Did AbbVie Inc (NYSE:ABBV) Overpay For Stemcentrx In The $10 Billion Deal?

2008

AbbVie Inc (NYSE:ABBV) didn’t see any problem agreeing to pay $10 billion for fellow biotech Stemcentrx, but Wall Street appears to have lingering doubts. The acquisition of Stemcentrx adds a compelling compound for lung cancer treatment called Rova-T and it continues ABBV’s oncology-themed buyouts.

AbbVie is paying $5.8 billion upfront for Stemcentrx with another $4 billion earmarked for milestones, which brings the total buyout price to about $10 billion. The primary reason AbbVie was inspired to bring Stemcentrx under its wing was that it wanted to get hold of Rova-T.

Last week, AbbVie began to provide justification for why it believed Stemcentrx was worth $10 billion. Rova-T is an antibody drug that is designed to target a cancer protein called DLL3. According to preliminary results from the study of Rova-T, 18% of the patients who took the compound registered shrinkage in their tumor. Additionally, 68% of trial patients registered measurable clinical benefits. The study enrolled 60 patients.

1 month survival benefit

The study finding showed that patients with the highest levels of DLL3 registered the most impressive response to Rova-T treatment. The median survival rate for patients taking Rova-T was 5.8 months. The survival rate was better than the historical average of 4.7 months and interestingly that’s where Wall Street begins to grumble over the amount AbbVie is paying for Stemcentrx. Several analysts who have weighed in on the deal appear to suggest that a one month survival benefit doesn’t justify the premium AbbVie is paying for it.

Will time prove AbbVie right?

AbbVie insiders don’t see things from Wall Street’s perspective. According to AbbVie’s VP of oncology, Gary Gordon, Rova-T will outlive the initial backlash triggered by its preliminary trial data. He said that AbbVie was excited by the potential of the compound and they even hope to expand its label in the future beyond its primary target.

The Stemcentrx team, which continues to work on Rova-T, hopes that the drug will gain breakthrough drug designation to grant it priority review from regulators.

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