Even after the past two years of deals, AbbVie's ($ABBV) decision to pay $21 billion for Pharmacyclics, bagging half interest in the blockbuster cancer drug Imbruvica, managed to get jaws to drop among even the most jaded biotech analysts. That's a good sign that it's hard to make these numbers work. And the math is important if you're thinking of how to use this deal as a kind of ideal benchmark--provided you find yourself selling anything.
And the right pharma buyer appears ready to pay just about anything for something they really want.
RBC's Simos Simeonidis later echoed that sentiment, framing his thoughts like this: "With the AbbVie/Pharmacyclics acquisition dominating the biopharma world news this morning, it continues to become (even more) apparent that not only is big and medium-size pharma really dependent on biotech to replenish its pipelines, but that it also continues to be willing to pay whatever price it has to, in order to secure the asset it feels it just has to have."
I thought it would be fun to summarize some of the thoughts of some of the other key analysts.
Let's start with Geoffrey Porges at Bernstein, who counts himself among the "stunned."
Upside: AbbVie's buyout now gives it half of two drugs with some real upside: Imbruvica and ABT199, which it shares with Roche ($RHHBY). Porges counts these products as "two of the most promising drugs in the hematology category." Sure, AbbVie now has two big partners it will have to dicker with, but a combo here could be a market powerhouse. "AbbVie can also add Infinity's ($INFI) PI3kinase inhibitor duvelisib to the mix as well, covering all the leading small molecule targets in CLL and NHL."
Downside: Let's just say that Porges is struggling to make sense of the numbers. Paying $261.25 a share for a half interest in one drug "implicitly values the whole of Imbruvica at approximately double this consideration, or a remarkable $42 billion for one drug that has yet to annualize at $1 billion in sales, let alone approach the $6 to 7 billion in global sales necessary to justify this sort of valuation."
RBC's Michael Yee counts himself among the "surprised."
Upside: "The buyer is very surprising to us but supports a bullish biotech sector view for other smid caps: big assets and big drugs command premium valuation for their scarcity and the value they bring: revenues, growth, high margins, earnings growth," Yee noted, as picked up by StreetInsider. "It very much convinces us (1) pharma wants big drugs and is willing to pay up, perhaps to accelerate growth and to "get a better multiple" like biotechs, (2) there is a scarcity value for drugs that "move the needle" and these command a premium, (3) this is positive for the biotech sector because it suggests other companies are undervalued with so much innovation going on and investors can have greater confidence that "if it fits" with pharma, (liver, oncology, hospital drugs, orphan disease, etc) then M&A will remain an option. Other companies we see that might fit into synergies: ICPT, VRTX, BMRN, RCPT, ESPR, UTHR, PTCT, JUNO/KITE, DYAX."
Downside: "Our conversations suggest folks are surprised by the valuation since the drug is in year 1-2 of launch, there is upcoming competition, and there is big opportunity cost (acquirers can buy lots of other smaller biotechs and see it play out instead)."
Deutsche Bank analyst Robyn Karnauskas, meanwhile, was supportive, telling Reuters that the deal provides a quick way for AbbVie to diversify its business, which relies heavily on Humira for the bulk of its revenue.
Mark Schoenebaum didn't offer any opinions in his brief remarks this morning. But he did note the upside on drug sales for AbbVie: 2020 end-user consensus peak sales for Imbruvica in all indications is ~$5.5 billion, and 2020 consensus ABT-199 sales is ~$1 billion. -- John Carroll (email | twitter)