AbbVie (ABBV) has grown into the 8th-largest pharmaceutical company in the world, primarily on the strength of its blockbuster biologic autoimmune drug Humira, the world’s number one drug with annual sales of about $19 billion, notes Tom Hutchinson, editor of Cabot Dividend Investor.
This is a cutting-edge company specializing in small molecule drugs. Although ABBV has performed well of late, having recently run close to the 52-week high with a 50% return over the last year, it is still cheap. The stock is still more than 30% below the 2018 high and selling at less than 10 times forward earnings.
It’s cheap because the blockbuster Humira drug is facing increasing competition and the market has worried that the company won’t be able to replace the lost revenues.
I believe fears are overblown and the market is starting to agree. The drug is only facing competition overseas and has patent protection in the U.S., which accounts for three-quarters of revenues, until 2023.
The company has one of the very best pipelines of new drugs in development in the industry as well as hugely promising, newly launched drugs.
The company believes recently launched cancer drugs Imbruvica and Venclexta can generate $9 billion in annual sales by 2025. It also launched two drugs last year that were rated among the top three launched of the year by EvaluatePharma that AbbVie thinks could bring in $10 billion a year by 2025.
To further diversify away from dependence on Humira, AbbVie purchased Ireland-based Allergan for $63 billion last year.
The company is about half the size of AbbVie and features blockbuster facial treatment drug Botox. The acquisition will diversify the company away from Humira in the near term while the stellar pipeline gains traction.
This is a defensive company that offers value and high yield with a very recession resistant business. But it also offers solid growth in the near term and the enormous tailwind of an aging population longer term. By the way, the stock also yields a stellar 4.7% while you wait for the price to go higher.
