AbbVie Strikes The Biggest Deal For Treatment Of Cancer

Chicago-based biopharmaceutical company AbbVie Inc (NYSE:ABBV) outbid Johnson & Johnson (NYSE: JNJ) in a $21 billion last minute move to acquire Sunnyvale, California-based Pharmacyclics (NASDAQ: PCYC). This acquisition may be to AbbVie’s advantage in more ways, than one.

“The acquisition of Pharmacyclics is a strategically compelling opportunity. The addition of Pharmacyclics’ talented and innovative team will add enormous value to AbbVie,” chairman and chief executive officer of AbbVie, Richard A. Gonzalez, said in the press release. “It flagship product, Imbruvica®, is not only complementary to AbbVie’s oncology pipeline, it has demonstrated strong clinical efficacy across a broad range of hematologic malignancies and raised the standard of care for patients.”

The $24 billion hematological oncology market is growing rapidly around the world. This acquisition places AbbVie in a dominant position in this market by accelerating its ‘clinical and commercial presence in oncology’ and adding strength to its meaty pipeline with Imbruvica.

Imbruvica is an FDA-approved, ‘Breakthrough Therapy’ designated, cancer drug that can treat three different types of blood cancers. It costs approximately $100,000 a year per pill and can bypass some of the serious side effects of chemotherapy. Adding Imbruvica to AbbVie’s pipeline will help it to revive its pharma sales portfolio by helping it move forward from its successful rheumatoid arthritis drug, Humira. This drug drove AbbVie’s fourth-quarter sales growth, pushing global sales up by 10.6%. Other drugs such as Synagis, Creon and Duodopa also delivered higher total company sales growth. By 2017-18, however, Humira is expected to see a decline in sales. This is where Imbruvica steps in, even though it could most likely overshadow ABT-199, another top product in AbbVie’s pipeline. But since it might be another year until ABT-199 wins clinical approval, Bloomberg Intelligence analysts predict that "having two dogs in the race may not be a bad thing."

Profits from pharma

Bloomberg also compiled information to show that Pharmacyclics earned $86 billion in 2014. The financial analysts averaged estimates to reveal that Imbruvica’s sale would peak from $492 million in 2014 to nearly $3.56 billion in 2018, as it will be able to treat varied types of cancer. Pharmacyclics, which works with J&J to market the cancer drug, claims sales of Imbruvica would top $1 billion in 2015. Thomson Reuters Cortellis compiled analysts’ estimate projects global sales of Imbruvica to touch $5.8 billion by 2020.

AbbVie expects the acquisition deal to be "highly accretive to both revenue and earnings by 2017," and this deal looks likely to close by mid-2015. Offering a choice between cash, common stock or a combination of both, AbbVie finally agreed to purchase all outstanding Pharmacyclics stock for $261.25 per share. The $21 billion will be paid approximately 58% in cash and 42% in stock. AbbVie’s latest bid beat J&J’s offer of $250 per share by a small margin, an anonymous source told Bloomberg. Novartis AG (NYSE: NVS) was also, reportedly, interested in acquiring Pharmacyclics and was among the contesting list of bidders.

Drops and deals in pharma

Since splitting from Abbott Laboratories in 2013, AbbVie has been unable to close any major deal in the pharmaceutical industry. In October 2014, a $55 billion deal to acquire Dublin-based Shire PLC (LON: SHP) fell through after the U.S. government changed rules to discourage tax lowering deals such as this one.

In 2014, pharmaceuticals and biotechnology acquisitions totalled at $239 billion, according to the numbers posted by Bloomberg. In fact, this acquisition can be stated to be the latest and largest pharma deal in the beginning of this year. In February, Pfizer (NYSE: PFE) struck a $15 billion acquisition deal with Hospira Inc (NYSE: HSP), while Valeant Pharmaceuticals International Inc (NYSE: VRX) sought to buy Salix Pharmaceuticals, Ltd. (NASDAQ: SLXP) for $10 billion.

Deal or no deal

With old drugs losing their patents and becoming generic, competition is getting intense in the pharmaceutical space. Hence, companies are reconsolidating portfolios and strengthening their product pipeline. AbbVie also adjusted its 2015 projected earnings in January, which is now expected to fall in the lower bracket of the range estimated by analysts. While some see AbbVie’s acquisition of Pharmacyclics as an act of desperation, others speculate that the $21 billion price tag for Pharmacyclics may be too much. But none can deny the projected profitability of the move which will become apparent in the coming quarters.