AbbVie bags a unicorn with $9.8B buyout deal for Stemcentrx

When Stemcentrx suddenly burst out of stealth mode last year with a $5 billion valuation and some influential investors, you could bet that most industry observers would have put it down to some high-flying expectations associated with go-go biotech valuations that have since shriveled.

AbbVie ($ABBV), which has been wheeling and dealing its way through a string of cancer deals, kept the faith.

AbbVie has bought into the biotech’s story line, paying top dollar for a unicorn--backed by PayPal founder Peter Thiel--whose most advanced therapy is now in a Phase II study aimed at a fast approval for lung cancer.

The pharma company put weeks of market buzz to rest today with the news that it is buying Stemcentrx, the little-known South San Francisco-based biotech pursuing a trendy set of experimental drugs targeting cancer stem cells, for $5.8 billion in cash and stock plus another $4 billion in prospective milestone payments.

The primary object of AbbVie’s desire is rovalpituzumab tesirine (Rova-T), which targets the stem cell protein DLL3, found in a majority of small cell lung cancers. Early-stage data to the drug tied it to a 44% response rate among patients who express high levels of DLL3, and AbbVie said today that it expects to hit the market in 2018 and rack up multibillion-dollar annual sales. Stemcentrx also has four preclinical programs in place for solid tumors.

The acquisition price says a lot about cancer R&D and stubbornly high valuations attached to promising oncology assets. Over the past few years, cancer drug research has been revolutionized as the FDA has encouraged developers to accelerate their programs for new therapies, especially targeted ones like Rova-T. Now it’s not at all uncommon to see companies jump from Phase I with early evidence of success straight into a registration study looking for a fast approval followed by a larger, confirmatory study. 

The price also says a lot about AbbVie. The company has been moving aggressively to expand its presence in cancer and inked three other deals in just the past week. The latest included a $30 million upfront to CytomX Therapeutics ($CTMX) to co-develop a conjugate against CD71.

"The addition of Stemcentrx and its late-stage compound Rova-T provide AbbVie with a unique platform in solid tumor therapeutics and complement our leadership position in hematologic oncology," said Richard Gonzalez, chairman and chief executive officer of AbbVie. "We believe the acquisition of Stemcentrx will strengthen and accelerate our ability to deliver innovative therapies that will have a remarkable impact on patients' lives."

- here's the release