Category: Big pharma, drug discovery

Like most drug discovery companies AbbVie’s success depends totally on commercialization of its pipeline, and it does have a solid one. For investors who are comfortable with the associated duration risks and trial setbacks this is a cautious buy. The valuation is not high for its peer growth and past growth.

‍Near term catalysts: A successful late-stage trial for a multiple myeloma drug, could spark a rally..

AbbVie’s strengths and positives:

1. A robust  pipeline 
2. A strong immunology portfolio
3. A reasonable valuation
4. Good operating margins of over 35% (most drug discovery companies have over 30%), and good cash flow generation also because of high depreciation and amortization.
5. The  $11B Apogee Therapeutics acquisition broadens and complements ABBV's pipeline. It adds to immunology, oncology, neuroscience, and aesthetics.
6. AbbVie beat expectations in Q2, but guided lower to reflect Apogee’s acquisition costs, which will not hurt the company in the long run. 

The multiple Myeloma trial’s positives:

The success of this trial boosts its oncology pipeline allowing it to compete in this multi-billion-dollar market, alongside Johnson & Johnson’s Tecvayli, Pfizer’s Elrexfio, and Regeneron’s Lynozyfic.  

The simpler dosage delivery reduces side effects risks, and lets it expand outpatient market access, such as outpatient and community oncology centers, thus going beyond specialized academic hospital centers.  

Negatives:

1. Competition: All of AbbVie’s segments are crowded with large players
2. ‍Clinical trial outcomes:  The duration and execution risks plus the Capex are the main reasons  why I remain cautious on big pharma; too often one is late to the upside and if one gets in early, the returns tend to be just average till the next drug discovery. In its own way it has a fair amount of cyclicality.‍
3. Indebtedness: Like other big pharma companies, it too has a lot of debt and its balance sheet needs constant monitoring; While investors tend to accept a lot of debt for big pharma, a leaner and cleaner sheet will give it a competitive edge for acquisitions/mergers.

Performance

The stock has done well - gaining 20%, 137% and 300% in the past year, 5 years and 10 years respectively, beating several other pharma companies. 

Valuation:

For the most part valuations fluctuate a lot prior to successful commercialization or successful trials, most investors buy in anticipation so keeping that in mind ABBV is fairly in the middle.

A forward P/E of 18, with a PEG of just 0.45 is pretty reasonable, though I would have preferred to pay closer to 3-4x sales. A P/S to Growth ratio of 0.62 is on the higher side.

AbbVie's Robust Pipeline

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