The coronavirus pandemic has wreaked havoc on the stock market with the S&P 500 Index losing about a third of its value. There is a rising concern about the impact of the outbreak on first-quarter earnings due to supply-chain disruptions caused by the same. However, the outbreak has also created an opportunity for investors with a longer holding horizon, beyond the next one to two years. The market sell-off gives these investors and opportunity to start accumulating small positions in quality blue-chip names that are now available at 20% to 30% discounts from the levels they traded a few weeks back. In the more defensive drug/biotech sector, AbbVie, Inc. (ABBV - Free Report) is one such name. Here are some reasons to invest in the stock now
Good Rank and Rising Estimates: AbbVie has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Its earnings estimates have risen by 2% for 2020 and 1% for 2021 over the past 60 days.
In the past six months, though AbbVie’s shares have declined 5.6%, it is still better than the industry’s 11.9% decline.
Allergan Deal, If Successful, Will Add Botox: AbbVie is expected to become one of the top-most pharma companies after it closes its pending acquisition of Botox maker, Allergan in a cash-and-stock deal worth $63 billion this year. The deal is expected to transform AbbVie’s portfolio and lower its dependence on Humira, its flagship product, which has already lost patent protection in Europe and is due to face biosimilar competition in the United States in 2023.
Approved for therapeutic and aesthetic use, Botox is a key top-line driver for Allergan and looks fit to be the next revenue driver for AbbVie after Humira loses exclusivity. Overall, the Allergan acquisition should diversify AbbVie’s revenue base to markets/categories outside its present drug portfolio and accelerate its non-Humira business.
Growing Oncology Portfolio: AbbVie believes that oncology will be its major growth driver over the next 10 years. AbbVie has built a substantial oncology franchise with Imbruvica and Venclexta, which generated combined revenues of nearly $5.5 billion in 2019. Strong double-digit growth is expected in 2020. Imbruvica, currently approved for quite a few indications, has multi-billion dollar potential and AbbVie is exploring the potential to expand Imbruvica’s label into solid tumors and autoimmune diseases. Several studies on Imbruvica are ongoing to evaluate the drug alone or in combination in different patient segments.
AbbVie is also studying Venclyxto/Venclexta to expand its label to address the broader relapsed/refractory CLL patient population, expand into earlier lines of therapy, and broaden into other hematologic malignancies like multiple myeloma and AML. AbbVie expects to begin a phase III study on Venclexta in myelodysplastic syndrome or MDS in 2020. Label expansion approvals in the past couple of years have expanded the eligible patient population of Venclexta significantly, which is boosting sales from the drug. AbbVie markets Imbruvica in partnership with J&J (JNJ - Free Report) and Venclexta with Roche (RHHBY - Free Report) .
Key New Drugs to Drive Long-Term Growth: Key recent FDA approvals include that of Orilissa (elagolix) for management of pain associated with endometriosis, a common gynecologic disorder in July 2018;Skyrizi (risankizumab) for plaque psoriasis in April 2019 and Rinvoq (upadacitinib) for moderate-to-severe rheumatoid arthritis (RA) in August 2019. Skyrizi and Rinvoq have demonstrated differentiated clinical profiles versus Humira and are expected to lower AbbVie’s dependence on Humira. Importantly, Skyrizi and Rinvoq are off to strong starts and AbbVie expects combined revenues of these two drugs to be approximately $1.7 billion in 2020. Meanwhile, several label expansion studies on the three drugs are ongoing, which can expand their eligible patient population on approval.
In fact, AbbVie expects to launch more than 20 new products or line extensions of marketed drugs before Humira biosimilar competition begins in the United States in 2023.
Sales erosion due to direct biosimilar competition to Humira in international markets is a big headwind. Also, AbbVie’s global HCV sales declined almost 18% on an operational basis in 2019, primarily driven by lower patient volumes in certain international markets and competitive dynamics in the United States. Nonetheless, strong demand trends of Humira in the United States, a strong portfolio of new drugs and continued strong sales performance of Imbruvica and Venclexta are some solid reasons to own the stock.
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