Expiring patents on Humira, the world's top-selling medicine, could significantly dent AbbVie's (NYSE:ABBV) revenue stream in 2017, but that risk doesn't seem to be fazing Glenview Capital Management, a hedge fund managing $25 billion in equities.
In the second quarter, Glenview, which invests based on a growth at a reasonable price methodology, made AbbVie its third-largest position when it increased the number of shares it owns by a whopping 630%.
Glenview's confidence in AbbVie indicates the hedge fund manager is confident that AbbVie can limit the amount of market share Humira may lose when its patent expires or blunt the impact of sales that are lost by launching and growing revenue for its other therapies.
In AbbVie's second-quarter conference call, the company made a point of reminding investors of its various efforts to offset Humira's risk. Those efforts include a new formulation of Humira that is less painful to inject and that may require less volume of the medicine to be used. Those advantages could result in some number of Humira patients switching over to it, allowing AbbVie to outmaneuver revenue risk tied to potential biosimilars for its original formulation.
AbbVie is also developing a next generation of autoimmune drugs to supplant Humira, including a JAK-1 inhibitor, ABT-494, that is in phase 2 trials as a treatment for rheumatoid arthritis. Additional immunology drugs that could insulate AbbVie's autoimmune disease market share down the road include ALX-0061, an anti-IL-6 nanobody, and ABT-122, a drug that combines an anti-TNF like Humira with an anti-IL-17 therapy. Results from ABT-122's mid-stage study are expected next year.
Even if AbbVie's R&D efforts in autoimmune disease come up short, AbbVie could still make up for any lost sales with other drugs in its product lineup.
For instance, AbbVie's recent Pharmacyclics acquisition landed the company the fast-growing cancer drug Imbruvica.
Imbruvica had sales of $492 million last year and prior to its acquisition, Pharmacyclics had offered up guidance for $1 billion in sales for the drug this year. Because Imbruvica is involved in a deep slate of trials evaluating expanding its use, industry watchers estimate that it could have peak annual sales of $3.6 billion some day.
Obviously, Imbruvica could go a long way toward filling any gap caused by Humira facing off against biosimilars, but it may not have to do it alone. AbbVie could end up winning regulatory approval for the CLL drug venetoclax, the multiple myeloma drug elotuzumab, and the MS drug Zinbryta within the next year to 18 months.
In addition to those drugs, an argument could also be made that AbbVie's hepatitis C pipeline could still be generating significant sales when Humira's patent expires. Currently, AbbVie's Viekira Pak is the second most prescribed therapy for treating genotype 1 hepatitis C and as a result, Viekira Pak's sales totaled $385 million in the second quarter.
AbbVie expects Viekira Pak to exit 2015 with a $3 billion annualized revenue run rate, but given how quickly hep C drug development is progressing, it's more likely that AbbVie's hep C pipeline drugs ABT-493 and ABT-530 will be counted on to offset Humira's risk, not Viekira Pak itself. Of course, that will only have a chance of happening if that once-daily pan-genotype approach proves itself in future trials.
Tying it together
Because of Glenview's growth and value blended approach, it's likely they believe AbbVie's various levers are being underappreciated by investors. That could be true. Despite AbbVie's shares rising 8% this year to new highs, its P/E-to-growth ratio is just 0.95 and it's still only trading at less than 14 times next year's estimated earnings per share. With a reasonable valuation and an opportunity to sidestep some of the risk to Humira, AbbVie might be a company worth considering again in portfolios.