The current research and development focus areas for pharmaceutical companies are oncology, central nervous system disorders, diabetes, and immunology. These areas of treatment were previously untapped, and each provides greener avenues for growth for pharmaceutical companies. With the industries' constant research and development activity, the older class of drugs is facing stiff competition from the newer class of drugs. Along with the competition in research and development, regulations are keeping a check on drug developments. Let's delve into three pharmaceutical companies that are developing drugs for the treatment of the above mentioned diseases.
Developing a solid pipeline
AbbVie's (ABBV) drug named ABT-199, for the treatment of chronic lymphocytic leukemia, or CLL, is in its clinical trial phase 1. In the clinical test results, the drug showed positive results in terms of response to minimize tumor lysis syndrome, or TLS. TLS is the biochemical reaction that can occur after the treatment of leukemia. AbbVie is also testing this drug for its ability to control minimal residual disease, or MRD. MRD refers to the nomenclature given to the few leukemic cells remaining during or after the treatment of leukemia. These developments are expected to make the drug a better option for patients in the U.S. where 35% of all leukemic patients suffer from CLL. ABT-199 will reduce the dependence of AbbVie on its arthritis drug Humira, which drives more than 50% of the company's revenue. The patent for Humira is expected to expire by the end of 2016 in the U.S., which will put pressure on the company's revenue. ABT-199 is expected to reach the market in 2017 and could add $1 billion to AbbVie's revenue when sales peak.
The company is also developing a treatment for Hepatitis C patients. The treatment development is in its clinical phase 2b. For the clinical trials, the company uses a combination of drugs named ABT-450, ABT-267, and ABT-333 it developed. The treatment gained "Breakthrough Therapy" status from the FDA for the efficacy it showed in the clinical phase. This treatment has the ability to cure Hepatitis C in 12 weeks, compared to the existing treatment that takes 24 weeks - 48 weeks. Experts estimate that around 160 million people are living with this disease worldwide. The Hepatitis C market was valued at $4.7 billion in 2010 and is expected to reach $8.6 billion in 2017. The treatment is scheduled to reach the market by 2015, and revenue generated is expected to be around $400 million in 2015 and $500 million in 2016. These positive developments of its pipeline drugs are expected to increase the EPS from $3.35 last year to $3.50 in the year 2015.
Protecting its own turf
Merck's (MRK) diabetes drug Januvia will face intense competition from sodium-glucose co-transporter 2, or SGLT2, diabetes inhibitor drugs. The SGLT2 drugs are a new class of diabetes drugs and have shown better results in terms of controlling hypoglycemia, weight reduction, and blood pressure, which are caused by an increase in diabetes, from normal levels. The SGLT2 drugs are in their trial phase and are expected to reach the market in early 2014. Januvia sales grew by 23% in 2012, but increased competition is pressuring Januvia's sales growth. Januvia sales are expected to be $6.02 billion this year and $7.1 billion in 2016, growing at a 6% CAGR.
Merck has received the complete response letter, or CRL, from the FDA for its Suvorexant, causing the delay in launch, which was expected next year. Suvorexant is a drug for treating insomnia, and when approved, it will be the first drug approved in its class of medicine. The FDA is recommending lower doses of 10 mg, as opposed to the 15 mg proposed by the company. The FDA also suggested a 5 mg dosage for certain patients since the medicine could have drug-drug interactions. The company fears that at the reduced dosage, the drug's efficacy will also reduce. In addition, the FDA is denying approval for the 30mg and 40mg dosage due to safety concerns. The reduced dosage and the restriction by FDA on the higher dosage can reduce the commercial prospects for the drug. This regulatory hurdle could delay the launch of the drug to 2015. Once approved, it is expected that Suvorexant's revenue will be around $150 million in 2015.
The company's growth could be a challenge because of the increase competition and regulatory hurdle. This is expected to hamper the EPS growth which is expected to be $3.49 this year compared to $3.82 last year.
The cancer warrior
Onyx Pharmaceuticals (ONXX) will continue to benefit from the royalty revenue from Pfizer (PFE) due to the drug Palbociclib. This drug is a selective inhibitor of cyclin-dependent kinase, or CDK. CDK is a kind of protein that controls the cell cycle. Onyx helped Pfizer in the initial stages of drug development, which entitles Onyx to receive royalty revenue. The drug is now in its advanced clinical trial phase and is expected to receive FDA approval next year, or early 2015. The drug's patent is scheduled to expire in January 2023 with possible extensions of up to five years. It is being developed for the cure of ER+/Her 2- breast cancer. The current cure available for this type of breast cancer has limited competition and requires a long duration of therapy. According to the contract, Onyx is eligible for 8% royalty revenue on global net sales. This is expected to be approximately $12 million in 2015 and is expected to rise to $230 million in 2019.
Oprozomib is a drug in Onyx's pipeline undergoing its phase 1b trial. The drug is the oral version of the company's injectable drug, Kyprolis. The drug is a proteasome inhibitor, which is important for the curing of blood cancer. The company is developing an oral drug for treating cancer because cancer has become a chronic disease for many patients. Total cure of blood cancer is difficult but its progression can be delayed and sometimes cured by using drugs. The drug is designed to treat multiple myeloma, or the cancer of plasma cells. Multiple myeloma is one of the most prevalent types of blood cancer in the U.S. The multiple myeloma market is $4.4 billion as of 2011 and is expected to rise to $7.2 billion in 2021.
Onyx's impressive pipeline drugs and royalty revenue will continue to drive its revenue in the coming years. This will boost the EPS from negative $1.59 this year to $0.64 next year.
The pharmaceutical companies will reap rewards from investing in research and development to create new and advanced drugs. AbbVie continues to strengthen its competitiveness in the development of leukemia and Hepatitis drugs. This will propel their growth for the future. On the other hand, Onyx is continuing to specialize in the development of oncology drugs that could be a great differentiating factor for the company in the times to come. We recommend a buy on these two stocks.
Competition to Merck's Januvia drug and regulatory hurdles on Suvorexant can weigh down on the company's future revenue. Therefore, we recommend a hold on this stock.