Shares of AbbVie (NYSE: ABBV) were sinking by 14.8% as of 10:38 a.m. EDT on Tuesday while shares of Allergan (NYSE: AGN) were soaring by 26.7%. These big moves came after AbbVie announced plans to acquire Allergan for $63 billion. Investors clearly didn't like AbbVie's decision to buy the Irish drugmaker, but it was great news for Allergan's shareholders.
The deal represented a 45% premium above Allergan's closing price on Monday, giving Allergan shareholders a reason to be happy. However, many investors appear to think that AbbVie is making a $63 billion mistake.
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Allergan's top drug, Botox, continues to deliver solid growth. However, Botox also faces increased competition with a new -- and cheaper -- drug from Evolus (NASDAQ: EOLS) winning Food and Drug Administration approval earlier this year. Allergan's No. 2 moneymaker, Restasis, faces the prospects of generic competition beginning in 2024 and is already experiencing price erosion.
There are plenty of worries about Allergan's pipeline as well. Abicipar is the crown jewel with some analysts projecting peak annual sales in the ballpark of $3 billion if approved. But safety concerns could put a dent in the ability for the eye-disease drug to achieve those estimates.
Perhaps the biggest reason for a letdown with AbbVie's shareholders is that they were hoping that the company would make a deal that would reenergize the stock. AbbVie's shares were down year to date even before the Allergan announcement as investors fretted over declining sales of the company's top-selling drug Humira. The Allergan acquisition could merely add to AbbVie's problems in the eyes of some investors.
It's not a done deal yet. Both AbbVie and Allergan shareholders must approve the transaction. There are also plenty of regulatory hurdles to jump. But AbbVie expects the acquisition to close in early 2020.
Assuming the deal is finalized, AbbVie thinks that it will boost earnings per share (EPS) by 10% in the first full year following the close. In subsequent years, AbbVie maintains that EPS could increase by more than 20% due to the pickup of Allergan's products.
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