AbbVie, Inc. (NYSE: ABBV)
Analysts: Ari Lazar, Gabriella Wang, Jessica Kan, Sai Poddutur
Presented April 7, 2015
RECOMMENDATION: SELL 200 SHARES @ LIMIT $55 GTC
Company Overview:
AbbVie was created when Abbott Laboratories decided to spin it off at the beginning of 2013 and immediately began trading as a public company. AbbVie Inc. discovers, develops, manufactures, and sells pharmaceutical products worldwide. AbbVie focuses on its R&D pipeline to produce new products hoping to find blockbuster drugs. The company products include HUMIRA, a biologic therapy administered as a subcutaneous injection to treat autoimmune diseases; VIEKIRA PAK, an all-oral, short-course, interferon-free therapy, with or without ribavirin, for adult patients with genotype 1 chronic hepatitis, including those with compensated cirrhosis; Kaletra, an anti-HIV-1 medicine used with other anti-HIV-1 medications as a treatment etc. The company’s leading revenue producer is Humira. With Humira’s patent ending in December 2016 in the U.S., the company must diversify away from the product as competing companies begin to take away from its profits in that area. The management has recently announced the acquisition of Pharmacyclics (PCYC), Biopharmaceutical Company focusing on novel therapies for the treatment of cancer and immune-mediated diseases in the United States and expects the acquisition to be assertive at $0.6/share by 2017.
Industry Overview:
The industry is fairly immune to new entrants due to the high R&D costs, both cash and time, to produce a competing product line to beat out the pharmaceutical giants. The pharmaceutical industry grew about 2.4 % in 2014 and drug spending increased by 13.2 % in 2014. The industry has grown into a hot market for acquisitions and mergers in recent times. Health Care has been a major topic over the last few years, specifically in the United States, with government regulation causing many changes to the industry.
Financial Analysis, Projection and Valuation:
Based on guidelines given from management and our projected future cash flows, we arrived at a discounted cash flow value of $45.36 a share. Based on a comparable company analysis, we arrived at $51.51 a share. Below is a table summarizing our calculations.
DCF / Comparable$48.09 / $47.70
Risks:
The main risk for AbbVie looking forward is the loss of Humira’s patent and how that will affect sales moving forward. Humira’s USA patent expires in the end of 2016 and it’s International patent expires in mind 2018. There is been increasing competition in the market which VIEKIRA PAK, one of it’s leading revenue generated servers to address. Another risk for AbbVie is the possibility that its R&D pipeline does not produce any high revenue-producing drugs to stimulate growth for the company. The receivables from Europe especially from Greece and Spain are doubtful given the economic environment. AbbVie is not devoid of risks from currency rates fluctuations and government regulations, especially regarding Medicare/Medicaid payments.
Recommendation:
Frankly we believe that ABBV is currently overvalued. Our recommendation is to SELL 200 SHARES @ LIMIT $55 GTC.