On Oct. 13, regulators at the Food and Drug Administration (FDA) ruled that Pfizer's (PFE 1.44%) new drug for moderate to severe ulcerative colitis (UC), Velsipity, was ready for prime time. That puts the company on a collision course with AbbVie (ABBV 0.22%), the leader of the market for ulcerative colitis therapies for many years.

In a worst-case scenario, it's possible that AbbVie might get its lunch eaten. Even under the best of conditions, it'll probably face a headwind in gaining and retaining market share, and there's more than one disease market at stake. Here's what's going on and what it means for investors.

More than one market is going to get crowded, and soon

Ulcerative colitis (UC) is a chronic inflammatory disease of the colon and rectum for which there are a handful of treatments available, but no cure. UC affects as many as 4 out of 1,000 people in North America, and it appears to be more prevalent in the Western world compared to elsewhere.

Per a report by Mordor Intelligence, the market for ulcerative colitis therapies could become as large as $9 billion by 2028. Wall Street analysts anticipate that in fiscal 2024, Pfizer will bring in $64 billion of revenue and AbbVie will bring in $53 billion -- and so capturing a decent share of that market could easily drive significant growth.

But UC isn't the only market where Pfizer and AbbVie are expected to do battle over the coming years. Pfizer is also running a handful of mid-stage clinical trials investigating whether Velsipity might be useful to treat Crohn's disease, alopecia areata, atopic dermatitis, and eosinophilic esophagitis.

With the exception of the last condition, all of those indications overlap with AbbVie's rising stars Skyrizi and Rinvoq. They also overlap with the juggernaut Humira, which those two drugs are slated to replace in the company's lineup (now that Humira is seeing competition from generics as a result of going over the patent cliff in the U.S. this year). If AbbVie has its way, the pair will bring in more than $17 billion by 2025, and as much as $21 billion by 2027.

Velsipity could easily throw a big wrench into that plan. Pfizer is working to expand the indications of its alopecia drug on the market, Litfulo, so that it could be marketed for ulcerative colitis and Crohn's disease -- and also vitiligo, which could eventually also be addressed by Rinvoq. So Velsipity and Litfulo will be nibbling on AbbVie's market share in multiple segments where it's looking for growth through the rest of the decade, assuming it can get regulatory approval for the additional indications after the relevant clinical trials are done.

Plus, both businesses will also be competing with Bristol Myers Squibb's medicine Zeposia in the UC market. Early comparisons suggest that Velsipity might be more effective than Zeposia; more conclusive direct comparisons between the two, not to mention between them and Skyrizi and Rinvoq, are likely forthcoming. In short, Bristol Myers Squibb's participation in the fight for market share is a wild card until more research is published.

What should AbbVie investors do?

Velsipity's approval is an event that AbbVie's management probably saw coming. Don't rush to sell your shares because of it; there are many other markets where it'll continue to compete successfully.

Furthermore, there's no guarantee that Pfizer's ongoing attempt at a land grab will succeed. It's fully possible that Skyrizi and Rinvoq will have treatment niches where they're the preferred solutions, and for now, UC is the main turf being disputed by Velsipity. It's also important to remember that Rinvoq and Skyrizi have a head start on Velsipity in nearly all of the markets in question.

Still, the probability of AbbVie hitting revenue headwinds over the next few years just increased, and it isn't as though its top line was projected to grow rapidly before Velsipity. The approval of the new drug is also a point in favor for the long-term Pfizer bull thesis. There's no telling which player will win the looming competition, but presently it looks like the momentum favors Pfizer.