AbbVie, Inc. (NYSE: ABBV), Regeneron Pharmaceuticals (NASDAQ: REGN), and Clovis Oncology (NASDAQ: CLVS) all have at least one thing in common: All three are subjects of this week's Industry Focus: Healthcare!
In this edition, host Kristine Harjes is joined by contributor Todd Campbell. Among other topics, the two discuss:
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- AbbVie's progress toward diversifying itself away from Humira.
- How Novartis' (NYSE: NVS) new wet age-related macular degeneration drug could threaten Regeneron's Eylea.
- Clovis Oncology's latest data for its PARP-inhibiting cancer drug, Rubraca.
Are any of these top stocks you should be buying now? Find out in this episode of Industry Focus: Healthcare.
A full transcript follows the video.
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This video was recorded on June 21, 2017.
Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Wednesday, June 21, and I'm your Healthcare show host, Kristine Harjes. Calling in to Fool HQ in Alexandria, Virginia, is healthcare specialist Todd Campbell. Welcome to the show, Todd, thanks for joining me today.
Todd Campbell: Hi, Kristine! My pleasure to be here!
Harjes: Anything new and exciting?
Campbell: I'm a huge '90s rock and roll fan, and last night I went to go see one of my favorite bands, a band called Third Eye Blind. I'll tell you, listeners, if you remember Third Eye Blind from the '90s and want to see a good show, if they come anywhere near you, get some tickets. It was really entertaining, it was a nice show.
Harjes: That's amazing, I'm so jealous.
Campbell: It was a tremendous amount of fun. It was my third time seeing that band, and they still sound fresh and great, it was really a good time.
Harjes: So, you've seen them three times, was that all recently? Or did you see them in the heyday?
Campbell: No, I wish I had seen them in the early 2000s and late 90s. All of the times I've seen them have been in the last six years.
Harjes: That's still pretty cool. What's your favorite song?
Campbell: There's so many. The whole first album I love, and we were lucky because they actually played that whole first album front to back at the concert last night, which was a real treat. Although, we missed getting to hear some of the newer stuff. But, it was a lot of fun for someone like me, who spent a lot of time listening to them in the '90s.
Harjes: Yeah, you're just sitting back there mouthing along every single word, that's awesome.
Campbell: Absolutely. So, I'm a little bit in recovery, but I'll do my best today.
Harjes: Sounds good. We probably didn't pick the easiest batch of things to talk about today, given that you are trying to take it easy. We're going to cover three different topics today, so, hang in there, Todd. You can, listeners, look forward to an update on AbbVie, we will do some updates on the AMD market, including the battle between Regeneron and Novartis heating up, and we're also going to cover the story behind Clovis Oncology's 46% pop on Monday, which, if that doesn't say "biotech," I don't know what does. But, we will start with the AbbVie update. What's going on with AbbVie?
Campbell: I think it's important to talk about AbbVie, because we haven't covered it in a while, we haven't updated listeners on it. It's one of the biggest biopharma companies in the world. It's a huge company that generates a lot of revenue. They market the top-selling drug on the planet. So, it's important to stay aware of what they're up to, and see whether or not there might be money to make in going out and considering an investment, especially considering that it's getting harder and harder to find companies with decent dividend yields. A lot of the dividend yields in healthcare have been driven down. But AbbVie still yields out 3.6%, and that's pretty solid, it's pretty attractive.
Harjes: Yeah, "solid" is the word that I would use for that as well. AbbVie is best known for Humira, which is the world's best-selling drug. It's an anti-inflammatory used for a ton of different indications like rheumatoid arthritis, Crohn's disease, ulcerative colitis. There's a whole laundry list of different indications it's approved for. This drug makes a lot of money. When AbbVie released its Q1 earnings on April 27th, they reported total revenues of $6.54 billion, and of that, Humira sales were $4.1 billion, so that's 63% of their total revenue coming from this one drug.
Campbell: Just a huge impact on this company. And the elephant in the room, Kristine, whenever we talk about biopharma, is always going to be, "When do patents expire?" What's the patent expiration situation? Especially when you have a drug that accounts for 63% of your sales. Unfortunately for AbbVie, and this has been a drag on the company's share price for the last year or so, there's been a lot of worry because Humira's patent is starting to come off. They're starting to lose patent protection on this drug. That's got a lot of people wondering, could biosimilars get launched that significantly erode the sales and the profit, and then, the potential for future dividend increases? And that's a real risk that the company has been trying to navigate around by investing very heavily in its research and development to try and diversify itself further and further away from just being a Humira-only type company.
Harjes: So, right now they're spending 17.4% of their revenue on research and development, R&D. Todd, how would you grade their R&D efforts? Are they successfully spinning away from reliance on Humira?
Campbell: I think they are heading in the right direction. I give them a B+. I would consider giving them an A-if a couple more approvals come along in the next year or so.
Harjes: If they come to a couple more study halls.
Campbell: [laughs] Yeah, exactly. A little bit more homework needs to get done. This company is smart, because not only are they the Goliath in autoimmune disease, which is a $50 billion market, but they're also saying, "I think we can become a really big player in oncology." And the oncology market is worth $90 billion. So, they've gone out and they're establishing themselves as a leader at the onset here in blood cancers. But over time, they have some drugs that are coming along through their pipeline, like Rova-T, that could expand them into a variety of different cancer indications, and eventually offset any risk in the loss of sales on Humira biosimilars. One of the things that you and I have probably talked about at some point in the past year or two on the subject is that biosimilars aren't exact replicas, and because of that the thinking is that they might win market share a little bit more slowly than a typical generic drug might. AbbVie has some method-of-use patents that provide Humira some patent protection into the early 2020s. Even if biosimilars launch before then, maybe their sales go from their projection of $18 billion in 2020 to $16 billion or $14 billion. So, to offset that headwind, you really only need a couple blockbuster drugs to launch.
Harjes: Right. This is a company that has been fairly successful with their R&D so far. They have one blood cancer drug, Imbruvica, that is already on the market. It made $500 million last quarter, that was up 45% year over year. There is an FDA decision for a label expansion of Imbruvica coming up. AbbVie also has a pan-genotype hepatitis C therapy that could be the best on the market so far, that's also coming up. Then, when you look at the overall picture, the company, as you mentioned, is guiding for Humira sales at $18 billion in 2020. As you said, that's an estimate, it's many years down the road. But they're also guiding for, in that same year, other drugs totaling $25 [billion]-$30 billion. That is a pretty favorable ratio. When you look at today, Humira is 63% of revenue, and compare that to the 2020 projections, where Humira should bring in $18 billion, but other drugs should bring in $25 [billion]-$30 billion, you can see that they do have a decreased reliance on this potential single point of failure already in their guidance.
Campbell: Yeah. You mentioned hepatitis C, we shouldn't ignore that because we're still talking about billions of dollars that are being spent every year on hepatitis C drugs. This is probably the most competitive one to launch against the market share leader, which is Gilead Sciences. Ninety-nine percent functional cure rates at the 12-week mark, and evidence of efficacy, 95% cure rate after eight weeks of treatment in genotype 3 patients. So, this could be, right there, a $1 [billion]-$2 billion drug. Rova-T, which is a very intriguing drug that could end up getting used in third-line use in small-cell lung cancer, and eventually get it advanced up even further than that, they think that drug could eventually have $5 billion in peak sales projections. And, Kristine, that doesn't even talk about or address the successors to Humira that are in the pipeline that this company is developing. They're working on drugs that have phase 3 trials already ongoing for rheumatoid arthritis and psoriasis, two of the biggest indications that Humira sells into. If those drugs are successful and they do better than Humira in their trials, maybe they can convert people away from Humira to these new drugs and protect market share that way. So, yes, there is risk. We don't know how the biosimilar market is going to shake out for this company over the course of the next five years. So, yes, you're accepting some risk if you go out and buy this stock. But they do have a lot of different shots on goal that could pan out and help them side step.
Harjes: Right. So, we will be watching for any reports from progress on the pipeline. We'll also be taking a look at their Q2 earnings, which come out later this month.
We have just been discussing AbbVie, and what to look for in the near term and longer term. We want to pivot our discussion to a second topic for today. That is the state of the AMD market, which is age-related macular degeneration. This is a top cause of vision loss in people ages 50-plus. As we all know, the demographics in the United States in particular are shifting toward people living longer lives. This is, right in the name of it, an age-related disease. They're also the same types of diseases that affect diabetics, particularly people who have been diabetic for a long time. These two indications that we're going to talk about are only getting more prevalent. The drugmakers who are looking to capture market share in this space have a big reason to believe that it could be a huge growth driver for them.
Campbell: This has been a massively lucrative indication for the companies that are targeting it. And it makes sense. There's 76 million baby boomers. Average life expectancy is 86 years and growing. Then you look at the diabetes population, and how that's expanding globally. I saw an estimate recently that we could go from, on a global basis, 400 million people with diabetes, to 640 million, so add another 240 million people with diabetes over the course of the next 20-25 years. So, this is a major addressable market. The drugs that are available right now that are being used in it are made or marketed by Novartis, Regeneron, and then there's some co-licensing deals in there, and then Roche plays also in this space through Avastin, which is used off-label. But if you just look at the money that's being brought in by these vision-restoring drugs for these conditions, in the first quarter alone, you annualize it out just for Regeneron's Eylea, and Novartis' Lucentis, and you have an $8 billion annualized pace for those two drugs alone, not including any sales that are being won away from Avastin.
Harjes: Right. It's really interesting, you mentioned that Avastin is being used off label. Avastin is actually a cancer drug, and Roche is the maker of it. But this drug actually has 60% of the market share in the wet AMD indication. That's because it's so much cheaper, it's roughly $40 a dose instead of close to $2,000. This is something that, if you have this condition, you need to go to the doctor on a regular basis to be treated for it. So, when you have your Regeneron with Eylea, and you have Novartis with Lucentis trying to figure out how they can get more and more of the market share here, what they're going to be competing on is going to be dosage. If they can make it more convenient for patients who don't have to go to the doctor as frequently, that is how you can actually differentiate yourself in the space.
Campbell: Yeah. So far, Kristine, the battle hasn't been fought over efficacy. Not one of these drugs, like Lucentis and Eylea, they're not much more efficacious, one or the other. There's some anecdotal evidence that Eylea works better in tough-to-treat patients. But for the most part, it really comes down to doctor preference and patient burden. That's one of the reasons, I was talking earlier about the sales in the first quarter, if you break that out, Lucentis sales in the first quarter globally were $850 million, and Eylea sales were $1.3 billion. Now, Lucentis has been on the market since the mid-2000s, and Eylea has only been on the market since 2011. So, why is it that Lucentis, with that first-mover advantage, actually rakes in less sales than Eylea? As you mentioned, it's all because of patient dosing burden. In the case of Lucentis, you're getting these injections into your eye on a monthly basis. But with Eylea, after your loading dose, which is three monthly injections, you can go to every two months, or eight-week dosing. That dosing advantage, reducing the burden of having to go to the office and getting these eye injections, that's allowed them to become the dominant player. And what's really intriguing is that Eylea's advantage has allowed it to become a $5-billion-a-year medicine at this point, may disappear soon based on some data that came out of Novartis earlier this week.
Harjes: Right, and here's where the story gets interesting. Novartis is developing a rival drug called RTH258. This drug is intended to be dosed every 12 weeks. They were studying this drug versus Eylea, and they were trying to keep as many patients as possible on the 12-week schedule, and they found that a little over 50% of patients were able to achieve non-inferiority using the Novartis drug as opposed to Eylea. And that was their primary endpoint -- they just didn't want it to be worse, because, again, we're not looking for these drugs to be more effective, necessarily. It's really going to come down to a dosing schedule.
Campbell: Yeah. Right now, it doesn't look like we have anything that's going to improve the outcome for the patient, as far as letters on standard eye charts. So, the key here is, again, reduce patient burden, get them in the office fewer and fewer times. And sure enough, these two head-to-head trials that Novartis ran accomplished that for many patients. Not all of them, just a little bit better than half. In one of the trials, it was 57% that were able to stay on the 12-week dosing as opposed to the eight-week dosing. The other trial it was 52%. But you're still talking about half of patients not having to get these injections on an eight-week schedule. And that could be -- time will tell -- enough to establish itself as yet another billion-dollar player in the space. Another investing takeaway here, Kristine, is that there's a huge market, and with Avastin having so much market share, I would probably argue that there's room for all three of these drugs. But we'll have to see. The soonest this drug is likely to make it, RTH258, is likely to make it to the market, in my view, would probably be early 2019, depending on whether or not they're able to get an application to the FDA early or midyear of 2018. But it's definitely one to watch, because it's going to have big implications on this indication.
Harjes: Another interesting part of this story is that Regeneron's stock actually jumped 5% when Novartis reported its phase 3 results yesterday, on June 20. And that blew my mind when I first saw it, because these are, on the surface, positive results for Regeneron's main competitor to Eylea, which is 65% of Regeneron's revenue. Why did the stock go up?
Campbell: It could simply be a "buy the news" situation. Regeneron's stock was one of the best-performing biotech stocks for a decade, and then it hit a wall in 2015 when it launched a new cholesterol-lowering drug that really didn't live up to expectations -- at least not yet. Then, they had some setbacks with some FDA application that had been filed and ended up getting rejected because of manufacturing concerns. Things, however, in 2017, are turning around for them. Two different drugs have won FDA approval. Both of those drugs could be multibillion-dollar drugs. And then, you could say, theoretically, it could have been worse, it could have been 60-80%.
Harjes: Yeah, that's my speculation here, that these results weren't as strong for Novartis as people were anticipating.
Campbell: Yeah. I saw some industry watchers saying, "If it's greater than 40%, you have a winner on your hands." But again, to what degree do you have a winner on your hands? If you're a doctor, an ophthalmologist, and you're saying, "80% versus 50%, I'll just use RTH258 all day long, because 80% of my patients ... " It's more of a toss-up, it's a coin flip now.
Harjes: Exactly. And who knows how this market could be entirely disrupted. My mom worked in the ophthalmology field for a while, and she was mentioning to me when I talked to her about this earlier that they have slow-release technologies now where you insert a device into the eye and it leaks out a little bit of the drug over a long period of time. I think that when it comes down to it, this market is so huge and so clearly growing that there's room for multiple players, as you mentioned, and also probably room for disruption.
Campbell: I would agree with that. Obviously, the real disruption will come with anybody who can permanently repair vision or restore vision with one injection.
Harjes: Absolutely. That's, ultimately, the biggest disruptor you can have in healthcare, is when something goes from needing a maintenance therapy to being cured.
Campbell: Right. But we're still far away from that, as far as I know, we're nowhere near having anything like that.
Harjes: Yeah, this is pure future thinking speculation here. Bringing it back down to more current news, we wanted to cover as the last topic on today's show, the 46% stock pop that happened on Monday for Clovis Oncology and its very happy shareholders.
Campbell: If you're listening, and you're not following the battle in PARP inhibitors, then you're missing out on a very exciting war between three companies -- Clovis being one of them -- to establish themselves as the leader in treating ovarian cancer. Clovis had some pretty remarkable data out this past week that suggests that they are, potentially, as good as their other two competitors. Those competitors are AstraZeneca, which markets Lynparza, and Tesaro, which just won in March approval for Zejula.
Harjes: For a little bit of background, for those of us who are not total healthcare nerds like you and I are, Todd -- PARP inhibitors: what are they?
Campbell: PARP proteins are associated with repairing DNA, maintaining genetic stability, they have to do with program cell death. So, essentially think of it this way: you take chemotherapy, the cancer cell gets damaged, and PARP goes in and tries to fix the damage. You don't want that.
Harjes: Right, when it happens in normal cells, it's a great thing. But if you can block this mechanism in cancer cells, then it's an attempt to trigger genomic instability, and hopefully it will lead to the cancer cell being unable to repair itself, thus dying.
Campbell: And the mechanism in action, the target, it's been validated. Lynparza won approval in 2014, so you're now talking about over two years of use of PARP inhibitors in ovarian cancer. Rubraca, which is Clovis' drug, just hit the market in December. And Zejula just won approval in March. This is a fast heating-up market, but it has nine-figure-plus potential.
Harjes: Right. It had been looking like Tesaro's Zejula had the advantage, because it's approved as a maintenance therapy in ovarian cancer patients who have received one or more chemotherapies, regardless of their BRCA status, whereas the other ones were more specific in their indication, and they were only for later lines.
Campbell: That's a good point, Kristine. Let's go backwards for a second. BRCA mutations were thought to be the ones that would respond best to PARP inhibitors. So, a lot of the early research that was done on PARP inhibitors focused on BRCA-mutated patients, which represent only about 15-20% of the ovarian cancer population. So, when Lynparza won approval in 2014, it was approved for use after three prior chemotherapies in BRCA-positive patients. And when Rubraca won its approval in December, similarly it was approved for use in BRCA-positive patients, but it was approved in patients who had had two or more prior chemotherapies. And then, like you said, Tesaro, they really changed the game when they won their approval in March, because no longer do you have to do the testing to see if they're BRCA-positive, it can be used in all ovarian cancer patients, and it can be used in ovarian cancer patients following one prior chemotherapy. These drugs are getting used earlier and earlier in treating ovarian cancer, and that's very important, because we need to remember that ovarian cancer has a tendency to return in most patients. That can mean that patients currently are receiving three, four, five or more different lines of treatment over the course of time. So, anything that we can do to extend the duration of the response and prevent having to go into another treatment cycle is a good thing. And that's why these drugs, I think, are going to be very important, and top sellers.
Harjes: Right. There's a huge need for new approaches here. There are 220,000 ovarian cancer patients in the United States. The five-year survival rate is only 47%. So, as you mentioned, this is a gigantic market where there is a true need where companies need to figure out how to extend the length of response for these patients. The new Rubraca data was very promising. It showed that it was effective in the same setting that we were talking about as Zejula, so, regardless of whether or not they are BRCA-positive, it works, and that is after one or more chemotherapies. And, when you look down the line a little bit more, all three of these companies that we mentioned -- Clovis, AstraZeneca, and Tesaro -- they're all studying the first-line setting.
Campbell: Yes. If you can get into the first line, if you get a broad label, so, all ovarian cancer patients in a front-line setting, that would be a major win. What's interesting to me, Kristine, from an investing standpoint, do I pick a Rubraca, a Tesaro, do I go with AstraZeneca, it's too early, it's too hard, because it looks like there's a classwide effect for these drugs. So, if they all end up getting favorable labels that allow their use in the broad-patient population of ovarian cancer patients, and they all end up getting approved eventually for front line use, who's going to win? I don't know. Again, this is a big enough market where it can support all of them, maybe they will all be nine-figure drugs. I don't know whether or not we can even draw a conclusion at this point that one is going to dominate and the other two will be niche drugs.
Harjes: Right. Clovis, I would say, is the most speculative way to play on this. If its 45% pop on Monday is any indication that it's a fairly volatile stock, even after the jump their market cap is still just under $4 billion, making them the smallest of these three. They announced another round of dilution. So, they're still at this point where they're not making money, and they're not expected to be profitable until 2019. So, now, they had $400 million in cash on the balance sheet, this will add some more, so they're not as risky as, say, your clinical-stage biotech with hardly any cash and no drugs actually approved yet. But still not nearly as established as, say, AstraZeneca.
Campbell: Right. You could say AstraZeneca is probably the least risky way to play this, but then, of course, you have patent-expiration risk across other drugs that AstraZeneca has, so you have to take that into consideration. Tesaro has been bid up to highs, because people think that maybe someone is going to come in and acquire them. Clovis, perhaps that's one of the reasons, too. Maybe following this data someone comes up and makes an offer as well. So, it's a very risky space. It's very intriguing. It's definitely worth watching.
Harjes: For sure. These drugs are also potentially being studied in breast cancer, so they could have even wider implications than just ovarian cancer. Todd, anything else before I sign us off?
Campbell: No, I just hope everybody has a great day today. Again, if you get a chance, go out to see Third Eye Blind, great show.
Harjes: Sounds good. Thanks, Todd, and get some rest. As always, people on the program may have interests in the stocks that they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. This show is produced by Austin Morgan. For Todd Campbell, I'm Kristine Harjes, thanks for listening and Fool on!