Patents will keep AbbVie growing

Ticker: ABBV

Author: Stock Analyst  Date: 2021/03/09

AbbVie is an American biopharmaceutical company that produces drugs in a wide range of medical fields (immunology, gastroenterology, oncology, etc.).

We have a Buy recommendation for AbbVie with a target price of $ 120.1 for December 2021, which provides an upside potential of 18.5% from the current price adjusted for the 2021 dividend.

Main considerations

* Allergan's takeover, completed in May 2020, provided additional operational leverage, significantly expanding the company's product and experimental portfolio.

* AbbVie's aggressive strategy to protect the exclusivity of its products will help the company avoid a significant decline in Humira sales over the next two years.

* Revenue continued to show strong growth in 2020, adding 37.7% YoY, driven by higher sales of native drugs and the addition of Allergan to the therapeutic portfolio.

* Dividend yield for 2021 is projected at 4.8%, above the median for key competitors AbbVie.

* AbbVie continues promising developments in the areas of oncology and the treatment of Alzheimer's disease, which, due to the lack of effective drugs, open up a promising market in the long term.

Issuer Description

AbbVie is an American biopharmaceutical company that emerged from the separation of Abbott Laboratories into two publicly traded companies since 2013. AbbVie develops and manufactures drugs in a wide range of medical fields (immunology, gastroenterology, oncology, virology, neurology, etc.). The company is headquartered in Illinois.

AbbVie's developments are aimed at treating autoimmune diseases. The immunological direction brings about half of the company's annual revenue. The list of diseases of autoimmune origin, to the treatment of which AbbVie products are related, is very impressive and includes ailments of a dermatological, rheumatological, ophthalmological, gastroenterological nature:

  • rheumatoid arthritis;
  • juvenile idiopathic arthritis;
  • psoriatic arthritis;
  • axial spondyloarthritis;
  • uveitis;
  • systemic lupus erythematosus;
  • psoriasis;
  • atopic dermatitis;
  • purulent hydradenitis;
  • Crohn's disease;
  • ulcerative colitis.

Strategic Advantages

AbbVie's key drug, Selective Immunosuppressant Humira (adalimumab), targets a group of diseases. In patients with rheumatoid arthritis, Humira causes a rapid decrease in the concentration of indicators of the acute phase of inflammation and the serum concentration of cytokines. The indicators are also improved in patients with juvenile idiopathic arthritis, ankylosing spondylitis (a type of axial spondyloarthritis), Crohn's disease, ulcerative colitis, active purulent hydradenitis. Humira was approved back in late 2002, initially as a treatment for rheumatoid arthritis. In subsequent years, its readings expanded, sales grew dynamically, reaching $ 19.83 billion in 2020.

AbbVie's strategy for Humira is different in that the company has protected its bestseller with hundreds of patents: according to Drug Patent Watch, the number of patents for Humira reaches 461, many of them will remain in force for many years. In particular, a patent on methods for the production of an active substance - until 2027. This strategy allowed the company to step by step raise the price of the drug, and since 2012 it has increased by more than 140%. One way or another, but partial expiration of patents allows competitors to prepare to enter the market with analogs of Humira. In the US, the commercialization of 9 biosimilar adalimumab products is expected in 2023, and in Europe, where patents began to expire in 2018, there are already 6 approved analogues. From 2023, therefore, the company's revenues and profits are likely to begin to decline.

AbbVie's aggressive strategy to protect the exclusivity of its products will help the company avoid a significant decline in Humira sales over the next two years. AbbVie fights no less intensely to protect Imbruvica, for which the number of patents reaches 292 (according to the Drug Patent Watch). The patents give Imbruvica 29 years of exclusivity in the marketplace, from December 2006 to March 2036.

In addition to autoimmune diseases, AbbVie specializes in the treatment of cancer diseases that have become the scourge of humanity over the past decades. AbbVie is researching apoptosis, the regulated process of programmed cell death, and is looking for ways to empower cancer cells to die in a controlled manner. Cancer immunological therapy is an extremely promising area of ​​medical science, and AbbVie has all the resources to make a significant contribution to the development of this direction. In particular, AbbVie is the leading researcher in Bruton's tyrosine kinase, a key enzyme that regulates macrophage signaling and activation, and plays an important role in the viability of malignant cells. The aforementioned anticancer drug Imbruvica is a selective Bruton tyrosine kinase inhibitor. AbbVie has the required range of high-tech platforms for further research and development towards the targeted destruction of cancer cells. In the field of neurology, AbbVie is investing efforts and resources in the search for therapy for the most serious diseases that dramatically worsen the quality of life of patients, such as Alzheimer's disease, bipolar disorder, migraine, multiple sclerosis, Parkinson's disease, schizophrenia, stroke, etc. As you know, there is no approved drug for Alzheimer's disease, only medications are available that partially alleviate the severity of the symptoms and behavioral abnormalities in this syndrome. AbbVie is studying the ABBV-8E12 antibodies in a second phase of clinical trials, which is a very ambitious project on the part of the company given the global social importance of the problem. In addition, AbbVie is focusing on expanding migraine treatment options for those who have recurrent or regular migraine attacks, which is one in seven adults worldwide. The company has both approved and development names in its lineup for the treatment of migraine patients. We highly appreciate AbbVie's strategy to ensure the highest possible patent protection for its key drugs and consider the selected areas of specialization very promising, taking into account the current trends in morbidity and healthcare needs on a global scale.

In May 2020, AbbVie announced the completion of the acquisition of Allergan after obtaining all required regulatory approvals and an Irish court approval. The deal significantly expanded AbbVie's product and experimental lines, adding a line of products in the eye therapy (Lumigan / Ganfor, Alphagan / Combigan, Restasis), women's health (Lo Loestrin), aesthetics (Botox Cosmetic, Juvederm Collection) and neurology (Botox Therapeutic, Vraylar, Ubrelvy).

Finally, during Q4, AbbVie announced that the European Commission had approved Rinvoq (upadacitinib, 15 mg, single dose) for the treatment of adults with active psoriatic arthritis and active ankylosing spondylitis.

Dividend policy

AbbVie has been steadily increasing its dividend since 2013, with an 8-year CAGR of 14.48%. The median payment rate for the same period was fixed at 79.3%. DPS growth in 2021 is expected to be about 8.1% with a predicted dividend yield of DY 2021 of about 4.8%, with a median yield of key competitors of 3.63%.

Financial performance

AbbVie's 2020 net income declined 41.4% YoY, largely attributable to the 2020 takeover of Allergan, which cost the company $ 3.4 billion. Excluding these expenses, net income remained virtually unchanged from the 2019 level ...

Adjusted EPS2021, according to management forecasts, will be in the range of $ 12.32-12.52, which is equivalent to an increase in the range of 16.2-18.1%. The company's CEO, Richard Gonzalez, emphasized during the Q4 results presentation that AbbVie's impressive growth will be driven by momentum (retaining patent advantages) and Allergan's successful integration. 2020 adjusted EPS beat forecasts, reaching $ 10.6 (forecast range $ 10.47-10.49.

The company's revenue did continue to show significant growth in 2020, adding 37.7% YoY. This result was achieved primarily due to the segments of immunology (+ 13.2% YoY), hematological oncology (+ 21.7% YoY), as well as the appearance in the company's portfolio of new drugs in the sector of eye therapy (+ $ 2, 18 billion), aesthetics (+ $ 2.59 billion) and neurology (+ $ 3.00 billion).

Evaluation

In the comparative approach, we used a multiples estimate relative to the company's key competitors.

The target price, according to the analysis, was $ 120.1 per share for December 2021 with a potential of 13.7% to the current price. The total yield including dividends for 2021 is 18.5%. Based on this, we are ready to recommend AbbVie shares for purchase.

The Reuters consensus on a fair value for AbbVie shares is $ 121.8 per share, which equates to an upside of 15%. The generalized recommendation of analysts is "Buy". Among others, Wolfe Research offers a valuation of $ 125.0 ("Above Market"), Piper Sandler - $ 120.0 ("Above Market"), DZ Bank - $ 125.0 ("Buy"), Berenberg - $ 105. 0 ("Hold").

Share price performance

ABBV shares have been trading better than the industry average since the beginning of 2020, and are also outperforming the broader market. The S&P 500 is up 16.6% since December 31, 2019, while ABBV has gained about 19.3%. The S&P 500 (Health Care) sectoral index has strengthened by 8.5% over the period.