The pharmaceutical industry is big business. According to the International Trade Administration's Top Markets Report on pharmaceuticals last year, the global drug market is expected to grow from about $1 trillion in sales in 2015 to $1.3 trillion by 2020, representing about 5% annual growth. And at the center of that growth trend is the U.S. market.
U.S. drugmakers are thriving
The U.S. is an optimal target for drug developers for a variety of reasons. To begin with, the U.S. lacks a universal healthcare system, meaning Congress has no true ability to cap or limit drug pricing. The Food and Drug Administration also grants exceptionally long patent protection periods for novel therapies, which prevent the entrance of cheaper generic medicines. Additionally, insurers have a tendency to accept rather than fight drugmakers' pricing for fear of losing members by excluding a popular drug. And, of course, who can forget that demand for pharmaceuticals is higher in the U.S. than any other country in the world. This laundry list of catalysts makes the U.S. an optimal market for drugmakers to thrive -- and thrive they have.
Last year, AbbVie's (NYSE:ABBV) anti-inflammatory drug Humira, the best-selling drug in the world, tallied $16.08 billion in sales. A little more than $10.4 billion of this was recognized in the United States, with strong pricing power helping to push sales of its leading therapeutic up 24% year-over-year domestically.
Another major success story was Gilead Sciences (NASDAQ:GILD) with its hepatitis C drug Harvoni. Even though sales of Harvoni, which has a list price of $94,500 for a standard 12-week treatment, dipped in 2016 as a result of Gilead having hit the "low-hanging fruit" and treating the sickest HCV patients in 2014 and 2015, the drug still generated $9.08 billion in full-year sales. Nearly $5 billion of that came from the U.S.
In fact, five drugs in total managed to eclipse the $8.5 billion annual sales mark in 2016. After Humira and Harvoni were Amgen's (NASDAQ: AMGN) and Pfizer's (NYSE:PFE) anti-inflammatory drug Enbrel, Roche's (NASDAQOTH: RHHBY) and Biogen's cancer drug Rituxan, and Johnson & Johnson's (NYSE:JNJ) and Merck's anti-inflammatory therapy Remicade.
Big changes are in the offing for the world's top-selling drugs
However, we appear to be on the verge of seeing some major shifts atop the best-selling drug leaderboard. For example, Remicade is dealing with the entrance of Inflectra, a biosimilar drug (essentially a copycat version of a biologic drug) that's priced at a 15% discount to its list price and is being marketed by Pfizer. Sales of Remicade dipped by more than 10% in 2016, largely driven by weakness in Europe. Without pricing power, Remicade sales are liable to fall again in 2017.
Likewise, increased competition in the anti-inflammatory space and the signing of new supply contracts has put the kibosh on Enbrel's pricing power. Amgen has been regularly using hefty price increases on Enbrel to drive growth, but that came to a crashing halt in the first quarter. Sales of Amgen's former lead drug dropped by 15% in Q1. Roughly 12% of this decline came from a reduction in sales volume, while about 2% came from a decrease in Enbrel's price.
Even Gilead's Harvoni could see further pressure in 2017. Increasing competition in the HCV space from the likes of Merck, which priced its HCV drug Zepatier nearly $40,000 below Harvoni for a standard 12-week treatment, have Gilead forecasting $7.5 billion to $9 billion in full-year hepatitis C sales. Mind you, this includes sales from Sovaldi and Epclusa, its respective first and newest HCV drugs, not just Harvoni.
The one exception this year, other than Humira, which is leaving its competition in the dust on an annual sales basis, is Rituxan. Roche reported a 4% increase in sales of the drug during the first quarter. Nonetheless, biosimilars of Rituxan may be ready to hit pharmacy shelves sooner than investors realize, and Rituxan's patents won't last that much longer either. Even Rituxan could see its sales reverse sooner rather than later.
This cancer drug could ascend to the No. 2 spot in 2017
With some of the top-selling drugs potentially seeing their sales decline in the quarters and years that lie ahead, it looks as if Celgene's (NASDAQ:CELG) multiple myeloma blockbuster Revlimid has an outside chance of claiming the No. 2 spot among best-selling therapies in 2017. Celgene stuck by a forecast for $8 billon to $8.3 billion in full-year Revlimid sales, although it's been notoriously conservative with its sales estimates throughout the years.
Revlimid's success has been based on a confluence of factors. To begin with, demand for Revlimid is on the rise. An increase in multiple myeloma diagnoses, which is a result of an increase in population and earlier detection of the disease, has lifted demand for a go-to drug used as a first- and second-line therapy.
Celgene also has exceptional pricing power with its lead drug. Though list prices of cancer drugs are often a well-kept secret, Celgene has had little trouble passing along higher price points to insurers and patients. Considering its exceptional market share in treating multiple myeloma, Revlimid shouldn't face much in the way of pricing pressure short of federal legislation that caps drug prices (which is unlikely).
Celgene also notes that duration-of-use for its key therapy has helped its sales growth. Improvements in the multiple myeloma treatment process have allowed patients to remain on Revlimid for a longer period of time, ultimately boosting sales for Celgene.
Lastly, Revlimid has multiple label expansion opportunities beyond multiple myeloma. These include first-line follicular lymphoma, relapsed/refractory indolent lymphoma, and first-line ABC-subtype diffuse large B-cell lymphoma. These aren't major money indications for Celgene like multiple myeloma, but they provide a channel to nicely increase sales.
This is what sets Revlimid apart from the rest of its peers
However, there's an additional factor that sets Revlimid apart from the group. In Dec. 2015, Celgene worked out a settlement with a number of generic-drug manufacturers over Revlimid. One manufacturer will be allowed to introduce a limited generic supply of the drug beginning in March 2022 and extending through 2025. By Jan. 31, 2026, a flood of generic Revlimid can finally enter the market. In effect, Celgene cleared a decade-long runway for its lead drug to keep growing.
On the other hand, we're seeing a clear decline in sales of Harvoni, Enbrel, and Remicade, and Rituxan and even AbbVie's Humira are just a few years away from losing sales due to patent expirations. In other words, Revlimid may have a path to not only generate $10 billion-plus in annual sales -- it could become the best-selling drug in the world by the early 2020s.
There's obviously a lot that could happen between now and the early 2020s, including new competition in multiple myeloma, as well as the introduction of a new therapy that ramps up quicker than Revlimid. An example would be Biogen's experimental Alzheimer's disease drug aducanumab. If successful in late-stage trials and approved by the Food and Drug Administration, it could have $10 billion in peak annual sales potential, if not more.
Nevertheless, Revlimid has a clear path to higher sales for at least the next couple of years, and if things go Celgene's way it could become the second best-selling drug in the world by the end of this year.