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Analysts Mixed On Premium For Pharmacyclics

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AbbVie Inc (NYSE: ABBV) $21 billion deal to acquire Pharmacyclics, Inc. (NASDAQ: PCYC) Thursday drew mixed reviews from analysts and a thumbs down in the stock market.

Shares of AbbVie closed down more than 5 percent at $56.83.

The price paid by AbbVie may be a sign of a "desperation deal," according to Bernstein Analyst Geoffrey Porges.

Pharmacyclics splits revenue from its sole product, the cancer treatment Imbruvica, with Johnson & Johnson, and Porges said the acquisition values the drug at $42 billion.

Related Link: Biotech M&A Outlook Boosted By AbbVie Deal, Says This RBC Analyst

Imbruvica's annual sales are $1 billion, according to Porges.

"It's hard to see AbbVie's shares being up on this gamble," Porges said.

RBC's Michael Yee said Imbruvica is early in its launch and the price paid by AbbVie "surprised the market."

Like many observers, Yee was surprised that Imbruvica partner Johnson & Johnson didn't acquire Pharmacyclics. Reports Wednesday that Johnson & Johnson had signed a deal proved incorrect.

Yee called Pharmacyclics "a scarce asset" and hence it fetched a premium price. Earlier reports had suggested an $18 billion valuation.

As the "mixed initial reaction," to the transaction fades, Yee expects AbbVie will benefit in the mid-to long-term.

Deutsche Bank's Robyn Karnauskas recalled that AbbVie was near to acquiring Shire PLC (NASDAQ: SHPG) last year for $54 billion.

"This deal isn't even half that amount," Karnauskas noted.

The acquisition provides AbbVie with diversification beyond its Humira treatment for hepatitis and affords near-term revenue growth, Karnauskas said.

AbbVie's earnings could get a boost of about 19 percent by 2021, according to Karnauskas, who boosted her revenue growth estimate in for the 2014-2020 time frame to 7 percent, from 3 percent.

Latest Ratings for ABBV

DateFirmActionFromTo
Dec 2020SVB LeerinkMaintainsOutperform
Nov 2020Morgan StanleyMaintainsOverweight
Nov 2020BMO CapitalInitiates Coverage OnOutperform

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