Photographer: JB Reed/Bloomberg
A $158 Billion Drug Giant Faces an Identity CrisisBy and
Shares have biggest-ever one-day swoon as cancer drug stumbles
Thin pipelines, price scrutiny shake AbbVie, Celgene, Gilead
Blockbuster arthritis treatment Humira helped build AbbVie Inc. into a pharmaceutical-industry behemoth. Now investors are growing concerned about the drugmaker’s second act.
On Thursday, AbbVie shares suffered their biggest-ever single-day slide, dropping 13 percent to $98.10 at 4 p.m. in New York, after the company’s experimental lung-cancer drug Rova-T suffered a setback. The drop was the steepest among companies in the S&P 500 index as fears of a U.S.-China trade war sparked a wide-ranging selloff, and wiped nearly $23 billion off AbbVie’s market value.
AbbVie had hoped that the cancer treatment, acquired in the $5.8 billion takeover of Stemcentrx Inc. in 2016, would give it another potential blockbuster before Humira ever faces a significant competitive threat.
Humira, protected by a virtually impregnable wall of patents, had $18.4 billion in sales in 2017, accounting for 65 percent of AbbVie’s revenue. That imbalance has disturbed investors who want the drugmaker to find more viable candidates to fill the expected sales void when Humira is eventually exposed to rivals.
“The blockbuster model is that you have this stellar product and everyone loves it but it means one day you have to replace it,” said Bloomberg Intelligence biotech analyst Asthika Goonewardene in an interview. “AbbVie did this big song and dance that this could be the next big thing and now only two years later they have this setback.”
AbbVie isn’t the only drugmaker being asked whether it’s more than a one-hit wonder. Celgene Corp. and Gilead Sciences Inc. also became multibillion-dollar companies on the success of top treatments that made them darlings of investors and the envy of rivals. Now, the fortunes of all three may fade unless they can replicate past blockbusters.
Spokespeople for AbbVie and Celgene didn’t immediately respond to requests for comment. Gilead spokeswoman Michele Rest declined to comment in an email.
The industry has often turned to mergers and acquisitions for fast fixes to fallow pipelines. But AbbVie said Thursday it wouldn’t seek accelerated U.S. approval for Rova-T, highlighting the pitfalls of growing through takeovers in a business where promising experimental research often ends in failure.
The Stemcentrx deal was meant to be “the cornerstone of AbbVie’s solid tumor portfolio, which had in turn become a key element of the company’s most important growth category, oncology,” wrote Geoffrey Porges, a Leerink Partners analyst who has a market perform rating on the shares, in a note. “The nature of the failure undermines the entire value proposition of Stemcentrx.”
Not all analysts were as pessimistic. While saying the data was disappointing, it’s “not that big of a deal from our valuation perspective,” Y. Katherine Xu, an analyst at William Blair & Co. who has an outperform rating on the shares, said in a phone interview. Christopher Raymond, an analyst at Piper Jaffray & Co. who rates the shares overweight, said the selloff seemed like an overreaction.
Celgene suffered a similar setback in October when a Crohn’s disease drug it acquired failed in a late-stage trial. Since then, the company, which is preparing for the loss of exclusivity for its top-selling cancer drug Revlimid, has lost more than a third of its market value.
Investors are bound to ask whether AbbVie’s stumble “is another Celgene in the making,” wrote Tim Anderson, global pharmaceutical analyst at Sanford C. Bernstein, in a note to clients. “Sentiment may suddenly shift to the negative and stay there.”
Even drugs that make it to market can fall short of their commercial promise. Gilead, best known for its Hepatitis C drugs, acquired Kite Pharma Inc. for $12 billion in order to gain its novel cancer therapies. While its gene-based treatment Yescarta was cleared by regulators, sales have been slow as hurdles in the U.S. government reimbursement system stalled its uptake.
Since Yescarta was approved on Oct. 18, Gilead shares have declined 5.6 percent.
Thanks to its patents, AbbVie has time before Humira faces any direct rivals, but regulators are eager to bring more rivals for costly biologic drugs to market and drive prices lower. FDA Commissioner Scott Gottlieb said in a speech this month that makers of biotechnology drugs and supply-chain middlemen have used complex pricing deals to lock out competitors.
Criticism of high drug costs and a dearth of competition could pressure AbbVie and its peers, according to Dustin French, a health economist and associate professor at Northwestern University.
AbbVie is “not a well-diversified company,” he said in an interview.