Abbott Vaults Into Oral HCV Race; Near-Term Focus Is Humira, Split

The pharma did not offer much detail on plans to split into two publicly traded companies during its quarterly call, but did shed some light on its HCV pipeline one day ahead of EASL.

Abbott Laboratories Inc. has moved perhaps just slightly behind Bristol-Myers Squibb Co. and Gilead Sciences Inc. in the heated competition to bring an interferon-free combination of all-oral, direct-acting antivirals to market to treat chronic hepatitis C infection.

Data from two Phase IIa trials studying Abbott’s interferon-free regimens are scheduled to be unveiled later this week at the European Association for the Study of the Liver meeting in Barcelona, Spain. Top-line data released in abstract form April 4 showed notable sustained virological response rates, suggesting Abbott could be a competitive player in the field.

During its first quarter sales and earnings call April 18, management addressed the HCV data, saying the company plans to begin Phase III work on an all-oral combo in 2013, with the goal of bringing the drugs to market in 2015.

In the shorter-term, however, investors are mostly interested in Abbott’s plan for splitting the company into two separate firms and how sales of the immunology blockbuster Humira (adalimumab) are tracking. Abbott’s growth is closely tied to Humira, as it makes up almost half of the company’s pharmaceutical sales.

On the first subject, management provided little additional detail beyond what already has been disclosed publicly: that Abbott will be split into two publicly traded entities – a diversified medical products firm that will retain the Abbott name and a research-based pharmaceutical outfit that will be called AbbVie (Also see "Abbott To Split Into Two Publicly Traded Companies Over Next 12 Months" - Pink Sheet, 19 Oct, 2011.) and (Also see "Abbott Spin-Off AbbVie To Remain Close To Its Roots" - Pink Sheet, 21 Mar, 2012.).

On Humira, the company reported solid growth. The drug is close to becoming the world’s top-selling prescription drug now that Lipitor (atorvastatin) went generic last year. The tumor necrosis factor blocker posted $1.934 billion in worldwide sales during the quarter, up 19.4% worldwide year-over-year. U.S. sales of $773 million increased 22.7% from one year earlier.

Meanwhile, diluted earnings per share rose 13.2% on the quarter to $1.03, topping the company’s own guidance. Abbott raised its guidance for full-year EPS by $0.05 at both ends of the range, to $5.00 to $5.10. Total sales were $9.457 billion, up 5.9% worldwide, with a U.S. total of $3.722 billion coming to a 5.8% increase. Proprietary pharmaceuticals, led by Humira, comprised the top-selling category at Abbott – $4.072 billion for the quarter worldwide, up 8.3%, and $2.053 billion in the U.S., up 6.6%.

Wall Street reactions were mixed, as analysts struggle both with how to value a company that is largely dependent on a single drug – one slated to go off-patent in 2016 – as well as one planning to split later this year into two publicly traded entities.

Barbara Ryan of Deutsche Bank AG maintained her “buy” rating for the company’s shares in an April 18 note. “Our assessment of the potential value of the planned split, which underpins our buy rating and $70 12-month price target, suggests that there is meaningful upside,” she said. Abbott’s stock is trading just above $60 per share, but Ryan estimated it could reach the high $60s by year’s end. “The key downside risks to Abbott shares are marked slowdown in Humira sales, and/or a failure to deliver on merger synergies, and margin leverage, or to split the businesses,” she wrote.

Meanwhile, Catherine Arnold of Credit Suisse Group, while noting Abbott’s gross margin ratio of 61.1%, up 260 basis points year over year, maintained her rating of “neutral.” “We are comforted by the progress of the company’s [AbbVie’s] HCV program, but remain neutral given over-reliance on Humira and full valuation per sum-of-the-parts analysis,” she wrote April 18.

Abbott’s mid- to late-stage pipeline is critical to help the company minimize its dependence on Humira. In addition to HCV, another promising area of research is the development of an oral replacement for Humira. In a March agreement with Galapagos NV, Abbott licensed global rights to an oral JAK1 inhibitor GLPG0634. Set to enter a Phase IIb dose-ranging trial next year, the compound could be on track for regulatory approval in 2017 in many of the indications currently included in the Humira label, including rheumatoid arthritis (Also see "Abbott Pays Top Dollar For Galapagos’ Autoimmune Drug" - Pink Sheet, 5 Mar, 2012.).

Abbott provided scant detail on the planned split into two companies. Chief Financial Officer Thomas Freyman said Abbott anticipates mid-single-digit sales growth for the remainder of 2012, although the expected negative impact of currency exchange, projected at -2.5%, will yield reported sales growth in the low single digits.

Work continues apace on the split into the diversified medical products company – to encompass medical devices, diagnostics, nutritionals and branded generics – and AbbVie, which will include Humira and the rest of the pharma’s proprietary branded pharmaceuticals, as well as a pipeline of 30 clinical candidates, with 20 NMEs or indications in Phase II or Phase III development, he added (Also see "The Abbott Split Up: Who Wins?" - Pink Sheet, 24 Oct, 2011.).

“We believe the separation will provide two unique and compelling investment opportunities for shareholders,” Freyman told investors. “Our transition organization has been fully engaged in the separation since our announcement last October. This is the same organization that executed the separation of our hospital products business and successfully integrated our key acquisitions. We’re currently working through the many details of separating the two organizations. There’s a significant amount of work to do, but the process is going well and is proceeding according to plan.”

Of note with regard to the split was the stagnant quarterly performance of Abbott’s Established Pharmaceuticals (or branded generics) business, the one portion of the pharmaceutical business staying with the established company. When the effects of currency exchange are factored in, the business, said to comprise more than 500 products, saw worldwide sales decline by 1.6% during the quarter to $1.9 billion. John Thomas, VP–investor relations, however, stressed the unit’s growth in emerging markets, specifically a 17% uptick in Brazil, Russia, India and China.

High SVR Rates Achieved In Phase II HCV Studies

At EASL, Abbott plans to present data from two Phase IIa trials testing two-drug combinations of its protease inhibitor (ABT-450), non-nucleoside polymerase inhibitor (ABT-333) and NS5A inhibitor (ABT-267) for HCV. In the CO-PILOT study, two doses of ‘450 were tested in tandem with ‘333 and ribavirin in an interferon-sparing regimen to treatment-naïve genotype 1 HCV patients. Meanwhile, the PILOT study investigated ‘450 with ‘267 and ribavirin in patients of a similar profile.

In CO-PILOT, patients produced sustained virological response (SVR) rates after 12 weeks of treatment of 93% and 95% in the different dosing groups. PILOT, in which the combo was provided with ribavirin for 12 weeks and then another 12 weeks independent of ribavirin, produced an SVR rate of 91% at 24 weeks.

“We are building on the PILOT and CO-PILOT results with data from our larger, global Phase II clinical trials,” said Larry Peepo, divisional VP-investor relations. “These studies include various combinations of all three compounds in our portfolio, both with and without ribavirin, as well as evaluation across various HCV genotypes … We expect to start Phase III studies in 2013, with commercialization in 2015 putting us in a very competitive position from the timing perspective.”