The concern with AbbVie’s blockbuster biologic Humira is the lost of patent exclusivity in the U.S. and Europe over the next two years.
The worry is revenue from Humira will drop off a cliff as generic drugs enter the market.
This would be a logical worry if Humira was a small molecule drug. A generic small molecule drug simply has to prove it is the same chemical formula as the branded drug. No new safety and efficacy trials needed.
Humira is a biologic, a large molecule, that is synthesized from living cells. The process to synthesize and isolate the biologic is the drug. A small change in the process can yield vastly different results.
A biosimilar is a company’s effort to reverse engineer the original process to create their own biologic. The new biologic should be similar to the original.
Because it is a new and different process, the biosimilar has to undergo safety and efficacy trials. This drives the cost up to produce the biosimilar.
Recent biosimilars are coming to market at 15-25% discounts to the original because of the extra costs. Unlike generic small molecule drugs that are 50, 60, 70% cheaper than the branded drug.
Switching Costs
Biologics have some switching costs built into them.
If you are taking a biologic and your illness is under control with little or manageable side effects would you switch to a biosimilar? Knowing that it may work less effectively or not at all? And your side effects could increase to save 15-20%?
If you’re a doctor and your patient is responding well to the branded biologic will you suggest switching to the biosimilar? Knowing that it isn’t the exact same drug and it may not treat your patient as effectively or may increase the adverse side effects?
The Real Threat
The real threat is a new patient trying the cheaper biosimilar first and responding favorably to it. Then there is no reason to switch over to the more expensive original biologic.
Who gets to acquire the customer first?
Why Amgen’s News is Good for AbbVie
This is also why the news this morning that Amgen’s Humira biosimilar will be delayed in the U.S. until 2023 is beneficial to AbbVie.
It doesn’t simply mean less competition over the next 5-6 years.
It means AbbVie gets to acquire new patients over the next 5-6 years. And these new patients are unlikely to switch when Amgen’s biosimilar launches.
The lifetime value of an AbbVie’s U.S. Humira customers just increased.
Further Reading:
AMM Dividend Letter Issue 5: Growing Wealth like Grace Groner with AbbVie (ABBV)
