AbbVie Inc (NYSE:ABBV) derives almost two-thirds of its total revenue from an anti-inflammatory medicine, Humira. Humira is due to lose its key US patent protection by this year’s end, which could lead to enormous headwinds for the drugmaker in near-future. Leerink Partners analysts Geoffrey Porges and Bradley Canino weighed in on AbbVie’s prospects based on several scenarios.
“We recently initiated coverage of AbbVie, Inc. (ABBV, MP) at Market Perform with a price target of $70. We also produced a scenario analysis for four separate biosimilar Humira (b-Humira) launch timelines, which we describe herein, that give a range of value outcomes from $53 to $78,” the analysts wrote in an October 24 research report. The stock currently trades at around $60 apiece.
The analysts believe that AbbVie’s stock traded in the mid-$50’s, it would have very little downside presuming Humira’s US exclusivity lasts until, or beyond, 2018. At the same time, if the stock traded into the $70’s, there will be relatively little further upside even after assuming management’s current 2022 US biosimilar launch timeline. In their Market Perform rating and $70 price target of ABBV stock, Leerink analysts assumed a 2020 US biosimilar market entry with some 25% quarterly price erosion in the first year.
“In our scenario analysis, the 2020E US Humira revenue differential between the upside case is up to 66%, which has obvious ramifications for our EPS and cash flow estimates,” they wrote. Applying the worst-case scenario to their P&L reduces Leerink’s 2020 EPS estimate for the company by 29%. The analysts contend that legal challenges to Humira’s rheumatoid arthritis (RA) dosing patent present multiple negative catalyst opportunities, since its the keystone patent on the drug after composition of matter patent expires in 2016.
The patent currently has three inter parte reviews (IPR) instituted against it with distinct arguments. The invalidity decisions are expected in May and July of 2017, and though the analysts believe the patent is not all that’s standing between AbbVie and a Humira biosimilar, it does presents significant headwind for the stock. The analysts also believe AbbVie’s patent infringement case against Amgen and its Humira biosimilar Amjevita, which recently won US regulatory approval, will likely be heard in a trial in H1FY19 or at the earliest by H1FY18. “ As a result, we do not see clear potential for the b-Humira overhang to be lifted from the stock next year, especially considering multiple b-Humira developers will begin submitting applications to the FDA and engaging in new lawsuits with ABBV,” they wrote.