Motley Fool healthcare contributor Todd Campbell shares with analyst Kristine Harjes why he thinks that AbbVie (NYSE:ABBV) is a big winner now that the annual J.P. Morgan Healthcare Conference has wrapped up.

At the conference, AbbVie's management presented investors with long-term sales guidance for its best-selling drug, Humira. These estimates suggest that generic competitors may be kept at bay even after a key Humira patent expires at the end of this year. Is this realistic, and does it make AbbVie's shares worth buying? Find out in this clip of Industry Focus: Healthcare.

A full transcript follows the video.

 

This podcast was recorded on Jan. 20, 2016.

Todd Campbell: AbbVie is, as you know, one of the biggest biopharma companies out there. It's a company that does $24 billion a year in annualized sales, but people have been nervous about this stock. For good reason.

Kristine Harjes: The reason you're alluding to, I could probably say with certainty, is their humongous reliance on HUMIRA. Yeah?

Campbell: Yeah. Humongous.

Harjes: Yeah. Making us both nervous.

Campbell: They get 60%-plus of their sales from one drug, and that's the immunology drug Humira, which is used to treat conditions, say, like rheumatoid arthritis, and psoriasis. This is a big drug. It operates in a huge market, a $47 billion market. And this drug brings in $14 billion a year for AbbVie.

Harjes: Yeah, it's the best-selling drug on the planet.

Campbell: Yeah. And normally, that's a good thing. 

Harjes: Yeah, people are probably like, "Why are they worried about this?"

Campbell: Yeah. What's scary about that is their composition of matter patent.

Harjes: That's the important one.

Campbell: It is. And it expires at the end of this year. And as a result, as we know from past history, when patents expire, generic drugs can come on the market. And when they do, they can gobble up a lot of market share, and a lot of sales.

Harjes: So the only reason that there is a little bit of a question mark on this one is because Humira is a biologic drug. So it's not particularly easy to get a generic version of that. You've heard us talk about biosimilars before on the show, that's what the generic version would be. It would be a biosimilar. So it's not a direct replica. It's not that easy.

Campbell: Right. These things are made from living organisms. You're not going to be able to duplicate it exactly.

Harjes: Exactly. So we have Amgen (NASDAQ:AMGN) creating this biosimilar for Humira, and they're looking to get it approved. They filed in November for the FDA. But they're running up against these patent issues.

Campbell: What's interesting here, and I think this is what's intriguing or exciting about the J.P. Morgan Conference, is when AbbVie came out and addressed their investors, they said, essentially, "what biosimilar threat? We don't see that happening anytime soon." Although the composition of matter patent is expiring this year, AbbVie's management seems to be very confident that methods of use patents that protect Humira into the early 2020s will keep these biosimilars at bay. And if that's the case, then AbbVie is saying that their sales for Humira won't fall in the next few years, they'll actually grow.

Harjes: They'll actually grow! That's insane. I have never seen a company say that before. "Oh, yeah, we might lose patent on this key drug, and sales are going to grow!" That's not how this works.

Campbell: It doesn't. And granted, there's a lot of moving pieces to this. I'm not a patent lawyer. I've dug into some of the backstory here. Amgen and others are trying to show that these patents won't hold up. Amgen, Biogen, and these companies have, obviously, lots of resources, lots of people on their team, if you will, that are working hard to ensure that they don't violate these patents. So, there's still the chance that biosimilars come to the market before 2020. But at the same time, AbbVie ... you don't necessarily go out and tell investors a long-term forecast unless you feel pretty confident. In the case of AbbVie, they think Humira sales could go to $18 billion by 2020. And if so, their total sales could grow to $37 billion from their $24 billion pace today.

Harjes: Yeah. Those are pretty lofty numbers. But what stands out to me about that is that they're still pretty reliant on Humira even then. So, you've got the projection for Humira, but if you add up projections between Humira at $18 billion and their hepatitis C drug, the Viekira Pak at $3 billion projection for 2020, and then you've got Imbruvica that they're projecting $5 billion. So, you add this together, and you get $26 billion of their $37 billion of expected sales just from those three key drugs. So, to me, this looks like they're going to continue to have this reliance, this somewhat worrisome overdependence on Humira.

Campbell: Yeah. They're heavily reliant on those drugs, there's no question about that. They have very few drugs generating a bulk of sales, and that's something that investors are going to have to be aware of. They're going to have to track this. They do think that they can diversify over time. They've got some interesting drugs in oncology that are coming through the pipeline and starting to make their way through the FDA. This is one to watch.

But again, not many companies go out there and issue long-term forecasts. They're giving you a specific number that they're targeting for 2020. And the only other company in the biopharma space that jumps to mind that's done that is Celgene. So it's a very small grouping of companies that are willing to stick their neck out. And I think that'll resonate with investors. Once everything settles down here, I think investors are going to look at that and they're going to start to say, "Hmm, maybe this is an interesting stock for me to consider, especially given its tasty 5.7% dividend yield."

Kristine Harjes has no position in any stocks mentioned. Todd Campbell owns shares of Celgene. The Motley Fool owns shares of and recommends Celgene. The Motley Fool recommends Biogen. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.