April 4, 2015
A global biotech company called AbbVie has acquired Pharmacylics, another biotech company that produces a promising drug named Imbruvica that kills three types of blood cancers. The drug is currently approved in more than 40 countries. In its first full year on sale, it had earned $548 million in world-wide net product revenue last year for Pharmacyclics.The company projects sales will reach $1 billion this year. A lot of other companies were betting on the potential of this drug, and thus competing to acquire Pharmarcyclics.
Among those companies, AbbVie made the highest bid of $261 per share which includes a 13% control above the current market price. As a result, the total value of this acquisition is as big as 21 billion, while analysts estimate that the sales of Imbruvica will be 6 billion dollars in 2025 - after Pharmacylics splits 50% of its revenue with its partner Johnson & Johnson’s that holds 50% of the drug’s ownership.
However, the patent being used for the blood cancer drug will expire in 2026, so there is not much time to earn a sufficient profit on the investment to sustain this gigantic investment. Even after adding in the nearly $1 billion of cash on Pharmacyclics’ books and the value of medications in early stages of development, it is hard to see AbbVie coming out ahead. Paying 21 billions upfront is very an expensive deal. Plus, investing in a cancer drug contains very high tail risks as it may fail, so many suspect that AbbVie might have irrationally overpaid for the acquisition.
-- Miranda Wang