AbbVie to Buy Cancer Drugmaker Stemcentrx for $5.8 Billion

  • First-quarter profit at AbbVie beats estimates on Humira sales
  • AbbVie diversifying as biosimilars encroach on top product

AbbVie Inc. agreed to buy cancer drug developer Stemcentrx Inc. for $5.8 billion, making its second multibillion-dollar acquisition in about a year to diversify its product pipeline with therapies in oncology.

AbbVie will pay $2 billion in cash and $3.8 billion in stock, and Stemcentrx investors may get an additional $4 billion in cash if certain regulatory and clinical milestones are achieved, the drugmaker said in a statement. AbbVie also reported first-quarter earnings that beat analysts’ estimates.

The company’s biggest product is the rheumatoid arthritis injection Humira, which accounted for 61 percent of AbbVie revenue in 2015 and will soon face competition in the U.S. from cheaper versions of the complex biotechnology drug, known as biosimilars.

“We have dedicated ourselves to oncology and we view it as our second major growth platform,” Chief Executive Officer Rick Gonzalez said in a telephone interview. “Stemcentrx in particular fits well as a major platform play for us in solid tumors.”

Stemcentrx has five experimental drugs in human trials. Its leading candidate is a treatment for small-cell lung cancer, a deadly subset of the disease with few existing options for treatment. The drug, known as Rova-T, could be on the market by 2018 and eventually have sales of as much as $5 billion a year, according to Gonzalez. The medicine targets a protein called DLL3 that shows up in 80 percent of small-cell lung cancer patients’ tumors, and not in healthy tissue, according to AbbVie.

Move Into Oncology

Shares of AbbVie, which was spun off from Abbott Laboratories in 2013, fell 0.4 percent to $60.45 at 11:45 a.m. in New York.

“Since they split from Abbott, people have wanted them to move headstrong into oncology, they’ve just taken baby steps and I wish they made these decisions earlier,” said Tony Butler, an analyst at Guggenheim Securities. “Solid-tumor opportunities are expensive now, but they need to do that if they want to try to move up and not be left out of that market.”

Investors will likely be disappointed that AbbVie used its shares to pay for Stemcentrx, Butler said, as the deal would dilute the stock.

Gonzalez said that AbbVie would hold off from larger acquisitions for “the next 18 months or so” and would stick to single-asset and in-licensing deals for the near term if at all.

First-Quarter Results

For the first quarter, AbbVie’s earnings per share excluding one-time items were $1.15, the drugmaker said Thursday in a statement, beating the $1.13 average of analysts’ predictions compiled by Bloomberg.  

Revenue from Humira was $3.58 billion, topping the average estimate of $3.52 billion. Mark Schoenebaum, an analyst at Evercore ISI, noted that Humira’s sales beat came from the U.S. market.

AbbVie’s “dependence on Humira may make the company a victim of its own success, like the iPhone for Apple,” wrote Sam Fazeli, an analyst at Bloomberg Intelligence, in a February note to clients. The injection “is at risk of biosimilar copies from 2017, though patents may protect it to 2022.”

Cancer Focus

To reduce the risk posed by dependence on Humira, AbbVie has doubled down on oncology. Last year it acquired Imbruvica, a blood cancer treatment, with its $21 billion purchase of Pharmacyclics. On April 21, it entered a deal with cancer drugmaker CytomX Therapeutics Inc. and simultaneously announced a partnership with Belgian drugmaker Argenx to co-develop an oncology drug.

“We have a very strong and growing position” in blood cancers “and an expanding effort in solid tumors,” Michael Severino, executive vice president of research and development, said by phone. The CytomX and Argenx deals involve earlier-stage programs, while the Stemcentrx acquisition adds a “later-stage program which is derisked,” he said.

First-quarter revenue was $5.96 billion, matching the average estimate of analysts. More results from the statement:

  • Viekira Pak sales of $414 million, estimate was $514 million. The hepatitis C therapy is competing with Gilead Sciences Inc. and Merck & Co.’s treatments
  • Imbruvica sales of $381 million; average estimate was $367 million
  • Net income of $1.35 billion, or 83 cents a share, up from $1.02 billion, or 63 cents, a year earlier

The company lowered its full-year forecast for profit excluding one-time items to $4.62 to $4.82 a share in light of the Stemcentrx acquisition. In March, AbbVie had forecast $4.82 to $5.02 a share, and analysts have predicted $4.96.

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