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Stemcentrx Scooped Up

I think that this deal is going to end up looking either very smart or very stupid. AbbVie is paying almost ten billion dollars to acquire Stemcentrx, the startup I first wrote about here. That’s a lot of money to put down on the idea of cancer stem cells, so the first assumption is that Stemcentrx must have some mighty compelling data to present.

The problem is, you can’t be absolutely sure about that, because some pretty silly deals get made from time to time. (And there are some that aren’t dumb, but just very risky, the “it could have worked, but it didn’t”, category). The cancer field has been especially hot for a while now, which means that there are big opportunities to find something valuable, and equally big opportunities to chase something that looks valuable, but isn’t. I have no idea which way this one breaks. Here’s FierceBiotech:

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.

That’s what AbbVie will be doing with the lead compound from Stemcentrx, no doubt. At the very least, this is quite a vindication for the company’s early investors (such as Peter Thiel) – no matter what happens after this, they’re out with what has to be a good profit.

26 comments on “Stemcentrx Scooped Up”

  1. Rule (of 5) Breaker says:

    Agreed – this will look like an awesome deal or a complete flop. Note though that the actual deal price comes in at about 5.8-5.9 billion initially. The deal only achieves full value based on incentives, which will no doubt require some clinical success. The full figure also includes a return of $400 million or so in cash to Stemcentrx investors. Can’t blame AbbVie on this one. Novel assets are at a premium these days.

  2. Anon says:

    I can already say it’s a really stupid move.

    First, because big M&A deals rarely pay back their costs. Second, because you always pay more than fair value in a sellers market, when the supply of new drugs is limited, not to mention the winner’s curse. Third, because trading assets does not create value, it’s a zero some game and it’s win-lose – somebody *always* loses. Finally, buying growth just makes it harder to create shareholder value with real innovation-based growth later on.

    Basically, it’s nothing more than gambling against the odds, with negative expected value. Just because they inflate their internal assumptions to justify a net positive value and push the deal through, does not make it a good deal.

    If you want to create value, then create it, but you can’t buy it, there are no short cuts.

  3. Am I Lloyd says:

    Then man said, “Let there be a bubble”; and there was a bubble. And man saw that the bubble was good.

  4. anonymouse says:

    Abbott made an exceedingly smart move when it bought BASF Pharma in 2001 for ~$6.9 billion. Agree that this didn’t create the value (it was already there in D2E7/Humira), but financially it worked out very, very well.

    1. Anon says:

      … and as long as executives have selective memories for where deals did (or didn’t) work, they will always be persuaded by random anecdotes, rather than the law of averages. And in the world of Pharma M&A, the averages look very bad indeed.

  5. Dr. Manhattan says:

    Then man said, “Let there be a bubble”; and there was a bubble. And man saw that the bubble was good. And Lo, upon tim the bubble burst, doth showering riches upon those who had created the bubble. But a great lamentation was heard from those who had been showered with the bubble’s detritus. And they were left forlorn, with empty wallets & IRAs….

  6. Vader says:

    This strikes me as a Pascal’s Wager, which is the kind of thing you really ought to expect in cancer research.

  7. Z says:

    On a very slighty related note, my RSS feeds for FierceBiotech stopped working a few weeks ago and I can’t figure out how to get them back. Has anyone else had this problem?

    1. b says:

      Yes, me as well. Looks like they redesigned their page and I can’t find an RSS feed for the new one.

    2. Arsalan Arif says:

      FierceBiotech has eliminated their RSS feeds. You can hack one up using something like createfeed(dot)fivefilters(dot)org — it’s sad, the RSS feeds are something Fierce’s most loyal readers depended on.

      1. Anon says:

        My guess is that the advertisers said “get rid of the RSS” as they want people to browse the main Fierce site, rather than go directly to specific articles. Pity.

  8. YarnSpinner says:

    Then man said, “Let there be a Bubble”; and there was a Bubble. And man saw that the Bubble was good. And Lo, upon tim the bubble burst, doth showering riches upon those who had created the Bubble. But a great lamentation was heard from those who had been showered with the Bubble’s detritus. And they were left forlorn, with empty wallets & IRAs….
    Then one amongst them, called Robin, didst create an army, called Robin’s Brood. And Robin’s Brood didst hunt down the Man (who’d created the Bubble) and his followers, and the Man and his Bubble-makers were made to lie in the wayste of the Bubble’s detritus, whilst Robin’s Brood did watch. And their lamentations were turned to blood-curdling cries of revenge. . . but it did not satiate their thirst.

  9. Morten G says:

    It’s a double bet, right? AbVie is betting that cancer stem cells are going to be a thing and also betting that Stemcentrx is going to be the company that successfully tackles them.

  10. Anon says:

    It is not that they bet on cancer stem cells. They actually use the CSC paradigm as a framework to discover novel targets that can be targeted using ADCs or other antibody based modalities. And they seem to work, as evidenced in PDX-models and in humans. Novel targets that were not identified using other protocols, but are discovered using their protocol based on TIC/CSCs. Perhaps, indeed, these ADCs work so nicely because their targets are expressed on CSCs, but if one looks closely, these newly identified targets are expressed quite broadly, not only on TIC/CSCs but also one normal tumor cells. So it is much more nuanced than betting just on a semi-validated CSCs concept.

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