Protect at all costs: How the maker of the world’s bestselling drug keeps prices sky-high
You may not have any of the conditions Humira treats. But chances are, you’ve heard of it.
AbbVie’s flagship therapy, a medicine used to treat a slew of conditions from arthritis to psoriasis to Crohn’s disease and ulcerative colitis, is the bestselling drug in the world, bringing in nearly $20 billion in global sales last year alone. As one U.S. senator noted at a hearing on drug prices in February, that titanic sales figure would be enough to put Humira (were it a company unto itself) on the Fortune 500 list.
And on first glance, it’s hard to conceive of a more perfect archetype for drug success. Abbott Laboratories—which spun off its branded pharmaceuticals unit as a separate company, AbbVie, in 2013—received its first FDA approval to market the medicine on Dec. 31, 2002. A little more than two years later, the injectable drug surpassed the billion-dollar mark in global sales, traditionally the threshold for “blockbuster” status in the pharmaceutical industry—a stunning feat in such a brief span. By 2006, sales had reached $2 billion, a number that would more than double in just two years’ time. By 2013, Humira was the world’s bestselling drug, with $10.7 billion in sales across more than 60 markets, and as improbable as it seems, even that colossal sales figure has nearly doubled again in the half-decade since.
Humira is also, importantly, an effective medicine—and for some people, a life-changer. Injected under the skin by way of a prefilled syringe, the drug—technically, a human antibody (more on that detail soon)—works by inhibiting a key protein that’s central to inflammation, a process that’s implicated in a number of pathologies. In clinical trials, patients with rheumatoid arthritis, an autoimmune disease that leads to painful and progressive swelling of the joints, have experienced rapid improvement in movement and a marked slowing of joint deterioration. In the skin condition psoriasis, which afflicts more than 8 million Americans, studies found the drug could clear up painful and itchy rashes by 75% to 90% in months. In moderate-to-severe forms of Crohn’s disease, a gut disorder that can prove debilitating and require hospitalization or even surgery, the treatment has been able to cut the need for drastic medical action while boosting “mucosal healing”—a possible sign that an inflammatory bowel disease is in remission.
So, you might wonder, what’s not to like about a medicine that helps millions of people suffering from serious and painful conditions and that has made its owners billions of dollars in the process? Isn’t that what the pharmaceutical industry is supposed to do?
The answer, like so many aspects of the drug industry, lies in the litany of side effects that are spelled out in the fine print. For the Humira tale has a dark side too—one that’s reflected in many billions of dollars in unnecessary drug costs for consumers and in stymied competition in a critical area of modern drug development. As much as it might look like the quintessential example of scientific innovation and marketing success, the story of how Humira became the world’s bestselling drug is a case study of an industry in slow-motion failure—of a corporate model that is increasingly forsaking investing in research and discovery in favor of purchasing it (at a premium) from the outside. That model is driving up costs for everybody—patients, government payers, insurers, and, yes, even drug company shareholders.
Indeed, read past those striking sales figures, and AbbVie’s $20 billion-a-year drug phenom might well look like a black-box warning for Big Pharma and consumers alike.
To understand why, it helps to understand what Humira is and where it came from.
Humira isn’t a “drug,” technically speaking—it’s a biological entity known as a monoclonal antibody, or mAb. Put simply, mAbs are proteins created by inducing a specific immune response; these lab-created antibodies then bind to specific antigens on the surface of biological adversaries and work to neutralize the offenders.
The FDA approved the first mAb, an immunosuppressive drug for organ transplant patients, in 1986. More than six dozen have been approved since then, with most targeting various cancers and immune diseases. But Humira was different in one key way from those that preceded it—it was a “fully human” antibody, as opposed to one derived from a mouse. Fully human mAbs are less likely to cause adverse side effects. Humira’s name is itself a tribute to this pioneering science—it stands for “human monoclonal antibody in rheumatoid arthritis,” the first disease it was approved to treat.
As cool as that science is, it didn’t come from AbbVie—or even from its progenitor, Abbott. Abbott picked up the biologic in 2001 when it purchased the Knoll Pharmaceutical unit from German chemical company BASF. Knoll, in turn, had licensed the antibody technology from a company called (appropriately) Cambridge Antibody Technology—which, in turn, had licensed it (in large part) from Britain’s Medical Research Council, where it was developed from the research of Sir Gregory Winter, who would eventually share in the 2018 Nobel Prize in Chemistry for that very same science.
It was Abbott, however, that received the first FDA approval for Humira, in 2002. Researchers there had the good sense to try it against other manifestations of inflammatory disease—and new clinical successes and approvals kept coming: In 2005, Abbott got permission to market the antibody for the treatment of psoriatic arthritis; then ankylosing spondylitis, a form of arthritis affecting the spine, in 2006; Crohn’s disease in 2007; plaque psoriasis (the most common type of the itchy skin condition) and a form of juvenile arthritis in 2008; and ulcerative colitis in 2012. After Abbott spun off AbbVie in 2013, the latter continued recruiting clinical trials in new disease settings and petitioning for regulatory approval across dozens of markets.
More indications mean a larger pool of patients to treat and, consequently, more sales—which is why drug companies do their best to increase the therapeutic reach of their drugs once they’ve gotten a single marketing approval from the FDA.
But in the case of Humira, its owners didn’t take any chances getting the word out. Last year alone, AbbVie spent just shy of $490 million to hawk its superstar product, topping the list of 2018 pharmaceutical ad spending, according to Kantar Media. By comparison, Pfizer’s $272 million on advertising for the pain drug Lyrica came in second. AbbVie also spent significantly on social media advertising, not included in the figure above. And television ads for Humira have aired more than 46,000 times since Jan. 1 of this year.
Along with the über-aggressive marketing, naturally, came price hikes. In the U.S., pharma companies can charge whatever they want for their products. And the makers of Humira did just that. The U.S. list price of the standard 40 mg Humira injectable pen, used in the treatment of rheumatoid arthritis, more than tripled from 2006 to 2017, with the price for a one-year supply soaring from $16,636 to $58,612, according to the AARP Public Policy Institute and the University of Minnesota’s PRIME Institute. That’s a compound annual growth rate of over 12%.
Drug companies often argue that such list prices are misleading because they don’t reflect private arrangements with benefits managers, insurance companies, and assistance programs that can significantly reduce out-of-pocket costs for patients.
But even with such factors considered, Humira’s price kept soaring, as documented in a March lawsuit against AbbVie filed by UFCW Local 1500 Welfare Fund, a large New York grocery workers’ union. After the rebates and discounts negotiated with various health care middlemen, the suit alleges, Humira’s average price in the U.S. doubled from about $19,000 per year per patient in 2012 to more than $38,000 in early 2018. AbbVie declined to comment on the record about its pricing strategy.
The combined effect of these efforts for a single drug has been stunning. AbbVie’s revenue grew from $18.8 billion in 2013, its first year as an independent company, to $32.8 billion in 2018, putting the company at No. 381 on this year’s Global 500, a rise of 41 spots from last year. Over that span, AbbVie has been the best in its peer group of big pharma companies in percentage revenue growth.
But with this cash cow has come a problem: the need to keep milking it. You see, Humira isn’t just AbbVie’s bestselling drug, it is its everything-drug—accounting for more than 60% of the company’s 2018 revenues. And there is another catch: The initial U.S. composition patent for Humira expired in December 2016, 13 years after it first hit the American market. (A parallel patent in Europe expired this past October.)
That conundrum brings up the last, and perhaps most potent, weapon in AbbVie’s campaign for market dominance with Humira: Sue anybody who comes close. “I think of AbbVie as a pioneer—not just in medical treatments but also in legal protections,” Robin Feldman, a professor at the UC Hastings College of the Law and author of Drugs, Money, and Secret Handshakes, tells Fortune.
According to advocacy and drug watchdog group Association for Accessible Medicines, the company applied for and won 75 Humira patents in the three years before its initial patent expired in 2016. AbbVie CEO Richard Gonzalez has said the company now holds approximately 136 Humira patents.
How was the company able to rack up so many patents on a single product? Much of it has to do with the type of drug that Humira is—a “biologic.” Unlike chemically synthesized drugs, biologics derive from actual biological material, making them significantly more complex than standard chemical medicines. And therein lies the key to AbbVie’s IP strategy, explains Feldman. For instance, a company may be able to file patents on obscure steps in the production and manufacturing process, or adjustments in dosing.
And that’s precisely what AbbVie has done. AbbVie, in an emailed statement, says the U.S. Patent and Trademark Office (USPTO) has granted the company more than 30 patents on the ways in which the drug is administered; more than 25 patents on various formulations of the drug; more than 50 patents related to Humira’s manufacturing processes; and about 20 patents on the delivery devices that customers use to take the medicine.
To be sure, creating a monoclonal antibody isn’t easy work, explains Goodwin Procter attorney Robert Cerwinski. “The manufacture of adalimumab [Humira’s scientific name] occurs through a process called fermentation, and it involves a cell line that’s genetically engineered to secrete large amounts of adalimumab from a huge vat of cells growing in, like, a 15,000-liter bioreactor,” he tells Fortune.
Then things get even more complicated. Afterward, the treatment must go through purification processes to take out unnecessary by-products, modifications in dosage for different diseases, and all sorts of incremental tweaks. Amid all these procedures, Cerwinski says, “branded product sponsors like AbbVie have found many more opportunities to conclude that little wrinkles in the manufacturing process are innovative and can be protected by patents.”
That presents a challenge for companies that want to enter the market with biosimilar copycats. (Biosimilars are generic versions of biologic medicines and are usually far cheaper than the brand-name medicines they imitate.) Those challengers “have to come up with their own process,” he says. “The process is the product.”
Cerwinski has been litigating patent infringement with a focus on the life sciences for more than two decades, including litigation concerning monoclonal antibodies like Humira. He’s also been involved in efforts to reform the U.S. patent system, which currently not only allows but also incentivizes manufacturers like AbbVie to build these so-called patent thickets.
“There’s nothing unusual about the multilayered way AbbVie has sought to patent and protect Humira,” Cerwinski says. Another patent expert, New York Law School professor Jacob Sherkow, echoes the sentiment. “They’re just taking advantage of existing law,” he says.
But Cerwinski points out that other biologic drugmakers fending off competition have employed anywhere from a handful to, perhaps, 40 patent claims in litigation. AbbVie has gone much further—using its patent thicket against rivals with vigor. In a 2017 lawsuit, AbbVie cited 74 alleged instances of patent infringement against Boehringer Ingelheim and its Humira copycat Cyltezo. At first, Boehringer fought back in court. But, in May, it became the ninth company to settle patent litigation with AbbVie over a Humira biosimilar.
“With the inherent unpredictability of litigation, the substantial costs of what would have been a long and complicated legal process and ongoing distraction to our business, we have concluded that this settlement is the best solution,” says a company spokesperson in an email.
All three companies with FDA-approved Humira biosimilars—Amgen, Boehringer, and Novartis’s Sandoz unit—have reached such deals to delay their products’ market entry until 2023. In fact, they have agreed to pay AbbVie licensing royalties in order to market their copycats.
The patent thicket and AbbVie’s arrangements with rivals is a major part of the grocers union’s lawsuit against the company and seven other firms it has struck such deals with. It was filed before Boehringer’s settlement. “Had AbbVie not engaged in anticompetitive conduct, the plaintiffs would have been able to purchase Humira biosimilars in the U.S … at significantly lower prices,” reads the March class action complaint.
While AbbVie declined to comment on the record regarding price hikes, it did defend its patent strategy. “Humira’s innovative patents have repeatedly withstood challenges in legal proceedings,” says AbbVie’s chief legal officer Laura Schumacher. “Our patent settlements, which do not include any payments by AbbVie, balance protecting our investment in innovation with access to biosimilars 10 years before our last Humira patent expires and the allegations in the lawsuit are without merit.”
Patent thickets have recently come under fire from lawmakers as well. Sen. John Cornyn, a Texas Republican, challenged AbbVie CEO Gonzalez on the issue during a Senate Finance Committee drug-price hearing in February. “I get the idea that that’s the purpose of the patent system, which is to protect the exclusivity of that drug that you’ve sunk a lot of money into,” he says. “But at some point, that patent has to end, that exclusivity has to end, so that the patients can get access to those drugs at a much cheaper cost.”
Gonzalez, who argues that Humira shouldn’t be considered just one drug but rather multiple ones, given its approvals for various conditions, vigorously defended AbbVie’s tactics at the hearing. “That patent portfolio evolved as we discovered and learned new things about Humira,” he said.
It’s hard to tell just how much money Americans would save had Humira copycats already been on the market. In Europe, where cheaper rivals have already begun gaining on AbbVie, Humira prices have fallen in several countries. Indeed, global Humira sales dropped 5.6% in the first quarter of 2019—the first-ever worldwide slide in the drug’s earnings—thanks to “biosimilar” copycats sold abroad. But across the industry, Feldman, says, the introduction of biosimilars could produce dramatic savings for consumers and other payers. She notes one Rand Corporation study that found that biosimilars, generally, could save the U.S. $54 billion in health spending over 10 years.
“It’s a big chunk of change coming out of your pocket and mine,” she says.
For all its commercial and scientific success, Humira offers a sharply focused lens on what’s wrong with the legacy drug industry at large. AbbVie’s convoluted web of patents and other strategies will keep would-be competitors off the U.S. market until 2023. That means fewer choices—and higher costs—for consumers who might otherwise pursue cheaper options.
This is a consequence of the “blockbuster” drug model, wherein a company relies on one or two key products that ring in billions annually. Hundreds of millions go to marketing and legal-fortress building, while innovation and scientific discovery—ostensibly the beating heart of the biopharmaceutical industry—is often imported from the outside: in-licensed, for instance, from leaner biotechs that actually do place an emphasis on innovation.
The strategy can also drive aggressive dealmaking among large pharma companies when their blockbusters finally do face the inevitable “patent cliff,” the point after which cheaper generic competitors can enter the market. Case in point: AbbVie itself, which announced a proposed $63 billion megadeal to buy Allergan in June. AbbVie’s Gonzalez cited impending Humira competition—and Allergan’s own aggressive approach to protecting patents on bestsellers like the cosmetic drug Botox and the dry-eye treatment Restasis—as a rationale for the deal.
“This is an example of a pharma company doing a financial transaction—it has nothing to do with science; it has 100% to do with financial engineering,” says Brad Loncar, a biotechnology investor focused on cancer immunotherapy. “People have been overpaying for Humira for a long time in the United States. And what has the company done with the proceeds of that? They’ve done a major financial deal for, of all things, Botox.”
This isn’t to say AbbVie hasn’t had any recent success. In April, the FDA approved its new therapy Skyrizi, an immune system drug with blockbuster sales potential, to treat moderate-to-severe plaque psoriasis. It was a much-needed victory for the company, which believes the drug will reach $5 billion in annual sales by 2023—the very year Humira rivals will launch in the U.S. AbbVie also won a 2018 FDA green light for Orilissa, the first drug approved to treat pain associated with the uterine disorder endometriosis.
But some industry veterans say these new therapies aren’t nearly enough to compensate for other failures in AbbVie’s pipeline. Annalisa Jenkins led major R&D divisions at drug giants like Bristol-Myers Squibb and Germany’s Merck Serono as they pumped out pioneering new treatments such as the cancer immunotherapy Yervoy, among others, in the 1990s and 2000s. But now she’s gone over to the world of biotech startups, where she feels the science is more exciting and inventive.
The wide-ranging experience paints Jenkins’s views on AbbVie’s and the broader industry’s innovation woes. “Part of the problem for AbbVie was just being unlucky. There were some bad picks,” she says. “They didn’t aggressively pursue the replenishment of their pipeline. They were slow.”
Those unfortunate picks include one of the more derided acquisitions in recent health care history. In 2016, AbbVie snatched up the San Francisco–based biotech Stemcentrx for $5.8 billion in upfront cash and stock. The company was eyeing a potentially lucrative Stemcentrx lung cancer treatment called Rova‑T. Three years later, Rova-T has faced multiple clinical trial setbacks, and AbbVie has nixed the program. In January, AbbVie announced it would record an estimated $4 billion impairment charge on the Stemcentrx deal.
Another AbbVie hopeful, venetoclax, being tested for the blood cancer multiple myeloma, has also disappointed in clinical trials. Investors have noticed the struggles—AbbVie’s stock has plunged more than 27% in the past 12 months, underperforming most of its peers.
“These big drug companies can’t even seem to buy their way into innovation,” Mike Rea, CEO of the life sciences consulting firm IDEA Pharma, tells Fortune. “Companies that have grown large with one drug or in one therapeutic area, such as AbbVie, have struggled … They haven’t shown that new insight when it comes to a [new] market.”
AbbVie’s spending on R&D is on the lower end among the 12 big, global biopharma companies, according to EvaluatePharma. The company actually doubled its reported R&D spend between 2010 and 2018—but it was still just $5.1 billion last year, compared with $32.8 billion in global revenues.
The life science lobby takes exception to the idea it’s in an innovation rut. “I happen to disagree,” says Andrew Powaleny, public affairs director at the Pharmaceutical Research and Manufacturers of America (PhRMA), the industry’s trade group. “From the biopharma perspective, we’re at the most exciting time we’ve ever been.” Powaleny points to some 7,000 medicines currently in development, including 4,000 in the U.S. alone.
But a deeper dive into the numbers tells a more nuanced story. Projected returns on R&D investment among the top 12 large-cap biopharmaceutical companies—measured by comparing the expected cost of bringing a drug in a company’s late-stage pipeline to market versus an estimate of expected sales of those drugs—plummeted to a dismal 1.9% in 2018, according to Deloitte, compared with 10.1% in 2010. EvaluatePharma projects that the top 20 pharma companies will drop their R&D spending from 20.9% of top-line revenues in 2017 to 16.9% by 2024.
The FDA approved a record 59 novel drugs—those derived from entirely new molecular entities or biological entities—last year. But big pharma companies patented just one-quarter of those treatments, according to analytics firm IQVIA, while “emerging biopharma companies” (organizations that spend less than $200 million per year in R&D or bring in less than $500 million in revenue) patented nearly two-thirds. “Large-cap pharma’s Food and Drug Administration approvals have been way lower than usual,” says Colin Terry, a partner at Deloitte’s life sciences division.
Now facing the specter of dilapidated pipelines and imminent competition, legacy firms are looking to insource the Next Big Thing from leaner, science-driven outfits (with varying degrees of success, as AbbVie’s failed Rova-T gamble shows). “These companies became like great big record labels: reliant on talent spotters going out and finding new artists,” says SVB Leerink analyst Geoffrey Porges. (Indeed, just before this issue went to press, AbbVie announced that it was adding another “artist” to its roster, cancer immunotherapy startup Mavupharma, for an undisclosed price.)
Jenkins, the industry R&D vet, says a long history of misaligned incentives—including many companies’ failure to adopt new technologies and business models—has led to the current status quo. “What pharma did was what it’s always done over the past 20 years,” she says. “They’re entirely short-term focused. Quarter to quarter, year to year. That’s not the best way to leverage innovation.”
It’s also, fundamentally, not good for shareholders. The NYSE ARCA Pharmaceutical Index has delivered a total return of 5.2% annually over the past five years, compared with 10% for the S&P 500.“Without access to talent, without access to technologies, big pharma companies are just pouring more and more money into the same old R&D. All they’re judged on is one big win,” Jenkins adds.
Unfortunately, if big pharma companies like AbbVie keep winning like this, the cost to American patients will be immense.
A version of this article appears in the August 2019 issue of Fortune with the headline “Protect at All Costs.”
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