All Is Not Lost For AbbVie Inc (NYSE:ABBV) Despite The Pressures
AbbVie Inc (NYSE:ABBV) is working to cut dependence on Humira and at the same time it is working to expand the revenue base of the drug. However, the decision by the United States Patent and Trademark Office (USPTO) to institute IPR petition to a Humira patent by Coherus Biosciences Inc (NASDAQ:CHRS) presents as a serious overhang for AbbVie.
This AbbVie analysis article examples the company’s risks and opportunities, but first is a quick recap of 1Q2016 results.
AbbVie Inc (NYSE:ABBV) posted EPS of $1.15 in 1Q2016, an improvement of 22.3% from the corresponding quarter a year ago. Revenue of $5.96 billion rose 18.2% YoY and outpaced the consensus estimate of $5.91 billion.
The chart below captures AbbVie’s revenue for the last five quarters:
What are AbbVie’s opportunities?
- Humira continues to gain ground
Humira is AbbVie Inc (NYSE:ABBV)’s cash cow and it is living up to expectations. In 2015, Humira sales rose nearly 12% to $14 billion and the drug continues to see strong adoption in gastroenterology and dermatology. AbbVie is working to expand the label of the drug and if success it should be able to unlock more revenue opportunities for the product.
Despite growing threat to its marketing exclusivity, Humira sales ticked up 14.9% to reach $3.6 billion in 1Q2016 with U.S. sales of the drug increasing 31.9% to $2.2 billion.
- Strategic collaborations
To strengthen its pipeline and accelerate pipeline development, AbbVie Inc (NYSE:ABBV) has entered into or is pursuing several strategic deals with fellow drug developers. For example, the company is working with Roche Holding Ltd. (ADR) (OTCMKTS:RHHBY) to develop a cancer drug called Venclexta. It is working with Bristol-Myers Squibb Co (NYSE:BMY) in the development of multiple myeloma treatment called Empliciti. AbbVie is also working with Biogen Inc (NASDAQ:BIIB) on a multiple sclerosis drug called Zinbryta.
The success of these collaborations should pave the way for more revenue opportunities for AbbVie, thus helping the company to replace potential revenue impact loss due to expiration of marketing exclusivity for its key products such as Humira.
- Impressive pipeline
AbbVie Inc (NYSE:ABBV) has a rich pipeline consisting of candidates at various stages of development and for various indications. Its candidate called elagolix showed positive results in a Phase 3 study for the treatment of endometriosis. Application for regulatory approval of elagolix is expected in 2017. AbbVie’s other Phase 3 candidate is called atrasentan, which is targeted at patients afflicted by chronic kidney disease. The company intends to seek regulatory approval for atrasentan in 2018.
There are multiple other candidates that AbbVie is either trying to bring to market for the first time or expand their label.
- Acquisition of Stemcentrx
AbbVie Inc (NYSE:ABBV) is in the process of acquiring cancer treatment developer Stemcentrx for cash and stock totaling $5.8 billion. The deal includes a potential additional payment of up to $4 billion upon attainment of certain milestones. The acquisition of Stemcentrx will help expand AbbVie’s oncology business. Stemcentrx is bringing several cancer drug candidates including a treatment for lung cancer.
AbbVie’s CEO, Richard Gonzalez, described Stemcentrx as a “very good asset” that will bolster their position in solid tumor market. AbbVie is adding Stemcentrx to its portfolio after it forked out $21 billion to purchase Pharmacyclics, thus gaining partial rights to the company’s blood cancer treatment Imbruvica.
What risks face AbbVie?
- Tough competition in HVC market
AbbVie Inc (NYSE:ABBV)’s Viekira is coming under increasing pricing pressure as competition increases in HCV treatment market. Gilead Sciences, Inc. (NASDAQ:GILD)’s Harvoni and Sovaldi are particularly a serious threat to AbbVie in the HCV market. For example, Gilead has recently been on a tear in inking deals pharmacy benefits managers (PBMs), thus complicating the pricing picture for Viekira.
Besides the competitive threat from Gilead’s Harvoni and Sovaldi, AbbVie also faces pricing pressure in the HCV market from Merck & Co., Inc. (NYSE:MRK)’s Zepatier. It is no wonder that AbbVie has trimmed its global sales expectations for Viekira to just about $1.6 billion from $2 billion that it guided previously. Competitive and pricing pressure in HCV market saw sales of AbbVie’s Viekira fall to $414 million in 1Q2016 from $554 million in 4Q2015.
- Humira biosimilars
AbbVie’s Humira is under attack from almost all corners. There are several companies developing Humira biosimilars. For example, USPTO just instituted IPR that could pave the way for another Humira biosimilar by Coherus Biosciences. U.S. marketing exclusivity of Humira will run its course in December 2016 and European protection of the drug will expire in April 2018. No matter when Humira biosimilars will come to market, their coming will both put pricing and sales pressure on Humira, thus adversely impacting AbbVie’s financial performance.
Although Humira sales have remained impressive, pressure is building up in Humira’s market, especially from UCB’s Cimzia and Johnson & Johnson (NYSE:JNJ)’s Simponi. These rival drugs and others are clipping away Humira’s market share.
Things aren’t better for AbbVie in the HIV market either. Its HIV treatment Kaletra faces stiff competition from alternative drugs from JNJ, BMY and GILD.
Humira accounted for more than 61% of AbbVie’s market share in 2015.
- Pipeline setback
Clinical development programs are always awash with risks and AbbVie Inc (NYSE:ABBV) is not immune to them. The company has several candidates at various stages of development in its pipeline. While the pipeline is impressive, failure to attain favorable outcome in late-stage development and regulatory setbacks could come as a major development to AbbVie. For example, massive investment can be lost if a drug that has been in development for a long time meet a tragic end.
- 2016 outlook lowered
AbbVie Inc (NYSE:ABBV) trimmed its 2016 earnings forecast to a range of $4.62 to $4.82. The company previously guided earnings for the year in the band of $4.90 to $5.10. The reduction of earnings projection for 2016 is in response to the impact expected from the acquisition of Stemcentrx. AbbVie said that it expected Stemcentrx acquisition to produce a $0.20 per share adverse impact on its 2016 earnings because of increased R&D burden. However, Stemcentrx is expected to begin contributing to earnings in 2020.
AbbVie Inc (NYSE:ABBV) has impressive opportunities to counter the threats in its industry, but the company will need to move swiftly to fight back.
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