AbbVie (ABBV +2.41%) enjoyed a nice streak of mainly positive news over the last six months. From striking a deal to hold off U.S. biosimilar competition for Humira to positive clinical updates to solid quarterly results, the big pharma was on a roll. That ended earlier this month when AbbVie and partner Biogen announced they were pulling Zinbryta from the market as a treatment for relapsing multiple sclerosis. Then things got worse this week.
On Thursday, AbbVie announced results from a phase 2 study evaluating rovalpituzumab tesirine (Rova-T) as a third-line treatment for relapsed/refractory small cell lung cancer (SCLC). Those results were disappointing, with the company opting to not seek accelerated approval for Rova-T in the third-line SCLC indication. AbbVie stock subsequently plunged 13%. But is AbbVie still a buy after this Rova-T setback?
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Bad news, but how bad?
AbbVie didn't release all of the data from the phase 2 study of Rova-T. More details will be presented at the American Society of Clinical Oncology (ASCO) meeting in June. But what the company did announce sounded pretty bad.
The best overall response rate for patients taking Rova-T measured by trial investigators was 29%. The objective response rate using established criteria for solid tumors was 16% -- well below the typical minimum level needed for regulatory approval. Median overall survival was 5.6 months.
To add insult to injury, AbbVie included an asterisk to the results that noted that the data represented 74% of the patients participating in the study with high DLL3 (delta-like protein 3) expression. Rova-T specifically targets tumor cells that express DLL3. Only including the patients with high expression of DLL3 basically amounted to cherry-picking the data.
So the news is really bad -- perhaps even worse than it appears at first glance. But just how bad? That remains to be seen. AbbVie stated that two phase 3 studies evaluating Rova-T as first-line and second-line treatments for SCLC will continue. Mike Severino, AbbVie's executive vice president of research and development and chief scientific officer, said that the company "continue[s] to believe Rova-T has potential for patients with small cell lung cancer and other DLL3-expressing cancers."
Assuming the worst
The worst-case scenario for AbbVie is that those late-stage studies of Rova-T stink just as much as the phase 2 results in third-line SCLC did. If that happens, the company's $5.8 billion up-front sum paid to buy Stemcentrx in 2016 will largely go down the toilet. The Stemcentrx deal did bring four other clinical compounds into AbbVie's pipeline, but Rova-T was the most advanced and most promising.
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Losing Rova-T would be a significant blow for AbbVie. In mid-2017, market research firm EvaluatePharma ranked the drug No. 4 out of all pipeline candidates in the biopharmaceutical industry. It was AbbVie's highest-ranked pipeline asset.
At the J.P. Morgan Healthcare Conference earlier this year, AbbVie CEO Rick Gonzalez stated that the company projects $35 billion in risk-adjusted non-Humira revenue and $47 billion in nominal revenue by 2025. He listed Rova-T as one of the key drugs that AbbVie was counting on to achieve that goal.
Based on previous statements made by AbbVie executives, the company targeted peak annual sales for Rova-T of $5 billion. This figure was based on the drug winning approval in all lines of SCLC. If Rova-T winds up being a total bust, AbbVie will come in more than 10% below its announced non-Humira revenue projection for 2025.
The bigger picture
AbbVie lost nearly $22 billion from its market cap on Thursday following the disappointing news for Rova-T. However, not all of that decline was due to the clinical study update. The stock market in general fell significantly on fears of a potential trade war resulting from the Trump administration unveiling new tariffs.
In my view, investors should take a deep breath and look at the bigger picture for AbbVie. Are the company's 2025 projections overly optimistic? Yes. But can AbbVie still generate nice earnings growth? Yes, again.
First, it's jumping the gun to assume that the company will have to throw in the towel completely on Rova-T. More importantly, AbbVie has several other current products and pipeline candidates that should help the company grow. There's Imbruvica, new hepatitis C drug Mavyret, and cancer drug Venclexta already in Abbvie's lineup. The pipeline includes promising endometriosis and uterine fibroid drug elagolix, and autoimmune disease drugs risankizumab and upadacitinib.
Even if we cut out potential sales for Rova-T altogether and shaved another $5 billion of AbbVie's 2025 non-Humira risk-adjusted revenue projection for good measure, the resulting amount of $25 billion would still be close to the $28.2 billion the company made in total last year.
And sales for Humira won't disappear overnight when biosimilar competition hits the U.S. market in 2023. Judging from Johnson & Johnson's experience with Remicade, AbbVie will face a gradual decline over several years. Humira will still generate plenty of money for the company well into the next decade.
The company could also acquire de-risked assets to fuel growth. AbbVie CFO Bill Chase stated recently that the company didn't need to make any major acquisitions, thanks to its current lineup and pipeline prospects. However, the latest news for Rova-T could change that perspective.
AbbVie's announcement on Thursday was definitely very bad news for the company. But with shares now trading at just over 11 times expected earnings and plenty of bright spots elsewhere, it could mean good news for investors looking to buy the pharma stock.
