Abbott’s Pipeline Key in Advance of 2016 Patent Cliff

In the next few years, many blockbuster drugs are expected to lose patent exclusivity which will result in the loss of over $100 billion in revenues. This is why many pharmaceutical giants  including Abbott Labs (NYSE:ABT), Pfizer (NYSE:PFE) and Merck (NYSE:MRK) are striving hard to build an attractive pipeline. Over the next few days we will take a look at how the patent expiry of some blockbuster drugs will impact these companies’ value. Abbott Labs, a diversified healthcare major involved in the development, manufacturing and marketing of pharmaceuticals and other medical products, will be losing patent exclusivity of its major drugs Humira and Kaletra in the next couple of years.

Our price estimate for Abbott Labs stands at $66, implying a premium of about 5% to the current market price.

See our complete analysis for Abbott Labs

Humira Rules the Autoimmune Market

The global autoimmune market is a nearly $25 billion market and includes treatments for rheumatoid arthritis, Crohn’s disease, Addison’s disease, multiple sclerosis, and type I diabetes. 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 well over 30%. Humira’s revenues exceeded $8 billion in 2011 and we expect it to top $10 billion by 2013. Abbott mainly competes with Pfizer and Johnson & Johnson in this market.

We expect Humira’s market share to gradually decline as competition penetrates the market. However, as evident from the above chart, we expect a steep decline post-U.S. patent expiry in December 2016 (including a year’s extension). Pfizer’s Enbrel will see its patent expiring the same year. However Pfizer could retain its market share with tofacitinib. Johnson & Johnson is also at a competitive advantage since its drug Simponi will lose patent exclusivity later.

This patent expiry will significantly affect revenues from Humira by the beginning of 2017. Further, patent expiry leads to a drop in margins as cheap generic versions put pressure on the company’s pricing power.

However, generic erosion for biologics could be much slower and more limited than small molecules. If Humira doesn’t lose market share as steeply as expected, it could significantly affect our current price estimate of the company. Further, one will have to closely watch if its deal with Galapagos to develop and commercialize an oral JAK1 inhibitor reaps benefits for the company.

Kaletra: Losing Share

Abbott’s Kaletra (generic lopinavir and ritonavir) is an antiviral used to treat HIV and was approved in 2000. It currently has a market share of about 8% in the $18 billion HIV antiviral market. However its market share has been declining due to competition and its exclusion from the list of preferred treatment options in some of the U.S. Department of Health and Human Services’ (DHHS) guidelines. Bristol-Myers’s drug atazanavir (generic reyataz) and Johnson & Johnson’s darunavir (generic prezista) are major competitors in the market.

We expect Kaletra’s market share to continue its gradual decline through 2015, and then drop sharply following its patent expiry in June 2016 to about 2.5% by the end of the Trefis forecast period. However, Kaletra has an advantage of being the only fixed-dose combination protease inhibitor to treat HIV, which could lend some support.

Abbott’s revenues from Kaletra were more than $1 billion in 2011. We expect revenues to remain at about the same level through 2015. As with Humira, we expect margins to decline significantly after the loss of exclusivity.

Understand How a Company’s Products Impact its Stock Price at Trefis