J.P. Morgan hosted its annual healthcare conference this week, and in its presentation to investors, AbbVie (NYSE:ABBV) issued projections for its top-selling Humira, cancer drugs, and for revenue in 2020 that ought to make investors stand up and take notice.
Defending the moat
With $24 billion in annualized quarterly sales, AbbVie is unquestionably big, but it gets more than 60% of those sales from one drug, Humira. That's a big problem because Humira's composition of matter patent expires in December.
Humira is the gold-standard biologic used to treat a variety of autoimmune disorders, including rheumatoid arthritis and psoriasis, and it competes in a market valued at $47 billion annually. As a result, it hauled in more than $12 billion in 2014, and in 2015, the drug generated $10.3 billion in sales through the first nine months, putting it on pace to for $14 billion in sales last year.
That revenue run rate makes Humira the best-selling drug on the planet, but it also puts it in the crosshairs of competitors eager to develop a generic version, and that's made investors rightfully nervous about how the next couple of years might shake out for the company. As a result, AbbVie's shares fell 6.5% in 2015.
However, based on sales projections offered up by the company this week at J.P. Morgan's conference, investors might be wrong to worry about Humira's revenue run rate, at least for now. That's because AbbVie seems to believe that generic interlopers will be kept at bay by other patents covering Humira, including those related to the method of treatment for various indications. AbbVie thinks that those Humira patents will allow its sales to grow, rather than shrink, to $18 billion in 2020.
That's a bold prediction given that the companies developing Humira biosimilars are among the biggest and most successful biopharma companies in the world. Amgen (NASDAQ:AMGN) and Merck & Co. (NYSE:MRK), which is working with Samsung and Biogen (NASDAQ:BIIB) on a Humira biosimilar, already have phase 3 trial data in hand showing their look-alikes work as well as Humira, and Amgen submitted its application to the FDA in November. All of these companies have significant experience and resources available to them that could allow them to skirt Humira's remaining patents.
If Humira's patents do hold up, it will buy AbbVie time to boost demand for its recently acquired (and fast-growing) oncology drug, Imbruvica.
AbbVie forked over $21 billion last year to get its hands on Imbruvica. Management thinks the drug's revenue can climb from its current $1.2 billion pace to $5 billion over the coming few years.
Meeting that sales target will require Imbruvica to succeed in a slate of ongoing trials that could expand its addressable market. Imbruvica's use as a monotherapy in the first-line treatment of chronic lymphocytic leukemia (CLL) and its use as a treatment for multiple myeloma, a multibillion dollar indication, are among some of the most intriguing studies under way.
Additionally, AbbVie plans to leverage Imbruvica's sales and marketing know-how to build up revenue for its other hematology drugs, too. Those drugs include venetoclax, a CLL therapy; elotozumab, a treatment for relapsing multiple myeloma; and duvelisib, a late clinical stage CLL and indolent non-Hodgkins lymphoma medicine. If it can do that, then AbbVie will become one of the biggest cancer drugmakers in the next five years.
AbbVie's presentation also shows that it's unwilling to cede the highly lucrative hepatitis C market to competitor Gilead Sciences (NASDAQ:GILD).
Currently, AbbVie only markets one hepatitis C drug: Viekira Pak. Viekira Pak was launched last January to compete against Gilead Sciences' Harvoni in genotype 1 HCV patients and its sales exited the third quarter at a $1.9 billion annualized clip. That's far shy of Harvoni's annualized $13 billion pace.
The company, however, still thinks it might be able to knock Gilead Sciences off its pedestal.
Thanks to an exclusivity deal it cut with pharmacy benefit manager Express Scripts shortly after Viekira Pak's launch, AbbVie thinks Viekira Pak can haul in $3 billion in peak annual sales and AbbVie is advancing next-generation hepatitis C programs, including a pan-genotype therapy and a short-duration approach, that could add billions more to the top line.
Given that there are 3 million hepatitis C patients in the U.S. and 9 million hepatitis C patients in the EU, this indication should continue to support AbbVie's quarterly financial results in the coming years.
Tying it together
It's common for management to be bullish about their company's prospects, but it's far less common for management to go out on a limb and provide a sales forecast that stretches out years into the future.
In this case, AbbVie's management thinks that Humira and its other drugs will combine to haul in $37 billion in sales in 2020, leading to double-digit annual EPS growth over the next five years. That's a confidence-inspiring prediction and, personally, I think it could translate into a higher stock price this year.