AbbVie's (ABBV) $63 billion bid for Allergan (AGN) on Tuesday morning has been dampened by some frank criticism among analysts covering the stock.
"Our first reaction this morning: Two turkeys don't make an eagle," Piper Jaffray analyst Christopher J. Raymond said on Tuesday morning. "Both businesses have seen their share of challenges with ABBV's Humira seeing competitive pressures both in the US and EU and Allergan's rather well documented business challenges."
While he sees significant upside on the financial front if the accretive nature of the deal comes into play year one as the two companies propose, the pipeline ahead isn't promising; a major issue for the integration of two pharmaceutical giants.
"Commercially, we are less enthused as we see limited synergy between the two companies' product mixes and developmental pipelines," Raymond told clients.
As a result, he remained "Neutral" rated on shares despite the major addition, especially as FTC scrutiny on big pharma intensifies amid bipartisan agreement on the industry's need for regulation.
"We think investors are likely to take notice of the FTC's recent scrutiny of Bristol Myers Squibb (BMY) acquisition of Celgene (CELG) , requiring the divestiture of Otezla, despite no existing commercial overlap," Raymond noted. "While overlap between ABBV and AGN is limited, viewing this deal through the prism that the current FTC views pharma deals, a different conclusion might be reached."
"AbbVie is getting crushed today, clearly investors don't like the news," Jeff Marks, senior portfolio analyst of Jim Cramer's Action Alerts PLUS portfolio said. "When you have AbbVie which was in a downtrend and Allergan which was in a downtrend for a while, putting them together, there is going to be some skepticism there. That's what you're seeing today in AbbVie."
As a former shareholder in Allergan and as an even bigger deal with Pfizer (PFE) deteriorated, the team is understandably skeptical of the merits of an Allergan acquisition.
"The problem here is if the deal falls apart, the immediate downside of AGN is big," Real Money contributor Tim Collins noted. "A reversal to a situation in which the company splits up rather than sells itself will take time."
Conversely, AbbVie might see an initial pop on the roll-off before returning to its place under the microscope as it seeks diversification away from Humira as increased competition is set to come in by 2023.
"Humira is worth about 60% of AbbVie's aggregate revenue generation," Real Money's Stephen "Sarge" Guilfoyle said, citing the essential nature of at least some kind of deal. "This move came of nothing but necessity, despite some overlap across other product lines such as treatments for stomach, and brain disorders as well as women's health."
Overall, the complex dynamics have left many playing the waiting game as the smoke continues to clear from the offer.
"We think that Allergan is one the highest-quality and most-innovative companies in the Pharma industry," Cantor Fitzgerald analyst Louise Chen commented. "That said, we don't see a lot of upside to consensus expectations in the near term, which is why we are on the sidelines for now."
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