AbbVie, Inc. ABBV shares have outperformed the large-cap pharma industry in the past three months. The stock has returned 1.5% in that timeframe against the industry’s decline of 1.1%.
AbbVie’s outperformance was backed by decent quarterly results, an optimistic outlook for stronger underlying business performance through the rest of the year,positive pipeline news flow and regulatory updates.
It is one of the reputed names in the pharmaceutical sector. AbbVie came into existence on Jan 1, 2013, after Abbott Laboratories ABT divested its pharmaceutical division
Here are six reasons to invest in the stock.
Favorable Rank & Earnings Surprise Record: AbbVie has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It has been consistently beating earnings expectations. Earnings surpassed expectations in each of last four quarters, with an average positive surprise of 2.39%.
The company is expected to record earnings and sales growth of 39.3% and 16.8%, respectively, in 2018. Meanwhile, estimates for 2018 and 2019 increased 0.3% and 0.2%, respectively, in the past 60 days.
Valuation Looks Reasonable: Despite the outperformance, AbbVie’s valuation looks fairly reasonable currently.
AbbVie currently has a forward twelve months price-to-earnings ratio (P/E F12M) of 11.25, which is near the lowest level (11.03) in the past year. When compared with the highest level of 17.99 and median level of 13.92 over the past year, there is apparently some upside left.
The space also looks inexpensive when compared with the industry, as the current as well as median F12M P/E ratio for the industry is 14.02 and 15.63, respectively.
Price-to-Earnings Forward Twelve Months (F12M) chart
Key Drug Humira Going Strong: AbbVie’s flagship product Humira is approved for several inflammatory indications like rheumatoid arthritis. Humira continues to witness strong demand trends despite launch of drugs with new mechanisms of action and competition from indirect biosimilars. Currently approved for 13 indications, Humira sales have increased consistently – 11.7% in 2015, 16.1% in 2016 and 14.6% in 2017 – backed by robust demand trends. The product continues to see strong growth in the dermatology and gastroenterology markets. The company expects Humira sales to approach $21 billion in 2020.
Though two biosimilar versions of Humira are already approved by the FDA, per settlements with Amgen AMGN and Samsung Bioepis, biosimilar entry into the United States is set for 2023, thus delaying direct biosimilar competition in the country.
Strong Oncology Portfolio: AbbVie work rigorously on expanding and accelerating its presence in oncology. A key drug in its oncology portfolio is Imbruvica, which is currently approved for quite a few indications and has multi-billion dollar potential. AbbVie is exploring the potential to expand Imbruvica’s label into solid tumors and autoimmune diseases. Several studies on Imbruvica are ongoing to evaluate the drug alone or in combination in different patient segments. AbbVie expects Imbruvica peak sales of more than $7 billion and revenues of about $5 billion in 2020. AbbVie has developed Imbruvica in partnership with J&J JNJ.
AbbVie is also studying another cancer drug Venclyxto/Venclexta to expand the label to address the broader relapsed/refractory chronic lymphocytic leukemia (CLL) patient population, expand into earlier lines of therapy, and broaden into other hematologic malignancies like multiple myeloma and acute myeloid leukemia. In June, regulatory applications seeking approval for the combination of Venclexta plus Roche’s (RHHBY) Rituxan in relapse/refractory CLL were approved in the United States. Label expansion to include this broader patient population should boost Venclexta’s commercial potential.
Meanwhile, the 2016 acquisition of drugmaker, Stemcentrx added a key late-stage candidate, rovalpituzumab tesirine or Rova-T, to AbbVie’s portfolio. Rova-T is currently in registrational studies for first and second-line small cell lung cancer (SCLC). A phase I, eight-arm "basket study" on Rova-T in neuroendocrine tumors is also ongoing.
Promising Pipeline: AbbVie has a deep pipeline consisting of several interesting late-stage candidates. Promising candidates include elagolix (endometriosis), risankizumab (inflammatory diseases), Depatux-M/ABT-414 (glioblastoma multiforme), ABBV-8E12 (early Alzheimer's disease and progressive supranuclear palsy (PSP)), and upadacitinib/ABT-494 (inflammatory diseases).The company expects to move 10 tumor candidates into clinical development in 2018.
Several pivotal data readouts and regulatory milestones are expected in the second half of the year including FDA decisions on risankizumab and elagolix regulatory applications.
Mavyret Performs Beyond Expectations: AbbVie’s eight-week, pan-genotypic, ribavirin-free, once-daily hepatitis C (HCV) treatment, Mavyret, gained approval in the United States, EU, Canada and Japan in 2017. Mavyret, AbbVie’s next-generation HCV program, is a combination of glecaprevir, a potent protease inhibitor and pibrentasvir, a NS5A inhibitor. Mavyret has the potential to rejuvenate growth in the HCV franchise. According to AbbVie, Mavyret may be used in up to 95% of HCV patients, depending on the stage of liver disease and prior treatment history. Mavyret performed beyond expectations in the first year of launch, recording sales of almost $500 million in 2017. The positive sales trend continues in 2018 with the drug recording sales of $850 million in the first quarter of 2018. With less than a year on the market, Mavyret already commands 45% share in the United States.
Conclusion
AbbVie faces its share of challenges in the form of slower sales of HCV drugs, potential biosimilar competition to Humira, regular pipeline setbacks and rising competition. However, we believe AbbVie is well positioned to overcome these headwinds.
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