Current portfolio holding AbbVie (ABBV) is taking a hit today after announcing a $21 billion cash and stock deal to buy Pharmacyclics (PCYC). The sell-off is due in part to the terms of the deal. The shares being issued in the deal could potentially dilute current shareholders by 10%. The other reason is the high price AbbVie is paying for Pharmacyclics.
Pharmcyclics main drug is Imbruvica for leukemia. It received a fast track approval because of what it does for leukemia patients that have relapsed.
Imbruvica inhibits Bruton’s Tyrosine Kinase (BTK). BTK plays a big role in the cellular signaling pathway to prevent a cell from undergoing a self inflicted cellular death called apoptosis.
One of the defenses that a human body has against cancerous cells are the signaling pathways to cause an abnormally growing cell to self destruct. Cancerous cells express high levels of BTK that prevent these signals. Leukemia is cancerous B-Cells. Current leukemia treatments are pretty effective but patients who relapse have cancerous B-Cells that are extremely resistance to current radiation therapies. Relapsed patients desperately need the self destruct signaling pathways in the cancerous B-Cells turned back on.
Imbruvica inhibits BTK turning back on the self destruct signaling pathways. This is why Imbruvica is on its way to blockbuster status. So good for AbbVie, right?
Johnson & Johnson (JNJ) co-markets the drug with Pharmacyclics and J&J receives 50% of the revenue from Imbruvica. AbbVie paid $21 billion for half a drug.
It doesn’t reflect well on mamangement to get caught in a bidding war right after walking away from the Shire Plc deal because it would be too costly. It very well could’ve been an act of desperation and we have to ask ourselves will management be good stewards of our capital going forward?