The Business Of

Healthcare | AbbVie | Patent Special

Morning All!

TGIF! The weekend is so close! But before we get there, we’ve got one final newsletter to round off The Business Of AbbVie. Let’s have a quick recap of some of the fun, surprising things we’ve learnt about AbbVie this week…

• Drug Prices On The Loose - In the US, AbbVie’s main drug, Humira, cost ~$13k for an annual prescription in 2003. That had risen to ~$77k by 2021!

• Rogue Advertising - There are only 2 countries in the world that allow drug manufacturers to advertise directly to consumers - the US and New Zealand.

• Botox Buy - in 2019, AbbVie bought the company, Allergan - which was the company that first introduced the world to Botox!

But anyway, we’re going to shift gears slightly. As I mentioned on Tuesday - we’ve got a ‘special’ newsletter today. And we’re going to be discussing patents! We hear the word ‘patent’ or ‘copyright’ in many industries. But I doubt there’s many industries where patents are as crucial, or as controversial, as they are in the drugs industry. So, without further ado, let’s get stuck in!

Recap: What’s Happening To Humira?

So, let’s start with a quick recap. On Tuesday, we saw the chart below. It shows us how revenues for AbbVie’s leading drug, Humira, has changed over the years.

And we can see that whilst sales of Humira in the US have continued to grow year after year. Sales outside of the US have dropped considerably since 2018. From $6.3bn to $2.6bn in 2022. And we’ve noted that this was because AbbVie’s European patent on Humira expired in 2018…

Now, let’s go a little deeper and explain how this all works!

An Ethical Dilemma

So, when a drug manufacturer like AbbVie or Pfizer discover a drug that they think could be a blockbuster drug. They get a patent on the drug, so that others can’t copy what they’re doing.

These patents usually last ~20 years. And during this period, no other drug manufacturer can sell the patent-protected drug. If they do, they’ll get strongly fined. The largest fine every dished out was back in 2013 to Teva Pharmaceuticals. The Israeli company released their own generic version of Pfizer’s drug before the patent had run out! A decision that cost the firm $2.15bn!

Okay, so a company discovers a drug. And they get a patent on it. But what does this really mean for the company that’s patented their drug?

Well, it means that they’re basically a monopoly till that patent expires! And what do monopolies have? Huge pricing power - as there’s no competitor products for their customers to go to! On Tuesday we saw that AbbVie had taken advantage of this by raising the annual cost of Humira by ~6x since 2003.

Now, whilst this means AbbVie have been able to grow revenues super quickly due to price increases. And this is great for shareholders. This brings about a dilemma. An ethical dilemma. Because this isn’t like increasing the price of handbags (like LVMH do). Or increasing the price of semiconductor chips (like Nvidia do). This is increasing the price of drugs, which people need to survive!

Quite incredibly, a 2019 study claimed that 34 MILLION Americans said they knew at least one friend/family member who had died because they couldn’t afford their medication. Another study claims that over 100k Americans die a year because they can’t afford medication. And given the strong hold drug companies have on US politicians, it’s hard to see how this will change! But thankfully, for US citizens, patents don’t last forever…

Copycats Allowed!

So, as we said earlier, patents do expire after 20 years. But then the question is - what happens then? Well, a flood of drug manufacturers release their own copies of the original drug. And they price their drugs much cheaper than the original! These drugs are called generics. Or biosimilars if the original patented drug was a biologic drug (like Humira is).

And by pricing their drugs cheaper than the original drug, these manufacturers take sales away from the original drug! Let’s look at AbbVie-Humira as an example. Before Humira’s patent expired in 2018, Humira was the drug the NHS spent the most money on every year. A whopping £400m! However, once the patent expired in 2018, the NHS started buying less Humira and more of the cheaper drugs! And the NHS saved millions because of this move!

So, this is why Humira’s revenues have plummeted in Europe since 2018. Because why would doctors around Europe continue to prescribe Humira if they could prescribe a copycat drug that costs ~40% less?!

And this isn’t isolated to just Humira by the way! Pfizer’s highest-selling drug, Lipitor - the 2nd highest-selling drug of all time - lost its patent in 2011. And the chart below shows us how quickly their revenues fell off the patent cliff!

Now, last thing for the week. What’s the real worry for AbbVie here? Well, the worry is that Humira’s patent ran out in the US at the start of 2023! And given that 40% of AbbVie’s revenues are Humira, this will mean a huge dent in their revenues!

But the second key question is - why didn’t this happen in the US back in 2018 like it did in Europe? And that is a great question! Well, a tactic drug manufacturers use when they’re facing one of their main patents coming to an end. Is to file more patents! AbbVie filed an extraordinary 132 patents for ‘parts’ of Humira. Yes, 132!

But what are all these additional patents? Well, AbbVie’s original patent was for the drug, Humira. But then the company wanted to patent the manufacturing process of the drug. And patent how patients administer the drug. Which is all a bit weird I know. But why are AbbVie taking out all these patents? Well, to put it simply - to keep competitors out! By filing more patents, AbbVie managed to successfully extend Humira’s patent protection in the US from 2016 to 2023. Making them a monopoly for longer. This move has made them an estimated additional $100bn in revenue!

But to close - D-Day has finally arrived for AbbVie! Competitor drugs came onto the market earlier this year. Amgen’s biosimilar is priced 55% cheaper than Humira. And AbbVie are expecting their Humira revenues to fall 37% this year! Can AbbVie discover another blockbuster drug to soften the blow and keep shareholders happy? Maybe we’ll revisit AbbVie in a year’s time and see!

30th Jun 2023

Nigel Jacob CFA