The healthcare sector is unquestionably going through a period of major consolidation. And with dozens of additional blockbuster drugs scheduled to lose patent protection soon, this trend will probably continue for the foreseeable future.
AbbVie (NYSE:ABBV) is one name in particular that's been aggressively pursuing major deals ahead of the patent expiration for its lead anti-inflammatory drug Humira. Specifically, the company was initially courting Irish biopharma Shire before backing out, and later cut a massive $21 billion deal for cancer drugmaker Pharmacyclics.
Given that this buyout won't entirely solve AbbVie's problems stemming from the loss of exclusivity for Humira, we're likely to see the drugmaker go after another, albeit much smaller, biopharma in the near term. Indeed, the company's management admitted in a recent investor conference call that they are considering a second acquisition.
So, this raises the question: Which small or mid-cap biopharma should AbbVie consider?
A great strategic fit
Acadia Pharmaceuticals (NASDAQ:ACAD) is developing a selective serotonin inverse agonist, Nuplazid (pimavanserin), indicated for Alzheimer's (ADP) and Parkinson's disease psychosis (PDP), as well as schizophrenia.
This small-molecule drug previously reported strong late-stage results for its most advanced indication, PDP, back in 2012, garnering Fast Track status with the Food and Drug Administration in the process.
Despite fairly robust results for PDP and having Fast Track status, Acadia has been unable to push the drug into a regulatory review with the FDA. While some of these delays have been due to the need for additional supportive studies to wrap up first, the bulk of it appears to be Acadia's inexperience at handling a regulatory submission and preparing for a drug's subsequent commercialization.
Perhaps as a direct consequence of these issues, we witnessed the company's longtime CEO Uli Hacksell abruptly retire last month, even relinquishing his seat on the Board. This is certainly a big reason Acadia may wish to simply sell itself to a big pharma at this juncture.
For AbbVie's part, the pharma giant would gain a key asset that is expected to generate upwards of $3 billion in sales for its first indication alone, which would dovetail with the company's growing neuroscience franchise.
Specifically, Nuplazid should conceivably create important marketing synergies with AbbVie's newly-approved intestinal gel Duopa, used to alleviate involuntary motor fluctuations in people with advanced Parkinson's disease. Fleshing this idea out further, AbbVie could take advantage of its sales force for Duopa, and their experience with this particular patient population, to help bring Nuplazid to market in a more efficient manner than Acadia could do by itself -- assuming the drug is ultimately approved by the FDA.
On a final note, Nuplazid would fit nicely with AbbVie's desire to build out an Alzheimer's disease franchise, giving it another strong clinical candidate for this unmet medical need.
Can this buyout scenario turn into reality?
While there are some obvious synergies between AbbVie and Acadia's clinical pipelines, the hard truth is that most buyouts come out of left field. So, this deal may actually make too much sense for it to come to fruition in the whacky world of biopharma.
But if AbbVie did see the light, the first hurdle would be Acadia's asking price. What we've seen over the last 12 months or so has been a 30%-40% premium as the going rate in healthcare buyouts in general. That would put Acadia roughly into the $4.5 billion range, which might simply be too rich for AbbVie after its monstrous deal for Pharmacyclics. Then again, this merger should create comparatively more value for shareholders than the Pharmacyclics deal that won't add to earnings until at least 2017.
All told, Acadia will probably end up interesting some big pharma as Nuplazid nears a formal regulatory submission. And a new CEO may see fit to put the company up for sale, given the biopharma's inherent weaknesses at maximizing the potential returns on this novel asset. Indeed, Acadia selling itself appears to be beneficial to both the more than 1 million Parkinson's disease patients afflicted with this devastating disease -- and shareholders alike.
That's a win-win in my book, and a great reason I think these two companies should put their heads together in the fight against Parkinson's and Alzheimer's diseases.
George Budwell owns shares of AbbVie. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.