Abbvie Makes A $5.8 Billion Cancer Bet

On Thursday Abbvie (ABBV) announced that it would acquire Stemcentrx for $5.8 billion. This transaction is set to take place as a cash and stock deal, and Abbvie would gain a host of oncology drugs. The main drug it will get is a lung cancer drug. The specific patient population of the lung cancer drug is known as small cell lung cancer. It is a very rare form of lung cancer as it targets between 10% to 15% of all lung cancer cases. 

Stemcentrx's drug to treat this form of cancer is known as Rova-T. It is in a class of drugs that stimulate the body's own immune system -- T cells -- to attack cancerous sells. Abbvie is paying $2 billion in cash to acquire the company, and expects to pay the rest with its own stock. However, there is also another positive. That positive is that shareholders may be eligible to receive up to $4 billion in cash pending certain clinical milestones are met. 

Abbvie's acquisition was a good one, and it was probably a necessary one as well. That is because the company's big blockbuster selling drug Humira, used to treat Rheumatoid Arthritis, has its patent set to expire this coming December. At that time, generics can come in, reproduce the drug, and discount sell it at lower prices. This will definitely be a big blow to Abbvie, therefore it seems like now it is preparing to whether the storm by acquiring some small to midcap size biotechnology companies.