One month after two big announcements, the dust has settled
. Those major announcements, of course, were a blow-out second
quarter and the acquisition of
In the first few days after the news hit the street, AbbVie's
stock traded pretty much at the same level that it started off
the year. Now, though, shares are up a respectable percentage.
With the wind seemingly at its back, would the Magic 8 Ball say
that it's time to buy AbbVie stock?
Signs point to yes
The top three reasons to buy AbbVie are as follows: Humira,
Humira, and Humira. These redundant (but accurate) answers aren't
any different than they were when AbbVie spun off from parent
nearly two years ago.
Humira still reigns as the world's top-selling drug. During
the last quarter, it notched an impressive 26% year-over-year
sales gain. Only Duodopa increased by a greater percentage, but
it only brought in $56 million compared to Humira's $3.28
billion. Humira generated 67% of AbbVie's total revenue,
more than two and a half times that of the company's next 10
highest-selling drugs --
There's no reason to think that Humira is about to hit a brick
wall. The drug should continue to power AbbVie's revenue to
higher levels. That being said, there are other positives that
could impact the stock in both the near term and long term.
The acquisition of Shire, assuming it clears regulatory
hurdles, will allow AbbVie to change its domicile to the United
Kingdom. This move, known as a tax inversion, would slash the
company's effective tax rate from 22.6% to 13% by 2016.
Considering that AbbVie paid over $1.2 billion in taxes last
year, those tax savings would make a significant difference on
the bottom line. Barclay's research indicates that the company
could save $500 million annually in taxes even if it doesn't
change its domicile.
AbbVie also hopes to make a mark in the oral hepatitis-C drug
market currently dominated by
' Sovaldi. The company's all-oral regimen is currently under
regulatory review in the U.S. and Europe. While Sovaldi boasts
some advantages over AbbVie's combo, smart pricing by AbbVie
could win nods from commercial and government payers trying to
hold down skyrocketing specialty drug costs.
Don't count on it
If we shook the Magic 8 Ball again, however, the answer about
whether it's time to buy AbbVie could be different. Probably the
biggest reason not to buy shares in the company is because of
Humira. Contradictory? Not really.
While Humira isn't about to hit a brick wall in the immediate
future, it could encounter some speed bumps. AbbVie expects sales
growth for its blockbuster drug to be in the high teens for the
third quarter. That's still great, but it's also a slowdown from
And there is potentially a looming brick wall ahead: loss of
patent exclusivity for Humira in 2016.
' Sandoz business unit began a phase 3 study of a biosimilar of
Humira last December. Should this study prove successful, Humira
sales could be hit hard.
AbbVie necessarily won't be able to count on taking a big
bite out of Sovaldi's market share. That's because
is also nipping at the heels of Gilead with its own hep-C combo.
Merck could just as easily play the price card and outgun
Ask again later
For now, AbbVie doesn't appear to be a bad choice for investors.
Humira will rock along for at least the next couple of years. The
Shire deal should ultimately provide a nice financial boost. Even
with the stiff competition, AbbVie's hep-C combo stands a good
shot at succeeding commercially. And the 3.2% dividend yield
continues to look quite attractive.
Over the longer horizon, though, the situation looks much
murkier for AbbVie. The reality is that no one knows if Sandoz
will gain approval for its Humira biosimilar. No one knows for
sure how the hep-C market will shake out. Buying AbbVie now could
lead to some gains. But is this stock one to buy and hold for a
long period of time? As the Magic 8 Ball might say, "Ask again
later" -- in 2017.
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Is It Time to Buy AbbVie Stock?
originally appeared on Fool.com.
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