This is not the end to the second quarter that healthcare company Abbott Laboratories (NYSE:ABT) had hoped for: A patent infringement lawsuit and a Food and Drug Administration (FDA) panel ruling could bring adversity for two drugs in the company's portfolio. The company has vowed to appeal the lawsuit, and the FDA panel ruling is not binding, but if the company is unable to mitigate these blows, the stock is bound to suffer. Let's take a look at Abbott's rocky week and what it might mean for this company going forward.
Patent Infringement Hurts Humira
On Monday, a federal jury dealt Abbott a glancing blow when it upheld a patent on Johnson & Johnson's (NYSE:JNJ) arthritis treatment Remicade. The Texas jury ordered Abbott to pay J&J $1.67 billion for its alleged patent infringement. The award was one of the largest patent infringement judgments since Microsoft (Nasdaq:MSFT) suffered a $1.52 billion verdict that a jury said the company should pay Alcatel-Lucent (NYSE:ALU) for defying digital-music technology patents.
Abbott is now hoping that a judge will overturn this award, as was the case in the Microsoft ruling in 2007. Abbott's therapy in question is Humira, which happens to be the firm's top-selling drug at $4.5 billion in annual revenue. Humira accounts for approximately 15% of the company's total revenue and is used in the treatment of patients afflicted with rheumatoid arthritis.
Sales of Humira have been beginning to boom internationally. In Abbott's 2009 Q1, Humira sales abroad grew 29% on a year-over-year basis. Including U.S. sales, Q1 revenue from Humira grew 17% compared to the company's year-ago quarter.
Another Painful Dose
The patent ruling was followed by a recommendation on Tuesday by an advisory panel to the FDA that Abbott's painkiller, Vicodin, be banned. The panel also recommended that Percocet, sold by Endo Pharmaceuticals (Nasdaq:ENDP), be banned and that the recommended daily dose of acetaminophen, the active ingredient in Tylenol, be reduced.
The panel based its recommendation on claims that these products can be linked to an increased risk of liver damage. The FDA has received an increased amount of scrutiny with respect to pharmaceuticals that may have harmful side effects ever since Merck (NYSE:MRK) pulled its popular COX-2 inhibitor Vioxx off of the market in 2004. Pfizer's (NYSE:PFE) Bextra was pulled soon thereafter.
The Bottom Line
Although Abbott has certainly had better weeks, it is still far too early to tell if the company will be materially impacted by either of these decisions. The company has vowed to appeal the patent infringement ruling, and the FDA is not bound by advisory panel recommendations. Abbott has a diverse product portfolio that should enable the company to minimize any damage to its stock price, but the company will likely continue to contest these recent developments. (To learn more, check out Measuring The Medicine Makers and Stocks On Drugs: What It Takes To Get High.)
