AbbVie has been active in the M&A space
Earlier in 2014, AbbVie Inc. (ABBV) and Shire Pharmaceuticals (SHPG) agreed to merge in what was to be the biggest tax inversion deal ever. Tax inversions happen when a US company merges with a foreign competitor and changes domiciles in order to get better tax treatment. After that deal was terminated, AbbVie looked for another target.
The Pharmacylics acquisition diversifies AbbVie’s portfolio
AbbVie’s main drug is rheumatoid arthritis treatment Humira, which accounted for 63% of sales in 2014. AbbVie has been interested in reducing its dependence on a single drug, and the Pharmacyclics–AbbVie merger seems to be the path the company has chosen to achieve that goal.
Pharmacyclic, Inc.’s (PCYC) main drug is Imbruvica, a blood cancer treatment. AbbVie has its own hematologic oncology treatment ABT-199, which is going through FDA (U.S. Food and Drug Administration) trials.
The Pharmacyclics–AbbVie merger is not about synergies, or cost-cutting. It’s about where the combined company will be in five years. AbbVie expects the deal to be accretive in 2017 and add $0.60 per share to EPS (earnings per share) by 2019.
AbbVie is paying a pretty penny for Pharmacylics, given that Johnson & Johnson (JNJ) has a 50% ownership in Imbruvica and chose not to top AbbVie’s offer. Johnson & Johnson would have been the most natural acquirer.
Swiss pharma giant Novartis (NVS) has also been mentioned as a possible suitor for Pharmacyclics.
Other merger arbitrage resources
Other important merger spreads include the deal between Hospira (HSP) and Pfizer (PFE). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors who are interested in trading in the healthcare sector should look at the Health Care Select Sector SPDR Fund (XLV).