FirstWord Lists: Lead product dependency among the top 15 pharma players

A number of recent high-profile events have further showcased the important role that lead product dependency plays in growth strategies implemented by the industry's leading players.

Indeed, the two potentially largest acquisitions of 2015 to date have been shaped by such a catalyst; AbbVie's agreed purchase of Pharmacyclics for $21 billion and Teva's proposed acquisition of Mylan for $40 billion have been driven in part by management efforts to reduce dependency on revenues generated by flagship drug franchises.

As highlighted in the list below, AbbVie continued to generate 63 percent of its revenue from the Humira franchise in 2014 (versus 45 percent in 2011).

Such dependency delivers both positive and negative connotations. When AbbVie announced its Q1 results on April 23, it revealed that quarterly sales for Humira increased by 18 percent year-on-year to reach $3.1 billion; a performance that prompted Bloomberg Intelligence analyst Sam Fazeli to label the TNF-inhibitor as "unstoppable."

Humira arguably represents the most compelling example of longevity associated with the commercial lifecycle of a biologic product, which is extended in part by lack of exposure to generic competition. The emergence of biosimilar competition is likely to change that dynamic, and while loss of market exclusivity is unlikely to deliver the rapid erosion in sales typically associated with a small-molecule product, it will at worst rob AbbVie of its key growth engine.

Hence why the company has invested heavily in the hepatitis C market and paid $21 billion to acquire Pharmacyclics – whose main product, the haematological cancer therapy Imbruvica it will co-develop and co-market with Johnson & Johnson (Spotlight On: Empire building – what does AbbVie's Pharmacyclics deal mean for the chronic lymphocytic leukaemia market?).

A key metric to watch will be how the proportion of revenue derived from Humira evolves over the next decade; a ratio that could be positively maintained if AbbVie can defend market share from biosimilars, but which investors will expect to fall as sales from the hepatitis C treatment Viekira Pak and Imbruvica grow.

This performance could have profound implications on how the company operates, with CEO Richard Gonzalez promising dramatic cost cutting in the face of a "disaster scenario," where exposure to declining Humira sales threatens AbbVie's profitability.

Consensus currently anticipates that Gonzalez' strategy will work; AbbVie's total sales expected to reach around $30 billion by 2019, with Imbruvica and Viekira Pak contributing $4.1 billion and $2.3 billion, respectively. Humira is expected to retain annual sales of around $15 billion by this point, thereby reducing AbbVie's lead product dependency ratio to around 50 percent, although exposure to biosimilar erosion remains something of an unknown quantity.

Teva, which is poised to face a challenging pursuit of Mylan, has dramatically re-entered the M&A arena as it seeks to pivot away from revenue dependency on its multiple sclerosis Copaxone franchise. Copaxone too has demonstrated admirable longevity, boosted by Teva's success in switching patients to a more convenient formulation. A deal with Mylan would (based on 2014 sales) swell Teva's pharma revenues to around $27 billion, thereby reducing its dependency on Copaxone from around 22 percent to 15 percent.

See The Q&A – At long last…the FDA approves generic Copaxone – the key questions).

A deal would also reduce the dependency of Copaxone as a contributor to branded/specialty sales from 76 percent to 62 percent, a dynamic also reflecting the considerable scale advantages that Teva would have in the global generics market.

FirstWord's analysis illustrates that across the industry's 15 largest players (based on branded [including vaccines] and generic sales), the average lead product dependency rate stands at approximately 22 percent. Second to AbbVie, Gilead Sciences is positioned as another outlier at the top end of the scale, although this status is heavily driven by the extraordinary launch performance of its hepatitis C treatment Sovaldi. That said, questions continue to be raised as to how management will reinvest spoils from the success of Sovaldi (and follow up Harvoni) in order to ensure long-term growth and offset the inevitable decline in hepatitis C revenues when market saturation occurs (ViewPoints: Speculation about a Gilead-Vertex deal intensifies – but not everyone is sold).

At the other end of the scale, multi-source acquisitive behaviour and patent expiry for Lipitor in 2011 has diminished Pfizer's exposure to a single product franchise, a dynamic that also showcases the difficulty that the company now faces in growing its already large revenue base; and prompts continued speculation of a company break-up.

Both Novartis and Bristol-Myers Squibb could see their lead product dependency rates increase over the next decade, based on the assumption that the heart failure treatment LCZ696 and the PD-1 inhibitor Opdivo, respectively, outperform already high expectations.

GlaxoSmithKline and Sanofi's exposure to revenues generated by Advair and Lantus, respectively, partially explains challenging current growth profiles, while a handful of companies, including Johnson & Johnson and Roche, are also exposed to the threat of biosimilar competition.

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