ABBV’s US Humira trend: Why genuine slowdown in end-user demand, and corresponding growth in channel inventories is a likely scenario

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Richard Evans / Scott Hinds / Ryan Baum

203.901.1631 /.1632 / .1627

revans@ / shinds@ / rbaum@ssrllc.com

@SSRHealth

May 18, 2017

ABBV’s US Humira trend: Why genuine slowdown in end-user demand, and corresponding growth in channel inventories is a likely scenario

  • ABBV claims 12% US volume growth for Humira in 1Q17, v. 3rd-party data suppliers’ estimate of low-single digit growth
  • ABBV argues that much of the disparity is due to a single large account blinding its Rx data from IMS, beginning last summer. For this to be correct, this account must have increased its US Humira consumption by an amount equal to 7% of total US units in 1Q17 – an impossibly rapid rate of growth
  • Symphony Health Solutions (SHS), a competitor to IMS, also reports a 1Q17 slowdown in US Humira volumes (4.1% for units, 2.8% for TRx’s), and claims their sample of US Humira volumes is unaffected by changes in reporting outlets
  • Like most US manufacturers, ABBV relies on 3rd-party prescription data to estimate channel inventories. Faced with the reality of 12% growth in ex-factory shipments to wholesalers, and with a 3rd-party estimate of decelerating end-user demand, ABBV has – somewhat understandably – chosen to believe that channel inventories are stable, which can only be true if the 3rd-party estimate of end-user pull through is far too low
  • It is at least equally probable that the 3rd-party prescription data are correct, meaning that channel inventories have grown. ABBV pre-announced its shift to a single annual price increase on Humira in 2017, after having taken bi-annual price increases in earlier years with the mid-year action falling on varied dates. In earlier years stable channel inventories were likely; however with a single pricing action inventory builds into 1Q become more likely. The facts that channel participants (wholesalers, retailers) are under pressure from declining generic prices and decelerating brand prices, and that Humira has recently been the single largest source of branded price inflation, make clear that channel participants have motive to stealthily load-in Humira, even in violation of inventory management agreement (IMA) provisions
  • We acknowledge that ABBV’s explanation is plausible – despite the extreme IMS / SHS projection errors implied; however we believe growth in channel inventories is, on balance, the more likely explanation

ABBV claims stable US Humira volumes; 3rd-parties register slowing volume

As reported by Symphony Health Solutions (SHS), Humira’s US TRx and NRx growth rates are decelerating (Exhibit 1)

ABBV reports circa 12% US TRx growth, well above the SHS measured rate of 2.8% (TRx) and 4.1% (units). ABBV attributes the difference to a single account blinding its Rx data from 3rd parties (in ABBV’s case IMS). Notably our vendor (SHS) claims there have been no recent changes to their sample, and that they have not lost any stores that report Humira

ABBV’s explanation implies that an impossibly fast growing account blinded 3rd-parties to its Rx data

If ABBV’s claim that a single large account’s blinding of Rx data from 3rd party data vendors is responsible for the difference between ABBV and 3rd party volume estimates, this implies a very large account (now at least 7% of total Humira demand, assuming no 3rd party adjustment) driving an ever-larger effect (Exhibit 2). If there is in fact an issue with an account denying its Rx data to IMS, IMS would almost certainly adjust its projections to account for the change in the sample, meaning that the account in question must be even larger and faster growing than reflected in Exhibit 2. There are certainly individual accounts that consume 7% or more of Humira volume, but there are almost certainly no accounts that have grown to that share in a single year

ABBV relies in part on 3rd-party prescription data to estimate channel inventories

On their 1Q17 call ABBV claimed both 12% Rx growth and stable (circa 2 week) channel inventories. ABBV plainly knows how much Humira they’re shipping into wholesalers, but according to their own disclosures, the company’s estimates of channel (wholesale + retail) inventories rely – at least in part – on third-party prescription data. ABBV is solving for wholesale inventories by adding ex-factory shipments to the channel estimate, and subtracting end-user pull through (IMS prescriptions) from the channel estimate. From the most recent 10k, emphasis added:

“… the company uses both internal and external data to estimate the level of inventory in the distribution channel … The company evaluates inventory data reported by wholesalers, available prescription volume information, product pricing ……”

ABBV on the one side, and IMS/SHS on the other side, are making mutually incompatible claims – one side or the other must be wrong. To believe that IMS is wrong we’d have to believe that a single and impossibly fast-growing account has blinded its data in a manner that IMS is incapable of adjusting for in its projection method. To believe that SHS is wrong we’d have to believe that they’ve simply missed the fact that an impossibly fast growing account is no longer disclosing its Humira Rx data

On balance, growth in US channel inventories is a more likely explanation than 3rd-party data error

To believe that ABBV is incorrect we only have to believe that the company is assuming that channel inventories are flat, when they’re actually rising. This scenario requires an understandable reluctance on ABBV’s part to accept a sudden drop in unit demand, and a willingness on the part of channel participants to hold higher than normal inventories into 1Q

In prior periods ABBV has taken mid-year pricing actions on Humira at differing points in the year (Exhibit 3), a circumstance in which reasonably stable annual inventories are likely; however ABBV made clear its intention to take only a single pricing action in 2017. Under pressure from falling generic prices and slowing brand inflation, and aware that the brand which has on a trailing basis been the single largest contributor to inventory pricing gains will take only a single 2017 pricing action, it is entirely likely that at least some channel participants loaded-in Humira ahead of the single annual price increase, without ABBV’s knowledge

AMGN also referenced ‘softness’ in IMS DMARD volume data in 1Q17, but their explanation of why this occurred is at least partially flawed

Like ABBV, AMGN noted 1Q17 ‘softness’ in DMARD (Enbrel) volumes. After dialogue with IMS they attribute much of the slowdown to: 1) a higher number of shipping days in 4Q16 v. 1Q17, 2) a growing trend toward demand weakness in 1Q because of higher OOP costs, and 3) a shift to 90-day Rx’s

Importantly, the yoy comparison across 1Q16 and 1Q17 is unaffected by shipping days; both quarters had 62 days after accounting for New Year’s Day, MLK, and President’s Day. Also the annual first quarter demand effect thesis is feasible but less than compelling; in the last 11 years in only two other instances (1Q09, 1Q13) has there been a clear first quarter trend break in volume growth (Exhibit 4). And finally volume demand as measured by units – which controls for the size of Rx’s – declined at a rate (4.1%) similar to the Rx decline (2.8%)

CELG and NVS attributed 1Q17 weakness to growing average discounts; we believe this reflects a shift of psoriatic demand away from anti-TNFs, and growing DMARD category pricing pressure

Both CELG (Otezla) and NVS (Cosentyx) attributed weaker 1Q17 results to growing average discounts, with CELG specifically attributing its higher average rebates to new contracts that allow patients to start on Otezla without having first failed another DMARD. Average annual non-Medicaid gross to net concessions did grow rapidly across the DMARD category in 1Q17 (Exhibit 5)

It’s very clear to us that the more psoriasis-specific DMARDs (e.g. Otezla, Cosentyx) have put the anti-TNFs generally and Humira specifically under volume pressure; and, that movement of some of these brands to first-line anti-psoriatic roles will come at the expense of the anti-TNFs – particularly Humira. Higher rebates offered by the more psoriasis-specific DMARDs is an immediate and growing source of Humira pricing pressure; competitive bidding for newly diagnosed RA patients is an as-yet unrealized, but ultimately far larger, potential source of pricing pressure

 

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