Narrow-moat AbbVie’s announcement to acquire wide-moat Allergan looks like a strategically sound deal at a reasonable valuation. Adding Allergan’s portfolio of branded drugs should help strengthen AbbVie’s moat that was partly dependent on immunology drug Humira. From a valuation perspective, Allergan’s pipeline and strong entrenchment with Botox did not seem fully factored into the stock price, and we believe AbbVie was both opportunistically taking advantage of Allergan’s low valuation and looking to diversify its cash flows away from Humira, which is currently facing international biosimilar competition and will face U.S. biosimilar competition in 2023. While we are still reviewing the details of the acquisition, we don’t expect a major change in our AbbVie fair value estimate, and we continue to view the stock as undervalued.
We believe the increasing concern about AbbVie’s growth potential following the U.S. Humira biosimilar competition in 2023 will be partially alleviated with the increased portfolio of assets that Allergan brings. In particular, we view Allergan’s leading product Botox as well positioned in both the therapeutic and cosmetic settings based on strong clinical data and powerful brand power. From a synergy perspective, the $2 billion in annual savings projected by management looks reasonable with the majority stemming from research and development as well as sales and marketing. We see Allergan’s presence in women’s health as particularly helpful for AbbVie’s launch of endometriosis drug Orilissa.