AbbVie Inc.'s (NYSE:ABBV) making considerable progress toward reducing its reliance on its top-selling autoimmune disease drug, Humira, and recent patent news that could sideline Humira knock-offs beyond 2020 suggests that investors ought to take a good, hard look at owning this company's stock in their portfolio.

Protecting patents

As of the second quarter, Humira generates about two-thirds of AbbVie's $28 billion in annualized sales. Clearly, sidestepping the threat posed by expiring Humira patents won't be easy. 

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Humira's composition of matter patent already expired in the U.S. and the Food and Drug Administration has already OK'd two Humira biosimilars that AbbVie's competitors are itching to launch when they get the all-clear from lawyers. 

Fortunately for AbbVie's investors, it appears those launches aren't going to happen as soon as competition would like. Amgen (NASDAQ:AMGN) and Coherus (NASDAQ:CHRS) have been fighting AbbVie over AbbVie's patents but both of these companies appear to be giving up hope of a speedy rollout of their biosimilars in the United States.

In September, the U.S. Patent Office refused Coherus' request to grant an inter partes review of a key Humira patent. That decision may have influenced Amgen's decision last month to abandon its patent challenge in exchange for a nonexclusive license to market its Humira biosimilar in the U.S. beginning in January 2023. Amgen can market its Humira biosimilar in Europe as soon as next year, but Amgen will have to pay AbbVie royalties. 

Amgen's deal could lead other biosimilar companies to ink similar agreements with AbbVie, and for that reason, AbbVie's short-term financial outlook looks much better now than it did a couple months ago.

Big strides in diversification

At the same time that AbbVie's been digging a moat around Humira's market share, it's also been spending billions of dollars on acquisitions and R&D to diversify itself.

In 2015, AbbVie spent $21 billion to buy 50% of the rights to the fast-growing blood cancer drug Imbruvica. It also spent over $5 billion to lock up Rova-T, a cancer drug that's in clinical trials for the treatment of solid tumor cancers, including lung cancer.

Those decisions are pivotal to the company's strategy to become a top player in oncology. Since launching in 2014, Imbruvica's steadily won market share in chronic lymphocytic leukemia (CLL). Currently, Imbruvica's market share in the first-line setting is 33% and it's being used in 70% of second-line CLL patients. As a result, Imbruvica's global sales, which AbbVie shares with Johnson & Johnson, grew 42% year over year to $626 million in the second quarter.

Imbruvica's peak sales potential, however, could be a lot higher than that because studies are ongoing that could expand its addressable market. For example, in August, the FDA OK'd Imbruvica's use in chronic graft-versus-host disease, a life-threatening condition in transplant patients.

AbbVie hopes Rova-T could be similarly successful. A study is currently evaluating it in small cell lung cancer and that trial is expected to wrap up next year. If the trial data is positive, Rova-T could nab an accelerated approval, and if it does, then AbbVie could find itself marketing one of the top blood cancer drugs (Imbruvica) and one of the top solid tumor cancer drugs (Rova-T) on the market.

AbbVie's also got an opportunity to drive sales higher for Venclexta, a CLL drug that's used in patients with a 17p deletion mutation. AbbVie expects Venclexta's full-year sales to be $125 million this year, but sales could head higher now that trial results show using it alongside Rituxan can improve progression-free survival in CLL patients regardless of 17p deletion status. 

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Outside of oncology, AbbVie's also got a lot going on. 

The company just launched its next-generation hepatitis C drug, Maviret, a pan-genotypic therapy that delivers high 90% cure rates in as little as eight weeks. Maviret's efficacy and dosing suggest to me that it's the stiffest competition yet to Gilead Sciences' domination in this multibillion market. AbbVie's first-generation hepatitis C drug, Viekira Pak, wasn't nearly as good as Maviret, yet it still generated billions of dollars in sales for AbbVie.

AbbVie's got autoimmune disease drugs in development that could supplant Humira, too. Its ABT-494, or upadacitinib, is already reading out positively in moderate to severe rheumatoid arthritis and a mid-stage study recently reported encouraging data in moderate to severe eczema. Phase 2 studies suggest that another autoimmune disease drug in its pipeline, risankizumab, could someday treat other important autoimmune disease indications, such as Crohn's disease, as well.

Investor takeaway

R&D wins and clarity into Humira's patent outlook have already caused AbbVie's shares to rally sharply higher this year. However, I think there's still running room

AbbVie's already said it expects Humira's sales to climb from $16 billion last year to $20 billion in 2020. It's also said total sales could reach $37 billion that year. If so, that should translate into plenty of profit and dividend-friendly cash flow.

Ultimately, AbbVie's long-term success depends on how prepared it is for the day when Humira finally begins losing sales to competing biosimilars. So far, management's given investors plenty of reason to feel confident that it's making the right moves for the future, and for that reason, I'm increasingly optimistic about owning AbbVie's stock. 

 

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool has a disclosure policy.