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AbbVie Inc. (ABBV - Analyst Report) reported third quarter 2013 earnings of 82 cents per share, beating the Zacks Consensus Estimate of 78 cents. Revenues increased 3.3% to $4.658 billion in the third quarter of 2013, above the Zacks Consensus Estimate of $4.512 billion. Currency movement negatively impacted revenues by 0.3%. Revenues increased despite the loss of exclusivity on TriCor/Trilipix.

Including one-time items, third quarter 2013 earnings came in at 60 cents per share, down 40.6%.

The Quarter in Detail

Key drug, Humira, recorded growth of 19.1% with revenues coming in at $2.77 billion. U.S. sales increased 22.3% ($1.389 billion). Ex- U.S. sales increased 16.1% to $1.381 billion. TriCor/Trilipix revenues fell 88.3% to $39 million.

Other products that performed well included Synthroid (up 22.9% to $161 million), Creon (up 9.8% to $101 million), Zemplar (up 9.9% to $100 million) and Duodopa (up 24.3% to $46 million).

AbbVie said that adjusted SG&A was 26.1% of sales in the third quarter – this reflects the company’s investment in its growth brands.

Adjusted R&D was 15.2% of third quarter 2013 sales, reflecting the company’s investment in its mid- and late-stage pipeline as well its efforts to expand Humira’s label. Humira is currently in phase III studies in patients suffering from hidradenitis suppurativa (HS), a chronic inflammatory skin disease.

AbbVie’s pipeline represents significant potential – earlier this year, the company had said that it is targeting 15 regulatory approvals between 2013 and 2017. The company’s late-stage pipeline includes several compounds or indications in phase III development targeting therapeutic areas like hepatitis C, immunology, multiple sclerosis and endometriosis.

Phase III results on the company’s triple direct-acting antivirals (3-DAAs) plus ribavirin regimen for the treatment of hepatitis C virus (HCV) infection should start coming out later this year. Positive data would allow the company to file for approval in the second quarter of 2014.

Outlook Revised Again

Based on its strong performance so far this year, AbbVie raised the lower end of its 2013 earnings outlook. The company now expects earnings in the range of $3.11 to $3.13 per share (old guidance: $3.07 to $3.13 per share). The Zacks Consensus Estimate of $3.13 is at the higher end of the guidance range.

Our Take

We believe AbbVie is poised for strong growth. Humira should continue driving sales thanks to factors like additional indications, increasing penetration, geographic expansion, and share gains. New indications could boost peak sales potential for Humira by another $1.5 billion.

2013 and 2014 represent a transition period for the company which is facing generic competition for its lipid franchise – TriCor, TriLipix and Niaspan.

AbbVie currently carries a Zacks Rank #3 (Hold). While we are positive on AbbVie’s strong late-stage pipeline, dividend yield and growth strategy, we remain concerned about its dependence on Humira. We believe AbbVie will continue pursuing in-licensing deals and collaborations to boost its pipeline.

Companies that currently look attractive include Roche (RHHBY - Analyst Report), Johnson & Johnson (JNJ - Analyst Report) and Bayer (BAYRY - Analyst Report). While Roche is a Zacks Rank #1 (Strong Buy) stock, Johnson & Johnson and Bayer are Zacks Rank #2 (Buy) stocks.

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