AbbVie spent billions on a buzzy Silicon Valley cancer drug company. Now Wall Street's calling the deal a 'dud.'
- The cancer-stem-cell company Stemcentrx was one of the biggest venture capital-backed deals in history when it was acquired in 2016 for over $10 billion. But it hasn't seen the blockbuster success its big price tag suggested.
- In March, AbbVie, the pharmaceutical company that acquired Stemcentrx, said it wouldn't seek accelerated approval for Stemcentrx's lead drug, Rova-T, which would ideally have gotten the drug approved faster by the Food and Drug Administration.
- Rova-T is being developed to treat late-stage small-cell lung cancer that hasn't responded to other treatments. AbbVie is still developing the drug, with more data expected to come out in 2020.
When news broke two years ago that a buzzy but very-early-stage Silicon Valley-backed biotech had been acquired, it raised some eyebrows.
AbbVie in 2016 paid up to $10.2 billion for Stemcentrx, a cancer-drug company with backing not from typical healthcare investors, but from venture firms better known for being behind tech companies like Lyft and Airbnb. It was one of the biggest venture capital-backed deals in history, eclipsed only by Facebook's acquisition of the messaging firm WhatsApp.
But two years later, the deal hasn't been a massive success. In March, AbbVie said it wouldn't seek accelerated approval from the Food and Drug Administration for its cancer drug, named Rova-T, in third-line small-cell lung cancer, based on data from its mid-stage trial. The drug hadn't fared as well as AbbVie had hoped in treating these patients, so the company didn't plan to ask for a shorter FDA regulatory timeline to try to get Rova-T approved faster.
The news sent AbbVie's stock down 15% at the time.
The deal - which was met with skepticism from the biotech community when it was announced because of the large valuation placed on such an early-stage drug - has now largely been written off by investors and analysts on Wall Street.
"As far as our position on the stock, we're not really expecting much of anything from Rova-T going forward," Steve Richter, a principal at Tealwood Asset Management, which owns 102,000 shares of AbbVie, told Business Insider.
Rova-T and the pursuit of a lung-cancer drug
Stemcentrx, which came out of stealth mode only months before the acquisition, had been working to develop its Rova-T drug, which goes after a special protein that may be linked to cancer stem cells.
Unlike general adult stem cells that are found all over the body and are good at regenerating the cells our bodies need to survive, cancer stem cells specifically help produce tumors, and some research suggests they could play a key role in defeating the disease.
The protein, called DLL3, is highly expressed - meaning a genetic variation is telling the body to make a lot of it - in about 80% of tumors, Stemcentrx's chief scientific officer, Scott Dylla, said in 2016. And it isn't common in non-tumor spots, meaning, ideally, that the drug won't go after healthy parts of the body.
But the data so far hasn't panned out. The company released more data in June showing that the overall response rate, or the percentage of cancer patients whose tumors shrank as a result of treatment, was 14% among the 238 people who had high DLL3 expression and 12% among the 339 studied. Data from 2016 showed that of the 26 patients who had high DLL3 expression, 39% had seen their tumors shrink.
It's possible the drug could work better for people who haven't advanced as far in their treatments, executives from AbbVie said.
"We continue to believe Rova-T has potential for patients with small-cell lung cancer and other DLL3-expressing cancers," AbbVie's chief scientific officer, Michael Severino, said in March.
AbbVie CEO Rick Gonzalez said in the company's earnings call in April: "We look forward to the data from the ongoing phase 3 trials in first- and second-line small-cell lung cancer, both of which have active comparator arms. We remain encouraged in earlier lines of therapy. And in combination with other agents, we have the potential to see stronger results and more durability of response."
Wall Street analysts are less convinced.
"The nature of the failure undermines the entire value proposition of Stemcentrx and is also an immediate hit to the bullish forecasts provided by AbbVie's management for Rova-T just a few months ago," Geoffrey Porges, a Leerink analyst, said in March note. Meanwhile, the Bernstein analyst Tim Anderson called the results a "dud."
It was enough to persuade some investors to exit the stock.
"The stock had a good run, and when they announced the failure of that trial, it was sort of a thesis-breaker," Martin Toner, a portfolio manager at Barometer Capital, told Business Insider. Barometer held around 212,000 shares of AbbVie at the beginning of the year, but has since exited its entire position.
"Our acquisition of Stemcentrx provided a novel drug discovery engine, Rova-T, and a pipeline of several additional clinical and late pre-clinical assets," a spokeswoman for AbbVie said in an emailed statement. "We are making good progress across our Stemcentrx pipeline and expect multiple data readouts from these assets over the next few years. We are continuing our ongoing phase 3 trials of Rova-T in first-line (MERU) and second-line (TAHOE) small-cell lung cancer. The results of these studies are expected to read out in the 2020 timeframe and will provide important information about Rova-T's potential in this patient population."
Kevin Gade, a portfolio manager at Bahl & Gaynor, which owns 2.4 million AbbVie shares, said he was still optimistic that Rova-T would pan out when tested in patients who haven't progressed quite as far.
Gade said the stock drop was expected, given that there were only two drug-related readouts expected to affect the stock in 2018: the Rova-T data, and data for Elagolix, a women's health drug.
"If there was any negativity, it was going to hit it pretty hard," Gade said.
The rush to treat different forms of lung cancer has led to a lot of competition in the pharmaceutical industry.
Overall, lung cancer is the second-most common cancer among Americans, next to breast cancer in women and prostate cancer in men. According to the American Cancer Society, there are about 234,000 new cases of lung cancer in the US each year. About 10-15% of those cases are small-cell lung cancer, while most are non-small-cell cases. In that bigger group, there have been major advancements in how the cancer is treated, by harnessing the body's immune system.
Initially, AbbVie said it hoped to get Rova-T on the market by 2018. The next round of clinical trials evaluating Rova-T in other patients with small-cell lung cancer isn't expected until 2020. By that point, other drugmakers may have drugs on the market. For example, Bristol-Myers Squibb, one of the biggest names in cancer immunotherapy, is testing its combination of the cancer immunotherapies Opdivo and Yervoy for small-cell lung cancer; in patients who had a high number of tumor mutations, the overall response rate was 46%.
And the biotech giant Amgen is also working on a cancer treatment that targets the DLL3 protein.
AbbVie's push into solid tumors continued last week when it announced a collaboration focusing on cell therapies called CAR-T. The company also has drugs like Imbruvica and Venetoclax to treat certain blood cancers.
While Rova-T is the furthest along in development, Stemcentrx had been developing other cancer treatments. One of those studies, a small phase 1 trial in seven patients, was stopped in April. According to the National Library of Medicine's clinical study tracker, the reason was an imbalance between the benefits and the risks of the trial, meaning the drug's side effects were too much to keep the trial going.
Before its acquisition, Stemcentrx was also collecting a library of patient-derived xenografts (PDX for short), a way to evaluate what other highly expressed genes beyond DLL3 might be worth tackling by looking at human tumors in mice models. The idea was to find other proteins like DLL3 that the company could then create drugs to go after.
For AbbVie, the move into solid tumors was key after having success in blood-based cancers with drugs like Venclexta.
In 2016, Gary Gordon, AbbVie's vice president of oncology, told Business Insider that the addition of Stemcentrx was more exciting based on that library.
"For us, thinking long term, it's being able to find those tumor-initiating cells and then say what other types of targets exist and how else can we target them," Gordon said.
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