If it was blatantly obvious to anyone who looked at the facts that AbbVie had been oversold two weeks ago, on Friday the company sprung a far bigger surprise on the markets with its pledge to keep Humira biosimilars off the US market until 2022.
This is vastly at odds with sellside expectations, as shown by EvaluatePharma consensus data, and prompted a 10% jump in AbbVie stock – though such a positive outcome is hardly assured. Still, an analysis of the bull and bear cases shows how big a spread exists in Humira forecasts after 2017, and how much of a difference this makes to AbbVie’s valuation (see table below).
On the basis of current consensus Humira carries an NPV of $46.7bn, roughly equivalent to half of AbbVie’s market cap. This is based on revenue peaking at “only” $16.4bn in 2017, before declining to $11.5bn in 2020; 50% of the sales flow through to the bottom line after costs and tax, and an 8% cost of capital is applied.
Not so fast, says AbbVie. On its third-quarter call on Friday the group claimed that the rheumatoid arthritis MAb should still be generating $18bn of sales in 2020, a fact that underpins its internal group revenue forecast of $37bn in that year.
“We believe [that this] appropriately captures the expected biosimilar dynamics globally,” said AbbVie’s chief executive, Rick Gonzalez. These dynamics include the entry of biosimilars in Europe on expiry of Humira’s compound patent in October 2018.
In the US, however, AbbVie boasts of 70 patents expiring in 2022-34, which “will protect Humira from biosimilar entry until 2022”, said Mr Gonzalez. These comprise methods of use in all indications, methods to formulate and make the drug, and other aspects like its delivery device.
If these forecasts are to be believed Humira could still grow in the mid single digits until 2022, hitting sales of over $20bn before declining. Applying the same metrics to this bull case yields an NPV of $68.5bn – amazingly more than $20bn above today’s consensus.
|The bull and bear cases for Humira, and what they mean ($bn)|
|Bear case (UBS)||13.9||15.7||15.4||13.4||10.0||7.4||36.6|
|Sellside consensus (EvaluatePharma)||14.1||15.7||16.4||15.9||13.6||11.5||46.7|
|Note: *WACC=8%, sales trended out to 2030; **extrapolation of AbbVie guidance.|
The way current forecasts are framed can be illustrated by comparing the UBS model with that of Bank of America Merrill Lynch, for instance. The former has Humira peaking at $15.7bn in 2016, while the latter sees sales still growing, reaching $17.3bn in 2018.
AbbVie, however, is suggesting that even BoAML is too bearish. EvaluatePharma lists 15 adalimumab biosimilars in phase III, including projects at Amgen, Merck & Co and Pfizer, and anyone doubting that AbbVie’s confidence might spell bonanza for the patent lawyers should listen again to Mr Gonzalez.
“In the event a biosimilar attempts to launch at risk, AbbVie will seek injunctive relief,” said the chief exec. “Because of Humira’s success damages could be extremely large.”
AbbVie stock opened up another 5% in early trade today. The shares had slumped 10% on October 22 after a US warning against the use of its hepatitis C products Viekira Pak and Technivie in patients with a serious form of liver cirrhosis, owing to increased risk of liver failure.
The shares’ slide looked like an overreaction, since these products should not have been used in these patients to begin with as per a previous non-recommendation on their labels. The market might simply have been selling in light of increased fears over biopharma valuations in general.
AbbVie had recovered its losses even before Friday's update, though interestingly, its hep C partner Enanta is nowhere near achieving this. And AbbVie is now trading up 29% relative to the slump two weeks ago.
The sellside frequently trumpets stocks as being oversold, but with the benefit of hindsight October 22 presented one of the biggest buying opportunities of the year.