVie and Allergan increases our ability to continue to deliver on our mission to patients and shareholders. 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.”
“This acquisition creates compelling value for Allergan’s stakeholders, including our customers, patients and shareholders. With 2019 annual combined revenue of approximately $48 billion, scale in more than 175 countries, an industry-leading R&D pipeline and robust cash flows, our combined company will have the opportunity to make even bigger contributions to global health than either can alone,” Brent Saunders, chairman and chief executive officer, Allergan, said in the news release. “Our fast-growing therapeutic areas, including our world class medical aesthetics, eye care, CNS and gastrointestinal businesses, will enhance AbbVie’s strong growth platform and create substantial value for shareholders of both companies.”
In a news release, AbbVie released the following “strategic rationale” points for making the deal:
- New growth platforms and leadership positions to diversify and expand revenue base: The combined company will consist of several attractive franchises with leadership positions across immunology, hematologic oncology, medical aesthetics, neuroscience, women’s health, eye care and virology. Allergan’s product portfolio will be enhanced by AbbVie’s commercial strength, expertise and international infrastructure.
- Immediate scale and enhanced profitability for AbbVie’s growth platform: AbbVie’s enhanced growth platform, comprised of growing and durable franchises across highly-attractive therapeutic areas, is expected to grow at a high-single digit annual growth rate well into the next decade, from more than $30 billion in 2020.
- Financially attractive with immediate EPS accretion: This transaction is expected to be 10% accretive to adjusted earnings per share over the first full year following the close of the transaction, with peak accretion of greater than 20%. ROIC is expected to exceed AbbVie’s cost of capital within the first full year.
- Significant cash flow generation: The success and scale of the combined commercial business ensures funding capacity and flexibility for simultaneous robust pipeline investment, debt reduction and capital return to shareholders. The combined companies generated $19 billion in operating cash flow in 2018.
The combined company will have annual sales of approximately $48 billion, while its joint cash flow last year would have been about $19 billion. AbbVie said that the cash flow will be used to support a debt reduction target of $15 billion to $18 billion before the end of 2021.
The deal will give AbbVie access to Allergan’s eye care portfolio, which includes dry eye drug Restasis, along with glaucoma drug Lumigan, and its Refresh brand OTC drops. Allergan also has a robust eye care pipeline that includes Bimatoprost SR, a first-in-class sustained-release, biodegradable implant being evaluated for the reduction of IOP, and abicipar in patients with wet age-related macular degeneration (AMD).
Upon completion of the transaction, AbbVie will continue to be incorporated in Delaware as AbbVie Inc. and have its principal executive offices in North Chicago. AbbVie will continue to be led by Richard A. Gonzalez as chairman and chief executive officer. Two members of Allergan’s Board, including chairman and chief executive officer, Brent Saunders, will join AbbVie’s Board upon completion of the transaction.
In 2014, AbbVie had reached an agreement to buy Shire for $54 billion, but the deal was called off due to government pressure to crack down on such tax-lowering transactions, known as inversions. Similarly, in 2016, Pfizer walked away from its proposed acquisition of Allergan due to pushback from the Obama administration for the same reason.’
The deal is anticipated to close by early 2020.