A recent study by The National Heart, Lung, and Blood Institute of the National Institutes of Health (NIH) revealed that Abbott Laboratories' (ABT) Niaspan was ineffective in reducing the likelihood of heart attacks in patients with cardiovascular disease. This study, coupled with a June study by Roche Holding AG (RHHBY.PK) questioning the effectiveness of Abbott's top-selling Humira line, present a threat to up to $4 billion in annual sales for Abbott.
Niaspan is a niacin-based product prescribed by doctors to raise levels of good cholesterol in order to protect against heart attacks and strokes. The NIH study could decrease sales of Niaspan in the final two quarters of 2012; a potentially devastating blow for a product already on the decline. In 2011, annual sales of Niaspan nearly reached $1 billion, however, the drug's sales growth decreased substantially in 2012. According to Abbott's second quarter financial results, Niaspan year-on-year sales decreased 14.7 percent to $211 million.
In addition to NIH's negative study, doctors are choosing not to prescribe Niaspan due to flushing and other uncomfortable side effects reported by patients. Niaspan's side effects are so prevalent that Abbott has dedicated a portion of their website to educating consumers about flushing. Furthermore, the side effects have prompted release of niacin-based alternatives to Niaspan as well as research and development of new products based on different chemical makeups.
As Niaspan struggles, a few competitors have begun positioning themselves to capture some of Abbott's declining market share. For example, other niacin-derived drugs such as Niacor, Nicolar, and Slo-Niacin are now established alternatives to Niaspan. Other pharmaceutical companies have moved away from niacin all together, with Pfizer (PFE) and Merck (MRK) producing the Lipitor and Zocor product lines respectively. In addition, a new study by Weill Cornell Medical College and the Polytechnic School in Lausanne, Switzerland revealed that nicotinamide riboside (NR), a cousin of niacin, yields many of same benefits as niacin without the flushing side effects.
As a result, ChromaDex Corporation (CDXC) recently licensed several patents from Dartmouth College and Cornell University to utilize NR. While NR is strictly an investigational alternative to Niaspan at this point, ChromaDex's aggressive push to secure these patents and history of mass producing other nutraceuticals like NR suggests that the company will also commercial a new product.
Perhaps an even greater risk to Abbott's long-term growth is Roche Holding AG's (RHHBY) development of a new rheumatoid-based arthritis drug called Actemra, which could challenge Abbott's top-selling product Humira. In recent clinical studies, Actemra outperformed Humira in the reduction of tender and swollen joints. Roche is predicting FDA approval and subsequent commercialization of Actemra within the year, meaning a potential decline in Humira's U.S. sales in the near future.
Humira is undoubtedly Abbott's bread-and-butter product, grossing $2.3 billion in the second quarter. This figure represents nearly 25 percent of Abbott's $9.8 billion in total quarterly sales. Roche's prediction that Actemra will cut into doctors' prescription of Humira by up to 30 percent would cost Abbott nearly $3 billion in annual sales.
Despite the near-term risk, Abbott still has a strong foundation and most financial indicators are positive. Sales increased 6.1 percent in the second quarter, while Return on Capital and EPS continue to grow. As a result, the company's stock price is near its 52-week high of $66.80. Nonetheless, the disappointing performance of Humira in clinical trials, coupled with flushing side effects of Niaspan, render the pharmaceutical giant vulnerable to competition moving into the final two quarters of 2012 and beyond.
Disclaimer: The writer is not a licensed broker or investment adviser and therefore cannot recommend that you buy, sell, or hold any security. While every attempt was made to verify the information in this report, much has been derived from public sources and cannot be guaranteed for accuracy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.