The AbbVie Buyout is Not a Sure Thing for Allergan Stock Investors

Prior to the novel coronavirus disrupting everything, pharmaceutical companies Allergan (NYSE:AGN) and AbbVie (NYSE:ABBV) enjoyed a strong start to the new year. As Barron’s Josh Nathan-Kazis pointed out, prior to the pandemic, AbbVie’s $63 billion acquisition of Botox-maker Allergan represented the biggest news in the sector. This deal is expected to close next month. However, the coronavirus casts a cloud of uncertainty over the process and therefore, Allergan stock.

The AbbVie Buyout is Not a Sure Thing for Allergan Stock Investors
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Let’s first discuss the low-hanging fruit. Because Covid-19 has essentially touched every corner of the globe, the world economy has shut down. This is especially apparent in the U.S., where our industries and businesses both large and small have closed their doors. Recently, CNBC reported that jobless claims hit 4.4 million. That brings the five-week total to more than 26 million.

While this horrific figure doesn’t directly impact Allergan stock, it demonstrates that Americans’ efforts are focused on surviving. Everything else is a very distant second place.

However, what the coronavirus did do to the pharmaceutical space is eliminate most of the positive sentiment over the AbbVie-Allergan deal. Prior to our new normal, the synergies for the buyout were readily apparent. For instance, everyone is familiar with AbbVie for its Humira drug, what the Chicago Tribune called the Swiss army knife of pharmaceutical drugs — “One drug. Nine conditions.”

But the big knock on ABBV is that Humira is a drug long in the tooth. However, with Allergan’s assets, such as the aforementioned Botox and the antipsychotic drug Vraylar, the combined entity would be a real threat.

Now, the pharma environment favors companies like Gilead Sciences (NASDAQ:GILD) and Johnson & Johnson (NYSE:JNJ), which have coronavirus catalysts. This leaves some questions for the suddenly less-relevant Allergan stock.

A Tailwind Gets Nasty for Allergan Stock

According to Barron’s, an AbbVie spokesperson stated in March that the Allergan buyout will likely go ahead. On the other hand, Allergan has not commented on the deal. I’m not reading too much into that. However, I’m not sure if the acquisition makes senses at this time.

With AbbVie’s Humira, the drug mostly addresses arthritis symptoms and conditions like Crohn’s disease. And Botox, while incredibly popular with well-heeled clients, is not exactly what you would call a relevant procedure.

Earlier in April, I wrote about ABBV and took a cautionary approach. While AbbVie has a drug called Kaletra that could be used to treat Covid-19, the trial data isn’t encouraging. More importantly, AbbVie drives much revenue from cancer and other serious diseases. But those patients are taking a backseat while hospitals work around the clock to serve Covid-19 patients.

This is also the reason why ABBV buying out Allergan stock is risky. While Allergan has multiple assets to reinvigorate AbbVie’s portfolio, Allergan to my knowledge isn’t a significant player in the fight against the coronavirus.

To be honest, no one is thinking about Botox and other cosmetic procedures. Look, we’re still in a situation where most people can’t even get a haircut. On the positive end, we have material for an endless array of hilarious memes. But practically speaking, no one wants to risk going outside for non-essential purposes.

According to a Kaiser Family Foundation Health poll, eight in 10 Americans favor strict shelter-in-place orders to limit infections. In other words, more so than a return to normalcy or even a stable economy, Americans are prioritizing their health.

Collectively, that’s what you want to hear. But for Allergan stock, it has the opposite effect.

Another Big Unknown

Personally, I admit that I’m getting frustrated with White House health adviser Dr. Anthony Fauci. Of course, I appreciate that the doctor means well. However, these prolonged shutdowns that he’s recommending are killing the economy. And if the economy dies, that means we’ll see many Americans die from acts of despair, such as suicide.

But recently, Dr. Fauci warned that the coronavirus could strike again in the fall. Perhaps the second go-round may have a deadlier effect due to the colder weather. Whatever the case, we’ve already set a dangerous precedent: in order to save a million or two Americans, we’ll sacrifice the well being and/or the future of the other 300 million or so citizens and legal residents.

If that happens, I don’t see what the point of having Allergan’s assets would be, unless the company evolves into an infectious disease leader. With such a big unknown risk, along with already evident headwinds, I would sideline Allergan stock.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.

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