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AbbVie To Pay $5.8 Bil And Milestones For Stemcentrx, Diluting EPS

AbbVie ( ABBV ) says that four years will pass before it begins to accrete earnings from its $5.8 billion purchase of Stemcentrx, but AbbVie stock reversed an early loss and was up early Thursday afternoon after the companies announced the acquisition. AbbVie stock fell as much as 5.2% early in the stock market today , but it was up a fraction, near 61, in afternoon trading, 15% off a record high of 71.60 set July 21. South San Francisco, Calif.-based Stemcentrx’s lead late-stage asset is called rovalpituzumab tesirine (Rova-T), and it’s already in registrational trials for small-cell lung cancer (SCLC). AbbVie says that it will pay $2 billion of the $5.8 billion purchase price in cash and the rest in stock. Stemcentrx will also receive up to $4 billion in cash milestone payments. “AbbVie expects this transaction to be approximately (20 cents) dilutive to our ongoing earnings per share in 2016, with accretion beginning in 2020,” the company said in its announcement, lowering its 2016 EPS guidance to $4.62 from $4.82. AbbVie said that it would execute an “accelerated” share repurchase program of up to $4 billion as soon as the completion of the purchase, which is expected this quarter. Meanwhile, AbbVie early Thursday reported Q1 earnings that beat Wall Street estimates while falling a tad short on revenue. AbbVie said that it earned $1.15 per share minus items in Q1, up 22% and two cents better than analysts expected, on $5.958 billion in sales, up 18%. Analysts polled by Thomson Reuters had expected $5.966 billion. Global Humira sales rose 19% excluding foreign exchange impacts, AbbVie said. Humira is AbbVie’s best seller, generating 60% of total revenue. It treats immunological disorders, primarily rheumatoid arthritis and psoriasis. AbbVie Hep C Drug Viekira Disappoints In a Thursday research note to investors, Evercore ISI analyst Mark Schoenebaum cited an approximately 7%, $151 million beat on U.S. Humira sales as “largely offset” by a $111 million miss on global Viekira revenue, “primarily driven by a U.S. miss, possibly due to competition from Merck ( MRK ) as well.” AbbVie put total Humira sales at $3.577 billion for Q1, with U.S. sales up 32% to $2.195 billion. Viekira, which treats hepatitis C, is AbbVie’s No. 2 drug, generating $414 million globally, or about 6.9% of total sales, AbbVie said. AbbVie CEO Richard Gonzalez said the purchase of Stemcentrx is a mark of AbbVie’s “innovation in oncology, a critical component of our long-term growth and an area of significant need to millions of patients worldwide.” Stemcentrx’s trial drug Rova-T, which has been submitted to the FDA for breakthrough therapy designation too, is under investigation as a third-line treatment in SCLC, which has no approved therapy, AbbVie said. “Rova-T is the first predictive, biomarker-based therapy associated with drug efficacy in small-cell lung cancer, and that is a big deal for this difficult disease,” Charles Rudin, chief of thoracic oncology at Memorial Sloan Kettering Cancer Center, said in AbbVie’s announcement. Stemcentrx also has four novel compounds in clinical trials for triple-negative breast cancer, ovarian cancer and non-small-cell lung cancer, other compounds “advancing toward clinical trials in 2016, and a proprietary technology platform that leverages stem cell biology to identify and screen potential targets against live tumor tissue to more predictably advance discovery and development of new assets,” AbbVie said. Brian Slingerland is privately held Stemcentrx’s co-founder and CEO. Scott Dylla is co-founder and chief scientific officer.

Medivation Stock Hit After Congress Targets Cancer Drug Price

Shares of biotech Medivation ( MDVN ) tumbled Tuesday, a day after Congress attacked the pricing of its lead drug and the company hired a new CFO. Late Monday, the press picked up a letter from six U.S. representatives and six senators, including Democratic presidential candidate Bernard Sanders, to the head of the National Institutes of Health (NIH) urging the agency to exercise its “march-in” right to lower the price of Medivation’s prostate-cancer drug Xtandi. “The 1980 Bayh-Dole Act gives federal agencies, including the NIH, the authority to license a patent when ‘action is necessary to alleviate health or safety needs which are not reasonably satisfied’ or if the invention is not ‘available to the public on reasonable terms,’ ” the letter noted. “Price can be a clear barrier to access for consumers, and despite the law being in place for over 35 years, the NIH has never used this broad and powerful authority to protect consumers from excessive prescription drug prices.” The letter went on to say that Xtandi, which is sold by Medivation’s partner Astellas, costs $129,000 in the U.S. but less than a third of that in Japan, Sweden and Canada. The letter urged the NIH to hold a public hearing on Xtandi and its pricing. A similar hearing in 2004 led Abbott Laboratories ( ABT ) to lower the price of its AIDS drug Norvir for Medicaid and the AIDS Drug Assistance Programs, it said. The NIH did not actually use its march-in authority for that, however, and in 2013 sent a letter to advocates explaining why it thought such a move would be inappropriate. UBS analyst Matthew Roden pointed out that only a minority of Xtandi prescriptions are covered by Medicaid, “though worst case, dual eligibles (i.e. for both Medicare and Medicaid) could be impacted.” Roden estimates that about 75% of Xtandi sales are paid for by Medicare, and perhaps 20% of those are dual eligibles. Is $129,000 A High Price For A New Cancer Drug? The letter represented the latest salvo in politicians’ recent war on high drug prices, and something of a change in focus. While the recent attacks on Valeant Pharmaceuticals ( VRX ) and Turing Pharmaceuticals focused on steep price increases in old, neglected generic drugs, Xtandi is an innovative product that just launched in 2012. Its price is not exceptionally high for a new cancer drug: For instance, Bristol-Myers Squibb ‘s ( BMY ) Opdivo and Merck ‘s ( MRK ) similar drug Keytruda, both launched late in 2014, are going for about $150,000 a year. Meanwhile, Medivation also said late Monday that it had hired Citigroup ( C ) manager Jennifer Jarrett as its new CFO, replacing Rick Bierly who will retire in July. Analyst Roden wrote that Jarrett brings buyout expertise to the company, which may in turn dampen speculation that Medivation itself will be bought. In morning trading on the stock market today , Medivation stock was down 10% near 37. The growth of Xtandi has given the company a healthy IBD EPS Rank of 78, while the stock had been recovering after hitting a two-year low on Feb. 9. It has a weak Relative Strength Rating of just 22, so the stock has performed among the lowest 22% of all stocks over the past 12 months.

Gilead, Biogen Down On Patent Rulings; Ionis, Merck, Forward Rise

Big biotechs Gilead Sciences ( GILD ) and Biogen ( BIIB ) were both trading down Wednesday morning after receiving unfavorable patent news. Late Tuesday,  Ionis Pharmaceuticals ( IONS ) said that it and its big pharma partner Merck ( MRK ) had won a case alleging that Gilead’s hepatitis C virus (HCV) drug sofosbuvir, which is sold individually as Sovaldi and as an ingredient in Harvoni, infringed on patents that Ionis and Merck had obtained from earlier research. “We used our expertise in a 1998 collaboration with Merck to discover and develop modified nucleosides that benefit patients with HCV,” said Ionis CEO Stanley Crooke in the press release . The case goes back to 2013, when sofosbuvir was on the verge of FDA approval and Merck sought a 10% royalty on sales from Gilead. Gilead sought a judgment invalidating the patents, though it conceded that it had infringed them. The case went to a jury, which ruled Tuesday that the patents were in fact valid. There was no word on damages, though Ionis said that it’s entitled to 20% of the damages. Leerink analyst Geoffrey Porges said that the awards won’t be huge and that more litigating would delay them. “We continue to expect that any damages awarded in this case will be relatively modest, the equivalent of a single-digit royalty, significantly less than the 10% Merck was seeking,” Porges wrote in a research note. “In spite of whatever damages the jury awards Merck, Gilead has already indicated that it will appeal.” Ionis stock popped to an eight-week high of 46.05 early on the  stock market today , though midday it was down a fraction, near 41.50. Gilead stock, though, was down more than 3% near 90, while Merck was up a fraction near 53. Patent Office Will Review Biogen’s Tecfidera Biogen stock, meanwhile, was off 1.2%, near 257, in midday trading Wednesday, after the U.S. Patent and Trademark Office (USPTO) reversed an earlier decision and decided to review a patent on Biogen’s top-selling drug, Tecfidera. Hedge-fund manager Kyle Bass filed the request for a review; last year, he launched an unusual short-selling strategy by filing such requests on a number of blockbuster drugs, which he said had “BS patents.” The USPTO initially denied his request in September, but on Tuesday it changed its tune. Coincidentally or not, European Union authorities earlier this month invalidated the European equivalent of the same patent , which expires in 2028. In addition, Forward Pharma ( FWP ) is separately challenging the patent; its stock was up 4% near 17 in midday trading Wednesday. “Today’s decision is just a first step in the (review) process, and nothing happens yet in the USA, and as of today Tecfidera still enjoys 10-year exclusivity in EU (would protect it to 2024 in EU),” wrote RBC Capital Markets analyst Michael Yee in a research note. “Even though the … patent expires in February 2028, consensus did not assume this would get full protection and already assumed/expected generics to launch at some point.”