Deals and IPOs

AbbVie forges deeper into cancer, as clock ticks for Humira

A screen displays the share price for pharmaceutical maker AbbVie on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

AbbVie placed another bet on new cancer drugs on Thursday with a $5.8 billion deal, as it seeks new sources of revenue ahead of patent expirations on its flagship $14 billion-a-year Humira arthritis drug.

Shares of AbbVie fell 7.3 percent immediately after it announced the deal but pared losses to trade down only 1.7 percent at $59.64 later on Thursday morning. The company lowered its 2016 earnings forecast due to the deal's expected dilutive impact this year and for several years to come.

The suburban Chicago drugmaker said it would buy privately held Stemcentrx and its experimental lead treatment for small cell lung cancer, which accounts for about 10-15 percent of all lung cancers and is notoriously difficult to treat.

Companies with innovative cancer drugs, especially ones that spur the immune system to attack tumors, are attractive takeover targets. These life-extending new treatments can command extremely high prices that health insurers seem willing to pay for, unlike some other therapeutic categories where they are putting pressure on price.

Also on Thursday, French drugmaker Sanofi went public with its $9.3 billion offer to buy Medivation, which makes prostate cancer treatment Xtandi.

Stemcentrx's drug, called Rova-T, is a toxic chemical that has been loaded onto an antibody. It targets a protein called DLL3 that is found in more than 80 percent of patients with the cancer. A biomarker is used to help select patients whose cancers express the protein.

Late-stage trials involving patients who have already failed to benefit from chemotherapy and radiation are under way and AbbVie expects the drug to be approved by 2018.

AbbVie's quarterly earnings results on Thursday demonstrated its reliance on Humira, for which sales jumped 15 percent to $3.58 billion, accounting for 60 percent of company revenue.

As sales of Humira rise by double-digit percentages each year, largely through price increases, investors are growing ever more fretful because its main U.S. patent lapses in December.

AbbVie said it would pay about $2 billion in cash for Stemcentrx and fund the remainder with stock. Stemcentrx shareholders may also receive up to $4 billion in cash if certain performance milestones are achieved.

AbbVie, which expects the deal to close in the second quarter, said the acquisition will hurt earnings by about 20 cents per share in 2016, and then boost profit starting from 2020.

AbbVie lowered its full-year adjusted profit forecast to $4.62 to $4.82 per share from its earlier view of $4.90 to $5.10.