AbbVie CEO defends Pharmacyclics deal to skeptical investors
By Ransdell Pierson
NEW YORK (Reuters) - AbbVie Inc chief Richard Gonzalez fought two other drugmakers to "the bitter end" to buy Pharmacyclics Inc <PCYC.O> for its hot-selling Imbruvica cancer drug, but may have a harder time convincing investors it is worth $21 billion.
Gonzalez, who took over as chief executive in early 2013, has come under closer scrutiny after AbbVie <ABBV.N> abandoned a $55 billion deal to purchase Shire Plc <SHP.L> last year due to new U.S. tax rules that wiped out much of the deal's rationale.
Since then, some shareholders have questioned how the company will protect its best-selling drug Humira, for arthritis, against new rivals when it loses patent protection in late 2016. Others have criticized steep discounts AbbVie has offered on its new hepatitis C drug, to win coverage from U.S. health insurers.
AbbVie announced the Pharmacyclics deal late on Wednesday, saying it would hurt company earnings this year and next, then boost profits from 2017 and beyond. Company shares fell almost 6 percent.
"AbbVie is taking a hit today because of the dilution and because they look a little desperate to do a deal," said Chris Pultz, portfolio manager for Kellner Merger Fund, an arbitrage fund that took a stake in Pharmacyclics on Thursday. "AbbVie lost a little credibility" by paying top dollar for Pharmacyclics, he said.
In a conference call, Gonzalez said Imbruvica will eventually bring the company $7 billion in annual sales - ahead of some Wall Street estimates - and boost a pipeline of experimental cancer drugs that AbbVie hopes will be worth more than $8 billion in combined sales each year.
That made it worth fighting for Pharmacyclics, he said. Johnson & Johnson <JNJ.N>, a partner in developing Imbruvica, was widely reported as a second bidder, while the identity of a third suitor has not been confirmed.
"It was a highly competitive multi-round process," Gonzalez told Reuters. "We bid against two large, sophisticated pharmaceutical companies. And when disclosures come out, you'll see the spread (between bids). I don't think we'll look embarrassed."
Gonzalez said AbbVie became interested in Pharmacyclics about 18 months ago, but didn't actively pursue a deal until being informed in recent months that AbbVie was on a short list of favored suitors.
Gonzalez met with Pharmacyclics CEO Bob Duggan in January, followed by three other trips to California's Bay Area, where the company is based. Bidding began about two weeks ago, he said.
Gonzalez said Imbruvica would make AbbVie less reliant on Humira, a $13-billion-a-year blockbuster. AbbVie said it has also sought U.S. and European marketing approvals for an improved formulation that could battle cheaper biosimilar forms of Humira.
"It's a fundamental change in the formulation of Humira," Gonzalez said in an interview. "I wouldn't describe it as a tweak." Asked if AbbVie intends to switch over current Humira patients to the new formulation, Gonzalez said such a strategy would make sense.
Citigroup analyst Andrew Baum wrote in a research note that the new version of Humira would likely have an auto-injector that would cause less pain than regular needles and might not need refrigeration. Such improvements, he said, could lead 20 percent of current Humira patients to switch to the new product.
(Reporting by Ransdell Pierson; Editing by Michele Gershberg and Leslie Adler)
