In a deal expected to close early next year, US biopharma AbbVie is buying troubled Botox manufacturer Allergan for $63 billion in cash and shares. The acquisition is the second largest to be proposed in the drugs sector this year, behind BristolMyersSquibb’s takeover of Celgene for $74 billion.

Following the asset merger, the combined AbbVie-Allergan is expected to be the fourth-largest drugmaker globally, with leadership positions in treatment areas such as medical esthetics and eye care.

The offer price represents a 45% premium to Allergan’s share value at the time of the announcement, and commentators said the premium would have been larger if Allergan shares had not rallied recently due to speculation about the company splitting into two parts.

Some market watchers thought the price was too high, but others noted that AbbVie was in desperate need of new products to supplant its aging blockbuster Humira, which will lose exclusivity in the US in 2023.

Humira generated nearly $20 billion in sales in 2018, equivalent to about 61% of AbbVie's sales total.  Allergan chalked up $15.8 billion global sales. Its top-selling product, Botox, rang up sales of $2.5 billion – a figure forecast to double to nearly $5 billion by the time Humira protection ends, before tapering off.

Allergan has been struggling for several years, and with revenues and share prices sinking. had been under pressure to split. As this could have taken more than a year, some analysts thought the buyout would be a quicker way to unlock value. The market grapevine had viewed Pfizer and Johnson & Johnson as the more likely suitors for the ailing drugmaker, however.

In a conference call, AbbVie CEO Richard Gonzalez – who will head the merged company – said management has identified annual pre-tax synergies and other cost reductions worth at least $2 billion in year three. Generating significant annual operating cash flow, the deal which will support a debt-reduction target of $15 billion to $18 billion before the end of 2021, the company hopes.

With a stronger portfolio, analysts said AbbVie will be able to expand and diversify beyond its existing focus areas. Recently, it has been preparing for the Humira biosimilar cliff by stepping up R&D and looking for acquisitions.

In 2015, Abbvie bought Pharmacyclics to get its hands on Imbruvica, a cancer drug with multiple indications, and in 2014 attempted to buy Shire for $55 billion. This deal collapsed as the US toughened tax inversion rules.

Allergan has been struggling for several years, and with revenues and its share prices sinking. had been under pressure to break into two part. As this process could have taken more than a year, most analysts said a buyout will be a quicker way to unlock Allergan’s value.

AbbVie said it did not expect any problems with the transaction receiving approval from the US competition authority Federal Trade Commission (FTC) apart from “a few small product overlaps that we’ve agreed to divest promptly.”