How Worried Should You Be About AbbVie's $5.8 Billion Boondoggle?
What’s a 10-letter word that describes a waste of money that at one point had the appearance of adding value? Boondoggle. And the word could now apply to AbbVie ‘s (NYSE: ABBV) $5.8 billion acquisition of Stemcentrx.
When AbbVie announced the Stemcentrx deal in April 2016, the company expressed excitement and optimism about Stemcentrx’s lead candidate and crown jewel, rovalpituzumab tesirine (Rova-T). That excitement and optimism have largely evaporated.
The big investment in Stemcentrx appears to be a big waste of money after disappointing phase 2 results for Rova-T in March, followed by AbbVie halting a phase 3 study of the drug last week. But how worried should you be that AbbVie’s multibillion-dollar boondoggle could significantly affect the company’s growth prospects?
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A big impact
In 2016, AbbVie said that Rova-T “represents a multi-billion dollar peak revenue opportunity with expected commercialization in 2018.” The cancer drug definitely won’t be commercialized this year. And that multibillion-dollar revenue appears to be a dream that will never come true.
It’s a dream that was still quite alive earlier this year, though. At the J.P. Morgan Healthcare Conference in January , AbbVie CEO Rick Gonzalez included Rova-T as one of several drugs that would help the company generate $35 billion in risk-adjusted non-Humira revenue by 2025. AbbVie had targeted peak annual sales of around $5 billion for Rova-T.
Now, though, the phase 3 clinical study of Rova-T as a second-line treatment of advanced small-cell lung cancer has been halted after patients taking the drug had a shorter overall survival rate than did patients taking comparison chemotherapy Hycamtin. AbbVie hasn’t thrown in the towel on Rova-T yet. The drug is still being evaluated in other clinical studies. But the outlook isn’t good for AbbVie to see a solid return on its investment in Stemcentrx — if there’s any return at all.
What it means for AbbVie’s pipeline
There’s no question that the big setbacks for Rova-T leave a hole in AbbVie’s oncology pipeline. However, the company does have several other promising cancer drugs in development.
Current blockbuster Imbruvica is being evaluated for additional indications including follicular lymphoma and pancreatic cancer. AbbVie hopes to pick up a new indication for another already approved drug, Venclexta, in treating acute myeloid leukemia.
But the potential loss of Rova-T means that AbbVie only has a couple new experimental cancer drugs in late-stage development. One of those drugs, veliparib, has already flopped in phase 3 studies as a treatment for non-small cell lung cancer and triple-negative breast cancer. The other, depatuxizumab mafodotin, targets glioblastoma — a notoriously difficult-to-treat brain cancer.
However, AbbVie’s pipeline appears to be quite strong in other therapeutic areas. Immunology drugs risankizumab and upadacitinib should be big winners, with up to $5 billion and $6.5 billion in peak sales, respectively. Orilissa, which already won approval in managing endometriosis pain, looks to have a good shot at another approval in treating uterine fibroids.
Beyond the boondoggle
Within months of its acquisition of Stemcentrx, some began to question if AbbVie had overpaid for its pickup of Rova-T based on underwhelming clinical data for the drug. After the setbacks for Rova-T this year, those questions have morphed into a statement: Yes, AbbVie paid way too much.
Make no mistake — the Rova-T failures hurt AbbVie. But while the Stemcentrx deal has turned out to be a boondoggle, AbbVie should be just fine.
The company has successfully negotiated deals to prevent Humira biosimilars from entering the U.S. market until 2023. Sales are strong for Imbruvica and hepatitis C drug Mavyret. Venclexta should gain momentum. Potential megablockbusters risankizumab and upadacitinib are likely on the way.
Thanks to its strong lineup of current products and its pipeline, AbbVie still expects to generate solid growth for years to come. Combined with its attractive dividend yielding 4.7%, the stock should deliver a strong overall return for investors. Rova-T might be a bust. But AbbVie isn’t.
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