Rationale for the Pharmacyclics–AbbVie Merger



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.

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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).


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