Abbott Labs (NYSE:ABT) must be smiling with the FDA raising questions over Pfizer‘s (NYSE:PFE) rheumatoid arthritis oral drug tofacitinib. If approved, the pill could eat into the autoimmune market, currently dominated by Abbott’s blockbuster drug Humira. Below we take a look at how tofacitinib’s fate could impact the company’s value.
Abbott is a diversified healthcare major and is involved in the development, manufacturing and marketing of pharmaceuticals and other medical products, including nutritionals and diagnostics. Its major competitors include Johnson & Johnson (NYSE:JNJ) and Merck (NYSE:MRK).
Our price estimate for Abbott Labs stands at $66, implying a premium of about 5% to the current market price.
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Pfizer’s loss to be Abbott’s gain
Not many drugs have been able to break Abbott’s position in the autoimmune market in the past few years. Abbott’s blockbuster drug Humira leads in the treatment of rheumatoid arthritisis and bears the tag of the world’s largest selling drug for this disease.
Recently, many have threatened to make greater inroads in the autoimmune market share with Pfizer’s tofacitinib leading the race. Tofacitinib has an advantage as it’s an oral drug, whereas Humira has to be injected in the body. But, just when everyone was convinced about tofacitinib receiving regulatory approvals, the FDA has raised serious questions over the benefits of the drug. We have discussed on this subject in a separate article.
The autoimmune segment constitutes nearly 20% of our price estimate for the company. Currently, we expect Humira’s market share to fall, going forward, as new entrants mainly Pfizer enter the market. Should Pfizer fail to receive regulatory approvals pending this August, it could mean a significant upside for Abbott.
Humira, however, will lose its U. S. patent protection at the end of 2016. This will allow generic manufacturers to introduce cheaper addition of Humira, thus leading to a decline in Humira’s market share as well as margins.
Earlier in February, to combat competition and with Humira’s patent expiry coming close, the company entered into a deal with Galapagos to develop and commercialize an oral JAK1 inhibitor in Phase II development.