2023 is a special year in pharmaceutical industry – we will see what happens when the biggest product in pharmaceutical industry – HUMIRA – faces biosimilar competition.
As you all know, Humira is the biggest product of Abbvie ($ABBV).
Humira is the best product in the anti-TNF class that span Enbrel and Remicade.
The impact will be significant – because it has been known as the best example of a “pipeline in a product” THAT CAN TREAT 11 DIFFERENT DISEASES!
This essentially means that ABBV essentially launched Humira 11 times – an extremely capital efficient drug development. More importantly, they were in massive indications, including rheumatoid arthritis, psoriatic arthritis, and crohn’s disease.
Successful drug is a blessing – but it does come with a problem of having to come up with more promising drugs to replace the revenue once the blockbuster drug loses exclusivity.
ABBV has been planning for Humira loss of exclusivity for a long time. Their answer was Rinvoq (JAK inhibitor) and Skyrizi (IL-23).
Key issue has been that given that these drugs were launched in 2019/2020 and Humira is facing biosimilar in 2023, there is not a lot of time for these two products to grow sufficiently to offset what could potentially be catastrophic Humira revenue erosion.
Of $15bn 3Q22 revenue, US Humira accounted for $5bn of sales – a whopping 33% of total sales.
Naturally, this kept investors away from owning the stock – it is difficult to size up the magnitude of Humira erosion. Most investors agree that ABBV remains strong fundamentally and expect Rinvoq and Skyrizi to replace Humira revenue long-term – they just did not want to own the stock because of temporary decline in earnings in 2023 into which there was little visibility.
On top of that, we are seeing more interchangeble biosimilar Humira getting FDA approvals – further adding to the fear.
HOWEVER THINGS STARTED TO CHANGE A LITTLE AS WE GET MORE INFORMATION – AND IT LOOKS LIKE HUMIRA EROSION IN 2023 MAY NOT BE AS CATESTROPHIC AS FEARED IN CONSENSUS.
As of today (November 5th 2022), consensus expects US Humira revenue to decline by roughly ~40% in 2023 from 2022 and 2023 with the revenue declining from $19bn in 2022 to $11bn in 2023.
However, updates from Abbvie and other Humira biosimilar developers suggest that consensus may be too extreme.
ABBV: Will be able to maintain access for most of existing population in the US
Expects more competition in 2H23
Already secured access for Humira for >80% of US lives.
ABBV plans to reduce pricing significantly to preserve volume.
TEVA: Big uncertainty if TEVA can participate in the market formation.
Received CRL due to failing manufacturing site inspection of Alvotech’s Iceland facility (Alvotech is Teva’s biosimilar Humira supplier).
FDA may not be able to go back to Iceland site before December BSUFA for its interchangeability application.
Payors do not make quarterly adjustments for formulary -> this means if Teva’s product is not approved in December, Teva will largely miss out on participating in 2023.
Teva’s potential absence in market formation is particularly notable because it is the closest biosimilar to branded Humira (interchangeble, citrate-free, high concentration, pen).
OGN: already talked down 2023 and 2024 expectations for biosimilar Humira.
OGN communicated that 2023 revenue from its biosimilar Humira is not going to be material and they expect true competition in 2025.
OGN also indicated that they are not allowed to negotiate with payors until their launch date (July 2023). This means Organon’s product won’t be on formulary until 2024.
AMGN: launching with no interchangeability label
SO WHAT DOES THIS MEAN?
This means Humira erosion may not be 40% in 2023 and more catastrophic decline could be in 2024 / 2025 timeframe.
This means ABBV’s Rinvoq (annualizing at $2.6bn and growing at 60% Y/Y) and Skyrizi (annualizing at $5.6bn and growing at 75% Y/Y) have another year to grow and they are growing extremely fast!
This can pad the Humira erosion and the risk of catastrophic decline in ABBV’s revenue and earnings in 2023 – 2025 is now much lower.
On top of that, ABBV has other pipeline to further drive growth beyond immunology – including oncology portfolio.
With the stock trading at 12.5x 2023 consensus earnings (but consensus estimates could come up given consensus is overestimate Humira erosion, which means stock is trading at more like 11-12x), I see ABBV trading at artificially suppressed multiple due to fear around biosimilar Humira erosion.
Post-Humira, ABBV becomes one of the fastest growing, durable, and diversified large cap pharmaceutical company (maybe outside of LLY, but LLY is trading at 30x P/E) – and I can’t help getting excited about ABBV’s medium/long term equity story.
I was one of the bears on ABBV due to revenue erosion from interchangeable biosimilar Humira. However, it looks like that fear may be overblown.
With indicated dividend yield at 4%, ABBV could be an interesting long candidate that can drive upside from multiple expansion, earnings upside, and real dividend income stream.
One company to get hit from bystander effect is Amgen ($AMGN).
Amgen’s big blockbuster drug is Enbrel – it is often viewed as an inferior product to Humira and Amgen has had to fight for market share by giving more price discounts.
They are both anti-TNF drugs (same class) – they are in the same category and are going after the same patients.
Now, Humira will be 15-20% cheaper next year (my speculation) – then now there is no reason to use Enbrel or Enbrel will have to take its price down to preserve its access.
During 3Q, Enbrel was $1.1bn of total revenue of $6.6bn. Pricing and volume will come down for Amgen, and Amgen’s biosimilar Humira revenue will not be enough to offset that erosion.
Hope you enjoyed reading about my investment thought process on ABBV!
However, this is not investment advice and I may change my view at anytime – please do your own research!
Have fun investing!
