Recommendation for AbbVie| Board of Directors
Discussion Materials | January 22nd, 2023
FIR
Deal Team FIR
Isaac Fox
From: Minneapolis, MN
Kelley School of Business|2026
Majors: Finance
Jack Kalnicki
From: Columbus, OH
Kelley School of Business|2026
Majors: Finance and Business Analytics
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Contents I. Executive Summary II. Company Overview III. Industry Analysis IV. Strategic Recommendation V. Valuation VI. Strategic Alternatives 4-5 6-8 9-10 11-14 15-19 20-22 3 FIR
Table of
I. Executive Summary
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Executive Summary
Overview
Scope of Proposal
Strategic Assessment
• AbbVie is a biopharmaceutical company which discovers, develops, manufactures, and commercializes drugs for the treatment of many complex diseases
• AbbVie is one of the market leaders in immunology, oncology, neuroscience, and aesthetics through their popular drugs Humira, Skyrizi, Imbruvica, Ubrelvy, and Botox, respectively
• AbbVie’s steady growth as well as a history of small to midsized acquisitions which have bolstered their drug offerings make them a great candidate to acquire a specialty pharmaceutical maker
Proposal
• This proposal will cover the biopharmaceutical industry and drug development
• AbbVie’s position as a market leader in the drug development space, especially for chronic diseases, puts it in a great position to acquire the leading cortisol modulator researcher
• FIR uses its vast experience in the pharmaceutical industry to present the best possible investment to expand AbbVie’s dominance in the biopharmaceutical space
• AbbVie’s position as one of the market leading biopharmaceutical developers allows for the acquisition of Corcept Therapeutics to expand its drug offerings and enter an expanding market
• AbbVie has penetrated the pharmaceutical market for chronic diseases due to the sizeable investments and acquisitions in biotechnology; Corcept Therapeutics will strengthen AbbVie’s drug offerings
• Corcept Therapeutics’ cortisol blocker will be a natural transition into AbbVie’s Gastroenterology division as Cushing’s Disease becomes more common
Given Corcept Therapeutics’ research and development, the FIR recommends the acquisition of Corcept Therapeutic at an offer price of $27.84 per share at an implied equity offer price of $3.25B.
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II. Company Overview
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Company Overview
• Corcept Therapeutics is a leader in the research and development of cortisol modulators. Corcept leads the field in researching glucocorticoid receptor (GR) antagonists, having developed more than 500 proprietary molecules since their founding.
• Founded in 1998 by Stanford University School of Medicine chair Alan Schatzberg and Joseph K. Belanoff MD. Corcept was founded and currently headquartered in Silicon Valley.
• Corcept Therapeutics develops Korlym, a revolutionary treatment for Cushing’s Syndrome which impacts 2-3 million patients each year.
• The company currently has 13 drugs in clinical trials across Oncology, Cushing’s Syndrome, Addiction, and Psychiatry.
• The company is the sole developer of Relacorilant which is an antiglucocorticoid that can be used in various drugs to treat cancer, Cushing’s and alcoholism.
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Company Overview
Financial Summary ($, in mm)
Total Revenue: 366
EBITDA: 127.5
EBIT: 124.5
Net Income: 112.5
Capital Expenditures: (.5)
Market Capitalization: 2,468.4
Total Enterprise Value: 2,069
Cash and ST Investments: 223.5
Total Debt: 0.0
Total Assets: 423.8
Stock Performance (NasdaqCM: CORT)
April 2004: CORT files for an IPO
February 2012: Korlym earns FDA approval
June 2022: Phase 3 trial begins regarding Relacorilant and Ovarian cancer
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III. Industry Outlook
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Industry Analysis
Biopharmaceutical Industry Key Statistics
• The Biopharmaceutical Industry is estimated to garner a market size of $850 billion by 2030 with a CAGR of 11.3%
• There are 2,655 Brand Name Pharmaceutical Manufacturing businesses in the US as of 2023, a 6.2% increase from 2022
• AbbVie accounts for 34.8% of the Rheumatoid Arthritis Medication Manufacturing industry
Biopharmaceutical Industry Threats
• The expiration of patents are common concerns for a pharmaceutical company, with 88% support for making it easier for generic drugs to come to market
• Drug related product liability claims have increased due to law firms advertising on social media
• More than $35 billion paid out over last 24 years (2017)
• $26 billion opioid related lawsuit in 2022
Trends: Oncology Research
• Genetic testing looks for certain mutations in a person’s genes that give them a higher risk of getting certain cancers
• The age adjusted cancer death rate peaked in 1991 at 215 deaths per 100,000 people and is down to 146 per 100,000, a decline of 32%
• A recent FOxTROT trial found that chemotherapy before surgery cuts risk of colon cancer returning, 1 in 3 patients of colon cancer see their cancer come back after surgery
Trends: Biotech Based Acquisitions
• The pharmaceutical industry has turned again and again to young biotechs for innovation where deals often focus on cancer and rare diseases
• These are areas of drug research that have seen major victories in clinical trials and sizable profits for the treatments that make it to market
• In recent years, premiums on biopharma acquisitions surpassed 100%
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VI. Strategic Recommendation
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Strategic Recommendation
• Corcept Therapeutics (NasdaqCM:CORT) is a leader in the research and development of cortisol modulators which primarily treat Cushing’s Syndrome
Corcept Therapeutics
General Overview
• The company is generating revenue growth through steady increases in Korlym prices as the drug becomes more widespread to treat Cushing’s
• Corcept Therapeutics is a research-based biopharmaceutical company with more than 13 drugs in their pipeline and clinical trials
• The company expects between $400 million and $410 million in revenue for 2022 up from $366 million in 2021
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Strategic Recommendation
Q3 Total Revenue Financial Highlights
$101.7M
Q3 COGS
$1.3M $33.3M 18.5%
Q3 R&D Q3 R&D % Increase
Main Specialties Corcept’s Current Pipeline
• Endogenous Cushing syndrome (Phase 3)
• Platinum-resistant ovarian cancer (Phase 3)
• Hypercortisolism associated with adrenal adenoma (Phase 3)
• Triple negative breast cancer (Phase 2)
• Alcohol use disorder (Phase 2)
1. Cortisol – Corcept discovers, develops, and commercializes medications that treat severe diseases by modulating the effects of this stress hormone
2. Therapeutic Platform – Corcept has a rich therapeutic platform and a proprietary compound, Relacorilant, which is used across Cushing’s, Oncology, and Metabolic diseases
3. Korlym - The crown jewel of Corcept’s portfolio that has patent coverage through 2038 and treats Cushing’s syndrome
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Strategic Recommendation
In-house R&D: Large pharmaceutical companies have notoriously not done their own research, rather paying for grants and funding universities to do research for them. Corcept has an advanced team of doctors and researchers who have developed and will continue to develop great Cortisol based drugs.
Performance Catalysts
Widespread Korlym Acceptance: There are currently 20,000 people with Cushing’s syndrome in the United States with 3,000 new patients diagnosed each year. Only 50% of patients are able to be cured by surgery, and the remaining ~10,000 patients must be treated with medicines like Korlym. We expect Korlym prices to increase 5% this year as Corcept has made incremental increases in price through 2021 and 2022.
Synergies
Potential Concerns & Mitigations
Revenue Synergies: In 2021, AbbVie spent $2.1 billion on advertising, and they are expected to spend even more this year. Corcept has notoriously weak marketing as their team is small and their resources are devoted to research and development. Corcept’s technology combined with AbbVie’s marketing prowess will increase acceptance, and usage of Korlym.
Cost Synergies: In the last twelve months, AbbVie spent $6.7 billion on research and development. In addition, they develop drugs that overlap with Corcept’s areas of research such as oncology, immunology, addiction, and neuroscience. Corcept’s proprietary technology such as Relacorilant has the potential to reduce the research costs greatly as it may aid or even replace existing studies.
• AbbVie is considered “Big Pharma” and they could draw a lot of attention for owning and developing an expensive drug such as Korlym
• Like all biotech within the pharmaceutical industry, there are risks that clinical trials or FDA approvals may fail
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VII. Valuation
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Comparable Companies Analysis
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Discounted Cash Flow
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Discounted Cash Flow
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Football Field Analysis
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VIII. Strategic Alternatives 20
Strategic Alternatives FIR
Financial Fit
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Strategic Fit
Strategic Alternatives FIR
• Focuses on medicines that treat genomically defined cancers, rare diseases, and blood disorders
• The number of patients consistently growing year over year; strong sales growth
• Risks:
• Growing net losses year over year with high amounts of liabilities
• Unestablished business with small portfolio of approved drugs. Potential for sustained losses if future approvals are denied. Name recognition worse than that of competitors
• Develops human therapeutic drugs using antisense technology to treat cardiometabolic diseases
• Strong drug pipeline with many drugs in both phase II and III of FDA approval process
• Risks:
• Uses brand new antisense technology which has very no proven track record. Increases the risk of drugs in the pipeline being denied approval
• Revenue growth very volatile over past 5 to 10 years with continuation of this trend expected
• Researches and develops new medicines for the treatment of various types cancer
• Growing drug portfolio that contains drugs to treat thyroid, kidney and liver cancers
• Risks:
• Majority of drug pipeline in either Phase I or Phase II FDA trials. Multiple drugs recently failed for FDA approval
• Many drugs facing low adoption from patients which is causing Exelixis’ number of customers to stay stagnant
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