Abbott Laboratories (ABT) has been on a pretty good run recently. The company's year-over-year second quarter earnings per share increased by 38%, and over the last 52 weeks, the stock price has increased by 28%. The biggest revenue driver for Abbott is Humira. Humira is the blockbuster drug that is used to treat rheumatoid arthritis, psoriatic arthritis and chronic plaque psoriasis. In the second quarter, Humira's sales totaled $2.3 billion, and it is estimated that its full year sales will total $9 billion. Abbott, however, believes that it can get even more value out of Humira. Abbott is now trying to get FDA approval to use Humira as a treatment for people with moderate to severe ulcerative colitis. Ulcerative colitis is a chronic disease that causes ulcers in the colon and affects about 700,000 Americans. Abbott hopes that the drug could be used in people who have not benefited from other medicines for the condition.
On August 28th, a Food and Drug Administration (FDA) advisory committee voted 15 to 2 that the benefits of Humira outweighed its risks in treating ulcerative colitis. The FDA generally follows panel recommendations, although it is not required to do so. A final FDA decision is expected by the end of the year. The decision is important because of the large number of patients that Abbott could acquire if the drug is approved to be used for to be used as a treatment for ulcerative colitis.
While the advisory committees vote is encouraging, it is not a guarantee that the FDA will accept Abbott's application to use Humira as a treatment for ulcerative colitis. In November of 2011 the FDA rejected Abbott's application, saying "results from clinical trials did not conclusively show the drug helped stop the symptoms of the disease, which include diarrhea, rectal bleeding, incontinence, abdominal pain, fever, fatigue and weight loss." As Humira already has known safety risks that include serious infections, the FDA staff said it was unclear if the injectable drug's modest benefits justify giving it to patients instead of other approved drugs, such as Johnson & Johnson's (JNJ) and Merck's (MRK) drug treatment Remicade.
Humira's chances of getting approval for a treatment for ulcerative colitis are somewhat limited by the fact that Johnson and Johnson and Merck already have an approved drug for the treatment Remicade, for Ulcerative colitis. Johnson and Johnson and Merck are in a partnership to sale Remicade. Remicade is a formidable competitor to Humira as its second quarter sales totaled just over $2 billion. The advantage that Humira has over Remicade is that it is self-injectable while Remicade must be infused in a medical office.
Also Take Into Consideration....
On August 30th it was announced that the European Commission has approved Humira for the treatment of moderately active Crohns disease (CD) in adult patients who have had an inadequate response to conventional therapy. Crohn's disease is a serious, chronic inflammatory bowel disease (IBD) of the gastrointestinal (GI) tract that affects up to one million people in Europe.
On August 28th it was announced that CE marking for a testosterone assay with improved sensitivity and clinical utility. The testosterone assay can accurately measure the wide range of testosterone levels seen in a number of different patient populations and clinical settings. Measurements of testosterone are used in the diagnosis and treatment of disorders involving:
• The male sex hormones (androgens) including primary and secondary hypogonadism, delayed or precocious puberty, and impotence in males; and
• In females, hirsutism (excessive hair) and virilization (masculization) due to tumors, polycystic ovaries, and androgenital syndromes.
Abbott's plan to spin-off its pharmaceuticals and biologics division still appears to be on track to be completed by the end of the year. Abbott recently announced that the spinoff cost will total $0.17 per share in the second half of the year. The spinoff will be named AbbVie and its headline drug will be Humira. It should be noted that AbbVie has several other standout drug products such as Tricor which had second quarter sales of $388 million, Androgel, with second quarter sales of $275 million and Niaspan with second quarter sales of $211 million.
Investors and Abbott shareholders will be very interested in the split-off of Abbott's pharmaceutical division. It was generally assumed that the reason for the spin-off, was because the value of the separate companies would be greater than the value of the combined company. Miles White Abbott's CEO stated that the two companies will be "valued more accurately" or "appreciated more by investors" as separate entities. Other spinoffs, such as Altria's (MO) spinoff of Kraft (KFT), have seen market-beating returns since being fully sold off. Since the announcement of the split in October 2011, Abbott's stock price has increased by more than 25%. As a result of the rally in the stock price, I believe that most of the separated companies increased value has already been priced into the stock. But, I still believe that Abbott is a worthy investment because of its strong drug pipeline and its history as a good dividend payer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.