Big Pharma Just Bet $10 Billion On A Cancer Drug Startup. Here's Why.

"This deal is going to end up looking either very smart or very stupid."
A screen displays the share price for pharmaceutical maker AbbVie on the floor of the New York Stock Exchange July 18, 2014.
A screen displays the share price for pharmaceutical maker AbbVie on the floor of the New York Stock Exchange July 18, 2014.
Brendan McDermid / Reuters

Question: What do WhatsApp and a little-known (until recently) cancer research startup named Stemcentrx have in common?

Answer: They're the top two largest private venture-backed acquisitions in history, after pharmaceutical giant AbbVie acquired the drug company earlier this month in a deal that values it at as high as $10 billion. (Facebook acquired WhatsApp in 2014 for $19 billion.)

Not bad for a company that has yet to bring a product to market.

What Stemcentrx (pronounced "stem-centrix") does have, however, is a unique -- and somewhat controversial -- approach to treating several forms of cancer. While most of today's treatments view cancer as a result of unchecked cell growth, wherein any cell is capable of becoming cancerous, Stemcentrx believes that cancer primarily sprouts from only one cell type: cancer stem cells.

Cells in our bodies are constantly dying and being birthed anew. This process relies on stem cells, which are basically just cells that can grow into many other different types of cells. Over time, Stemcentrx's Chief Science Officer Dr. Scott Dylla told HuffPost, those stem cells -- like any other cell -- can accumulate genetic mutations. Given enough mutations, says Dylla, they may begin "to act abnormally and no longer play nice with their neighbors." In other words, they become cancerous.

The stem cell theory of cancer posits that rogue stem cells are responsible for growing and perpetuating cancer, and that, unless the stem cells are themselves killed, simply shrinking or removing tumors won't stop the cancer itself.

"An analogy would be a weeding technique that is evaluated based on how low it can chop the weed stalks," explains Stanford's Ludwig Center for Cancer Stem Cell Research and Medicine, "but no matter how low the weeds are cut, if the roots aren’t taken out, the weeds will just grow back."

While treatments like chemotherapy and radiation can be very effective at shrinking tumors, they don't always kill the cancer completely, nor do they specifically target cancer stem cells. In some cases, the cancer returns -- and in a more aggressive form. Stemcentrx believes that's because these methods kill a broader range of cells, leaving the door open for cancer stem cells to grow back with less competition from surrounding cells than before.

If Stemcentrx is correct about cancer stem cells -- and there's no clear consensus in the science community they are -- the company predicted in 2013 that their paradigm could do more for cancer treatments “in the next several decades than what has been achieved over the last century."

But not everyone is sold on the theory.

“There is a major debate that is still going on [about cancer stem cell theory] and I don’t know if it’s going to be resolved so easily,” Ravi Majeti, a biologist at Stanford who studies leukemia, told MIT Technology Review last September. “It’s a complicated story, and I would say the cancer-stem-cell theory is waning a little bit."

Dylla thinks the rest of the research community will be persuaded as more of the company's anti-cancer therapies enter the pipeline and are tested in the real world.

"The continued skepticism likely reflects the limited cases translating the theory into therapies that impact survival in cancer patients," he told HuffPost, citing "compelling preclinical evidence" that's already changing minds.

In particular, Stemcentrx's furthest drug along in human trials, Rova-T (rovalpituzumab tesirine), has shown promise in treating small cell lung cancer, the most aggressive form of lung cancer that accounts for 15 percent of all lung cancer types. There is currently no FDA-approved treatment for small cell lung cancer.

In an early-stage test last year, 44 percent of a subset of patients whose particular type of small cell lung cancer exhibited DLL3, a protein associated with cancer stem cells, responded to the drug.

Rova-T also shows potential for treating metastatic melanoma, glioblastoma multiforme and some prostate, pancreatic and colorectal cancers. The company expects the drug will be available by 2018.

Rova-T is one of more than 800 medicines currently in clinical testing for cancer, according to a report by the Pharmaceutical Research and Manufacturers of America and the American Association for Cancer Research. Of those, very few will likely make it to market. In 2014, for example, the FDA approved seven treatments for melanoma, while 96 others failed. Just 10 lung cancer treatments were approved that same year, while 167 failed.

For Stemcentrx's new corporate parent, AbbVie, the acquisition is a bid to expand beyond its current cash cow, Humira, an arthritis and psoriasis treatment that is also the world's top-selling drug. Reuters notes AbbVie's main U.S. patent on Humira expires in December.

"I think that this deal is going to end up looking either very smart or very stupid," pharmaceutical expert Derek Lowe noted in a blog after the purchase late last month. "I have no idea which way this one breaks."

AbbVie will pay for the deal with $5.8 billion in cash and stock. Investors could reap an additional $4 billion in cash if Stemcentrx reaches various success-based milestones, the company said.

Speaking of the Stemcentrx's surprisingly high valuation (which is more than competitors Stemline, Verastem and OncoMed combined), CEO Brian Slingerland defended the company's potential by highlighting what it has achieved so far.

“This is not an Internet company that was started 18 months ago with a few software developers," he told HuffPost. "There have been close to 200 people at this company, and we’ve been working for eight years, and we’ve been running extensive experiments to be able to yield [these] results."

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