AbbVie Overpaid in Pharmacyclics Deal, For Only 50% Rights to Imbruvica: Analyst

AbbVie Overpaid in Pharmacyclics Deal, For Only 50% Rights to Imbruvica: Analyst
March 5, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor

This week’s news that AbbVie will acquire Pharmacyclics for a “staggering” $21 billion is surprising to some Wall Street watchers, said an analyst Thursday, because the deal only includes the rights to 50 percent of Pharmacyclics blockbuster cancer drug Imbruvica.

In a note titled “Shh...Don't Tell AbbVie--They're Only Getting 1/2 Of Imbruvica,” analyst Joshua Schimmer of Piper Jaffray said that the sale price seems unusually high given the limited rights obtained and AbbVie’s relative $100 billion market capitalization.

“Hope there's no buyer's remorse!,” wrote Schimmer in a note to investors, arguing that Imbruvica is projected to deliver less than $1 billion in revenue in 2015—which means the purchase price represents a 40-times multiple on revenue, considering PCYC has partnered half the asset already with Johnson & Johnson.

“Who, we would note, was apparently not the highest bidder for the company...not that that should tell us something, right?” said Schimmer. “The purchase price would not have seemed reasonable for all of Imbruvica, let alone half of it.”

He pointed out it will take “many years for this deal” to deliver sufficient cash flow to justify such a valuation.

“With numerous competitive BTK inhibitors in development and a rapidly evolving hematologic malignancy field which may include combinations which can drive very deep cure-like responses (and as such substantially reduce the average duration of therapy),” said Schimmer, it seems “challenging” to Piper Jaffray to believe “long-term confidence” in Imbruvica's profile that would justify such a high valuation.

“Time, of course, will be the ultimate judge of that; in the meantime, PCYC does represent one of the strongest emerging growth companies in biotech with the potential to move the EPS CAGR needle on even large-cap companies like ABBV,” wrote Schimmer.

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