The Common Misconception of AbbVie, Humira, & Biologics

There is a common misconception with AbbVie (ABBV) in regards to its blockbuster drug Humira. Sure Dividend outlines this misconception below.

That’s where the risk with AbbVClie comes in.

The company’s composition-of-matter patent for Humira expires at the end of 2016 in the United States. It expires in 2018 in Europe.

When these patents expire, Humira will lose its competitive advantage. Amgen (AMGN) has already submitted a biosimilar version AbbVie to the FDA (they did so in November of 2015). It is likely that other pharmaceutical companies will follow.

It’s difficult to know exactly how far revenue and profit will slide for Humira once it experiences competition.

The image below shows the effects of generic drug competition on Claritin to give an idea of what happens when a drug loses market exclusivity:

Image courtesy of Sure Dividend.

Image courtesy of Sure Dividend.

Looks scary.

Humira is going off patent and will experience a dramatic drop-off in sales once generic drugs get the green light just like Claritin did. For AbbVie it could be even worse because so much of its current revenue and profits come from Humira.

And it would be very scary if not for the fact that Claritin and Humira are two drastically different drug compounds.

Small Molecule Drugs

Claritin is a small chemically synthesized drug whose structure is well defined. When a small molecule drug loses its patent a generic drug maker only has to prove that their generic drug is the same drug structurally. The generic drug maker does not have to run new efficacy and safety trials. For good reason, the generic and the branded drug are exactly the same.

Making generic small molecule drugs is relatively cheap. This is why generic drug makers can charge such low prices in relation to the branded drug and take market share away.

Large Molecule Biologics

Humira is a biologic. It is a very large molecule that is made through the use of microorganisms. The entire process of making a biologic, from creating the genetically engineered cells to the isolation of the finished product, is the drug. A change in any step can produce a different molecule.

Because different biologic making processes can produce different drugs, any company that wants to make a generic biologic, a biosimilar, has to undergo new efficacy and safety trials for its drug. Bringing a biosimilar to market is about the same as bringing a new branded drug to market. It is costly. A biosimilar’s discount to the branded drug is not as great as a generic small molecule’s discount is to its branded drug. Novartis’ Neupogen biosimilar sells at a 15% discount.

Higher Legal Hurdles

The legal hurdle for bringing biosimilar’s to market will be high too. As Amgen just found out with U.S. patent officials refusing to review two of their Humira patent challenges. The patent challenge mentioned by Sure Dividend above. Amgen was thought to be the first company able to bring a Humira biosimilar to market. That timetable has been pushed back.

Biologics are a little more protected than chemical small molecule drugs to generic competition. It doesn’t mean biosimilars can’t come to market and compete with Humira. However, if biosimilars only offer a 15% discount it will be tough to take significant market share away from the branded drug. If Humira is working well for a patient with little side effects then it will be hard for the prescribing doctor to switch from a medication that works to an unproven biosimilar.

Source:

Dividend Aristocrats Part 47: AbbVie (Sure Dividend)