Chicago-based pharmaceutical company AbbVie (NYSE:ABBV) made a huge move in its purchase of Pharmacyclics for an estimated $21 billion.
Pharmacyclics commanded a rich price largely because of its potential blockbuster cancer drug, Imbruvica. Owning this treatment could reduce AbbVie's dependence on its own star performer, rheumatoid arthritis drug Humira, which is facing patent expiration. Imbruvica, if moved into place as a first line drug treatment, could bring in an estimated $14 billion in annual sales for AbbVie in the very near future.
The full podcast can be accessed by clicking here. A full transcript follows the video.
This podcast was recorded on Dec. 16, 2015.
Kristine Harjes: Speaking of AbbVie, they had a pretty big buyout too in March. That one was Pharmacyclics for $21 billion.
Todd Campbell: Yeah, Humira counts for 61% of AbbVie's sales. So with the pending patent expiration, despite their best efforts to use legal wrangling, and new formulations to try and delay the entrance of biosimilars ...
Harjes: And that has been a valiant effort on their part.
Campbell: Yeah and they'll continue to advance that. And who knows? Maybe they push back the entrance of these biosimilars by a few years by doing it. But it's delaying the inevitable. So they needed to go out and really get something that was going to be big and potentially transformative to make up for the sales that could be lost to Humira -- a drug that has $13 billion in annual sales. Not easy to fill.
However, they did go out, they spent $21 billion to buy Pharmacyclics earlier this year to get their hands on the blood cancer drug, leukemia especially, Imbruvica -- which is co-developed by Johnson & Johnson. And that drug has just been a gangbuster drug, incredibly successful, potentially going to get approval next year for use in the first line setting. And that has AbbVie thinking that, "Well, at least we can get peak sales out of that drug of 5 to $6 billion over time."
Harjes: Yeah, and that's especially impressive when you think about the fact that they only get to retain 50% of the profits. And so if you have management saying that they could bring in $7 billion in revenue just from this one drug, you're talking about that equating to a projection of peak sales of $14 billion.
Campbell: Yeah, these drugs, again biologics are, like Imbruvica, are the very expensive drugs. They carry $100,000-plus-a-year price tags. I think now some of those drugs, expensive drugs, arguably don't add a lot of value in as far as extending progression for survival, or overall survival. But in the case of Imbruvica, it really does. The trial that's backing up the application for approval in the first line setting in CLL, Chronic Lymphocytic Leukemia, that showed an 85% reduction in risk of death. So this is a very important drug, it's an expensive drug, and it certainly could generate significant revenue for the company. Whether or not it's enough to offset the risk to Humira, that still remains to be seen. But it's definitely one of the bigger deals of the year.
Kristine Harjes owns shares of Johnson & Johnson. Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. 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.