How AbbVie Stole The Show At The J.P. Morgan Conference

Todd Campbell: AbbVie is, as you know, one
of the biggest biopharma companies out there. It’s a company that does $24B a year in annualized
sales, but people have been nervous about this stock. For good reason. Kristine Harjes: The reason you’re alluding
to, I could probably say with certainty, is their humongous reliance on HUMIRA. Yeah? Campbell: Yeah. Humongous. Harjes: Yeah. Making us both nervous. Campbell: They get 60%+ of their sales from
one drug, and that’s the immunology drug HUMIRA, which is used to treat conditions, say, like
rheumatoid arthritis, and psoriasis. This is a big drug. It operates in a huge market,
$47B market. And this drug brings in $14B a year for AbbVie. Harjes: Yeah, it’s the best-selling drug on
the planet. Campbell: Yeah. And normally, that’s a good
thing. Harjes: Yeah, people are probably like, “Why
are they worried about this?” Campbell: Yeah. What’s scary about that is
their composition of matter patent. Harjes: That’s the important one. Campbell: It is. And it expires at the end
of this year. And as a result, as we know from past history, when patents expire, generic
drugs can come on the market. And when they do, they can gobble up a lot of market share,
and a lot of sales. Harjes: So, the only reason that there is
a little bit of a question mark on this one is because HUMIRA is a biologic drug. So,
it’s not particularly easy to get a generic version of that. You’ve heard us talk about
biosimilars before on the show, that’s what the generic version would be. It would be
a biosimilar. So, it’s not a direct replica. It’s not that easy. Campbell: Right. These things are made from
living organisms. You’re not going to be able to duplicate it exactly. Harjes: Exactly. So, we have Amgen creating
this biosimilar for HUMIRA, and they’re looking to get it approved. They filed in November
for the FDA. But they’re running up against these patent issues. Campbell: What’s interesting here, and I think
this is what’s intriguing or exciting about the JP Morgan Conference, is when AbbVie came
out and address their investors, they said, essentially, “What biosimilar threat? We don’t
see that happening any time soon.” Although the composition of matter patent is expiring
this year, AbbVie’s management seems to be very confident that methods of use patents
that protect HUMIRA into the early 2020s will keep these biosimilars at bay. And if that’s
the case, then AbbVie is saying that their sales for HUMIRA won’t fall in the next few
years, they’ll actually grow. Harjes: They’ll actually grow! That’s insane.
I have never seen a company say that before. “Oh, yeah, we might lose patent on this key
drug, and sales are going to grow!” That’s not how this works. Campbell: It doesn’t. And granted, there’s
a lot of moving pieces to this. I’m not a patent lawyer. I’ve dug into some of the backstory
here. Amgen and others are trying to show that these patents won’t hold up. Amgen, Biogen,
and these companies have, obviously, lots of resources, lots of people on their team,
if you will, that are working hard to ensure that they don’t violate these patents. So,
there’s still the chance that biosimilars come to the market before 2020. But at the
same time, AbbVie … you don’t necessarily go out and tell investors a long-term forecast
unless you feel pretty confident. In the case of AbbVie, they think HUMIRA sales could go
to $18B by 2020. And if so, their total sales could grow to $37B from their $24B pace today. Harjes: Yeah. Those are pretty lofty numbers.
But what stands out to me about that is that they’re still pretty reliant on HUMIRA even
then. So, you’ve got the projection for HUMIRA, but if you add up projections between HUMIRA
at $18B and their hepatitis C drug, the VIEKIRA PAK at $3B projection for 2020, and then you’ve
got IMBRUVICA that they’re projecting $5B. So, you add this together, and you get $26B
of their $37B of expected sales just from those three key drugs. So, to me, this looks
like they’re going to continue to have this reliance, this somewhat worrisome overdependence
on HUMIRA. Campbell: Yeah. They’re heavily reliant on
drugs, there’s no question about that. They have very few drugs generating a bulk of sales,
and that’s something that investors are going to have to be aware of. They’re going to have
to track this. They do think that they can diversify over time. They’ve got some interesting
drugs in oncology that are coming through the pipeline and starting to make their way
through the FDA. This is one to watch. But again, not many companies go out there
and issue long-term forecasts. They’re giving you a specific number that they’re targeting
for 2020. And the only other company in the biopharma space that jumps to mind that’s
done that is Celgene. So, it’s a very small grouping of companies that are willing to
stick their neck out. And I think that’ll resonate with investors. Once everything settles
down here, I think investors are going to look at that and they’re going to start to
say, “Hmm, maybe this is an interesting stock for me to consider, especially given its tasty
5.7% dividend yield.”

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