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.
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.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.