AbbVie's Rova-T Update at ASCO: Good or Bad?

After AbbVie Inc. (ABBV 0.25%) spent $5.8 billion upfront to buy Stemcentrx this year to get its hands on Rova-T, a drug for solid tumors, investor optimism for a breakthrough presentation at last week's American Society of Clinical Oncology (ASCO) conference spiked. AbbVie's presentation at ASCO showed that Rova-T can help some small cell lung cancer patients, but investors seemed to yawn at the results. Are investors underappreciating Rova-T?

In this clip from the Motley Fool's Industry Focus: Healthcare podcast, healthcare analyst Kristine Harjes and contributor Todd Campbell discuss Rova-T's potential impact on AbbVie.

A transcript follows the video.

This podcast was recorded on June 8, 2016. 

Kristine Harjes: Let's say you want to take a highlight from ASCO of a larger company; something that stood out to me was AbbVie. We finally got a little bit of information on a purchase that AbbVie made in April of this past year for $5.8 billion. They bought a company called Stemcentrx, essentially for their lead candidate, which is called Rova-T. We finally got some more information about this drug.

Todd Campbell: A lot of investors were shaking their heads. Who's Stemcentrx and why are they paying $5.8 billion for it? We got a little bit more insight into that at ASCO, absolutely. Rova-T is under development as a treatment for small cell lung cancer. Small cell lung cancer is very hard to treat. It affects thousands of patients. Thousands of patients unfortunately pass away every year because of it.

In trials, Rova-T does a better job at shrinking tumor sizes than what many people may otherwise have seen in the past. Specifically, they took a look at a patient population of about 60 people. Rova-T targets a particular protein called DLL3 that's expressed on small cell lung cancer tumors. Of those people, there were 26 patients that had very high levels of expression of that DLL3, and 40% roughly of those patients responded to this therapy. And 89% of those patients had stable disease. That's really, really impressive given the poor prognosis for small cell lung cancer.

Harjes: I just like this drug's story. It's an antibody conjugate, which means it's double-sided. It works like a trojan horse. The protein binds to this DLL3, and it's invited inside of the tumor cell, the cancerous cells. Then it's inside, snuck in, and it releases the other component of the drug, which is an extremely potent chemotherapy drug. That's a really good story. We've warned on the show in the past not to get too, too excited about stories. Todd, you might disagree with me here, but I actually didn't think that the data seemed that promising. It didn't really look like they provided results that were that much better than the current standard of care.

There are some positives still here. It has an orphan drug designation which means that if it gets approved, AbbVie can be reimbursed for a huge chunk of the expenses incurred in the development. It seems to me like small cell lung cancer is not going to be the indication that makes up for the whole $5.8 billion purchase. It leads me wondering, are there other cancer types that over express DLL3? Could AbbVie take this drug and target those? If so, then this might have been an incredibly smart purchase. For now, I'm hesitant about this decision.

Campbell: Well, the answer is yes. They think that they can use this drug in various tumors that also express DLL3. That has AbbVie's management thinking that this drug could --  again, conceivably, management is always bullish -- generate $5 billion in annual sales someday. That's a pretty pie-in-the-sky forecast.

Harjes: If that's true, then that's a great price, the $5.8 [billion].

Campbell: Yeah. You take a risk. When you buy drugs that are in mid-stage trials, you take a risk, right? AbbVie is taking a risk, right? Could Rova-T fail, fall flat on its face, end up being a dud? Absolutely. Could it also become a very large and important cancer-fighting drug? Absolutely. AbbVie's management had to weigh those two things and figure out how de-risk is this program, and what's the likelihood of this thing succeeding?

I think that what you may have seen out of ASCO's, people were looking for this drug to be a silver bullet. They're a little bit disappointed that maybe it's not as magical as maybe they had hoped to have seen. This is still, I think, solid data. A registrational study, enabling study, is slated to begin later this year. Theoretically, data will read out on that study next year. If it's good, then the company can file for approval. If it's not, then all bets are off.