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AbbVie Inc (ABBV) Has More Than Just a Terrible Setback for Rova-T to Confront; Bear Warns Further Downside Risk Lies Ahead

Alex Arfaei notes he continues to be the "lone bear" on this biotech player- especially after lead pipeline asset Rova-T is no longer looking at quick approval.


AbbVie Inc (NYSE:ABBV) is saying goodbye to speedy approval prospects for its lead asset small cell lung cancer drug Rova-T on the heels of lackluster TRINITY results.

Data from this mid-stage trial seems to point to efficacy for the drug that never quite shows a big differentiation compared to chemotherapy. As a result, the drug maker’s team is choosing to not apply for fast track approval- and investors are not taking the news lightly. After all, the goal here was to lessen ABBV’s need to rely on its blockbuster arthritis asset Humira.

Today, as ABBV’s market cap plunges sharply from $153 billion down to $25.5 billion and shares nosedive 11%, BMO analyst Alex Arfaei offers his bearish take as “underappreciated risks [are] materializing.”

To put it bluntly, “we see more downside risk,” cautions Arfaei, who reiterates an Underperform rating on ABBV stock with a $95 price target, which implies a close to 5% downside from current levels. (To watch Arfaei’s track record, click here)

As shares take a beating in the market today, this reflects “not only a setback for a significant pipeline product, Rova-T, but also increased biosimilar concerns, which combined increase uncertainty about long-term growth prospects given current dependence on Humira,” writes the analyst, arguing: “We expected Rova-T to work in 3L-SCLC, but were skeptical about management’s ~$5Bn long-term guidance in multiple tumors. Today’s news supports that, and could increase skepticism about future probable acquisitions.”

The TRINITY data read-out “should lower expectations,” Arfaei predicts, as he elaborates his bearish case on why this biotech player is simply not worth the bet:  “Our Underperform thesis on ABBV argued that at ~$123/share, the risk/reward was unfavorable and did not leave much room for negative surprises, such as 1) an increasingly biosimilar friendly FDA, 2) stronger-than-expected uptake for biosimilars in Europe, and 3) pipeline disappointments. As expectations for Humira’s biosimilar-driven erosion increase, so does the importance of the pipeline, and we remain skeptical about management’s guidance about certain pipeline assets, including Rova-T.”

TipRanks analytics point to a biotech stock who has captured largely positive sentiment- meaning there are quite a few disappointed bulls shouting on the Street today. Out of 11 analysts polled in the last 3 months, 6 are bullish on ABBV stock, 4 remain sidelined, while 1 is bearish on the stock. With a healthy return potential of 33%, the stock’s consensus target price.