AbbVie's 96% tax break: Big Pharma reaps huge benefit from Trump tax reform

AbbVie is known as one of the largest pharma beneficiaries of the U.S. tax reform. Just how much has it gained? In the first nine months of 2018, the Illinois pharma has paid just 4.5% of the income taxes it shelled out the same period last year.

So far this year, the company has owed $57 million in taxes, compared with $1.28 billion in 2017. According to the access watchdogs at I-MAK, AbbVie's best-selling Humira racks up (PDF) */$50 million in sales every day. And at that rate, the company could cover its nine-month tax burden in about 28 hours.

That savings gave earnings and guidance a boost, and its J&J-partnered cancer drug Imbruvica outpaced analyst estimates with $972 million in sales. But analysts were more interested in the potential negatives—from the Humira biosimilar launches in Europe, that is.

Based on the first two weeks of biosimilar assault, AbbVie Chairman and CEO Richard Gonzalez now projects Humira sales erosion of 26% to 27% outside of the U.S. in 2019, up from his previous—and sunnier—prediction of no more than 20%.

Since the megablockbuster went off patent in Europe in mid-October, Biogen (on behalf of Samsung Bioepis), Amgen, Novartis’ Sandoz and Mylan have all launched their copycats in the region.

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With discounts now ranging from 10% to as high as 80% in the heterogenous European markets, the pricing discount overall “has been on the higher end of the planning scenarios that we’ve laid out,” said Gonzalez on the call, adding that it had used Remicade and Enbrel as the analogs to plan against.

Still, despite AbbVie's incorrect predictions, Gonzalez insisted that the level of price cut—even the 80% in some Nordic countries—is not a surprise. That discount just happens to be what the company’s offering for its original drug in one European tender, according to a Wednesday note from Bernstein analyst Ronny Gal.

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Up until now, Gonzalez said he considered about two-thirds of its ex-U.S. Humira revenue impact as “locked,” meaning the company knows exactly what's coming. For instance, a country might have IP protection with no additional risk, or a country, such as France, might use a mandated discount where biosimilars compete with the original drugs at the same price. The remaining one-third, according to Gonzalez, are still under negotiation, with potential movements down the road.

For the first nine months of the year, Humira’s international sales rose 10% to $4.95 billion, and it now expects whole-year numbers to come in at $6.3 billion, said CFO Bill Chase, who will be retiring in the middle of 2019.

AbbVie has been trying to diversify away from Humira to blunt the headwinds when biosimilars launch in 2023. On the third-quarter call, executives touted some newer drugs that could help it when that day comes. These include Venclexta, now bidding to move up into first-line chronic lymphocytic leukemia on the back of positive phase 3 data, and awaiting FDA priority review in newly diagnosed patients with acute myeloid leukemia. For the third quarter, the drug brought in $96 million in revenues.

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And then there's Orilissa, a Neurocine-developed drug for pain associated with endometriosis, which won approval in July. Goldman Sachs analyst Jami Rubin at that time figured the drug could collect $65 million this year and climb to $1 billion by 2020. The drug is “well positioned to hit management expectations of >$2bn by 2025,” Rubin wrote back then.

The company also recently invested more to take full control of Galapagos’ full cycstic fibrosis portfolio despite what industry watchers viewed as weak early-phase data. The franchise could also contribute to cushion the Humira fall in the U.S., Gonzalez told investors.