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AbbVie's Billion-Dollar Problem

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AbbVie (NYSE: ABBV  ) shareholders are happy, happy, happy. Shares are up more than 27% since the company's spin-off from Abbott Labs (NYSE: ABT  ) in January. With such great performance, it's easy to overlook the negatives. The fact is, though, that AbbVie has a problem on its hands. A billion-dollar problem.

That problem certainly isn't Humira. Sure, AbbVie's megablockbuster anti-inflammatory drug goes off patent in a few years, but it continues to experience solid sales growth. AbbVie's billion-dollar problem is looking it straight in the eyes right now.

Billion-dollar threat
Cholesterol drugs Tricor and Trilipix combined to generate sales of $1.1 billion in 2012. However, that was a big drop from the almost $1.4 billion made the prior year. In the second quarter of 2013, sales for Tricor/Trilipix dropped 50% year-over-year. What's the culprit behind the hemorrhaging revenue? Generic competition.

For years, Abbott Labs successfully fended off the emergence of generic versions of Tricor. Teva Pharmaceuticals (NYSE: TEVA  ) ultimately secured a settlement with Abbott in 2009 that allowed it to gain rights to market a generic form of Tricor in 2011. However, Teva didn't actually launch its generic until 2012 -- but it immediately began to eat into Abbott's sales.

AbbVie now faces more competition. Mylan Pharmaceuticals (NASDAQ: MYL  ) launched its generic version of Tricor in May 2013. This launch followed litigation between Abbott and Mylan that was eventually settled in the fourth quarter of 2012.

Unfortunately, AbbVie doesn't have another cholesterol drug to make up for the sinking revenue. The company's Niaspan is another big seller in the cholesterol market, bringing in $911 million last year. However, Niaspan also faces generic competition. 

Even without generic rivals for Niaspan, AbbVie has other difficulties with the drug. Clinical study results announced by Merck (NYSE: MRK  ) last December cast doubts as to whether niacin products such as Niaspan actually improve outcomes for patients. Merck ended up asking doctors not to prescribe Tredaptive, its extended-release version of niacin with laropiprant, to new patients.

Plugging the leaks
The light certainly appears to be fading for AbbVie's prospects in the cholesterol drug market. Tricor and Trilipix are already losing sales rapidly. Niaspan's revenue will undoubtedly begin to decline significantly in the near future. AbbVie doesn't have any cholesterol drugs in its mid-stage or late-stage pipeline.

That's by design. AbbVie's focus is now on specialty drugs that have relatively few current therapies available. The company is pinning its hopes on replacing lost revenue from Tricor, Trilipix, and Niaspan from strong contenders in its pipeline in other therapeutic areas.

One drug that could plug the revenue leaks is Parkinson's disease gel Levadopa/Carbidopa. The drug is already marketed in Europe under the brand name Duodopa. AbbVie expects potential U.S. approval in the first half of 2014. Some see worldwide peak sales hitting around $1 billion -- enough to go a long way in offsetting losses from Tricor.

AbbVie's biggest potential winner is its oral hepatitis C virus interferon-free combo. BMO Capital Markets projects that the drug could generate peak annual sales of around $1.7 billion even with other new products entering the market. AbbVie hopes to file for regulatory approval in the second quarter of 2014. If approved, the drug would be launched commercially in 2015.

Of course, the prospects of losing patent protection for Humira in a few years still hangs over AbbVie's head. But that's a $9 billion problem for another day.

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