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AbbVie's Stock Price Decline Overdone

Mixed phase 2 data for Rova-T has rocked the narrow-moat firm's stock price, but the data doesn't end the potential of the drug, only likely delays its pathway to approval.

Securities In This Article
AbbVie Inc
(ABBV)

In the phase 2 Trinity trial for third-line DLL3-expressing small-cell lung cancer, Rova-T produced a 17.5% probability of patients surviving at one year, which is lower than rates seen in earlier studies. However, the probability of survival with current treatment options is close to 12% in this setting, so the data suggests the drug still has activity, although the results are not strong enough to support an accelerated filing. We expect phase 3 data in 2020 to support approval for Rova-T. With 80% of small-cell lung cancer patients expressing DLL3 and very few treatment options available, we estimate over 25,000 patients in this advanced setting in the developed world would be the target size for Rova-T initially. At an estimated price of $150,000 per patient per year, the market potential is over $3 billion annually. We are reducing our probability of approval for the drug to 40% from 50% on the basis of the mixed phase 2 data, and we expect peak sales close to $1 billion annually, but we don't anticipate this minor change and slight delay of approval to have a significant impact on our fair value estimate.

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About the Author

Damien Conover, CFA

Sector Director
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Damien Conover, CFA, is the director of healthcare equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is also director of equity strategy, responsible for helping to shape, package, and surface research based on Morningstar’s investment philosophy by working closely with the firm’s sector strategists and directors.

Before joining Morningstar in 2007, Conover was an equity research analyst covering the healthcare sector for Raymond James, Bank of Montreal, and Tucker Anthony.

Conover holds bachelor’s and master’s degrees in finance from the University of Wisconsin and was a member of its Applied Security Analysis Program. He also holds the Chartered Financial Analyst® designation.

Damien Conover, CFA, is the director of healthcare equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is also director of equity strategy, responsible for helping to shape, package, and surface research based on Morningstar’s investment philosophy by working closely with the firm’s sector strategists and directors.

Before joining Morningstar in 2007, Conover was an equity research analyst covering the healthcare sector for Raymond James, Bank of Montreal, and Tucker Anthony.

Conover holds bachelor’s and master’s degrees in finance from the University of Wisconsin and was a member of its Applied Security Analysis Program. He also holds the Chartered Financial Analyst® designation.

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