With Humira and other blockbuster drugs about to lose their main patent protection in 2016, the stage is set for copycat versions, called biosimilars, to take a huge chunk out of biologics’ profits. The only question is when.
By far the top-selling drug in the U.S. and the world, Humira garnered $12.5 billion in sales in 2014 and $10.3 billion in the first nine months of 2015, contributing nearly two thirds of AbbVie’s revenue. Mainly prescribed for rheumatoid arthritis, Humira (adalimumab) is one of the most expensive biologics on the market, costing Medicare more than $35,000 per patient per year.
Humira revenue has been sufficient to keep AbbVie dividends high despite weak sales of Viekira Pak, its breakthrough product for hepatitis C, and worries about its risky $21 billion investment in Pharmacyclics in March. On its last quarterly earnings call, on October 30, the company reported earnings of $4.94 billion for the quarter and announced a dividend of $0.57, up from $0.51 the previous quarter, representing a $2.28 annualized dividend and dividend yield of 4.23 percent.
Whereas large institutional investors such as Janus Capital Management and Jennison Associates are still banking on Humira’s unquestionable success, some analysts and institutional investors are showing signs of concern. Explicitly referencing the threat of biosimilar competition, Zacks Investment Research downgraded the company’s stock from buy to hold on January 4, while a number of midsize institutional investment firms such as Philadelphia-based Swarthmore Group have recently reduced their investments in the drugmaker. Swarthmore decreased its position by 8.2 percent during the fourth quarter, according to its latest Securities and Exchange Commission filing, selling 54,200 AbbVie shares and bringing its stake to just over 608,000.
This uncertainty is fair, given that the company is facing imminent competition from Amgen, which applied for U.S. Food and Drug Administration (FDA) approval of its adalimumab biosimilar in November. Partnerships between Merck and Samsung Bioepis and between Baxalta and Momenta Pharmaceuticals have also reported successful Phase 3 clinical studies showing biosimilarity between their drugs and Humira.
Biosimilars, or drugs that are similar enough to be used in place of branded biologics, are about to be big business. More than $100 billion worth of biologic medicine is due to lose patent protection in the next five years. When Pfizer acquired biosimilar manufacturer Hospira in February 2015, its announcement noted that the company expected the biosimilars market to climb from $3 billion in 2015 to at least $20 billion in 2020.
For investors, however, the industry is still new and full of risk. “This is a marketplace that involves such a heavy amount of dollars that in 2016 the federal government has to create a situation conducive to entry,” John Phillips, director at Deloitte Transactions and Business Analytics, tells Institutional Investor. “Many companies are excited but still in wait-and-see mode.”
More than five years after President Barack Obama ordered the creation of an abbreviated pathway for biosimilar approval by the FDA, the industry has only just seen its first entrant, in September 2015, when Novartis’s Sandoz released Zarxio, a competitor to Amgen’s anti-infective drug Neupogen. Even since Zarxio’s release, the government has left major questions unanswered, like how these drugs will be named and how they will be billed for by Medicare and Medicaid. Without these issues addressed, Amgen will still face many hurdles if it succeeds in challenging AbbVie’s patents and bringing a Humira competitor to market in 2017.
AbbVie CEO Richard Gonzalez is confident that will not happen. Gonzalez assured listeners on the company’s past earnings call that Humira’s robust patent portfolio will protect it from biosimilar encroachment through 2022. He boldly predicted global sales will rise to $18 billion in 2020, far surpassing analysts’ estimates it would reach only $13 billion by then, thanks to Humira’s 70 U.S. patents on its formulation, manufacture and treatment methods for numerous disease indications, many of which have only been issued in the past couple of years.
AbbVie may boast a strong patent portfolio, but its first biosimilar challenger, Amgen, is a worthy opponent, as an innovative biologic company that fought off biosimilar threats to its blockbuster Neupogen for years and has now taken that experience to the other side of the table. Amgen submitted a biologics license application (BLA) to the FDA in late November 2015 for its Humira competitor, ABP 501.
“People have said there would be a biosimilar for Humira before other drugs,” says Chad Landmon, a patent litigation attorney at Axinn, Veltrop & Harkrider’s Hartford, Connecticut, office. “I think there would be good merit to the patent challenges; it will be difficult for this and other older products that have been kicking around for a little bit to protect their patents.”
Still, patent challengers will face a tough fight: Biologics patents are based on extremely complicated science that will be hard to explain to judges — and, when it comes to calculating damages, juries. If a judge gave AbbVie an injunction, the companies could remain entangled in litigation through at least 2019.
So far, patients and payers will see a price cut of only 15 percent or so off the name brand, as opposed to the roughly 80 percent provided by generics, and the maximum anyone is imagining is 30 percent. Still, with the steep price of biologics, that 30 percent could have a huge impact on drug spending.
Barclays biotech analyst Geoff Meacham thinks biosimilars should be able to solve the drug-pricing problem. “But to realize their potential,” he says, “discounting would have be 30 to 50 percent, which comes from having three or more players in one market. It may take two years to get to that point, but it seems like it is a matter of when, not if.”
Even if it doesn’t lower drug prices anytime soon, just the threat of a biosimilar Humira has motivated AbbVie and other companies to invest in a promising new class of therapies for rheumatoid arthritis and cancers called Janus kinase, or JAK, inhibitors, which should keep these companies relevant and profitable for years to come. AbbVie just announced it has launched a Phase 3 trial of ABT-494, its competitor to Pfizer’s Xeljanz, which patients need to take only once a day as opposed to twice daily for Pfizer’s drug. These drugs are enticing because they seem to work on patients who don’t respond to other treatments and are taken by mouth.
“Obviously, AbbVie feels the fear of biosimilars for Humira, so it forces them to think about other approaches for thwarting rheumatoid arthritis competition,” says Fariba Ghodsian, CIO at Los Angeles–based DAFNA Capital Management. “If these JAK inhibitors stand up to the promise they’re showing now, they might be an advantage for patients because they’re oral, so the biosimilar impact may not be as significant because they might just come up with a whole new market.”
This is the fourth in a series of five stories on the growing controversy swirling around the U.S. pharmaceuticals industry over drug prices. Also see “Drug Wars: The Battle to Put a Lid on Rising Drug Prices,” “Aggressive Pharma Ads Yield Results — and Complaints” and “Specialty Pharma Drugs Raise Difficult Issues.”
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