The old Abbott kept the “easy” part of the healthcare industry (devices and nutritionals), while Abbvie represents the more difficult part of the business (drugs and treatments). Of course, with difficulty comes the potential for more success — the margins on proprietary drugs are much higher than for devices and nutritionals.
We’ll get to what to do with this in a minute, but what I think you should look at is a bit longer-term, so we should review some background first.
The key drug already on the market for AbbVie is Humira, a $2 billion-plus-per-year treatment for arthritis and psoriasis that is growing almost by double digits before you include currency translations. While AbbVie does have other drugs, the only one that matters in the short run is Humira — if sales growth keeps up, the stock moves up, and vice versa.
The odds are in favor of AbbVie having serious success with Humira in 2013 despite increased competition in the rheumatoid arthritis (RA) marketplace. Why? Management will be more focused — and I am assuming salespeople will be better compensated — in a more narrowly focused company with higher overall margins than the old Abbott. Salespeople make drugs like Humira a success more than the efficacy of the drug compared to competitors. (If this sounds cynical, try to find a doctor’s office that isn’t plastered with posters, memo pads, mouse pads and other swag provided by drug salespeople.)
Still, there will be uncertain trading in ABBV for a while; it might take a quarter or two to see accelerated growth in Humira and other AbbVie drug sales, making an option play on the new company something to think of in terms of months, maybe even a year.
The August calls for AbbVie are thinly traded but are, in my mind, a compelling value — either the $35 strike, just a few cents out of the money and trading under $1.50, or the $40, which is trading around 30 cents.
Any significant movement in ABBV, and you could have a double or more.
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