AbbVie’s $63 Billion Allergan Deal Gives Life to Industry

(Bloomberg) -- AbbVie Inc.’s deal to buy Botox maker Allergan Plc for $63 billion is reviving excitement on Wall Street for makers of specialty and generic drugs, at least for today.

For now, investors are shrugging off concerns surrounding the opioid crisis and highly leveraged balance sheets to rush back to drugmakers ranging from flailing Teva Pharmaceutical Industries Ltd. to Endo International Plc in the aftermath of AbbVie’s deal as they position for the next multi-billion dollar deal.

Shares of drugmakers jumped early Tuesday, led by a 4.7% advance for Endo and a 3.2% gain for Teva. Peers like Mallinckrodt Plc, Mylan NV, Bausch Health Co, Perrigo Co., and Jazz Pharmaceuticals Plc traded higher as the market saw small losses.

The relief rally couldn’t be better timed for an industry that has seen share prices crater to five- to 20-year lows across the board as concerns from opioid liability to sinking generic drug prices and pressures from the White House pushed investors to the exits. But with valuation being the main driver for potential investor interest, Barclays analyst Balaji Prasad advised investors to “resist the temptation” in a note earlier this month.

The announcement split Wall Street analysts with Cantor analyst Louise Chen saying the deal brings Perrigo into light as a potential target “given their move toward pureplay consumer and an activist shareholder in the stock.” While Citi’s Andrew Baum disagreed, calling the deal more AbbVie specific “rather than heralding a broader wave of large cap M&A across the sector.”

It’s worth noting that the large cap-skewed Nasdaq Biotechnology exchange-traded fund, (IBB), rose 0.9% after the open, while the equal-weighted SPDR S&P Biotech ETF (XBI) gained close to 1% in a sign that investors are expecting a further uptick in deal volume for the blossoming biotech sector. Biogen Inc. -- one of the drugmakers that investors now think may fit the profile of a company looking for a rescue -- outperformed, climbing 4%.

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper

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