The U.S. Food and Drug Administration (FDA) has raised efficacy and safety concerns regarding the use of Abbott Labs‘ (NYSE:ABT) largest selling drug Humira for the treatment of Ulcerative Colitis (UC). According to the FDA, Humira doesn’t show strong benefits over Remicade even as safety risks remain the same. Moving patients from an effective treatment to potentially less effective treatment won’t be prudent.  This may hurt Abbott’s efforts to expand the drug’s base to new indications to overcome increasing competition and new entrants in the key Rheumatoid Arthritis market where Humira is a distinguished leader.
Below we take a look at how it could impact the company’s value.
Abbott’s Humira is mainly used to treat Rheumatoid Arthritis and is the world’s best-selling drug in the autoimmune market, with an estimated market share of over 30% in the near $25 billion autoimmune market. Other indications for which Humira is approved in the U.S. include Psoriatic Arthritis, Ankylosing Spondylitis, Crohn’s Disease, Juvenile Idiopathic Arthritis, and Plaque Psoriasis.
Humira’s revenues exceeded $8 billion in 2011, and we expect it to top $10 billion by 2013. Thereafter, we expect the revenues to gradually decline as competition penetrates the market. Pfizer is getting ready with its oral drug tofacitinib, while Roche recently reported better efficacy results for monotherapy RA patients. Recently, Belgium-based company Ablynx also claimed to show benefits over Humira.
Abbott is leaving no stone unturned to overcome the competition. Expanding Humira’s base to new indications such as Ulcerative Colitis is part of that strategy. Ulcerative Colitis (UC) is a severe inflammatory disease of the large intestine and rectum that causes abdominal pain and diarrhea, among other symptoms. The disease affects nearly 500K people in the U.S., according to the Crohn’s & Colitis Foundation of America, with many even pegging the total affected at 700K. Therefore, the extension of the drug to UC patients will certainly bring in more revenues. While the U.S. FDA approval has been delayed several times, we expect the company to eventually receive the approval by the beginning of next year.
However, this may not be sufficient if Humira loses its competitive advantage in RA market more significantly than we currently estimate as the UC drug market is expected to remain much smaller (about $1.8 billion in 2010, expected to reach $3 billion in 7 large countries by 2020) compared to the RA drug market (about $12 billion in 2010, expected to reach $18 billion by 2020).
Further, the patent expiry in the U.S. in December 2016 (including a year’s extension) will significantly affect Humira’s revenues by the beginning of 2017. Further, the expiry will lead to a drop in margins as cheap generic versions will put pressure on Abbott’s pricing power. But, it is yet to be seen if the deal with Galapagos to develop and commercialize an oral JAK1 inhibitor reaps benefits for the company in the long term.
We are in process of revising our $66 price estimate for Abbott Labs, in-line with the current market price.Notes:
- Abbott’s Humira May Not Be Effective in Colitis, FDA Says, Bloomberg BusinessWeek, August 24 2012 [↩]