In a financial landscape marked by high interest rates and subdued M&A activity, one sector that continues to witness high-profile deals is healthcare. This morning, AbbVie (ABBV) announced its ambitious $10.1 billion acquisition of ImmunoGen (IMGN), adding to the flurry of healthcare mergers and acquisitions. Pharmaceutical and biotech companies are keen on bolstering their drug portfolios, particularly in the fields of oncology and immunology, which has resulted in several blockbuster deals, including Pfizer’s $43 billion acquisition of Seagen (SGEN) and Merck’s $10.8 billion acquisition of Prometheus Biosciences (RXDX).
AbbVie’s Strategic Move
For AbbVie, the acquisition of ImmunoGen holds significant appeal as it promises to significantly enhance its oncology treatment product line. This strategic move comes at a time when the growth of AbbVie’s rheumatoid arthritis and plaque psoriasis drug Humira is slowing down.
However, the hefty price tag attached to ImmunoGen and its high-growth ovarian cancer drug, ELAHERE, has raised eyebrows. The $31.26 per share offer represents a remarkable 95% premium over IMGN’s closing price the previous day. Surprisingly, AbbVie’s stock climbed higher on the day of the announcement, a rare occurrence in the world of mergers and acquisitions.
A Bright Future with ELAHERE
The allure of ImmunoGen lies in ELAHERE, a drug that gained FDA approval just last year. ELAHERE is experiencing robust growth and is still in the early stages of its upward trajectory. In the third quarter, the drug generated U.S. sales of $105.2 million, marking a 36% increase quarter-over-quarter. This success played a pivotal role in ImmunoGen achieving its first profitable quarter in its history.
ELAHERE is used to treat certain cancers (such as epithelial ovarian, fallopian tube, primary peritoneal). Mirvetuximab soravtansine works by slowing or stopping the growth of cancer cells. This medication is given by injection into a vein as directed by your doctor, usually every 3 weeks.
Analysts project that ImmunoGen’s revenue will experience a triple-digit growth rate in FY23, reaching over $370 million. This surge is largely fueled by the successful launch of ELAHERE in the U.S. Looking ahead to FY24, ELAHERE is expected to gain approval in both Europe and China, presenting another potent growth catalystA stock catalyst is an engine that will drive your stock either up or down. A catalyst could be news of a new contract, SEC filings, earnings and revenue beats, merger and acquisit... More. Furthermore, the drug is currently under evaluation for potential use in earlier lines of therapy for ovarian cancer, which could significantly expand the patient population pool.
A Remedy for Declining Sales
Beyond ELAHERE’s promise, this acquisition also serves as a remedy for AbbVie’s declining Humira sales. Humira, which lost patent protection and U.S. exclusivity this year, experienced a significant sales decline in the third quarter. U.S. Humira sales plummeted by 39% to $3.02 billion, constituting 22% of AbbVie’s total revenue.
While AbbVie’s other immunology drugs, Skyrizi and Rinvoq, have shown strong performance with growth rates of 52% and 60% in the third quarter, they were unable to offset the overall 6% decline in the company’s revenue for the same period. Notably, this marks AbbVie’s third consecutive quarter of sales declines.
Future Earnings and Growth Catalysts
It’s worth noting that the ImmunoGen acquisition is not expected to be accretive to AbbVie’s earnings until 2027. However, it does remove some uncertainty surrounding AbbVie’s quest for its next major growth catalyst. Prior to today’s announcement, AbbVie’s stock had experienced a 14% decline year-to-date. With this acquisition, at least part of the overhang on the stock has been lifted.
Bottom-line: AbbVie’s $10.1 billion acquisition of ImmunoGen signals a bold move in the healthcare sector. While the price tag may be steep, the promise of ELAHERE’s growth potential, along with its potential expansion into international markets and earlier lines of therapy, makes this acquisition a strategic choice for AbbVie. Moreover, it helps counterbalance the decline in sales of Humira, providing a glimmer of hope for a company seeking its next major growth driver in an ever-evolving healthcare landscape.
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