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- Don D., California
Coverage Initiation: AbbVie Inc.
Value Line has initiated coverage of AbbVie Inc. (ABBV) in its flagship product, the Value Line Investment Survey. The company was spun off from Abbott Laboratories (ABT) on January 1, 2013 and is comprised of Abbot’s former research-based biopharmaceuticals business. AbbVie’s stock began trading on the New York Stock Exchange the following day. It has about 21,500 employees worldwide and is headquartered in Chicago, Illinois.
AbbVie develops and markets advanced therapies that address some of the world’s most complex and serious diseases, such as rheumatoid arthritis, psoriasis, Crohn's disease, HIV, cystic fibrosis complications, low testosterone, thyroid disease, Parkinson's disease, ulcerative colitis, and complications associated with chronic kidney disease, among others. Its most successful product is HUMIRA, which treats a host of autoimmune diseases. Sales of HUMIRA, have grown to $9.3 billion, and constitute about 50% of AbbVie’s total sales. (The United States patent covering adalimumab – the main compound in HUMIRA -- is expected to expire in December 2016, and the equivalent European Union patent is expected to expire in the majority of EU countries in April 2018.) Additional products include those that treat metabolic and hormone conditions ($2.1 billion), treatment of HIV infection ($1.4 billion), a range of metabolic conditions characterized by high cholesterol and/or high triglycerides ($2.1 billion), and others ($2.8 billion). Moreover, AbbVie has a pipeline of promising new medicines, including more than 20 compounds or indications in Phase II or Phase III development across medical specialties as immunology, renal care, hepatitis C, women's health, oncology, and neuroscience, including multiple sclerosis and Alzheimer's disease.
Research and development expenses are typically about 15% of sales and over the past five years, AbbVie has more than doubled the number of compounds in its pipeline through a mix of internal development and external collaboration efforts. This, however, is no guarantee that future products will be developed. A high rate of failure in the biopharmaceutical industry is inherent in the development of new products, and failure can occur at any point in the R&D process; including after significant funds have been invested. For example, last year, the company discontinued the development of ABT-263, which was in Phase II development for the treatment of hematologic malignancies.
In addition to the significant monetary resources that must be devoted, the research and development process takes a very long time. Indeed, discovery through to a new drug launch typically takes about 8-12 years and can be even longer. It is not just R&D that takes time though, important regulatory hurdles must be passed, which will also extend the process and further add to a drug’s uncertainty. In the end, when a new product is created, periods of exclusivity usually last between three and 14 years.
Turning to distribution, last year, AbbVie’s products were sold in over 170 countries, and the company utilizes a combination of dedicated commercial resources, regional commercial resources, and distributorships to market, sell, and distribute its products. While the company believes the loss of no single customer would have a material adverse affect on revenues, sales to McKesson Corporation (MCK), Cardinal Health, Inc. (CAH), and AmerisourceBergen Corporation (ABC) accounted for 38%, 27%, and 26%, respectively, of gross U.S. sales in 2012. Domestic sales make up about 57% of the top line.
AbbVie competes with other research-based pharmaceuticals and biotechnology companies that discover, manufacture, market, and sell proprietary pharmaceutical products and biologics. The search for technological innovations in pharmaceutical products is a significant aspect of competition and the introduction of new products by competitors, and changes in medical practices and procedures can result in product obsolescence. Price is also a competitive factor. In addition, the substitution of generic pharmaceutical products for branded ones puts pressure on offerings without patent protection.
Going forward, AbbVie’s long-term strategy is to maximize its existing portfolio through new uses for its products, share gains, increased reach, and geographic expansion in underserved markets while also advancing its new product pipeline. To successfully execute its long-term strategy, the company has a three part plan. First, AbbVie expects to continue to drive strong HUMIRA sales by expanding the patient base by finding new applications for the drug and by expanding its market share and presence in underserved markets. Second, R&D will continue to be a priority, and will focus on areas such as immunology, oncology, neuroscience, pain management, virology, renal disease, and women's health. Lastly, AbbVie plans to continue making investments in key emerging markets, including Brazil, China, Mexico and Russia. Continued penetration of HUMIRA and other leading products is expected to help drive growth in these countries.
Subscribers interested in this biopharmaceuticals company are advised to consult Value Line’s quarterly reports for AbbVie Inc., as well as any supplemental reports as important news items arise.
The author did not have positions in any of the company’s mentioned at the time of this article’s writing.