A view on the Axiron competition from...

A view on the Axiron competition from SeekingAlpha:
http://seekingalpha.com/article/1855111-new-research-and-competition-could-hurt-abbvies-other-blockbuster

New Research And Competition Could Hurt AbbVie's Other Blockbuster
Nov 21 2013, 12:21 | 7 comments | about: ABBV, includes: AUXL, DRGS, GSK, IHE, LLY, PJP, PPH, XPH BOOKMARK / READ LATER
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Investors of AbbVie (ABBV) know that its stock price is mostly driven by the success of Humira, the best selling medication in the world. However AbbVie's second best selling medication is a testosterone replacement gel called AndroGel. AndroGel has seen rapid growth over the last few years, recently reaching the coveted blockbuster status. Sales grew from 650 million in 2010 to over 1.15 billion in 2012. Obviously AndroGel has become a important part of AbbVie's drug portfolio. However increasing competition has slowed growth and a new study could make things even worse going forward.

Competition

Competition has already started to eat into AndroGel's share of the market. So far this year sales are down around 5 percent compared to last year. Eli Lilly's (LLY) Axiron is probably AbbVie's most serious competition. Since its launch in 2011 sales have gone from 48 million to a projected 168 million in sales this year. Lilly, like AbbVie, is also heavily involved in direct to consumer advertising, giving Axiron a large marketing budget after seeing AndroGel's success. Another testosterone supplement available in the form of a patch is Actavis' Androderm. Androderm has been around for along time and had about 87 million in sales last year. According to Actavis' most recent quarterly report sales are up modestly. Actavis has not given Androderm the marketing budget that AndroGel has, but it has good name recognition with doctors. Lastly you have Auxilium's (AUXL) Testim. Auxilium recently terminated their co-promotion partnership with GlaxoSmithKline (GSK) so they don't have as much marketing power as AbbVie and Lilly . Sales this year should be around 200 million for Testim, down roughly 6 percent.

JAMA Study

While new competition is concerning, a recently released study is much more problematic for the future of the AndroGel franchise. Some people might remember the HERS trial which in the mid nineties showed that hormone replacement therapy increased the risk of cardiovascular disease in women. At the time many people thought that hormone therapy for women would decrease the risk of cardiovascular disease. Sales of these drugs obviously dropped after the new data was released. Now over a decade later a similar story could be developing with male hormone replacement therapies. These drugs are currently being prescribed with minimal long term safety data. A recently published JAMA study retrospectively looked at VA patients post coronary angiography and found that patients taking testosterone had a 25.7% having a stroke, heart attack or death. While patients not taking testosterone supplement had a 19.9% chance of having a stroke, heart attack, or death. Its important to note that the study had a few weaknesses. The largest is that this study was a retrospective study and not a randomized controlled trial so its results aren't definitive. Another weakness is that the study could not determine if the testosterone replacements were prescribed correctly. Lastly over a third of the men receiving testosterone got it via an injection not a slow release gel. So while the JAMA study is far from conclusive it does raise a red flag and solidifies the fact that doctors need a long term randomized trial to determine how safe these drugs are. The good news is that such a trial is in progress, and should be completed by the summer of 2015.

Conclusion

For the foreseeable future AbbVie will continue to depend on Humira for the bulk of its revenues, but at some point generics will start to eat into Humira's sales and margins. When this time comes drugs like AndroGel will be increasingly important for AbbVie. The testosterone replacement market is expected to grow to 5 billion in annual sales by 2017, an increase from just under 2 billion in 2011. That estimate could end up looking rather generous if safety concerns continue to mount. Don't look for AbbVie to abandon AndroGel. In the first half of the year they spent over 40 million advertising AndroGel alone and that most likely won't change. If AbbVie can maintain their market share and the testosterone market continues to grow AndroGel could be their next cash cow.