Pharmacyclics Weighs Sale of $15 Billion U.S. Drugmaker

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Pharmacyclics Inc., which makes a fast-growing cancer drug and is valued at more than $15 billion, is exploring options including a sale, said people with knowledge of the matter.

The Sunnyvale, California-based drugmaker has attracted interest from companies including Johnson & Johnson and Novartis AG, the people said, asking not to be identified discussing private information.

The company’s shares rose 17 percent to $220.22 at the close in New York, extending gains that had seen the stock rise 60 percent this year before Wednesday.

Pharmacyclics may fetch $17 billion to $18 billion in a possible sale, the people said, adding that deliberations are at an early stage and may not lead to a deal. An $18 billion offer would represent about a 25 percent premium to the company’s market value at the close Tuesday.

A deal of that size would value Pharmacyclics at more than 200 times the company’s net income last year of $86 million, according to data compiled by Bloomberg. However, sales of Imbruvica, the company’s oncology treatment, will grow to $3.56 billion in 2018 from $492 million last year, according to an average of estimates by analysts surveyed by Bloomberg, as it’s used in more types of cancer.

“I don’t think this is a crazy valuation based on the peak sales of this thing,” Stefan Quenneville, an analyst at Morningstar Inc., said in a phone interview. “I would call it a primarily one-asset company. It’s not surprising to see a buyout. It’s very clean and straightforward for a bigger company that can say, ‘We can do a better job with our sales force.’”

Spokesmen for Pharmacyclics and J&J declined to comment. Representatives for Novartis didn’t respond to requests for comment.

Largest Deal

Imbruvica is already approved for four different blood cancer uses, and the company said it wants to add one or more uses every year. It may eventually move into solid tumors, and has a partnership with AstraZeneca Plc to develop the drug for use with a new type of oncology treatment that triggers the body’s immune system to attack tumors.

Large drugmakers are on the prowl for acquisitions to bolster their pipelines. At $17 billion, a takeover of Pharmacyclics could be the year’s largest drug industry deal so far, topping Pfizer Inc.’s purchase of injectable-medicine maker Hospira Inc. Acquisitions by pharmaceutical and biotechnology companies reached a record $239 billion last year, according to data compiled by Bloomberg, as buyers from Actavis Plc to Bayer AG picked up new assets.

J&J Partnership

Pharmacyclics already has a partnership with J&J’s Janssen Biotech Inc. to manufacture Imbruvica, which last month received a fourth approval from the U.S. Food & Drug Administration.

J&J is seeking to replenish its product lineup as drugs such as hepatitis C treatment Olysio and blood thinner Xarelto face new competition. Jami Rubin, an analyst at Goldman Sachs Group Inc., lowered her recommendation on J&J to sell from neutral on Jan. 15 because she sees the company bringing fewer new drugs to market this year than in previous years, she said in a note.

Novartis has extensive experience in blood cancers, and pioneered Gleevec, one of the first targeted therapies for chronic myeloid leukemia. Gleevec revolutionized treatment of the disease, and last year sales of the drug were $4.75 billion, while a newer Novartis drug for the same type of leukemia, Tasigna, had $1.53 billion in 2014 sales.

Generic Gleevec

Generic forms of Gleevec will hit the U.S. market in February 2016, Novartis has said.

One of the main uses of Imbruvica is for another type of blood cancer, chronic lymphocytic leukemia.

The drug “is absolutely going to be one of the best-selling cancer drugs of all time,” said Brian Skorney, a biotechnology analyst at Robert W. Baird. The sales trajectory of Imbruvica “has really blown away every other oncology launch, with the exception of Avastin,” made by Roche Holding AG.

Imbruvica’s use was expanded last year for patients with chronic lymphocytic leukemia patients who have tried at least one other treatment, three months after Roche’s Gazyva was approved for the disease.

Almost 15,000 new cases of CLL are expected to be diagnosed this year, making up almost one-third of leukemia cases, according to the American Cancer Society. The FDA approved Imbruvica in in 2013 for mantle cell lymphoma patients who have tried other treatments.

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