Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Highly touted acquisitions often disappoint investors. They just usually take more than a month and change to do so. 

In late April, AbbVie announced it was paying $5.8 billion for Stemcentrx and its lead lung-cancer drug Rova-T. It was a big payout for a hard-to-evaluate private company. Underwhelming drug-trial data revealed at a cancer conference this weekend -- just days after the deal closed -- make it look like AbbVie might have overpaid. The company's shares were down as much as 4.8 percent on Monday.

M&A Yet to Pay
AbbVie's $5.8 billion deal for private Stemcentrx looks less appealing after new data was presented on its lead drug.
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Rova-T is still a promising drug in a deadly and difficult-to-treat form of lung cancer. It stopped tumor growth in 68 percent of patients with small cell lung cancer; tumors shrank in 18 percent of patients. Its effects were even more pronounced in the subset of patients the drug targets. 

But the median patient in that subset only survived a month longer than they would be expected to on the current standard therapy. Making that result even more underwhelming, a trial by Bristol-Myers Squibb for a combination of two immune-boosting cancer drugs added a median of about three extra months of life by the same metric, according to data released this weekend.  

Lagging
Survival data from Rova-T disappoints in comparison to data from a combination of two Bristol-Myers Squibb drugs.
ASCO 2016/Bloomberg Intelligence
1 mg/kg Opdivo, 3 mg/kg Yervoy.

These are small, early trials, which make it tough to draw rock-solid conclusions. But these do not look like results worth nearly $6 billion. And AbbVie owes as much as $4 billion in extra payments if the drugs it has acquired hit certain regulatory and sales milestones.

Lowered expectations in treating lung cancer do not bode well for AbbVie's sales projections for Rova-T. The company projects peak annual sales could reach $5 billion, primarily based on the drug being approved to treat later stages of lung cancer, among other cancers. It believes the drug could top $5 billion in peak sales if approved to treat newly diagnosed lung cancer. 

AbbVie risks creating an unwanted reputation as a serial M&A wastrel. The company is splashing cash in order to make up for the eventual decline of its blockbuster arthritis drug Humira, which accounted for 61 percent of its sales last year. 

Analysts accused it of overpaying last spring for Pharmacyclics and its blood-cancer drug Imbruvica. That drug produced $754 million in sales last year for AbbVie, after splitting total sales with Johnson & Johnson; analysts expect $1.7 billion in sales going to AbbVie in 2016. But the company paid $21 billion for Pharmacyclics. To reach the $7 billion in peak revenue AbbVie wants for Imbruvica, overall sales of the drug may need to get as high as $12 billion. That's aggressive, requiring the drug to be successful in a variety of diseases. Competition from a potentially more effective drug secured by AstraZeneca looms.

In a June 3 presentation for investors highlighting its drug pipeline, AbbVie said it expects $25 to $30 billion in peak revenue from its current roster of late-stage assets. This weekend's news on Rova-T -- which the company expects to be the second-largest seller of those assets -- makes the great AbbVie tower of revenue look a little wobbly: 

betterabb

If AbbVie weren't spending aggressively, then investors would be griping about its failure to plan for the future. Just ask Gilead. But the company needs to be better about getting its money's worth.  

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net