First, my concern was whether or not I should continue to own it as it thrashes through the process of enduring a key patent expiration on Humira, the blockbuster drug which accounts for 60% of its sales. I researched the company and published an article expressing my ambivalence towards it. Rather than writing and forgetting, I wrote and continued researching.
As I did so and evaluated AbbVie’s prospects under diverse scenarios, I concluded that it was definitely best to hold tight. There is no opportunity in the market today which offers a better safer repository for the proceeds if I were to sell.
AbbVie’s Humira sales dominance is not just a source of risk to the company. It also gives AbbVie the financial firepower to manage its way to “deconcentrate from Humira.” This is the marvelous phrase that Bill Chase, AbbVie’s CFO and Executive Vice President, used at his May 23, 2016, presentation at the UBS Global Healthcare Brokers Conference to describe AbbVie’s efforts to round out its portfolio. AbbVie is definitely not a stock where management fails to “get it.” Three SA news pieces last week are highly illustrative of AbbVie’s good work towards this end.
1. SA News from Tuesday, May 24, 2016: “Boehringer’s risankizumab induces remission in Crohn’s patients in mid stage study”
An important part of AbbVie’s deconcentration efforts are its ongoing programs of reaching out and partnering with other pharmaceutical companies to expand its pipeline. As recently as March 7, 2016, AbbVie announced its collaboration with Boehringer Ingelheim to advance immunology compounds, particularly as directed to Crohn’s disease and plaque psoriasis among others.
Now a phase 2 trial of the compound risankizumab is reporting favorable interim results on its path to completing the 52 week study expected to wind up in December of this year.
Boehringer Ingelheim’s website describes the deal as follows:
“. a global collaboration with AbbVie for BI 655066 and BI 655064, Boehringer Ingelheim’s two most advanced development compounds in immunology. The agreement will ensure that the two compounds can be brought forward to benefit more patients from the moment of launch, optimising the availability worldwide.AbbVie, a company with extensive experience in the immunology field, will ensure BI 655066 and BI 655064 reach their full potential to help patients across the globe, while Boehringer Ingelheim expands its capabilities in this new therapeutic area.
Both companies will share the responsibility for Phase III development of BI 655066 in the initial period and Boehringer Ingelheim will retain rights to co promote BI 655066 in asthma. Boehringer Ingelheim will also have the responsibility for further development of BI 655064, with AbbVie may elect to advance the programme after achievement of undisclosed certain clinical milestones.”
The outline of the deal required an initial payment by AbbVie of $595 million. Additional milestone payments and license fees are also envisioned but terms thereof have not been disclosed.
2. SA News from May 27, 2016: “European Ad Comm backs new use of AbbVie’s Humira for type of eye inflammation”
Ironically, continued development of Humira is a key component of the process of deconcentrating AbbVie. Humira is the goose that keeps laying golden eggs. AbbVie needs to continue its ongoing process of building up revenues from this marvelous creation. Such revenues give it the war chest that enable it to make milestone payments to companies like Boehringer Ingelheim. They also enable AbbVie to borrow billions on favorable terms when the occasion warrants.
In addition, the more revenue streams that flow from Humira, the less each single competitor will threaten AbbVie, until it too is able to prove its efficacy to combat that particular condition. AbbVie’s management has grown an impressive patent estate of no fewer than 70 patents, protecting various aspects of the drug from competition.
3. SA News also from May 27, 2016: “FDA OKs long acting MS biologic daclizumab”
As pointed out in the news item, daclizumab (Zinbryta) is a long acting MS drug. AbbVie acquired co promotion rights in the United States and the EU in 2010 when it acquired Facet Biotech. Apparently, AbbVie became involved as something of a white knight, offering a premium over a lower hostile bid that Biogen had made for Facet. Now, some 6 years later, the deal will start to pay off.
It is worthwhile to read the comments to the SA news article. DoctoRx points out the difficulties the drug will have in finding traction by reason of its black box warning and the death that occurred during clinical trials. Several others push back, citing the paucity of alternatives that MS patients face when it comes to therapies that lack equally daunting risk profiles.
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Conclusion: Deconcentration is a Process
One thing that is clear from reading these news items is that AbbVie will not replace any Humira revenues that may occur quickly or easily. It is a tribute to AbbVie’s management that it has painstakingly developed the pipeline that it has, piece by piece and step by step, all the while protecting and expanding Humira, the Mother Goose who has laid the golden eggs.
Disclosure: I am/we are long ABBV.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.