Reasons To Own AbbVie After Abbott Splits In Two

| About: Abbott Laboratories (ABT)

Abbott's (NYSE:ABT) planned separation remains on track for year end, creating two stand alone companies: AbbVie, with the drug portfolio and pipeline, and Abbott, with nutritional products and devices. Investors may want to pick up shares of Abbott beforehand, particularly to gain exposure to AbbVie's thick drug pipeline.

The reorganization hasn't been free. Costs so far have shaved $0.06 per share off earnings in the first half of the year. And, another $0.17 hit is expected in the second half too. On top of those costs, Abbott's international exposure has it wrestling with currency headwinds, which are weighing on reported results.

But the reorganization costs are a temporary problem. And while currency is troublesome, the post-split AbbVie's pipeline offers plenty of U.S. based sales growth.

Heading into the split, Abbott's revenue workhorse remains Humira, its massively successful blockbuster treatment for rheumatoid arthritis ("RA"), psoriatic arthritis and chronic plaque psoriasis. In the most recent quarter, the company's global proprietary drug sales rose 4.9%, or 9.3% ex-currency, on a 23% ex-currency jump in Humira sales to $2.3 billion. At a $9 billion annual run rate, Humira is one of the globe's best selling treatments.

The company also saw sales growth in Androgel, used for testosterone treatment. The drug generated sales of $275 million in the quarter, up 26%. Sales of Creon, a pancreatic enzyme, were up 12% to $88 million in the States and 16.9% ex-currency to $74 million overseas. Lupron sales were $140 million in the U.S., up 4%, with another $60 million in international sales. And Synthroid sales were $120 million, despite generic competition. Overseas, Synthroid sales were up 19.8% ex-currency to $27 million.

These drugs helped offset a 6.6% drop in TriCor/Trilipix sales and a 14.7% fall in Niaspan sales. However, both drugs remain significant, generating $388 million and $211 million in sales, respectively.

AbbVie's upside depends on its pipeline.

Like all major drug plays, Abbott is wrestling with offsetting future generic risk by developing a fatter drug pipeline.

The company hopes to expand its Humira label to offset potential RA competition from Pfizer (NYSE:PFE), Astra (NYSE:AZN)/Rigel (NASDAQ:RIGL) and Vertex (NASDAQ:VRTX). It's also advancing next-generation RA treatments through clinic, with its oral JAK-1 inhibitor in Phase IIa and likely heading Phase IIb in 2013. And it has BT-061 in Phase II for both RA and psoriasis.

Abbott also expects Phase III results for Daclizumab in 2014. The drug is used to treat multiple sclerosis, an inflammatory disease affecting the nervous system affecting an estimated 2.1 million worldwide. Currently, the disease is treated with interferons like Biogen's (NASDAQ:BIIB) Avonex, with $414 million in Q2 U.S. sales, and Teva's (NASDAQ:TEVA) Copaxone, with $798 million in Q2 U.S. sales. Gilenya, a new treatment from Novartis (NYSE:NVS), also raked in $182 million in Q2 U.S. sales.

Outside of the autoimmune drugs, AbbVie has bardoxolone in Phase III for chronic kidney disease. Enrollment in its 2000 patient Phase III trial is ahead of schedule with results expected next year. If the data continues to support the drugs efficacy, this drug has a good chance of reaching blockbuster status given the disease affects as many as 26 million in the U.S. alone.

Abbott also has atrasentan in Phase II for kidney disease. Phase II results for use in diabetic kidney disease are expected by year end. So, investors should keep a close eye out for data, which will likely move the stock.

Results from its Phase IIb Hepatitis C trial is expected this fall. Phase II data presented in April showed a 93-95% cure rate for Abbott's interferon free combination therapy. The company expects to enter Phase III next year with commercialization as early as 2015.

In oncology, Abbott's elotuzumab for multiple myeloma is in Phase III. Multiple myeloma is the second most common blood cancer, with 22,000 new cases diagnosed annually. Current treatments include Celgene's (NASDAQ:CELG) Revlimid, with $934 million in global Q2 sales, and Velcade, with $204 million in U.S. sales last quarter.

Abbott also has ABT-126 for the treatment of both Alzheimer's, which affects 5.4 million people, and schizophrenia. The drug is currently in Phase IIb with Alzheimer's data expected in late 2013.

And in women's health the company's Elagolix is being ushered through trials. The treatment for uterine fibroids and endometriosis is in Phase II for fibroids and Phase III for endometriosis which affects as many as 10% of all women.

While there is bound to be uncertainty heading into AbbVie's launch as a separate company, its solid product portfolio and better than peer pipeline suggest shareholders can benefit from trial data and new drug enthusiasm over the coming three years.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ABT, AZN, CELG over the next 72 hours.