Imagining a future with Imbruvica
April 2015
by Kelsey Kaustinen  |  Email the author

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NORTH CHICAGO, Ill.—Though it failed to land its attempted $55-billion acquisition of Shire plc a few months ago, AbbVie is back with another multibillion-dollar deal, and this one was a success. AbbVie has signed a definitive agreement to acquire Sunnyvale, Calif.-based Pharmacyclics for $261.25 per share, for a total transaction value of approximately $21 billion. Both companies’ boards of directors have approved the transaction.
 
Per the terms of the agreement, AbbVie will acquire all outstanding shares of Pharmacyclics common stock through a tender offer, which will be followed by a second-step merger. In the tender offer, AbbVie will offer to acquire all of Pharmacyclics’ outstanding shares for $261.25 per share, paid for in a mixture of cash and AbbVie common stock. Pharmacyclics stockholders can choose cash, AbbVie common stock or a combination, subject to proration, and the aggregate consideration will consist of roughly 58 percent cash and 42 percent AbbVie common stock. The closing of the offer is subject to customary closing conditions, including regulatory approvals and the tender of a majority of Pharmacyclics’ outstanding shares. Whatever shares aren’t tendered to the offer will be acquired by AbbVie through a second-step merger, which will take place after the tender offer expires and without a vote by Pharmacyclics’ stockholders. The deal is expected to close in mid-2015.
 
“Team Pharmacyclics is honored and enthusiastic to join the AbbVie organization. We share a common purpose. Together and as one, our focus remains to create a remarkable difference for patient betterment around the world,” Bob Duggan, chairman and CEO of Pharmacyclics, commented in a statement on the transaction.
 
The deal nets AbbVie Pharmacyclics’ Imbruvica, a Bruton’s tyrosine kinase (BTK) inhibitor approved in four indications for the treatment of three different types of blood cancers, including chronic lymphocytic leukemia (CLL), mantle cell lymphoma and Waldenstrom’s macroglobulinemia. The drug received initial U.S. Food and Drug Administration (FDA) approval in 2013, and so far stands as the only drug to have received three Breakthrough Therapy designations from the FDA, as well as the first and only FDA-approved therapy for Waldenstrom’s macroglobulinemia. Pharmacyclics is also seeking approval for Imbruvica in additional indications, including diffuse large B-cell lymphoma, follicular lymphoma, marginal zone lymphoma, multiple myeloma, graft-vs.-host disease, acute myeloid leukemia and acute lymphoblastic leukemia.
 
“The acquisition of Pharmacyclics is a strategically compelling opportunity. The addition of Pharmacyclics’ talented and innovative team will add enormous value to AbbVie,” Richard A. Gonzalez, chairman and CEO of AbbVie, said in a press release. “Its 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.”
 
Across the board, analysts seem to agree the deal is a strong move for AbbVie, alleviating its dependence on Humira, the sales of which comprised 62 percent of AbbVie’s total 2014 revenues, but opinions vary on the $21 billion AbbVie is shelling out. Joshua Owide, director of healthcare industry dynamics at GlobalData, called the deal “a major step for AbbVie following the terminated Shire deal, as the rest of AbbVie’s business is failing.” Owide noted that Humira biosimilars are a growing threat, “with Amgen, Boehringer Ingelheim, Pfizer, Fujifilm Kyowa Kirin Biologics, Sandoz and Samsung all in late-stage clinical development with their respective adalimumab biosimilars. These are expected to have a major impact on Humira sales following its anticipated 2018 U.S. patent expiration.”
 
That’s where the acquisition provides a serious boost for AbbVie, as Imbruvica is expected to bring in more than $40 billion in revenue over 15 years, according to Owide. He said the deal “will secure AbbVie the status of having the eighth most valuable oncology portfolio, with a net present value of $30 billion, up from 18th based on [pre-Pharmacyclics] acquisition estimates.”
 
Andrew S. Baum, a Citigroup analyst, described the deal in a research note as “Strategy defensible, valuation less so,” adding that AbbVie will likely need up to $5 billion in revenue outside of Imbruvica to see a payoff from this deal. Time will tell if any of that will come from the other candidates in Pharmacyclics’ pipeline, which includes Abexinostat HCl, a histone deacetylase inhibitor being advanced in hematologic cancer; a factor VIIa inhibitor; and a BTK inhibitor, which is being advanced in autoimmune diseases.
 
Despite the fact that many analysts—and apparently some shareholders, given that AbbVie’s share price dropped by nearly 6 percent after the acquisition announcement—feel AbbVie paid too much for Pharmacyclics, Gonzalez said in a conference call that “We value this asset just like we value every other asset. We build a model, we’re applying the model as going through the process. We extrapolate that model to come up with the value, and we obviously set a maximum value that we’re willing to pay for the asset. And I can tell you we’re disciplined enough that we don’t go past that maximum value, and we didn’t in this circumstance as well.”
 
AbbVie got a confidence boost on March 16 when Pharmacyclics announced that an Independent Data Monitoring Committee, after reviewing and assessing the Phase 3 HELIOS trial of Imbruvica, unanimously recommended that the study be unblinded, given the clinically meaningful and statistically significant treatment benefit seen in the Imbruvica arm of the study. The study was evaluating Imbruvica in combination with bendamustine and rituximab versus placebo in combination with bendamustine and rituximab in patients with CLL or small lymphocytic lymphoma.
Code: E041501

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