AbbVie (ABBV 0.74%) has risen more than 20% since it hit the market earlier this year. In fact, it has managed to beat the S&P 500 by nearly 10%. It pays a hefty dividend with a yield north of 3.5% and wields the world's most successful drug in Humira. Of course, investors are well aware that although Humira made up half of the company's sales last year, the party is bound to end in the next few years as generic competition encroaches on AbbVie's market share. The long-term picture looks promising, but how will investors get there? Here are three things that will move Abbvie stock for better or worse.
1. Pipeline news
This seems a bit obvious, but large-cap pharmas rarely hinge on every approval and rejection. I think that is a possibility for AbbVie as Humira's expiration dates -- 2016 in the United States and 2018 in Europe -- draw closer. The drug will still continue to grow for the next several years. In fact, this year it is expected to become just the second drug ever (behind Lipitor from Pfizer) to eclipse $10 billion in annual sales. That doesn't give the company a free pass on pipeline developments, though.
AbbVie is planning on 15 major regulatory submissions from now through 2017. That gives plenty of potential to make up for declining sales from its major breadwinner, even knowing that some will likely fail. There are a few trials in particular that investors need to watch. One is the phase 3 SONAR trial for atrasentan being evaluated in diabetic nephropathy, which is kidney disease in patients with type 2 diabetes. Diabetic nephropathy is the leading cause of chronic kidney disease in the world, and nearly 40% of diabetics develop the condition, so there is a large need for innovation in the space.
Several drugs approved for the disease, including Cozaar from Merck and Avapro from Bristol-Myers Squibb and Sanofi, lost patent protection in recent years. That opens the door to the $2.35 billion market for new therapies being developed by AbbVie and Eli Lilly (LLY -0.31%). The latter is developing a transforming growth factor-beta monoclonal antibody as part of an impressive diabetes pipeline. The drug is in a phase 2 trial for the condition, although results are not expected until early 2015. That gives AbbVie's drug a considerable lead; however, the two work in completely different ways.
2. Triple direct-acting antiviral (DAA)
AbbVie received breakthrough therapy designation from the Food and Drug Administration in May for its DAA combinational therapy after impressive phase 2b results showed hepatitis C response rates of 99% at 12 weeks and 96% at 24 weeks. The drug consists of a protease inhibitor, NS5A inhibitor, non-nucleoside polymerase inhibitor, and ritonavir. The triple-DAA combination ("triple" referring to the three inhibitors) is now being studied in a phase 3 trial with 2,000 patients who have hepatitis C genotype 1.
The company's drug will compete in a suddenly competitive market for next generation hepatitis-C drugs, although it is trailing its peers. Johnson & Johnson (JNJ -1.67%) and Gilead Sciences (GILD -0.46%) both expect to receive a response from the FDA later this year for their own drugs. Sofosbuvir from Gilead is the clear favorite with a broad activity against various genotypes of hepatitis C. On the other hand, the therapies from Johnson & Johnson and AbbVie only protect against genotype 1. Sofosbuvir is great news for patients, but could be bad news for its competitors.
Unfortunately, AbbVie will be looking up to both companies by the time it gets approved. A few things could move it into second place. The breakthrough designation obviously helps. So, too, does AbbVie's ability to combine its own proprietary drugs into one therapy. That may help it leapfrog Johnson & Johnson, which is partnering with other companies to get combinational therapies rolling. Gilead will still be a tough (probably impossible) egg to crack for AbbVie.
3. Humira biosimilars
What good is all the fear about generic versions, or biosimilars, of Humira if we never bring them out of the shadows? Who are these scary competitors? Four partnerships with programs under way stand out:
- AET BioTech and BioXpress
- Amgen (AMGN -0.11%)
- Boehringer Ingelheim
- Fujifilm Kyowa Kirin Biologics
Efforts from Boehringer Ingelheim and Amgen would be the ones to watch. Amgen in particular is looking to biosimilars to provide a multibillion-dollar boost to its top line by the end of the decade. The biotech leader will launch six generic biologics by 2017, including one for the best-selling drug in the world. Not to discredit smaller companies with exceptional capabilities in biomanufacturing -- they tend to get overlooked as private firms -- but Amgen has a much broader reach financially and more experience with regulatory guidelines.
Foolish bottom line
All in all, I am generally optimistic about AbbVie's future. It has a respectable pipeline and a major focus on biologics, which comprise about 30% of its pipeline. However, I can also see pressure mounting on AbbVie stock as Humira's expiration date nears and late-stage trials reach the 11th hour. Investors should also consider how difficult it will be to replace $10 billion in revenue. It could prove impossible, but other big pharma companies have dealt with falling revenue and still managed to send shares higher.
