AbbVie Acquisition of Allergan: What does it mean for consumers and the drug pipeline?

July 8, 2019 – Theo Ndatimana, Pharm. D, the Director of Pharmaceutical Analytics at OnPoint, offers his perspective on this unusual product match up.

On June 25, 2019, consumers awoke to news that AbbVie plans to buy Allergan in a $63B deal, under which Allergan shareholders will receive 0.866 of one AbbVie share along with $120.30 in cash for each share of Allergan stock they surrender.[1] Using closing prices the night before the announcement, this is equivalent to roughly $188.25 per Allergan share, a 45 percent premium. At a glance, AbbVie and Allergan look nothing alike nor do they operate in the same therapeutic spaces. Allergan makes drugs that are used in eyecare, gastroenterology, aesthetics, and treatments of the central nervous system (CNS). Allergan’s blockbusters are concentrated in its Medical Aesthetics products, which brought in close to $2.8 billion in 2018 (led by facial aesthetics: Botox, Juvederm, and Kybella at $1.5 billion) and the eye care business, which brought in close to $2.2 billion in 2018 (mostly from Restasis, which accounted for $1.2 billion).[2] AbbVie, on the other hand, has a portfolio of more than 40 drugs ranging from Vicodin (the pain killer), Androgel (testosterone booster), Marinol (nausea and vomiting associated with cancer treatments), to international heavy weights such as Humira (the world’s top selling drug), the cancer treatments Imbruvica and Venclexta, and hepatitis C drugs including Mavyret. Superficially, at least, the two companies’ portfolios may successfully complement each other precisely because they are so different. In buying Allergan, AbbVie has found a way to diversify beyond Humira which — with sales of nearly $20 billion last year — accounted for nearly 60 percent of the company’s total revenue.[3] Humira’s global sales, however, are declining and biosimilar competitors are on the doorsteps in the United States. Allergan, on its end, has with this merger found a way to keep its products and legacy alive, and to appease its stockholders who have suffered declining values since Q4 2015.

Leading up to the announcement, each of these companies anticipated losing major market shares for their blockbuster products. AbbVie’s Humira, which has turned out to be a utility player in treating arthritis, Crohn’s disease, ulcerative colitis, and psoriasis, is facing declining sales internationally, mounting pressures from both biosimilars and competitor products alike, as well as regulatory pressure. For the first quarter ending March 31, 2019, Humira’s global net revenues decreased 27.9% on a reported basis, or 23.0% operationally, a drop that was attributed principally to biosimilar competition.[4] Domestic sales are still solid, but the FDA has approved three Humira biosimilars that are expected to be on the market in 2023[5], while in Europe[6] biosimilars have on the market since October, 2018. Allergan’s Restasis (cyclosporine ophthalmic emulsion), also a blockbuster drug in its own right with sales above the $1 billion mark for at least the last 5 consecutive years,[7] saw its sales decline by about 15% in 2018.[8]

On the regulatory end, a proposed rule put forward by the Department of Health and Human Services on January 31, 2019 would, for Medicare Part D and Medicaid managed care programs, remove the safe harbor exemption for rebates applied after the point-of-sale, which are used to keep soon-to-expire patented drugs on formularies.[9] The new rule would likely affect Humira.

A LOOK AT THE NEW VENTURE (The combined Portfolios and Pipelines)

Allergan’s pipeline

Allergan has some pipeline products that are worth noting. In the Central Nervous System (“CNS”) area, Allergan filed in March 2019 an NDA for Ubrogepant which, if approved, would be the first oral calcitonin gene-related peptide (CGRP) receptor antagonist approved for acute migraine treatment.[10] In the same CGRP receptor antagonists category, Allergan was working on Atogepant (currently in Phase III trials), indicated for Migraine prevention. The market competitor for these drugs would be Aimovig by Norvartis/Amgen, the first FDA-approved preventative migraine treatment in this new class of drugs for migraine. Ajovy, by Teva, and Emgality, by Eli Lilly, both of which are injectables, are the other competitors in this space, but Aimovig so far is pulling ahead of these competitors. When it came on the market in 2018, Aimovig was dubbed “Drug Launch of the Year”,[11] with projected annual sales exceeding $2 Billion inside five years. Additionally, Alder Biopharmaceuticals submitted in February 2019 a Biologics License Application (BLA) to the FDA for its flagship investigational preventive migraine treatment eptinezumab, yet another anti-calcitonin gene-related peptide (CGRP) monoclonal antibody. If approved, it is expected to come to market in early 2020.[12]

Still in the CNS diseases pipeline, Allergan was also working on Rapastinel, considered by many to be Allergan’s next blockbuster drug, as an adjunctive treatment for MDD (Major Depressive Disorder). However, the three pivotal studies did not meet their primary endpoints early this year and the drug’s future is uncertain.[13]

In the aesthetics pipeline, Allergan recently received clearance for its CoolSculpting (CoolTone), a device designed to tone, firm and strengthen the buttocks, thighs and abdomen (first units could start shipping out as early as the fourth quarter of this year).[14] CoolTone joins Emsculpt by BTL Industries Limited in the marketplace as a muscle toning technology device. These technologies are slowly replacing the usual fat-removing (liposuction) methods used in the past, and the market for these devices is ever-expanding. In 2018 alone, Americans spent more than $16.5 billion on cosmetic plastic surgery.[15] Botox (also a product of Allergan) is scooping up an even larger market share as its indication was recently expanded to include patients ages 2 to 17 years with “Upper Limb Spasticity.”[16]

AbbVie’s pipeline

AbbVie’s products include more than 40 drugs currently on the market,[17] and the following pipeline, which includes a potential substitute for Humira:

  1. Risankizumab, an anti-IL-23 antibody being investigated for the treatment of multiple inflammatory diseases, including psoriasis, Crohn’s disease, ulcerative colitis, atopic dermatitis and psoriatic arthritis (indications pending approval by the FDA). Risakizumab has already been approved by the FDA for the treatment of plaque psoriasis and is sold under the trade name Skyrizi.[18] It is a potential portfolio substitute for Humira, at least for most of its indications.
  2. Upadacitinib, a JAK1 selective inhibitor being investigated to treat rheumatoid arthritis, Crohn’s disease, ulcerative colitis, atopic dermatitis, psoriatic arthritis, axial SpA and Giant Cell Arteritis.
  3. Veliparib, a PARP inhibitor being investigated to treat non-small cell lung cancer, BRCA breast cancer and ovarian cancer.
  4. Rova-T (Rovalpituzumab Tesirine), a second-line therapy for advanced small-cell lung cancer. However, a Phase III Trial was halted after an Independent Data Monitoring Committee called for the stoppage due to shorter overall survival in the Rova-T arm of the study.[19]

 

THE IMMEDIATE CONSEQUENCES OF THE DEAL

The main questions to be answered are: can AbbVie keep Allergan’s pipeline going while also maintaining its leader status in the immunology/oncology market? Or is AbbVie taking on more than it can chew at once?

In 2018, Allergan spent $2.3 billion on R&D, representing 14.5% of its Net Revenue.[20] During the same period, AbbVie dedicated $10.3 billion to R&D, representing 32% of its Net Revenue that year.[21] To put this in context, the average R&D for the top 15 Pharma companies was 18.78% in 2018,[22] so clearly AbbVie was heavily investing in R&D in the last year.

There is no way to tell what precisely will happen to the two companies’ pipelines and what the new R&D budget will be post-merger. Wall Street’s initial response to the merger was negative, with AbbVie’s stock price dropping from $78.45 on June 24, 2019 to $65.70 on June 25, 2019 (the day of the announcement).  Meanwhile, Allergan’s stock price soared. As this article is published, AbbVie’s stock trades at $71.22. It remains unclear whether the stock price will bounce back to pre-announcement levels and how the market will settle out. AbbVie’s operating cash flow in Q1 of 2019 stands at $3 billion,[23] and Allergan is a big bite to swallow. But it is possible that Allergan’s current portfolio of products and valuable pipeline (with a few migraine candidates), along with AbbVie’s own list of drugs that span virtually every disease state and a pipeline likely to replace its soon-to-be off-patent Humira provide a long-term pathway to success.

Beyond Wall street, the effects of this M&A transaction could soon be felt at the local pharmacy counters when patients go to fill or refill their “former” Allergan products. In trying to lure new customers towards its products and retain already existing consumers, Allergan had been offering coupon assistance to its eye product users.[24] It remains to be seen what will happen once the company is acquired by AbbVie and whether it will continue to sponsor these coupon programs related to Allergan’s portfolio.

THE UPTICK: Once Allergan becomes part of AbbVie, new cash flow from Allergan’s portfolio of eye care products and medical aesthetics may help AbbVie focus on the strongest therapeutic areas such as immunology (currently with four pipeline candidates in this therapeutic area that could bring in cash once Humira has lost exclusivity in the U.S.). Additionally, Allergan has an interesting pipeline with a new eye care drug and two key drugs for Migraine that target CGRP (calcitonin gene-related peptide), a hot new therapeutic area in the treatment of migraines. On the consumer side, there will possibly be an even longer list of drugs available, but concerns will be around innovation in the eye care and medical aesthetics areas that Allergan had made its trademark. On the regulations/market side, since these two companies’ portfolios do not overlap, there is a high probability that the transaction will not trigger any antitrust alarms of the type seen in the Bristol-Meyers-Squibb’s acquisition of Celgene, where BMS had to divest some of Celgene’s key drugs. There is no obvious risk of internal competition that might lead to the elimination of drugs. In fact, this merger may facilitate innovation and a healthier pharmaceutical market. The real issue here is the ongoing R&D investments and whether AbbVie is willing to expand and pursue Allergan’s pipeline.

 

 

 

[1] AbbVie, “AbbVie to Acquire Allergan”, press release, June 25, 2019, accessed July 3, 2019 at https://www.abbvie.com/abbvie-allergan.html?_ga=2.38132769.367249759.1562627405-2106948966.1561751960.

[2] See, e.g., Allergan PLC and Warner Chilcott Limited. Form 10-K for the Fiscal Year Ended December 31, 2018, filed February 15, 2019,  at p. 54.

[3] Humira accounted for $3,215M of AbbVie’s total net revenues of $5,270M in Q1, 2019 (AbbVie Investor Financial Release, Q1, 2019. Accessed June 25, 2019 at https://investors.abbvie.com/news-releases/news-release-details/abbvie-reports-first-quarter-2019-financial-results).

[4] AbbVie, “AbbVie Reports First-Quarter 0219 Financial Release,” press release, April 25, 2019, accessed June 25, 2019 at https://investors.abbvie.com/news-releases/news-release-details/abbvie-reports-first-quarter-2019-financial-results. Note: “Operational” comparisons are presented at constant currency rates and reflect comparative local currency net revenues at the prior year’s foreign exchange rates. Reported results are prepared in accordance with GAAP and include all revenue and expenses recognized during that period.

[5] FDA, “List of Licensed Biological Products,” accessed July 2, 2019 at https://www.fda.gov/media/89589/download.

[6] EMA, “Human Medicines Highlights”, September 2018, at p. 2, accessed July 3, 2019 at https://www.ema.europa.eu/en/documents/newsletter/human-medicines-highlights-september-2018_en.pdf.

[7] Allergan PLC and Warner Chilcott Limited. Form 10-K for the Fiscal Year Ended December 31, 2018, filed February 15, 2019, at p. 53. ; Allergan PLC and Warner Chilcott Limited. Form 10-K for the Fiscal Year Ended December 31, 2014, filed February 15, 2019, at p. 46.

[8] Allergan, “Fourth Quarter and Full Year 2018 Earnings Conference Call,” January 29, 2019, at p. 14, accessed June 28, 2019 at https://www.allergan.com/news/assets/q4-2018-earnings-deck_final.

[9] Federal Register Vol. 84, No. 25, February 6, 2019, 42 CFR Part 1001 (proposed rule).

[10] Allergan, “Allergan Announces FDA Acceptance of New Drug Application for Ubrogepant for the Acute Treatment of Migraine”, press release, March 11, 2019, accessed June 28, 2019 at https://www.allergan.com/news/news/thomson-reuters/allergan-announces-fda-acceptance-of-new-drug-appl.aspx.

[11] Dunn, Andrew, “Drug Launch of the Year: Amgen and Novartis’ Aimovig,” BioPharma Drive, December 3, 2018, accessed June 27, 2019 at https://www.biopharmadive.com/news/dive-awards-drug-launch-amgen-novartis-aimovig/539593/.

[12] Alder BioPharmaceuticals, “Alder BioPharmaceuticals Submits Biologics License Application to the U.S. Food and Drug Administration for Eptinezumab,” press release, February 22, 2019, accessed June 27, 2019 at https://investor.alderbio.com/news-releases/news-release-details/alder-biopharmaceuticalsr-submits-biologics-license-application.

[13] Allergan, “Allergan Announces Phase 3 Results for Rapastinel as an Adjunctive Treatment of Major Depressive Disorder (MDD),” press release, March 6, 2019, accessed June 27, 2019 at https://www.allergan.com/news/news/thomson-reuters/allergan-announces-phase-3-results-for-rapastinel.aspx.

[14] Dermatology Times, “Allergan’s CoolTone Device Receives FDA Clearance,” June 25, 2019, accessed June 28, 2019 at https://www.dermatologytimes.com/advances-aesthetic-technology/allergans-cooltone-device-receives-fda-clearance.

[15] American Society of Plastic Surgeons, “Americans Spent More than $16.5 Billion on Cosmetic Plastic Surgery in 2018,” press release, April 20, 2019, accessed June 27, 2019 at https://www.plasticsurgery.org/news/press-releases/americans-spent-more-than-16-billion-on-cosmetic-plastic-surgery-in-2018.

[16] Allergan, “FDA Approves BOTOX® (onabotulinumtoxinA) for Pediatric Patients with Upper Limb Spasticity,” press release, June 21, 2019, accessed June 28, 2019 at https://www.allergan.com/news/news/thomson-reuters/fda-approves-botox-onabotulinumtoxina-for-pediatr.

[17] AbbVie, “Products”, accessed July 1, 2019 at https://www.abbvie.com/our-science/products.html.

[18] FDA package Insert for Skyrizi. Accessed June 27, 2019 at https://www.accessdata.fda.gov/drugsatfda_docs/label/2019/761105s000lbl.pdf

[19] Abbvie, “Phase 3 Trial of Rova-T as Second-line Therapy for Advanced Small-Cell Lung Cancer (TAHOE Study) Halted,” press release, December 5, 2018, accessed July 2, 2019 at https://news.abbvie.com/news/press-releases/phase-3-trial-rova-t-as-second-line-therapy-for-advanced-small-cell-lung-cancer-tahoe-study-halted.htm.

[20] See, e.g., Allergan PLC Form 10-K for fiscal year ending December 31, 2018, filed on February 15, 2019, at p. 51

[21] See, e.g., AbbVie Inc. Form 10-K for fiscal year ending December 31, 2018, filed on March 22, 2019, at p. 33

[22] Data collected from the 2018 Annual Reports of the following companies: Johnson & Johnson, Roche, Pfizer, Novartis, Merck, GlaxoSmithKline, Sanofi, AbbVie, Bayer AG, Eli Lilly, Amgen, Bristol-Myers Squibb, Gilead Sciences, AstraZeneca and Teva. GBP to USD conversion rate as of June 28, 2019, EUR to USD conversion rate as of June 28, 2019, and CHF to USD conversion rate as of June 28, 2019 at https://www.xe.com/currencyconverter/.

[23] The exact figure is $3,017,000,000 (AbbVie, 2019 Form 10-Q, April 2019, accessed July 1, 2019, at p. 6).

[24] See example of coupon assistance on Restasis (one of the eye products from Allergan): Restasis, “Take Advantage of Our Savings Offer for RESTASIS or RESTASIS MultiDose”, accessed June 28, 2019 at https://www.restasis.com/savings-and-support/get-savings/enroll.