It’s just Friday, but the Monday morning quarterbacking on AbbVie’s Pharmacyclics buy is in full swing. Did AbbVie overpay at $21 billion? Should it have let Johnson & Johnson take the prize instead? Does the rich deal for Pharmacyclics spell trouble for pharmas looking to make biotech buys? And really, did AbbVie overpay?
“It appears to us that the company might be overpaying,” Bank of Montreal’s Alex Arfaei told investors in a note about the deal. Other analysts used words like “lofty” and “staggering” and even “astronomical.” Here’s a sampling of the debate.
- The overpay-or-not argument hinges on Imbruvica, the blood cancer drug that’s Pharmacyclics’ only marketed product. AbbVie claims its share of the drug’s sales will peak at $7 billion-plus–which implies total annual sales of more than $14 billion, given the fact that AbbVie will share the drug with partner Johnson & Johnson. This year, Imbruvica is expected to beat $1 billion, which is a good sign for a drug that doesn’t lose patent protection till 2026. But $14 billion is billions more than analysts have been expecting at peak.
- The $21 billion price just reflects Pharmacyclics’ value to AbbVie, CEO Rick Gonzalez maintained on a call with analysts Thursday. That’s partly because Imbruvica isn’t just a solo act for AbbVie; the company figures it can pair the med with its pipeline cancer treatments–including ABT-199, which it shares with Roche–to create megablockbuster cocktails. Add those new meds to Imbruvica’s $7 billion and you get “well in excess” of $15 billion in peak sales from AbbVie’s oncology pipeline, Gonzalez said.
- Leerink Partners analyst Howard Liang also pointed out that AbbVie’s Humira experience could be put to bear on Pharmacyclics’ early-stage anti-inflammatory drug. In fact, he says, AbbVie provides “the best opportunity” for development of that BTK inhibitor.
- Gonzalez used that well-worn phrase “pipeline in a molecule” to describe Imbruvica, which is under study in a host of different cancers, plus autoimmune disorders. Fifty clinical studies, all told. If those studies pan out, then he might be right. And AbbVie certainly knows a thing or two about bagging a lot of indications for one drug; just look at Humira and its gaggle of uses. But plenty of cancer drugs have shown promise in various forms of the disease, only to fall short in late-stage testing.
- AbbVie CEO Rick Gonzalez said three companies were in the running for Pharmacyclics “to the bitter end.” As Gonzalez told Reuters, “We bid against two large, sophisticated pharmaceutical companies. And when disclosures come out, you’ll see the spread (between bids). I don’t think we’ll look embarrassed.”
- Reportedly, one of those other bidders was J&J, which paid less than $1 billion for its half of Imbruvica back in 2011, and only $150 million of that up front. J&J knows as much or more about Imbruvica as anyone; it’s well acquainted with the clinical trials now testing the drug for other uses. It was really the better buyer for Pharmacyclics, Bernstein analyst Geoffrey Porges said in a note to investors, partly because J&J could have saved money by using one commercial organization to promote Imbruvica. That AbbVie outbid J&J “doesn’t really make sense,” Porges figures.
- What does the AbbVie-Pharmacyclics marriage say about pharma M&A going forward? Gonzalez told Bloomberg that “valuations are probably as high as they’ve ever been … It’s as competitive a marketplace in pharmaceuticals and biopharmaceuticals as it’s ever been.” So, buyers looking for cancer assets may need to dig to the bottom of their pocketbooks. Kellner Capital money manager Chris Pultz told the news service that cancer buys could become “a kind of arms race” with “outlandish bids” for companies that have new drugs. “[T]his is going to keep valuations up in the sector because everybody thinks everybody is for sale now,” Pultz said.
By Tracy Staton
