While the pharmaceutical companies witness patent approvals and expirations on an ongoing basis, this decade presents a significant challenge to them as many of the world’s largest selling drugs are scheduled to lose their patent protection over the next 6 years, putting close to $300 billion at risk.  After a drug patent expires, generic manufacturers can replicate and sell the drug at much cheaper prices, generally leading to a steep decline in the drug’s revenues. As we continue to analyze the impact of patent expiries on pharmaceutical companies including Pfizer, Merck, Roche Holdings and JNJ. Below we discuss the impending patent cliff and prospects of Abbott lipid regulators drugs division.
Abbott has a limited presence in the huge cardiovascular drugs market with a few drugs including Trilipix /TriCor and Niaspan. Trilipix /TriCor (contain Fenofibrate) are lipid regulators that can lower cholesterol and reduce the risk of cardiovascular diseases, whereas Niaspan (contains Niacin) increases HDL or good cholesterol in the body. Abbott’s global revenues from these drugs exceeded $2.5 billion in 2011, nearly 5% of Abbott’s total revenues.  And, the fact that all of these drugs are looking at patent exclusivity loss in the next 1-2 years, will significantly hurt Abbott as its pipeline for cardiovascular drugs remains empty. 
- Abbott Earnings Review: Foreign Currency Effects Subdue An Otherwise Strong Operational Growth
- What Can We Expect From Abbott’s Q1’16 Earnings?
- What’s Abbott’s Fundamental Value Based On Expected 2016 Results?
- How Has Abbott’s Revenue Mix Changed In The Last 5 Years?
- By What Percentage Did Abbott’s Revenue & Gross Profits Grow In The Last 5 Years?
- Currency Headwinds Take A Toll On Abbott’s Profitability In Q4: Abbott Earnings
Decline Of Trilipix /TriCor
TriCor has already entered into generic phase in 2012, following a licensing agreement in November 2009, enabling the world’s largest generic pharmaceutical drug maker, Teva, to launch a generic equivalent of the drug. In addition, many cheap generic drugs containing Fenofibrate are already available in the market. To retain its sales, Abbott deployed a switching strategy and launched a similar drug Trilpix sequentially.
Trilpix, however, took a beating from Action to Control Cardiovascular Risk in Diabetes (ACCORD) study, which suggested that Trilipix may not lower a patient’s risk of having a heart attack or stroke.  Further, Abbott settled its patent litigation with Impax Laboratories, whereby Impax may begin to manufacture a generic version of the drug by mid-2013, paving the way for significant competition going forward.  All of these factors should result in an accelerated decline in revenues going forward.
Bad Time Ahead For Good Cholestrol Pill Niaspan
There is no reprieve for Niaspan either, which has had a decent run until this year. The generic version of Niaspan is set to arrive by late 2013 as part of a settlement agreement between Kos (acquired by Abbott) and Barr (now part of Teva). Magnifying the pain is the termination of an NIH study suggesting that the drug did not exhibit efficacy in reducing the risk of cardiovascular events, including heart attacks and stroke.
Further, there was a small unexplained rise in strokes from Niaspan and Statin treatment.  This has led doctors to avoid prescribing the drug as has been witnessed in this year’s sales. According to Abbott’s 2012 Q3 results, Niaspan sales took a 12% dip on a year-over-year basis.  And, we don’t see Niaspan to rebound from the outcome of the study in near term while cheap generics will hammer it in the long term.
While most of the pharma companies keep developing new drugs in anticipation of patent expiries, the major issue with Abbott is that it has an empty pipeline, with no potential blockbuster candidate to counter patent expiries in its lipid regulator franchise. As the company nears split, its “to be separated proprietary research company, AbbVie” will inherit these challenges from the inception (Jan 1 2013). Read Abbott Labs: Board Approves Split As Jan 1 Nears for detailed analysis.
Our price estimate for Abbott Labs stands at $67, implying a premium of about 5% to the current market price.Notes:
- BIO 2012: Implications of the ‘Patent Cliff’, The Life Science Report, June 19 2012 [↩]
- Abbott Reports Double-Digit Ongoing Earnings-Per-Share Growth in Fourth Quarter and Full-Year 2011, Abbott, Jan 25 2012 [↩]
- Proprietary Pharmaceuticals – Research Pipeline, Abbott, Dec 20 2012 [↩]
- Drug Study a Setback for Abbott, NYTimes, May 17 2011 [↩]
- Impax Settles With Abbott, Fournier to Sell Generic TriLipix, Bloomberg, Oct 20 2011 [↩]
- NIH stops clinical trial on combination cholesterol treatment, National Institute of Health, May 23 2011 [↩]
- Abbott Reports Double Digit Earnings Per Share Growth in the Third Quarter, Abbott, Oct 17 2012 [↩]