Healthcare stocks have started to make a comeback. And as a contrarian, I see this as a prime time to buy back into top stocks that have been unfairly beaten down. And AbbVie (ABBV) is one of those stocks.
AbbVie is the maker of the most successful drug in the history of prescription drugs, the anti-inflammatory biologic Humira, used for chronic diseases spanning the many forms of arthritis and plaque psoriasis.
Humira is also used to treat Crohn’s disease and ulcerative colitis. That is to say, millions of potential patients with diseases that can be treated, not cured.
Last year, Humira made $12.5 billion and it’s so popular that it will likely be the the largest-selling drug in history, unseating cholesterol drug blockbuster Lipitor in the very near future, considering the graying of the U.S. (and most developed nations) population. Treatments for chronic diseases are only going to grow in demand.
These numbers are big, but these are the kinds of sales needed to succeed in the pharmaceutical sector these days. And the companies have to keep those winners coming. It now takes about $2.5 billion (including the returns lost during a decade of trials) before a drug gets to market.
That’s why it’s crucial for these companies to find a unique niche, and a strong pipeline of drugs that have enough long-term demand that each blockbuster drug can deliver for most of its life under patent protection.
AbbVie is the poster child of the new pharmaceutical company that could deliver on both counts. And the market was very supportive of biotech and pharmaceuticals — until August.
The market crash slammed both sectors, largely out of concern that the lofty levels — and growing expectations — to which they had been bid up in previous quarters could be sustained. ABBV lost 10% in just that month.
There also have been a couple other issues that have hurt ABBV in the past few quarters.
It failed to strike a deal with Ireland-based Shire (SHPG) late last year because the U.S. government passed laws regarding tax inversion attempts — buying a foreign company and parking assets offshore to skirt U.S. taxes.
The strong dollar also hurt international sales of its drug portfolio. For example, Humira’s second-quarter U.S. sales of $2.1 billion exceeded Wall Street’s estimates, but its non-U.S. sales missed the mark.
And although ABBV met the Street’s full-year guidance view, it didn’t help. When the Street panics it sells everything and flees for the safety of cash and bonds.
But the stormy days are past and ABBV is looking oversold at this point. That makes it a great buying opportunity, especially sporting a 3.6% dividend yield.
Its $21 billion acquisition of Pharmcyclics earlier this year added Imbruvica, a promising leukemia drug to its portfolio. Recently, ABBV announced that it’s seeking indication expansion for Imbruvica in the U.S., to include front-line treatment of chronic lymphocytic leukemia — the most common type of the disease.
It also just received Food and Drug Administration approval for a new treatment for Humira on hidradenitis suppurativa, also known as acne inversa. The FDA granted it Orphan Drug status, giving ABBV a seven-year exclusive marketing right for the condition.
ABBV also just had a new drug for rheumatoid arthritis pass two Phase II studies.
Sales of its newly approved hepatitis C drug Viekira Pack are coming along, and AbbVie expects to sell $3 billion worth this year, and that is before it gets Viekira covered completely by government and private healthcare plans.
And looking out further, ABBV has partnered with Alphabet’s (GOOG) life sciences spinoff, California Life Sciences, to focus on R&D for age-related diseases. Each firm will contribute $1.5 billion to this potentially groundbreaking initiative.
The bottom line is, AbbVie has a great future ahead of it and this is a rare opportunity to pick this stock up at a discount.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
