AbbVie (ABBV -4.58%) is facing a tough year ahead. The company's blockbuster drug Humira, which treats various autoimmune conditions such as rheumatoid arthritis, psoriasis, and Crohn's disease, will face biosimilar competition in the U.S. market starting in January 2023. Humira was a major revenue driver for AbbVie, contributing $3.5 billion out of the company's $12.2 billion total net revenue in the first quarter of 2023, and accounting for nearly 40% of the company's annual revenue in previous years.
To cope with this challenge, AbbVie has made several strategic acquisitions in the past few years, such as Pharmacyclics for the blood cancer drug Imbruvica and Allergan for its medical aesthetics and neuroscience portfolios. However, these deals may not be sufficient to offset Humira's commercial decline (see here and here for more details). Therefore, AbbVie may have to look for more opportunities to acquire smaller companies with promising drugs in 2023 and beyond.
AbbVie's dealmaking prospects
One of the key considerations for biopharma companies when pursuing business development opportunities is how well the target company aligns with its strategic goals, such as expanding into new therapeutic areas, enhancing its pipeline, or diversifying its revenue streams. Another important factor is the market value of the target company's products, whether they are in clinical development or already approved and marketed. A third factor is the price that the acquiring company is willing to pay, which depends on various factors such as the competitive landscape, the expected return on investment, and the availability of financing.
AbbVie, for its part, has expertise in the fields of immunology, oncology, aesthetics, neuroscience, and eye care. Therefore, the drugmaker can choose from a wide variety of indications for its dealmaking activities. However, the price will be an important factor. AbbVie can comfortably spend up to $10 billion on business development without negatively impacting its balance sheet. A large-ish deal of $20 billion or more may not be feasible due to AbbVie's high debt level and the potential for pushback from the Federal Trade Commission.
Two budget-friendly options
Which companies stand out as potential targets for AbbVie within this price range? Blueprint Medicines (BPMC 2.50%) and Krystal Biotech (KRYS 0.77%) both screen as logical buyout candidates for the drugmaker at this price point.
Blueprint is a biotechnology company that specializes in developing targeted therapies for cancer. The company has a market value of about $3.8 billion as of this writing. It has two Food and Drug Administration (FDA) approved drugs: Ayvakit for the treatment of advanced or indolent systemic mastocytosis and Gavreto for advanced or metastatic RET-mutant medullary thyroid cancer and metastatic RET fusion-positive non-small cell lung cancer.
However, the main attraction of Blueprint as an acquisition candidate is its early-stage pipeline of drugs for various solid tumors. AbbVie could likely acquire the precision oncology company for a reasonable price of $5 billion to $5.5 billion, making it an affordable option in the high-value solid tumor space.
Krystal Biotech is a gene therapy company with a focus on rare skin conditions. The company recently received FDA approval for Vyjuvek, a topical gene therapy for dystrophic epidermolysis bullosa, a genetic disorder that affects the skin and mucous membranes. Vyjuvek has the potential to generate more than $750 million in annual sales in the U.S. in this setting. Globally, Wall Street analysts think the therapy could top $1.1 billion in peak sales.
Krystal also has a diverse pipeline of pre-clinical and early stage dermatology programs. Moreover, the company is exploring gene therapies for rare respiratory diseases and medical aesthetics. AbbVie could probably acquire Krystal for less than $5 billion, making it an attractive and affordable target with plenty of upside potential.
