AbbVie Inc.’s widely touted megadeal to purchase Shire PLC and relocate its headquarters to Ireland for tax benefits fell through last month, triggered by U.S. regulatory pressure.
Bad news, right?
Wall Street doesn’t think so. In fact, AbbVie shares have jumped 17 percent since the biopharmaceutical company announced Oct. 20 the $54 billion transaction wouldn’t go forward.
Although the deal was supposed to help AbbVie diversify its maturing product line, not everyone was sold on the deal, which presumably intended to compound revenue and lower taxes.
“The silver lining from the Shire break-up could be that AbbVie diverts more resources to focus on the successful launch of its Hep-C franchise later this year because the stakes are higher for management,” Alex Arfaei, analyst at BMO Capital Markets, wrote in an Oct. 21 note.
In fact, the AbbVie and Shire miscarriage has positioned the research-based biopharmaceutical company to focus on the fundamentals, such as expanding its drug portfolio, augmenting its pipeline through acquisition and partner activity, research and development, and expanding Humira sales presence in emerging markets.
It doesn’t hurt, of course, that AbbVie’s board of directors authorized a $5 billion stock repurchase program and increased the company’s quarterly cash dividend by nearly 17 percent on the day the deal collapsed.
For years, AbbVie has largely depended on its flagship product, Humira, a biologic drug which treats rheumatoid arthritis, Crohn’s disease, Addison’s disease, multiple sclerosis and Type I diabetes. The genetically engineered drug accounted for $3.3 billion, or approximately 64 percent of total net sales, in the third quarter.
However, AbbVie’s exclusivity right from Humira’s patent is due to expire in late 2016, with emergence of biosimilars threatening to clobber sales of the keystone product.
But even as its growth fades, Humira is expected to help fund development of successor drugs for the company. “Armed with a best-in-class immunology drug Humira,” said Damien Conover, a Morningstar analyst in an Oct. 31 research note, “AbbVie is well-positioned to drive strong cash flows to support the company’s next generation of pipeline drugs.”
The new product pipeline is key to sustaining growth.
Biosimilars are different from biologics, the original innovator medicine. A biosimilar is defined as a biotherapeutic product, which is similar in terms of quality, safety and efficacy to an already licensed reference biotherapeutic product, according to the World Health Organization. Biosimilars closely resemble biologics, but are different from generics, in which its active ingredients are identical.
“We certainly do not expect a precipitous decline in Humira sales as a result of biosimilars,” said BMO’s Arfaei in a Nov. 7 research note. “However, we do expect AbbVie’s long-term growth prospects to be under increased scrutiny in 2015 and beyond because of growing biosimilar concerns.”
Some of the new products designed to help replace Humira’s fading momentum are moving closer to a rollout. “Looking ahead, AbbVie’s pipeline is weighted heavily toward 2015 launches, with its hepatitis C drugs representing the crown jewel in the pipeline with upside reaching over $3 billion annually,” Conover explained in an Oct. 31 note.
Hepatitis C is a viral disease that causes inflammation in the liver, scarring tissue and either compromising liver function or causing liver failure.
AbbVie released optimistic data Nov. 11 regarding its Hepatitis C pipeline, edging the company towards the cusp of formally launching its product. The New England Journal of Medicine published data on AbbVie’s experimental cocktail drug, which cured 97.1 percent of patients with recurrent chronic HCV infection who received liver transplants in a study.
About 3.2 million Americans are infected with HCV, according to the Centers for Disease Control and Prevention, and 15-30 percent of those who fail to receive treatment will develop cirrhosis, the final phase of chronic liver disease.
Once the U.S. Food and Drug Administration approves AbbVie’s Hep-C drug, it will compete with Gilead Science Inc.’s Sovaldi and Harvoni treatments and Merck & Co. Inc. pending drug.
For North Chicago-based Abbvie, “Hep-C cure is an under-appreciated opportunity,” Morgan Stanley analyst David Risinger wrote in an Oct. 22 research note. “We forecast global market sales over $15 billion annually over the next few years, with AbbVie garnering more than a 25 percent share.”
Other advances include AbbVie’s research and development collaboration with Calico LLC to discover and develop new therapies for age-related diseases, including neurodegeneration and cancer.
Nearly two years since Abbott Laboratories spun off AbbVie, its stocks are on an upward trajectory. AbbVie’s stock sunk to its lowest point in its second day of existence at $33 on Dec. 14, 2012, and is currently at an all-time high at $63.76 on Nov. 12, performing double Standard and Poor 500’s stock performance.
“Over the next five years, we expect improving margins, largely driven by the higher contribution to total sales by Humira and Hepatitis C drugs, both of which carry very high margins,” Conover commented on AbbVie’s outlook.