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Source: Eli Lilly & Co.

Leading up to a key patent expiration on AbbVie's (NYSE:ABBV) top-selling drug Humira, investors are right to be a bit nervous about AbbVie's future. But it may not be the threat of biosimilar competition that crimps Humira's sales. Instead, it could be an FDA approval of Incyte Corporation (NASDAQ:INCY) and Eli Lilly & Co.'s (NYSE:LLY) rheumatoid arthritis drug baricitinib. Could baricitinib's positive clinical trial data cause doctors to prescribe it instead of Humira? Read on to find out more about baricitinib and its potential impact on AbbVie.

Defining the potential risk
Humira is the world's best-selling medicine. The drug is used to treat a variety of autoimmune diseases, and sales of Humira are running at an astonishing $14 billion annual clip.

Typically, having a mega-blockbuster in the product mix is a good thing, but Humira has been on the market since 2002, and its composition-of-matter patent expires at the end of 2016.

As a result, the potential for drugmakers to develop and launch generic biosimilars that aren't identical but work similarly to Humira has been a big worry for investors, because Humira accounts for more than 60% of AbbVie's top-line sales.

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Source: AbbVie Inc.

Another emerging threat
The potential for biosimilars to eat away at Humira's market share shouldn't be ignored, but the threat may not be as close as investors think.

In Europe, approved biosimilars to other top-selling drugs have won away hundreds of millions of dollars in sales, and most industry watchers think that biosimilars will eventually capture 30%, or more, of branded biologics sales once patents expire.

However, AbbVie's composition-of-matter patent isn't the only patent protecting Humira, and AbbVie believes that its other patents, including method-of-use patents, could keep Humira biosimilars on the sidelines until the early 2020s.

If so, then the biosimilar threat isn't nearly as immediate as the potential threat that Incyte Corporation and Eli Lilly & Co.'s baricitinib poses. The two companies filed for FDA approval of baricitinib in January, and that means the drug could be on the market by the end of this year.

If approved, then trial results showing that baricitinib works better than Humira in some rheumatoid arthritis patients could mean baricitinib takes a healthy chunk out of Humira's revenue.

In phase 3 trials, baricitinib was superior to methotrexate in early RA, and it also improved symptoms in patients who don't respond to anti-TNFs such as Humira. Importantly, results also show that it's superior to Humira in treating patients who fail to improve on disease-modifying antirheumatic drugs (DMARDs), including the widely used methotrexate,

Since DMARD therapy is the mainstay in RA treatment, the potential to short-cut Humira's use when DMARDs fail could put baricitinib on a multibillion-dollar pace that comes at the expense of Humira. Given that Humira's 22% market share in the $18 billion rheumatoid arthritis market translates into roughly $4 billion per year in sales, there's a lot at stake.

Looking forward
There's no guarantee that baricitinib will win over FDA regulators or garner widespread support from doctors and patients, but if it does, then the payoff could be big to Eli Lilly, which owns global rights to baricitinib, and Incyte, which will collect royalties and milestones on baricitinib's sales.

Correspondingly, the risk of baricitinib's success to Humira could similarly be big enough that investors should keep close tabs on Eli Lilly and Incyte's progress. After all, it won't matter nearly as much if AbbVie can block biosimilars if competitors still strike a huge blow to Humira's sales. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.