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AbbVie (ABBV - Analyst Report) reported first quarter 2013 earnings of 68 cents per share, a couple of cents above the Zacks Consensus Estimate. Earnings were above the company’s guidance range of 64 – 66 cents. Sales increased 3.7% to $4.329 billion in the first quarter of 2013, above the Zacks Consensus Estimate of $4.318 billion.

Including one-time items, first quarter 2013 earnings came in at 60 cents per share, up 7.1%.

Earnings improved from the year-ago period despite the entry of generic competition for TriCor/Trilipix.

We note that this is the first quarter for AbbVie as an independent company.

The Quarter in Detail

Key drug, Humira, recorded sales growth of 16% with sales coming in at $2.244 billion. US sales increased 23.7% ($956 million) due to strong performance in the dermatology and gastroenterology segments. Sales also benefited from the global launch of Humira for the ulcerative colitis indication. Ex-US sales increased 10.9% to $1.288 billion. TriCor/Trilipix sales fell 49.6% to $128 million.

AbbVie said that adjusted SG&A was 27.9% of sales in the first quarter – this reflects the company’s investment in its growth brands and the additional costs associated with becoming an independent company.

Adjusted R&D was 14.6% of first quarter 2013 sales, reflecting the company’s investment in its mid- and late-stage pipeline as well its efforts to expand Humira’s label.

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, endometriosis and Parkinson's disease.

Phase III results on the company’s triple direct-acting antivirals (DAAs) plus ribavirin regimen for the treatment of hepatitis C virus (HCV) infection should start coming out later this year followed by the submission of regulatory applications in mid-2014.

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). The company maintained its 2013 earnings guidance of $3.03 to $3.13 per share. 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 UCB (UCBJF), Catalyst Pharmaceuticals Partners Inc. (CPRX - Snapshot Report) and Onyx Pharmaceuticals, Inc.  . All three are Zacks Rank #1 (Strong Buy) stocks.

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