When Abbot Laboratories (NYSE:ABT) decided to spin off into two separate companies, Abbvie (NYSE:ABBV) took the pharmaceutical products with it. With Abbvie, investors are getting a company with a pipeline that is tilted towards Phase I and Phase II products. With the process of getting a drug approved taking many years, investors are going to have to take a wait to see approach to profit from these projects. Lucky for Abbvie, it has a biologic printing press in the name of Humira, which will fund its dividend and research for the next few years. Here is a quick look some of Abbvie's strengths and positives to help investors decide if the wait is worth it.
Humira is a anti-TNF biologic medication that has been approved for nine indications including Rheumatoid Arthritis, Crohn's Disease, and Psoriasis. Abbvie also has trials undergoing that are trying to get Humira approved for four more indications. Humira is without a doubt the most important product in Abbvie's portfolio, accounting for more than 50% of its sales. It is an incredible success story that has increased its yearly sales total by at least 1 billion per year since 2008 and is projected to have over 9 billion in sales in 2012. The only real concern with Humira is Pfizer's recent approval Tofacitinib. Tofacitinib is orally taken and works in a unique way. However, I think the concerns of it stealing sales from Humira are overblown. Expansion in emerging markets, doctor's familiarity with Humira, a well-understood side effect profile, and a large number of clinical studies will allow it to continue its good growth rate, even with new competition. Abbvie's other advantage is that Humira is a biologic medication. So even when its patent expires in 2016, Humira's sales won't completely fall off a cliff due to the manufacturing complexity and laws that present a tougher barrier to entry for biologic medications compared to oral compounds.
Tricor and Trilipix are essentially the same drugs and are used to treat high lipid levels. The patent for Tricor recently expired, while Trilipix will lose its protection in 2014. While not a huge blow to Abbvie, these two drugs did account for 1.3 billion in sales last year, so investors need to take their patent loss into consideration.
While Synthroid only adds about 500 million a year to Abbvie's sales total, I included it because of its unique sales longevity. Synthroid lost its patent protection a while ago, but it continues to have strong branded sales because of the specificity required for dosing. Doctors will often write for the brand name version of the drug to ensure their patients are getting the exact same dose every time. This allows Synthroid to maintain solid sales, regardless of generic competition.
If you have ever watched television, you have probably seen the low T commercials that Abbot has been using to promote awareness of testosterone replacement therapies. Abbvie has been marketing its new concentrated version of Androgel a lot recently and it seems to be working. Sales were up substantially from 2010 and almost reached 900 million in 2011. Increased awareness of hypogonadism has led to a drastic increase in the number of prescriptions written. Scripts went from 1 million in the year 2000 to 4.4 million in 2010, with more room to grow.
Kaletra is a combination medication that is used to treat HIV. Last year it had 1.2 billion in sales, which is down slightly from 2011. Sales are slowly decreasing, mostly due to new competition. The patent for Kaletra will expire in 2016.
Research and Development
Every investor knows that Research and Development is the lifeline of any drug company and Abbvie is no different. I previously wrote an article about Abbvie's pipeline here so I won't go in depth with my analysis. I do want to mention that in Abbvie's investor road show the company plans on spending 14% of 2013 sales on R&D. Abbvie also plans to focus on biologics, of which 30% of its new compounds are compromised of. While R&D spending never guarantees future blockbuster medications it is good to know Abbvie is investing at a comparable rate of its competitors. Below is a chart comparing Abbvie's R&D budget to other pharmaceutical companies.
|Total R&D Spending||% of Revenue|
|Pfizer (NYSE:PFE)**||9.1 Billion||13.5|
|Novartis (NYSE:NVS)**||12.1 Billion||21|
|NovoNordisk (NYSE:NVO)**||9.6 Billion***||14.5|
|Merck (NYSE:MRK)**||8.2 Billion||17|
*Estimated based on Investor Road Show
**Based on 2011 figures
Dividends and Value
As with most major pharmaceutical companies, Abbvie issues a dividend to its investors on a quarterly basis. The following is a chart comparing some other competitor's dividends and payout ratios for a comparison basis. As shown in the chart, Abbvie is the most attractively valued, has the highest dividend yield, and has one of the lowest payout ratios when compared to its peers. These should all appeal to value and dividend investors alike.
|Company||Dividend (Year)||Yield (%)||Payout Ratio||P/E|
In conclusion, as I mentioned above, I think Abbvie's pipeline has great potential but is still very early in its development as a whole. Its excellent dividend yield, low valuation, and Humira's growth prospects should give investors enough of a reason to wait and see. However, the major concern I have with Abbvie is that Humira will be going generic right around when its pipeline medications are entering the market. Since pipelines are notoriously difficult to predict, it is entirely possible that there won't be any blockbusters in Abbvie's pipeline. This, combined with decreasing sales of Humira would be devastating to the stock. Another minor concern I have with Abbvie is its last of diversification. Other major pharmaceutical companies like Johnson & Johnson, Novartis, and Pfizer sell generics, immunizations, OTC's, and eye products among other things that help diversify their sales. Investors that plan on holding Abbvie for the long term need to decide if they have faith in Abbvie's Research and Development.
Disclosure: I am long PFE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.