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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.

FCC Draws Cable Industry Wrath Yet Again With Latest Regulatory Plan

The Federal Communications Commission moved ahead on Thursday with a proposal to regulate prices in the $20 billion market for business data services, drawing criticism from AT&T ( T ) and cable TV rivals. The FCC rules would regulate new entrants in the market — cable TV firms such as Comcast ( CMCSA ), Charter Communications ( CHTR ) and Time Warner Cable ( TWC ) — as well as the biggest providers of business data services, including AT&T, Verizon Communications ( VZ ) and local phone companies CenturyLink ( CTL ) and Frontier Communications ( FTR ). “The FCC is likely doing this as long-term insurance in case cable does eventually become dominant in any business markets,” said Paul Gallant, analyst at Guggenheim Partners, in a report. The high-speed connections are used for retail outlets, ATM machines and cell towers. Smaller telecom firms such as Level 3 Communications ( LVLT ) and Cogent Communications ( CCOI ) sometimes rent the “special access” lines to serve their customers. Some of these have complained over long-term contracts and termination fees. AT&T has lobbied against the new price regulation, while Verizon has been less opposed. Verizon plans to deploy 5G wireless services and may gain from lower prices for cell tower connections, analysts say. “Never before has the FCC sought to saddle new entrants with such heavy-handed pricing mandates — in any arena, let alone the broadband marketplace, (FCC) Chairman (Tom) Wheeler promised to shield from such regulation,” David Cohen, a Comcast executive VP, said in a blog. Wheeler’s FCC last year approved new “net neutrality” rules opposed by the cable TV industry. Cable TV firms have been been squabbling with the agency over broadband privacy issues, as well as the agency’s plans to open up the set-top box market to more competition. The new rules for business data services could be approved by the end of 2016. “Cable’s entry into the market for business data services over the last few years has resulted in improved services and lower prices for businesses all across America,” said the National Cable & Telecommunications Association in a statement. “It is disappointing that Chairman Wheeler is responding to this unquestionably positive development by asking the commission to consider imposing onerous new rate regulation on these competitive services.”

Texas Instruments Beats Q1 Views Despite Apple iPhone ‘Shortfall’

Texas Instruments ( TXN ) joined NXP Semiconductors ( NXPI ) and Cirrus Logic ( CRUS ) late Wednesday, weathering an Apple ( AAPL ) iPhone shipment dip by bolstering embedded-processing sales to top Wall Street’s first-quarter expectations. On Thursday, at least eight analysts boosted their price targets on Texas Instruments stock. On the stock market today , Texas Instruments shares were up a fraction intraday. The stock has been on a run since Jan. 15, climbing 25% after a two-week fall. NXP and Cirrus Logic stocks split the difference in Thursday trading, up 0.2% and down 2.1%, respectively. Skyworks Solutions ( SWKS ) and Qorvo ( QRVO ) were up 1.6% and 0.3%, respectively, after Apple reported its first ever year-over-year iPhone shipment decline late Tuesday. For the first quarter, Texas Instruments reported $3.01 billion in sales and 65 cents earnings per share, down 5% and up 7%, respectively, vs. the year-earlier quarter. Both measures topped the consensus of 36 analysts polled by Thomson Reuters for $2.98 billion and 62 cents. Analog sales — which includes power management chips used in the iPhone 6S — declined 8% year over year to $1.88 billion. The drop was expected MKM analyst Ian Ing wrote in a research report. Apple comprised 15% of Texas Instruments’ 2015 sales. “While the year-over-year shortfall in smartphones was $150 million, the inclusion of (a) weak PC (segment) results in an even greater shortfall,” he wrote in a research report. “The year-over-year revenue gap is expected to decline somewhat in June, but still be significant.” Embedded-processing revenue grew 8% vs. the year-earlier quarter to $729 million in sales. Sales of custom integrated circuits drove a 10% year-over-year decline in Texas Instruments’ other sales. Texas Instruments’ current-quarter guidance for $3.07 billion to $3.33 billion in sales and 67 cents to 77 cents EPS would be flat and down 1%, respectively, on a year-over-year basis. But that outlook topped analyst views for $3.18 billion and 71 cents at the midpoints. Credit Suisse analyst John Pitzer noted that Texas Instruments is “consistently executing on consistent execution.” He boosted his price target on Texas Instruments stock to 65 from 60, but reiterated his neutral rating. During Q1, Texas Instruments hit a record 60.6% gross margin. Pitzer and RBC analyst Amit Daryanani expect that to continue, driven by better manufacturing gains, improved mix and impressive execution. Daryanani upped his price target on Texas Instruments stock to 68 from 65, but kept his outperform rating.