Why didn't J&J buy Imbruvica partner Pharmacyclics? It wants hot drugs cheap, CEO says

J&J CEO Alex Gorsky

Why didn't Johnson & Johnson ($JNJ) buy Pharmacyclics ($PCYC)? Good question--and one The Wall Street Journal posed to CEO Alex Gorsky in a recent interview in Tokyo.

Recall that J&J is Pharmacyclics' partner on the blood cancer drug Imbruvica, a fast-growing therapy in a hot field. It's a partnership that J&J struck years ago, at a cost of some $975 million, plus a split of eventual profits. Last month, AbbVie ($ABBV) agreed to buy Pharmacyclics--including its share of Imbruvica and some pipeline meds--for $21 billion.

The price stunned many analysts at the time, and Gorsky used the familiar words "thoughtful" and "disciplined" in answering the WSJ's question. The vast majority of J&J's acquisitions over the past 10 years--more than 100 in all--have been under $1 billion, the CEO said.

"Most of our investments tend to be early-on, smaller, midsize," Gorsky told the Journal. "Occasionally we'll go big as we did when we went after Synthes not too long ago.

"But in the pharma space, identifying another Zytiga, identifying the next Imbruvica is something that we're very interested in."

In other words, buy low, sell high. In biopharma, that means risk--there's no guarantee, of course, that pipeline drugs will actually pay off as hoped--but it also means less of a write down if expectations aren't met down the road. And J&J's team has a strong track record of picking winners. Zytiga, for instance, is the prostate cancer pill that J&J acquired with Cougar Biotech in 2009 for $1 billion. Approved in 2011, Zytiga brought in $2.25 billion for the company last year, partly in thanks to an aggressive development program that quickly put Zytiga on the front lines of prostate cancer treatment.

J&J was rumored to be among the final bidders for Pharmacyclics. According to a recent securities filing, AbbVie outbid the other potential buyers by $11.25 per share in the last round, or about $1 billion. But one of those last-round bids came from a so-called Party A, the first company approached about a potential deal, the one said to be J&J.

Party A's first offer was $225 per share in cash and stock, not much higher than its trading price at the time, what with rumors circulating about a merger. AbbVie's offering in that round was $250 per share in cash and stock, with another bidder--Party B--in the middle at $240 per share. Party A's second bid was $250 per share--but it was all cash, a structure Pharmacyclics had specifically said it didn't want. All but guaranteed to be a nonstarter. Party B, also $250 per share, but in with stock as 42.5% of the deal. AbbVie's? Cash and stock worth $261.25 per share.

- see the WSJ interview
- check out the SEC filing

Special Reports: Top 15 pharma companies by 2014 revenue - J&J | Top 15 drug launch superstars - Zytiga, J&J

Editor's note: This story was updated to emphasize that J&J and Pharmacyclics each own a half-interest in Imbruvica.