AbbVie Is Just Too Inexpensive To Pass Up Right Now

| About: AbbVie Inc. (ABBV)

Summary

Shares of AbbVie have been on the move of late, with the stock moving up 3.6% just on Tuesday and 6.9% over the past month.

What I like most about AbbVie’s management is that they are willing to take the chance and invest in all areas of the pipeline.

I believe there is value and growth left to be had in shares of AbbVie.

Shares of AbbVie (NYSE:ABBV) have been on the move of late with the stock moving up 3.6% just on Tuesday and 6.9% over the past month. This move has come in the face of good and bad news that has come from their main competitors, especially the companies aiming to dethrone AbbVie's blockbuster drug Humira. There has been a rash of information hitting the newswire of late that it is important to take a step back and examine the information investors have received.

Just a couple of weeks ago Johnson & Johnson (NYSE:JNJ) submitted their results for a monoclonal antibody [mAb] aimed at treating rheumatoid arthritis [RA] and the results were pretty good for AbbVie shareholders. The clinical trial was aimed directly at Humira for patients with moderate to severe RA and it showed significant improvement against those taking Humira, however a different study within the trial showed no benefit over Humira. Though the results weren't spectacular J&J has a decision to make whether or not to bring this product to market and if I were a betting man, even if they did bring it to market I do not believe it will take sales away from Humira. Why would a doctor want to prescribe something that was just barely approved with no real benefit over Humira, which has been proven over and over again among his/her patients? I just do not think it can happen and believe that Humira is still king at this point.

However, in what seems to be bad news for Humira, Regeneron's (NASDAQ:REGN) answer for the wonder drug showed that it was far more effective in improving RA symptoms during a Phase 3 trial. Regeneron is partnered up with Sanofi (by the way, when is the latter going to buy the former?) to show that their mAb, sarilumab, is superior to AbbVie's, adalimumab. In their study, Regeneron and Sanofi put their product head to head with AbbVie's in a randomized trial of 369 adults. The trial measured DAS28-ESR, a measure of RA activity at 28 join locations for tenderness and swelling, and the trial showed that Humira was inferior. Sanofi has the marketing application in line at the FDA awaiting approval and in the meantime the company is trying to fix some manufacturing inadequacies to be able to fill and finish the product for sale.

In somewhat better news, Humira's moat continues to widen as the European Medicines Agency recently gave a positive opinion on the product for treating moderate to severe hidradenitis suppurativa [HS] for children twelve years of age or older. HS is typically an acne type disease that produces zits in areas that typically do not form zits for adolescents without this disease. Giving a positive opinion is still not final approval, it will take another two months almost before it is approved. If approved, Humira will be the first biologic approved for this patient population. According to the AbbVie newsroom HS affects 0.09% of the world's adolescent population. Though this is a small market it is added revenue that the company can tack on each year from now.

Not only is AbbVie working on their pipeline within their Humira product, but it is also working hard on a pan-genotypic regimen for HCV. The most recent results from a Phase 3 clinical trial showed that patients with severe chronic kidney disease chronically infected with HCV had a cure rate of 98%. This is extremely good news for the patient population but unfortunately AbbVie is a couple months behind Gilead on such a pan-genotypic product. The development is still ongoing for this regimen but hopefully the product should be available soon. The HCV market is already shrinking as it is so the best investors can hope for is that it eats away at some of Gilead's pie before the entire HCV population is withered away.

What I like most about AbbVie's management is that they are willing to take the chance and invest in all areas of the pipeline, whether it be at Phase 1 or something that is already commercially approved. One such case was the most recent investment made in Halozyme's (NASDAQ:HALO) Phase 1 study assessing their ENHANZE platform and the tumor necrosis factor alpha. The platform however failed the Phase 1 study and AbbVie backed out of any further development. There is however a collaboration agreement between the two companies which has eight other targets that AbbVie will help in developing. Other biotech companies are remiss by not getting into early pipeline development collaborations but I like that AbbVie is trying to hit a home run by getting in early.

I believe there is value and growth left to be had in shares of AbbVie. The stock is roughly $6 USD below its all-time highs and pays a great 3.7% dividend yield while trading at 11x next year's earnings estimates.

I actually initiated my position in AbbVie in early June and have been pretty ambivalent with the purchase thus far. So far, I'm up 6.8% on an annualized basis, but I will be purchasing shares as long as they are below $59, because I believe that is where AbbVie offers additional value. I've selected $59 because it is the average of the 52-week range.

I swapped out of Seagate (NASDAQ: STX) for AbbVie during the 2016 second quarter portfolio change-out because I ended up turning a profit in the name (6.2%, or 21.3% annualized) and wanted to lock in those profits. Since the swap, I have lost out on massive gains, as AbbVie has underperformed Seagate since the swap. For now, here is a chart to compare how AbbVie and Seagate have done against each other and the S&P 500 since I swapped the names.

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When it is all said and done, it matters what the stock has done in an investor's portfolio at the end of the day. For me, AbbVie is my smallest position and has not been doing well, as I'm up 3.2% on the name including reinvested dividends, while the position occupies roughly 4% of my portfolio. I will make purchases in the name as long as it is below $59.

I own AbbVie for the value portion of my portfolio, and I will continue to hold onto the stock for now. My portfolio is up 11% since inception, while the S&P 500 is up 6%. Below is a quick glance at my portfolio and how each position is performing. I initiated quite a few new positions Tuesday so more to come on those names shortly. Thanks for reading, and I look forward to your comments.

Company

Ticker

% Change incl. DIV

% of Portfolio

Electronic Arts Inc.

(NASDAQ:EA)

8.65%

3.80%

AbbVie Inc.

3.18%

3.97%

Starbucks Corporation

(NASDAQ:SBUX)

0.73%

4.73%

The Home Depot, Inc.

(NYSE:HD)

-0.45%

4.68%

Facebook, Inc.

(NASDAQ:FB)

-0.56%

8.92%

General Electric Company

(NYSE:GE)

-0.75%

4.66%

Eaton Vance Corp

(NYSE:EV)

-0.80%

4.66%

V.F. Corporation

(NYSE:VFC)

-2.01%

4.60%

Skyworks Solutions Inc.

(NASDAQ:SWKS)

-3.21%

9.14%

Diageo plc

(NYSE:DEO)

-8.42%

6.46%

Gilead Sciences Inc.

(NASDAQ:GILD)

-10.15%

18.60%

Silver Wheaton Corp.

(NYSE:SLW)

-25.21%

4.02%

Cash

$

21.77%

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Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am/we are long ABBV.

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.