AbbVie Inc. (ABBV - Free Report) shares hit a 52-week high of $71.12 on Friday before eventually closing at $71.05. In fact, shares of the company are up 13.4% since the beginning of this year, outperforming the Zacks classified Large Cap Pharmaceuticals industry, which increased 11.4% in the same period.
Strong first-quarter 2017 results coupled with positive pipeline data read-outs and regulatory updates this year fueled the upside. Let’s analyze the factors that will help the company to continue on this trajectory.
Factors at Play
The company’s flagship rheumatoid arthritis drug Humira accounted for almost 63% of total revenue in the first quarter of 2017, registering growth of nearly 15% year over year. The drug is the main driver of AbbVie’s revenues, currently approved for several indications. The company is also conducting studies to expand its label into other indications. The company expects Humira to bring in total sales of more than $18 billion in 2020.
However, quite a few companies are working on bringing Humira biosimilars to the market.
A biosimilar from Amgen Inc. (AMGN - Free Report) was approved by the FDA in 2016. However, the drug has not yet been launched due to ongoing litigation. In May 2017, AbbVie lost a lawsuit to Coherus Biosciences, Inc. (CHRS - Free Report) regarding the dosing patent ‘135 for Humira. However, shares weren’t affected much as the investment community believes that AbbVie has a robust intellectual property (IP) portfolio beyond the ‘135 patent, which should preclude biosimilars from the U.S. market until 2022. Sales should continue to remain strong until then.
Although Humira generates most of its revenues, the company has diversified its revenue stream with the addition of Imbruvica to its portfolio. Imbruvica sales increased 44.6% from the year-ago quarter to $551 million in the first quarter of 2017. The company expects Imbruvica peak sales of more than $7 billion and revenues of about $5 billion in 2020. Imbruvica, currently approved for quite a few indications, has multi-billion dollar potential. AbbVie intends to expand Imbruvica’s label into solid tumors and autoimmune diseases. AbbVie co-owns the drug with Johnson & Johnson (JNJ - Free Report) .
With expected growth in Humira and Imbruvica sales over the next few years, the company’s top line should see an upside. Moreover, AbbVie also has a strong pipeline with several late-stage candidates. The company is developing risankizumab for psoriasis and Crohn's disease while ABT-494 is being developed for treating rheumatoid arthritis (RA).
In the last couple of months, AbbVie announced positive top-line results from a phase III study on upadacitinib (ABT-494) for RAas well as a phase II study for Crohn's disease. These played an important role in driving up the share price. Meanwhile, AbbVie’s RBV-free once-daily pan-genotypic combinationregimen, glecaprevir/pibrentasvir (G/P),is under accelerated assessment in the EU and priority review in the U.S. and Japan with commercialization expected this year.Also, the company announced some label updates for both Imbruvica and Humira.
Venetoclax, an oncology pipeline candidate was approved by the FDA in 2016 for chronic lymphocytic leukemia (CLL) and is being studied in other indications as well.
Investors are focused on the performance of AbbVie’s HCV portfolio as the segment is facing competition from Gilead’s Sovaldi and Harvoni along with increasing pricing pressure. Viekira suffered a year-over-year drop of 36.5% in its sales in the first quarter of 2017 to $263 million. The weak performance is expected to continue this year with sales expected to decline to $1 billion in 2017 from $1.5 billion in 2016.
Despite these pressures, AbbVie looks well poised to deliver strong earnings and sales growth through the rest of this year backed by its key drugs Imbruvica and Humira. Meanwhile, investor focus will remain on the stock with several late-stage data-readouts expected in the second half as well.
The stock trades at an attractive valuation as evident from its favorable P/E F12M (forward twelve months), which stands at 11.84 and trades at a discount to large cap pharmaceuticals industry’s P/E F12M of 15.91. Moreover, earnings are expected to increase 14.62% in 2017 and 18.59% in 2018. The numbers indicate that the stock has the potential to rise further.
Moreover, the company has delivered a positive surprise in two of the trailing four quarters and met estimates in the remaining two quarters, with an average four-quarter surprise of 1.65%.
AbbVie currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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