ABBV: Viekira Pak Likely to See More Safety-Related Formulary Losses; US Humira Pricing Likely to Slow if Payors No Longer Anticipate Follow-Ons in the Near Term

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Richard Evans / Scott Hinds / Ryan Baum / Hardy Evans

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November 12, 2015

ABBV: Viekira Pak Likely to See More Safety-Related Formulary Losses; US Humira Pricing Likely to Slow if Payors No Longer Anticipate Follow-Ons in the Near Term

  • ABBV has positioned Viekira Pak safety issues as being limited to a relatively small subset of patients who can be screened for and avoided. A full review of the Adverse Event Reporting System (AERS) data shows that Viekira Pak has substantially more adverse event cases than either Sovaldi or Harvoni, even if we remove 26 cases (to control for the events tied to the recent label revisions). This implies that Viekira Pak is likely to generate more adverse events than Sovaldi or Harvoni, even if formularies successfully avoid the patient types tied to the recent safety warning
  • We believe the re-labelling of Viekira Pak forces pharmacy and therapeutics (P&T) committees to re-evaluate the brand’s formulary status. Major organizations’ P&T committees are likely to review the underlying AER data, rather than relying solely on the published warning, and in so doing are likely to conclude that Viekira Pak is no longer viable as an exclusive treatment option. The pending launch of MRK’s HCV regimen makes exclusive formulary positions for Viekira Pak that much less likely
  • Shifting to Humira; strengthening of Humira’s US patent protection has resulted in rising out-year consensus sales expectations for the brand. We caution that Humira’s trailing rates of unit and particularly net pricing growth had much to do with formulary managers’ expectations that Humira follow-ons would be the first to arrive. Formulary managers have been understandably reluctant to hold back Humira’s unit share and net pricing gains ahead of follow-ons; however now that Humira follow-ons may appear no sooner than follow-ons for other major brands in the class, formularies are likely to be less accommodating
  • In the middle- to longer-term we find elements of the ABBV investment case (e.g. Imbruvica / ABT-199 in combination) compelling; however we see immediate downside risks to valuation because of unrealistic expectations for both Viekira Pak and Humira

Where we’re BULLISH: Biopharma companies with undervalued pipelines (e.g. AMGN, BMY, GILD, SHPG, VRTX); Biopharma companies with pending major product approvals (e.g. ABBV, ACAD, ADMA, ALIOF, AZN, BDSI, BIIB, BMY, CHMA, CLVS, CPRX, ENDP, GNMSF, ICPT, JAZZ, LLY, LPCN, MACK, MRK, NVS, PTCT, RLYP, RPRX, SHPG, SRPT, TEVA, UCBJY, ZSPH); SNY on undervalued basal insulin franchise and sales potential for Praluent (alirocumab), in addition to its undervalued pipeline; RAD as an acquisition target as WBA and CVS seek to defend against narrowing retail networks; CFN, BCR, CNMD and TFX on rising hospital patient volumes; XRAY and PDCO on rising dental patient volumes and rising average dollar values of dental products and services consumed per visit; CNC, MOH and WCG on bullish prospects for Medicaid HMOs; and, DVA and FMS for the likely gross margin effects of generic forms of Epogen

Where we’re BEARISH: PBMs facing loss of generic dispensing margin as the AWP pricing benchmark is replaced (e.g. ESRX); Drug Retail as dispensing margins are pressured by narrowing retail networks and replacement of AWP (e.g. WBA, CVS); Research Tools & Services companies as growth expectations and valuations are too high in an environment of falling biopharma R&D spend (e.g. CRL, Q, ICLR); and, suppliers of capital equipment to hospitals on the likelihood hospitals over-invested in capital equipment before the roll-out of the Affordable Care Act (e.g. ISRG, EKTAY, HAE)

On October 22nd of this year ABBV and FDA announced that adverse event warnings would be added to the Viekira Pak and Technivie labels. Since the announcement, consensus estimates for ABBV’s HCV franchises have been reduced only modestly (Exhibit 1); and, ABBV’s share price has risen, at least in part because of management’s expressed confidence in HCV sales prospects, and news that the Humira intellectual property estate has been strengthened

Viekira Pak likely to be removed from formularies, or at the very least is likely to lose exclusive positions

We believe Viekira Pak’s adverse event disadvantage relative to Harvoni and Sovaldi is more extensive than is generally appreciated. FDA has explained the re-labelling of Viekira Pak as a response to 26 specific cases of hepatic decompensation and liver failure; and, the Agency has explained that these events ‘were reported mostly in patients taking Viekira Pak who had evidence of advanced cirrhosis even before starting treatment with it.’ This has fostered an expectation that Viekira Pak’s adverse event disadvantage is isolated to patients with advanced cirrhosis who can be screened for and avoided. We believe this view is far too sanguine

We analyzed the full set of available adverse event reports (AERs) for the category. Data are publicly available for the period extending through June of this year. In all fairness FDA and ABBV are able to see more current data (through October)

In our experience FDA considers AERs on a case-adjusted, prescription-adjusted, and lifecycle-adjusted basis. A single case can generate more than one AER, so the rate at which cases occur can be more meaningful than the rate at which AER’s occur. The raw number of cases or AERs of course isn’t meaningful without also understanding how widely a given product is used; accordingly adverse event rates are expressed in terms of cases or adverse events occurring per prescription. Finally because newer products tend to catch a disproportionate share of blame for patients’ problems, when comparing case or adverse event rates across products it’s important to make the comparison on a lifecycle-adjusted basis. More specifically, we compare the number of adverse event cases occurring per Viekira Pak prescription during Viekira Pak’s first month on market to the same rates witnessed for Harvoni and Sovaldi in their first months on market

Exhibit 2 displays the ratio (y-axis) of cumulative adverse event cases[1] to cumulative total prescriptions for Viekira Pak, Sovaldi, and Harvoni. The x-axis represents lifecycle months, e.g. ‘m1’ corresponds to each product’s first month after launch. The cumulative case rate for Viekira Pak is substantially higher than the corresponding rates for either Sovaldi or Harvoni

Exhibit 3 follows the format of Exhibit 2, but in this instance cases are limited to those in which at least one of the reported adverse events are clearly liver involved[2]. Finally Exhibit 4 follows the same format as Exhibits 2 and 3, with cases limited to those in which none of the reported adverse events are likely to be liver involved. Exhibit 5 summarizes the comparisons in tabular form, showing the relative rates at which adverse events cases have occurred per prescription across the three brands. In all instances adverse event cases have occurred more frequently on Viekira Pak than either Sovaldi or Harvoni, and in all instances the differences are statistically significant (P-value < 0.01). Appendix 1 details specific types of adverse events and their relative rates of occurrence across the three brands

We considered whether the 26 patients FDA referenced in their announcement were sufficient to account for the difference in adverse event case rates across brands. As a starting point, the Viekira Pak AER data through June consists of 62 cases[3]. In the interest of stress-testing our conclusion that further safety-related label changes are likely, we evaluated what would happen if we ignored 26 of the 62 cases to date, on the notion that FDA has evaluated and acted on these, meaning they’re no longer relevant to any potential future label revisions. As it turns out, eliminating 26 of the 62 observed cases roughly halves the difference in adverse event case rates between Viekira Pak and Sovaldi and/or Harvoni. But even after excluding 26 cases, Viekira Pak still has more adverse event cases per prescription – liver involved and otherwise – than either Sovaldi or Harvoni, and the differences remain statistically significant

We believe that most formulary managers, especially large national firms, are likely to look at the AERS data underlying the Viekira Pak re-labelling, rather than relying simply on the FDA communication. In so doing, it becomes clear that Viekira Pak has a much louder risk signal than either Harvoni or Sovaldi – and that this would be true even if the 26 cases that drove the recent safety warning had been avoided by screening. For this reason, we believe it’s likely that Viekira Pak will ultimately be removed from formularies, or at the very least that Viekira Pak will lose the majority of its exclusive formulary positions. The pending entry of a competitive regimen from MRK in 1Q16 only serves to further enable formulary managers who may be inclined to remove or restrict Viekira Pak

Humira’s trailing price growth had much to do with the fact that formulary managers were positioning themselves for Humira FOB’s

Management gave bullish guidance regarding Humira’s IP status on the 3Q call; in response consensus revenue expectations have risen for Humira in the out-years (Exhibit 6). Plainly we accept that a delay in Humira follow-ons raises out-year sales prospects for Humira; however we caution that trailing rates of growth arguably have much to do with formulary managers’ expectations that Humira follow-ons were relatively near to market. Anticipating Humira follow-ons, formulary managers arguably tolerated Humira’s rapid price inflation (Exhibit 7) and even enabled its growth in unit share (Exhibit 8), all in hopes of reducing category costs and/or expanding their own gross margins when Humira follow-ons entered. Humira warranted special treatment both because it was likely to be the first major brand to be displaced by follow-on alternatives, and because it had an annual treatment cost below the category average (Exhibit 9)

Now that the annual cost of Humira is on par with the category average, and now that it may no longer be realistic to expect Humira follow-ons earlier than follow-ons for other major brands, formulary managers’ handling of Humira is likely to be far less accommodating

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  1. We further restrict our dataset to cases in which (1) drug treatment initiated after FDA approval; and (2) cases in which the product in question has been flagged by FDA as the ‘Primary Suspect Drug’ in the event
  2. Appendix 2 summarizes adverse events that we categorized as liver involved
  3. See note 1
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