Shares of AbbVie (NYSE:ABBV) are up nearly 10% since the company finalized its leveraged buyout of Allergan. The narrative surrounding the Allergan deal is that AbbVie needed to diversify its portfolio. Before you consider investing in ABBV stock, let’s check out the accuracy of that claim.
The company’s signature drug, Humira, provided 54.5% of the company’s total revenue in the last quarter. Humira continues to be a strong driver of revenue for the company. However, Humira has already lost its patent protection in Europe and it will lose the same protection in the United States in three years.
So, with that in mind, it would seem that the addition of Allergan and its prominence in the areas of medical aesthetics and neuroscience will make a nice addition. Allergan is primarily known for Botox Cosmetic.
However, AbbVie is a stock that has been trending up since it first went public. And while Humira may have put the company on the map, the company had bench strength even before Allergan entered the fold.
AbbVie Had a Strong Portfolio Without Allergan
The leveraged buyout of Allergan adds diversity to AbbVie’s portfolio. However, the company has a strong pipeline. And AbbVie continues to move more oncology drugs through the clinical trial pipeline.
Like too many people I’m afraid, I have to use both hands and maybe even both feet to count the number of friends and family members I’ve lost to cancer.
In addition, I know of several people who have recently received a cancer diagnosis. Some have an optimistic prognosis; some perhaps less so. The very fact that there is a degree of optimism about cancer is a marvel.
However, cancer isn’t getting a lot of attention today. Covid-19 and the underlying novel coronavirus that triggers the disease have garnered much of the national attention. And neither AbbVie nor Allergan are significant players in the national race for a treatment and/or vaccine.
But regardless of the breakthroughs that will be made to treat Covid-19, cancer was here first. And it continues to baffle the medical community. That means AbbVie’s oncology pipeline will be significant both during and through a post-pandemic world.
AbbVie Has a Strong Pipeline Beyond Oncology
But even without cancer treatment, the AbbVie story is about more than Humira. Last year the company launched two drugs that have the potential to make up any decline in sales once Humira loses its patent protection in three years.
Skyrizi, which launched in April, is a drug used in the treatment of psoriasis. Rinvoq, which was launched in August, is used in the treatment of rheumatoid arthritis.
Speaking at the JPMorgan Chase Healthcare Conference, AbbVie CEO Rick Gonzalez pointed out that Skyrizi has already captured about 25% of the “in-play” market share. Meanwhile Rinvoq has captured about 9% of its “in-play” share. In-play means either new patients or patients switching treatments.
And if Gonzalez is right, by the time Humira loses its patent protection, the combination of Skyrizi and Rinvoq may surpass $20 billion in sales, a figure that Humira for all its success has not hit.
UBS analyst Navin Jacob doesn’t project quite that high of a number. But in making a bullish call on ABBV stock, Jacob is forecasting the potential of $11 billion between the two drugs.
ABBV Stock Should Be a Great Defensive Stock
Finally, drug stocks typically perform well during bear markets and economic recessions. During this unprecedented time, many Americans are staying away from “unnecessary” medical procedures. But they’re not likely to stop buying their prescriptions.
And according to David Risinger of Morgan Stanley, with Allergan in the fold, AbbVie has just 45% of its earnings at risk to expiring patents (and therefore competition) between now and 2030. That puts the company in better position that other big-name drug companies such as Merck (NYSE:MRK), Pfizer (NYSE:PFE), and Bristol-Myers Squibb (NYSE:BMY).
Finally, you have to factor in the company’s dividend which the company has increased every year for the last 47 years and has a current yield of over 5%. ABBV stock was a solid investment before Allergan. With the addition of Allergan, the company should start attracting growth investors as well as income investors.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.