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Pharmacyclics Set to Be Acquired by AbbVie for $21B

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Pharmacyclics Inc.’s shares were up 10.3% after a definitive agreement was announced under which AbbVie Inc. (ABBV - Free Report) will acquire Pharmacyclics. AbbVie will pay $261.25 per share, consisting of cash (58%) and equity (42%). The deal is valued at approximately $21 billion and is expected to close in mid-2015.
 
AbbVie expects to finance the deal using a combination of existing cash, new debt and stock.
 
The acquisition of Pharmacyclics was not entirely unexpected. We remind investors that Pharmacyclics shares have been on an upswing since a report from Bloomberg suggested that the company is exploring its options including a potential sale.This was rumored to attract interest from the likes of Johnson & Johnson (JNJ - Free Report) and Novartis (NVS - Free Report) .
 
What’s in It for AbbVie?
 
The acquisition of Pharmacyclics will add Imbruvica to AbbVie’s portfolio. Imbruvica is Pharmacyclics’ sole marketed product. The product gained FDA approval in January this year for all lines of therapy for the treatment of patients suffering from Waldenstrom's macroglobulinemia (WM). This makes Imbruvica the first and only FDA approved treatment for this indication.
 
Imbruvica is also approved for three other indications, including treatment of patients with mantle cell lymphoma (MCL) and chronic lymphocytic leukemia (CLL) who have received at least one previous therapy and for CLL patients with a deletion of the short arm of chromosome 17. We are encouraged by the label expansion of Imbruvica.
 
Meanwhile, Pharmacyclics is working on expanding Imbruvica’s label further and is evaluating the drug for indications like small lymphocytic lymphoma and diffuse large B-cell lymphoma among others.
 
In the fourth quarter of 2014, Imbruvica’s net product revenues in the U.S. rose 31% sequentially to $185 million. For 2015, the company continues to expect Imbruvica U.S. net product revenues to be approximately $1 billion, representing a year-over-year jump of 103%. The increase is expected to be driven by higher market penetration of the four approved indications.
 
We note that Pharmacyclics has an agreement with Janssen Biotech, a Johnson & Johnson company, for Imbruvica. While Johnson & Johnson markets Imbruvica in ex-U.S. territories, the two companies jointly commercialize Imbruvica in the U.S.
 
The acquisition will boost AbbVie's presence in hematological oncology. As per AbbVie’s press release, the hematological oncology market is growing by leaps and bounds and will soon be worth $24 billion globally. This indeed offers an extremely lucrative opportunity. AbbVie expects Imbruvica peak sales for the company to exceed $7 billion.
 
The health care sector has been witnessing a flurry of mergers and acquisitions and licensing deals over the past few quarters. These deals show no signs of slowing down. 
 
Pharmacyclics holds a Zacks Rank #2 (Buy). Another well-ranked stock in the health care space include Theravance, Inc. carrying a Zacks Rank #1 (Strong Buy).



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