AbbVie Earnings Can't Escape The Shadow Of Humira Decline

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(Bloomberg Gadfly) -- There’s a shadow hanging over AbbVie Inc., even on days when it shines.

The maker of the blockbuster inflammation drug Humira is doing great by many metrics, thanks to that medicine’s success. AbbVie released first-quarter results on Thursday that beat analyst earnings and revenue expectations and raised its full-year EPS guidance. Adjusted earnings grew a stunning 46 percent from the same period last year.

Shares jumped in early trading, but are still down 22 percent from this year’s highs. Investors still have plenty of reasons to wonder how long the party will last.

Top of mind is the recent embarrassing failure in a lung-cancer trial of the drug Rova-T, which came with the $5.8 billion acquisition of Stemcentrx in 2016. There’s a real chance the drug will be a bust. 

AbbVie once predicted Rova-T could hit $5 billion in peak sales. The drug’s troubles add to concerns about management’s ability to find successors to Humira. The company hasn’t done any major M&A since Stemcentrx, but it has massively hiked its dividend and plans a $10 billion share buyback. 

Humira is the biggest target for makers of biosimilars – essentially generic drugs made with living cells instead of chemicals – leaving it particularly vulnerable to market-share loss and rapid price cuts. U.S. sales appear protected until 2022, thanks to deals with biosimilar makers. But copycats will launch in Europe later this year, testing AbbVie’s defense strategies there and the ability of its U.S. sales growth to offset any declines. Humira’s ex-U.S. sales account for about a fifth of AbbVie’s total revenue. 

It’s possible Humira will hold up better than other medicines under generic pressure. But recent history is not encouraging. Roche Holding AG on Thursday reported European sales of its blockbuster cancer drug Rituxan have rapidly plunged due to biosimilar competition. And sales of Merck & Co. Inc.’s Remicade – which competes with Humira – have withered in Europe.

 

Anxiety about Humira’s prospects are weighing on AbbVie’s valuation – the lowest in the sector at 11.6 times forward earnings – in spite of strong near-term growth prospects. The company arguably overrates its pipeline, but has several promising medicines in development.

Its competitively priced hepatitis C drug Mavyret is shattering sales expectations, and AbbVie has the lowest tax rate of any U.S. big pharma firm. 

But convincing investors to pay attention to anything other than Humira’s eventual demise is clearly one of the toughest jobs in pharma. Buybacks and AbbVie’s existing drug roster clearly aren’t doing the job. 

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

©2018 Bloomberg L.P.

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