AbbVie, a global biopharmaceutical company based on research, was established in 2013 after the dissolution of Abbott Laboratories. The company develops, markets, and discovers biopharmaceuticals. The company had more than 28,000 employees worldwide and sold products in over 170 countries as of December 2015. AbbVie’s mission to be a specialty biopharmaceutical company that is patient-focused and innovative is its goal.
Understanding Abbvie’s Business
Abbott announced in October 2011 that it would create AbbVie, a separate pharmaceutical company while maintaining its diagnostics and medical devices businesses. AbbVie became a separate company on January 1, 2013. It was officially listed on New York Stock Exchange (ABBV) on January 2, 2013. The company sells small and large molecules (chemical entities) and biotechnology products (biopharmaceuticals).
Understanding the Biopharmaceutical Business Model
Regulations prohibit biopharmaceutical companies from selling medicines directly to patients. Companies reach out to patients through influencers (Providers/Physicians). Influencers convince biopharmaceutical companies about the superiority and value of their products over the other products on the market. Companies use indirect and direct channels to reach influencers and build their brand.
Direct Channels –Companies use the field force to explain the benefits of products, invite influential people to promotional meetings, and advertise their products in medical journals.
Indirect Channels Biopharmaceutical businesses use indirect channels to reach influencers and a targeted patient population. Biotech companies use a variety of channels to reach their target audience. These include sponsorships for Continue Medical Education (CME) and assistance to advocacy groups.
Abbvie uses both indirect and direct channels to influence prescribers (Doctors).
New medicines can be prescribed to patients who are already taking them.
Patients should be aware of their conditions to become new patients.
Providers should be encouraged to suggest new indications for current medications.
These products are sold mainly to pharmacies, retailers, hospitals, government agencies, and health maintenance organizations (HMOs). The following diagram illustrates how Abbvie generates revenue in the biopharmaceutical products business.
Understanding Biotechnology Business
The first bread baker, brewers, and cheesemakers are the foundation of modern biotechnology companies. They taught us how microorganisms could produce everyday edible products like beer, bread, cheese, and other beverages.
A better understanding of biology, including molecular connections between disease pathways and methods to manipulate microorganisms, has led to new opportunities in medical diagnosis, as well as new technologies such as the sequencing of human genomes and industrialization. This branch of biopharmaceuticals, which uses biotechnology to create medicinal compounds, is revolutionizing the pharma industry.
Recombinant DNA is a technique used by biotechnology companies to create innovative medicines. This involves isolating a human therapeutic gene or genetically engineering it to create a therapeutic one. Then, the potential therapeutic is introduced into bacteria, yeast, or another animal cell line. Recombinant systems can be induced to produce high amounts of protein under controlled conditions. Biotechnology companies can produce large quantities of highly purified proteins for clinical and eventual commercial therapeutic purposes. The first biotechnologically produced medicine was human insulin.
Understanding Abbvie’s Business Model
Abbvie’s success can be attributed to adalimumab (marketed under Humira), a biopharmaceutical treatment of autoimmune diseases. AbbVie’s dependency on Humira increased from 45% in 2011 to over 60% in 2015.
AbbVie’s dependence on one product is high, and biosimilar threats are increasing. AbbVie took the following steps to improve its business model.
Building Patent Estate For Existing Products
Acquisition and Building of New Growth Platforms
Keep Focus on Profitable Biotechnology Franchises
Building Patent Estate For Existing Products
Abbvie has developed a comprehensive strategy for countering biosimilar threats and maintaining its leadership position in immunology. Abbvie has obtained twenty-two patents covering all approved indications. These patents covering approved indications expire in 2022-2031.
Biosimilar companies must have the same route, dosage form, and strength to launch a Humira copy. Abbvie holds 14 patents for formulations, which will expire in 2022-2028. There are also 24 patents for manufacturing that expire in 2027-2034. Abbvie has secured 15 delivery or device enhancement patents to protect Humira until 2032.
Abbvie is developing a selective JAK1 inhibitor (ABT-494) to increase its dominance in Immunology further. ABT-494 has demonstrated top-line solid efficacy results in patients suffering from RA.
These measures will allow Abbvie to expand its Immunology portfolio.
Building and Acquiring New Growth Platforms
AbbVie aggressively seeks new growth platforms to be a global leader in cancer research. AbbVie announced on March 4, 2015, that it had agreed to purchase Pharmacyclics, an oncology company, and its treatment for blood tumors, ibrutinib. Abbvie will be able to enter the lucrative market for hematologic cancerology, which is expected to grow to $50BN by 2022. Its current value of $27BN was $27BN.
The company purchased Stemcentrx for $9.8 billion on April 28, 2016. Rova-T, a late-stage drug for small-cell lung carcinoma, was also acquired by Stemcentrx.
Abbvie also forged R&D partnerships with major players to develop, launch and market innovative therapies. It has partnered with Calico, an Alphabet Inc. affiliate for Aging and other age-related diseases. Synlogic is responsible for Crohn’s and ulcerative colitis. The University of Chicago collaborates with Abbvie to study various oncology areas, including breast, lung, prostate, and colorectal cancers.
Continued focus on profitable biotechnology business
Biotechnology companies often focus on specialty medicines, which can be challenging to make or administer, and “orphan drugs” for rare diseases. Both can be expensive to market and very lucrative to make. Abbvie, having successfully tested Humira’s market, is now aggressively building its biological R&D platform. Abbvie has made investments in nine biotech companies out of 17 venture investments.
Revenues by Business Segment FY 2015
Abbvie’s total revenues for FY 2015 (fiscal year ending December 31, 2015) was $22.9 billion Abbvie generated $22.9 billion of these total revenues.
Humira generated $14.0 billion in revenues, which is 61.3%.
Imbruvica generated $0.8 billion in revenues or 3.3% of the total.
Viekira generated $1.6 billion in revenues, 7.2%.
Creon generated $0.6 billion in revenues, 2.8% of the total.
Synagis reported $0.7 billion in revenues or 3.2% of the total.
Lupron generated $0.8 billion in revenues or 3.6% of the total.
Synthroid generated $0.8 billion in revenues or 3.3% of the total.
Kaletra: $0.7 billion revenue, 3.1% of total
AndroGel: $0.7 billion revenue, 3.0% of total
Sevoflurane generated $0.5 billion in revenues, 2.1% of the total.
Duodopa generated $0.2 billion in revenues or 1.0% of the total.
Dyslipidemia products accounted for 0.8% of total revenues and $0.2 billion in revenues
$5.4% of the total revenue, $1.2 billion from all other products
Profits and Profit Margin FY’15
Out of $22.9 billion in Abbvie’s total revenues for FY’15, $4.5 Billion was the cost of goods sold. This led to a gross profit of $18.4 Billion and an 80.3% gross margin. Other operating expenses for Abbvie were $10.8 billion. These expenses include marketing and administrative expenses and research and development (R&D). The operating profit was $7.5 billion, and the operating margin was 33.0%. Abbvie’s net profit after interest and other non-operating earnings, expenses, and income taxes was $5.1 billion. The net margin was 22.5%.