Biotech’s moment of truth

A slide in AbbVie stock got all the attention when the drugmaker said this week it would buy Allergan for $63 billion. But the long decline in Allergan's share price is the true cautionary tale.

Back in 2015, the Botox maker was riding high. CEO Brent Saunders was hailed as a wunderkind after several multibillion-dollar deals. Then Pfizer agreed to buy Allergan, and there was talk that the then-45-year old would run the combined colossus.

That deal fell apart. Saunders has since overseen a $95 billion bonfire of shareholder value. Allergan's market cap dipped below $40 billion in the days prior to the AbbVie deal, a far cry from its $133 billion peak. AbbVie's management, while shelling out a 45% premium, said Allergan was cheap.

But what does cheap mean these days? Is Biogen cheap at $47 billion? Regeneron at $34 billion? Gilead at $85 billion? The largest biotechnology companies have shed billions in market value since their 2015 peaks. Is that a sign that prices are depressed, or that their best days are past?

Like Allergan (and AbbVie), many have become overly reliant on their top sellers. Few have convinced investors they know what's next. AbbVie's answer is Allergan. Everyone else is on the clock.—Rebecca Spalding

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