AbbVie: One Huge Winner, Lots of Losers

Abbott Laboratories (ABT) spun off its pharmaceutical business, now known as AbbVie (ABBV), in part because the unit’s dependence on rheumatoid arthritis drug Humira for roughly 50% of sales represented a big downside risk.

The drug, which brought in $9.3 billion in sales last year and is expected to best that figure by at least 10% this year, begins losing patent protection in December 2016. Humira, ranked by FiercePharma as the world’s top-selling drug, for now competes against Amgen’s (AMGN) Enbrel, sales of more than $8 billion; and Johnson & Johnson’s (JNJ) Remicade, sales of more than $7 billion.

Given the huge sales and profits of these three drugs, which revolutionized the treatment of RA and other immune-system maladies, other pharmaceutical makers are busy trying to develop competing drugs.

Humira, Enbrel and Remicade are biologics, meaning that generic drug manufacturers won’t be able to easily produce knock-offs, as BloombergBusinessweek smartly pointed out recently. Knowing whether Humira will sustain AbbVie, or not, requires predicting how effectively another drug company can produce what’s now called a biosimilar and obtain regulatory clearance. The incumbent manufacturers are already waging a war, state-by-state in the U.S., to make biosimilars harder to sell, should they be produced.

So, it seems unlikely Humira sales, and those of its competitors, will run off as quickly and completely as did sales, say of Lipitor, a chemical compound sold by Pfizer (PFE), that once had annual sales over $12 billion and fell to $3.9 billion last year, after patent protection expired.

Still, AbbVie’s reliance on Humira is enormous, and given the makeup of the remainder of the company’s list of drugs, Humira’s importance in the near-term seems likely to increase. Of the dozen medicines big enough to compel AbbVie to disclose their sales, eight lost ground in 2012 and only four gained sales; all the drugs too little to make the list, on a combined basis, also lost sales. Some of the lost ground was due to patent expirations, which over time can reduce the original drug’s sales to a tiny sliver of its peak performance.

AbbVie also has many compounds in development, though most too early in the process to predict whether they will prove safe and effective enough to gain regulatory approval.

ABBV Chart

ABBV data by YCharts

The stock is trading at a PE ratio of less than 13, reflecting the issues covered above. And the dividend, set initially to pay out $1.60 a year, has a dividend yield of about 3.7%.

Pharma stocks and other healthcare issues led the overall market, as represented by the S&P 500, in the first quarter, and AbbVie’s performance since being spun off mirrors that. The company owns a great drug, which generates enough profits to fund the annual R&D outlay of over $2.5 billion. Turning all that lab work into the next Humira will be the trick.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at editor@ycharts.com.

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