This past Friday (10/15/2021) – we saw a big movement from the FDA that has HUGE implications for biopharma – approval of the interchangeable biosimilar for Humira.
While there are a number of companies chasing Humira biosimilar market, the first product to gain interchangeability from the FDA is Cyltezo – Boehringer Ingelheim’s biosimilar for Humira.
Just as a refresher- Humira is Abbvie’s mega blockbuster product – in fact , it is probably the biggest product in pharma’s history – growing through two mechanisms – which ar
First – Label expansion –
through smart clinical development, Abbvie has identified more diseases that Humira can treat effectively. It is one product, but treats multiple disease – so it was effectively many products in one product. Check out Humira’s package insert below:
Second – big price increases
Abbvie raised price for Humira significantly – this obviously contributed to significant revenue growth as well as gross margin expansion. The cost of production probably remained the same or even moved lower with increased volume on per unit basis, but Abbvie continued to raise prices annually.
With clever clinical development, strong commercial execution, and price increase, Abbvie developed Humira a massive immunology FRANCHISE – beyond a single product that generated ~$20bn of sales in 2020.
SO WHAT NOW?
Well.. all good things come to an end and Abbvie is no different. In pharma, where products have limited life cycle, the great product that “made the company” will lose its exclusivity, and the great product turns into a big replacement problem.
Abbvie’s answer for Humira revenue replacement is multi-product and franchise approach through internal development and M&A.
Rinvoq / Skyrizi are expected to grow into blockbuster products – so two products are expected to carry on the glory of Humira.
However, Rinvoq had a recent set-back from the FDA – FDA continues to be very concerned about potential risk of JAK class that showed up in first-generation JAK inhibitor (Xeljanz) and put same blackbox label for second generation JAK inhibitor – Rinvoq.
Rinvoq did not show any risk from its clinical risk, but given that risk is a JAK class issue, it is understandable that FDA, as a steward of public health, put out the warning for the class.
However, this is bad news for Abbvie – a company that desperately needs Rinvoq to ramp to replace revenue cliff from Humira.
Abbvie also acquired Allergan to pad the downside for the revenue cliff – Allergan franchise are highly durable business with strong secular tailwind.
Only issue is that Allergan business are highly durable with predictable growth and carry high multiple, but they are low margin products (relative to pharma) and therefore, provide limited support to the cash flow cliff following Humira.
YOU WOULD SAY… BUT EVERYBODY KNEW THIS.. WHY ARE YOU SENDING ALARMS NOW?
Well.. it comes down to investor expectations, and I am not sure if investors were expecting interchangeble Humira to be approved this early in 2021.
Abbvie has been warning investors, but investors continued to think that Abbvie was “talking down” Humira erosion.
Key issue is that we don’t know what the impact will be – we have one interchangeable product approved so far – insulin.
That interchangeable product did not ramp significantly until the biosimilar competitor took significant price cut.
Anyways, until then, it might be tough to see Abbvie’s multiple to recover – might be better to invest in other large caps without this type of overhang.
Happy Investing!
*not investment advice
