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Jun 7, 2012

Abbott Expects Spinoff AbbVie to Be a $17.4B Proprietary Drug-CMO Powerhouse

  • Abbott Laboratories has disclosed details of the proprietary research-based pharma and contract manufacturing spinout company it will create this year, as it scales down to a maker of medical products and generic drugs. The new spinout, to be called AbbVie, will be a $17.444 billion powerhouse whose operations saw sales gains of 11.5% last year and 7% in the first quarter of this year when it generated $4.173 billion in sales.

    Net earnings for AbbVie’s operations rose during Q1 by 22% from a year earlier, jumping from $723 million to $883 million. However, the new spinout’s net earnings last year slid almost 18% from 2010, dipping to $3.433 billion from $4.178 billion, as SG&A (selling, general, and administrative costs) leaped by more than $2 billion or 54% to $5.894 billion.

    “Both companies will have everything needed to be leaders in their respective industries on day one of independent operation,” Miles D. White, Abbott’s chairman and CEO, said in a letter to shareholders accompanying its SEC filing. “Both will be Fortune 200 companies with global infrastructure, leading products, and promising research and development pipelines. They will have strong balance sheets and significant cash flow.”

    AbbVie’s best-selling product at the time of its expected spinout will be the arthritis treatment Humira, which finished last year with $7.9 billion in worldwide sales. Humira continued to generate sales gains for Abbott during the first quarter, when the company reported sales for the drug of $1.934 billion. That’s a gain of 17.4% when unfavorable foreign exchange was accounted for and 19.4% excluding forex, according to results released by Abbott on April 18.

    Behind those strong numbers is the range of diseases capable of being treated through Humira. In addition to RA, the drug is indicated for psoriatic arthritis, ankylosing spondylitis, psoriasis, juvenile idiopathic arthritis, and Crohn disease. In the EU it is approved for these diseases as well as ulcerative colitis. But as the SEC filing noted, the U.S. composition of matter patent for Humira is expected to expire in December 2016, and the equivalent EU patent is expected to expire in most EU countries in April 2018.

    “Because Humira is a biologic and biologics cannot be readily substituted, it is uncertain what impact the loss of patent protection would have on the sales of Humira,” Abbott reported. Except for Humira, “AbbVie believes that no single patent, license, trademark (or related group of patents, licenses, or trademarks)” are material in relation to the company's business as a whole.

    Also “significant” to AbbVie, Abbott noted, are patents and licenses related to four drugs:Lopinavir/ritonavir, sold under the trademarks Kaletra and Aluvia; Niacin, sold under the trademarks Niaspan and Simcor; Testosterone, sold under the trademark AndroGel; and Fenofibrate, sold under the trademarks TriCor and Trilipix.

    Trilipix/TriCor was Abbott’s second-best selling product during Q1, with total sales of $329 million, down 10.7% from a year ago after accounting for forex. Number-three selling AndroGel fared much better, as its sales of $241 million were 23.6% higher than first quarter 2011. Number-four Kaletra generated $221 million, down 11.1% from Q1 of last year. And Niaspan, Abbott’s sixth-best-selling drug in the first quarter, saw sales slide 15.4% year-over-year, to $191 million.

    Many of these numbers can be expected to shrink in the not-too-distant future. The principal U.S. noncomposition of matter patents for Niaspan and Simcor are expected to expire in 2013, 2017, and 2018. That year, the first of four principal U.S. noncomposition patents for Trilipix/TriCor is expected to expire, with the final one ending in 2025. 2016 will see expiration of U.S. patents, both composition for lopinavir, and noncomposition for lopinavir/ritonavir. Four years later in 2020, the principal noncomposition of matter patent covering AndroGel is expected to expire for the 1.62% formulation, though the 1% formulation is covered by pediatric exclusivity and will not expire until 2021.

    Abbott’s proprietary pharmaceutical products and contract manufacturing revenues will comprise AbbVie’s revenue streams. Typically it has been hard for outsiders to gauge results from Abbott’s CMO operations because they have been reported up until now with results from Abbott’s animal health unit.

    But by subtracting the AbbVie number from the proprietary pharma results reported previously by Abbott, it can be estimated that AbbVie’s contract manufacturing operations racked up $123 million in sales in the first quarter and $422 million in sales last year.

    AbbVie’s CMO “will enter into one or more manufacturing and supply agreements with Abbott” before the latter is separated into two companies. The agreements will last up to five years, and the two companies will determine payments “on an arm’s length basis” rather than record inventory transfers at cost, according to the filing.


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