Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Humira is really raking it in for AbbVie (NYSE: ABBV ) , but the good times will likely take a turn for the worse when the biologic goes off patent in a few years. For reasons I explained recently, Humira sales are more likely to slide down a bunny slope than fall off a patent cliff. Still, this revenue must be replaced somehow.
Trojan horses for cancer
Abbvie has extended its reach into targeted cancer treatments with antibody-drug conjugates (ADCs). These are monoclonal antibodies (MABs) that carry cell-destroying agents specifically to tumor cells. Instead of the carpet-bombing techniques used by standard chemotherapies, ADCs hang on to their toxic payload until they enter cancerous cells. In theory, patients should benefit from smaller, more effective infusions of toxic compounds.
Riskless in Seattle
Entirely content to take on the financial risk of developing a smaller biotech's compounds, AbbVie is leapfrogging into this interesting field of cancer therapies with ADC pioneers Seattle Genetics (NASDAQ: SGEN ) .
AbbVie expanded its partnership to include access to two proprietary technologies of Seattle Genetics: both pyrrolobenzadiazepine (PBD) dimer ADC and EC-mAb site-specific conjugation technologies. AbbVie paid $25 million upfront to use the technologies and will remain responsible for paying all the bills. Seattle Genetics also stands to earn up to $255 million in milestone payments and license fees, plus a percentage of any worldwide sales resulting from the partnership.
This is a huge win for both companies. AbbVie gets ahead in ADC technology fast. Seattle Genetics will turn either a small or large profit without further financial risk.
To please a regulator
In August 2011, the FDA approved Seattle Genetics' first therapy, Adcetris, for the treatment of two types of lymphoma. It was the first new therapy approved for Hodgkin's Lymphoma since 1977, and the first with a specific indication for anaplastic large cell lymphoma.
What is most interesting is the ease with which the FDA approved Adcentris. For each indication, its effectiveness was evaluated during just one relatively small clinical trial. The regulator also pushed it through the approval process via an accelerated approval program. No doubt, AbbVie is hoping to push more ADC therapies through the process with similar ease.
A second speedy approval
Supporting the notion of fast approvals for effective ADC cancer therapies is Kadcyla. This is a late-stage breast cancer therapy that Roche Holding Ltd. (NASDAQOTH: RHHBY ) subsidiary Genentech developed in partnership with Immunogen (NASDAQ: IMGN ) . In February 2013, it won approval for treatment of HER2-positive, late stage breast cancer. It was also approved through one of the FDA's expedited pathways.
In December 2013, another Roche subsidiary, Ventana, announced it would apply the Herceptin companion diagnostic to screen for candidates. Armed with both target specificity and diagnostic testing, payers are more likely to approve its use.
It's important to remember that private insurers and government payers generally look at more than just price when deciding whether to approve a therapy for reimbursement. Treating patients genetically screened to be more receptive, as opposed to a trial-and-error approach, is a win for payers, physicians, and patients. It should also allow to Roche to recoup development costs without nagging reimbursement risk.
Building an oncology franchise
For breast cancers not responsive to Herceptin, or HER2 negative, Kadcyla isn't much use. AbbVie has a Phase 2 candidate that looks like it can fill the gap. During the San Antonio Breast Cancer Symposium last December, AbbVie presented some encouraging data from a Phase 2 study including veliparib, or ABT-888. The I-SPY 2 trial employed an adaptive design to screen for compounds that will be superior to chemotherapy alone, for specific cancer signatures.
Based on the responses seen in 115 patients, AbbVie's veliparib combined with carboplatin and chemotherapy showed a 90% probability of being superior to chemotherapy alone in triple-negative patients. It is possible that carboplatin alone, and not veliparib, was responsible, but I doubt it. Carboplatin has been available for over 20 years. It is very likely that Veliparib will enter Phase 3 trials.
During the first nine months of 2013, Humira comprised $7.6 billion of the company's $13.7 billion in net sales. Antibody-drug conjugates aren't AbbVie's only plan for post-Humira survival, but they might be one of the smartest. Faster approvals with fewer trials should lead to more sales under patent protection and less development risk. The use of innovative screening procedures in the Phase 2 velaparib trial should also keep development costs down, making the company more profitable in the long run.
Top Stock Pick This Year
There’s a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.