(FROM THE WALL STREET JOURNAL 3/6/15) 
   By Jonathan D. Rockoff 

The multibillion-dollar sales potential of a cancer drug that Pharmacyclics Inc. chanced upon nine years ago prompted a three-way bidding war that culminated late Wednesday in AbbVie Inc.'s $21 billion deal to buy the biotech company.

Pharmacyclics, until recently a little-known drug developer in Sunnyvale, Calif., paid a mere $6.6 million for the drug and some other experimental compounds during another company's fire sale in 2006. It struck a deal to develop and market the drug, Imbruvica, with Johnson & Johnson, and started selling the treatment in late 2013.

Imbruvica's strong efficacy against a form of leukemia and other diseases attracted fierce bidding for Pharmacyclics, from AbbVie, J&J and Pfizer Inc., according to people familiar with the matter.

AbbVie Chief Executive Richard Gonzalez said he believes Imbruvica can generate peak annual sales of $7 billion for AbbVie, after splitting revenues with J&J. But some analysts disputed that claim.

AbbVie shares fell 5.7% Thursday on investor concerns that the heated competition drove AbbVie to overpay, especially considering Imbruvica's profits will be split with marketing partner J&J.

Mr. Gonzalez defended the price tag, and called the bidding process "one of the most competitive" he had ever seen.

"I believe the difference between us and the next two bids was pretty narrow for a deal of this magnitude. That tells you they valued it close to us," Mr. Gonzalez said in an interview Thursday.

J&J's review couldn't justify a price close to the winning bid, according to a person familiar with the matter. It considered $17 billion to be a reasonable price for Pharmacyclics, though it was willing to pay a bit more given the expected interest in the biotech, the person said.

Big drug companies looking for new sources of growth have been paying dearly to secure promising biotechs and their approved drugs.

Last year, Roche Holding AG agreed to pay a 38% premium in an $8.3 billion deal for respiratory drug maker InterMune. In January, Shire PLC anted up $5.2 billion for NPS Pharmaceuticals, a 51% premium.

The payouts have bolstered biotech shares and fueled a heady market in public offerings for startups.

The Nasdaq biotechnology index is up about 14.5% this year, while the S&P 500 index has risen just 2%, according to FactSet.

Founded in 1991, Pharmacyclics faltered in its early efforts to develop drugs.

In 2006, it stumbled upon some promising compounds when gene-sequencing company Celera Genomics decided to auction a side business that included Imbruvica. Pharmacyclics paid $6.6 million in cash and stock upfront, according to a securities filing that year.

By 2008, Pharmacyclics was struggling. An investor and board member named Robert Duggan took control of the company, and contributed $6 million to help fund it while looking for other investors to chip in additional monies, Mr. Duggan recalled in an interview last year.

In February 2009, the company's shares fell to a record low 57 cents. AbbVie is paying cash and stock worth $261.25 a share.

Mr. Duggan has an eclectic history: Before taking over Pharmacyclics he invested in companies that made cookies and embroidery sets, and also ran a company that made robots used in surgery.

In a statement late Wednesday, Mr. Duggan said Pharmacyclics is "honored and enthusiastic to join the AbbVie organization."

Pharmacyclics said he was unavailable to comment Thursday.

Under Mr. Duggan, the drug that became Imbruvica began showing promise in clinical testing. Big drug companies including Novartis AG and Celgene Corp. expressed interest in helping develop and market it, The Wall Street Journal has reported.

J&J eventually won out, agreeing to split the rights in 2011.

Pharmacyclics also caught the attention of AbbVie, which has been seeking to diversify because it relies on one rheumatoid-arthritis therapy, Humira, for more than 60% of its total sales. Rivals are developing lower-priced versions for sale when Humira's patents expire in the next few years.

Yet AbbVie didn't think Pharmacyclics was up for sale until bankers put out word in January, Mr. Gonzalez said. That month, he flew to California, the first of four trips to meet with the biotech company's management.

AbbVie's due diligence indicated that Imbruvica sales could grow not just from winning approval for new and earlier uses in various cancers, but also possibly in combination with a new class of cancer drugs called immunotherapies and potentially in autoimmune diseases, Mr. Gonzalez said.

Mr. Gonzalez said he flew to California to make AbbVie's initial bid on Monday, then received word from Pharmacyclics Wednesday afternoon that AbbVie had won the final bidding.

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Dana Cimilluca contributed to this article.

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