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The Hole in AbbVie's 2013

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For investors looking at the biotech and pharmaceuticals industry, there's a clear dichotomy at work.

On one hand, you have multibillion-dollar enterprises like AbbVie (NYSE: ABBV  ) that boast a deep bench of drugs, massive profit margins, and mountains of cash on the balance sheet. On the other hand, you have a smorgasbord of developmental-stage companies whose hopes and dreams are riding on a single drug or clinical trial.  Sure, there are companies in the gray area in between, but it's pretty slim pickings.

Despite their small size, there's one thing the little guys offer investors that the behemoths typically don't: clear catalysts. It's a do-or-die business marked by binary FDA approval and clinical trial risks. The big guys just don't come with that level of clarity given their diversified nature.

Understanding the inner workings of a big pharma stock will never be entirely clear, but that doesn't mean investors should ignore the key drivers of the business -- the drugs it's selling and the top candidates sitting in the pipeline. Today, we focus on AbbVie's top-selling drug franchises and what it means for the company.

There's more than Humira?
There's one thing every AbbVie investor has in common, they're new to the stock. The company began its life as a public company shortly after the ball dropped in Times Square, and presents a unique investment opportunity that a way mirrors the one-trick-pony nature of small pharma and biotech.

That's because this pharma newbie -- in a former life, the branded pharmaceuticals division of Abbott Labs (NYSE: ABT  )  -- has investors keeping a close watch on a drug named Humira. Why the close watch? This one drug accounted for 51% of AbbVie's 2012 sales and should exceed $10 billion in revenue in 2013. It's such a massive drug that investors had all but forgotten about the rest of Abbott's business, and part of the rationale for the move was separating the mammoth drug from the other health care divisions at Abbott.

But as the numbers suggest, Humira's only half of the story when looking at top line sales, and only three-quarters of the story when looking at profits. Aside from continued Humira growth, one of the key stories with AbbVie this year is the generic competition for its cholesterol drugs, part of a class called fenofibrates: TriCor and Trilipix.

Look out below
TriCor serves as case study in pharmaceutical patent litigation, facing generic competition despite patents that don't expire until 2018. It's the result of a 2009 legal settlement with generic manufacturer Teva Pharmaceuticals (NYSE: TEVA  ) , which was engaged in a decade-long game of cat and mouse with what was then Abbott Labs. Teva would look to copy TriCor, and Abbott would continually reformulate the near 40-year-old drug in order to fend off generic competition. But all great pharma brands must come to an end, and the impact will be significant for AbbVie's top line trends.

Now that fenofibrates have gone the way of the dodo, at least in branded pharmaceutical terms, the revenue impact is coming fast and furious. AbbVie already suffered a substantial 51% drop in sales as generic competition took hold in the fourth quarter. All told, AbbVie management expects its lipid franchise, which contains the TriCor/Trilipix duo and another drug called Niaspan that is also subject to generic competition in September 2013, to fall below $1 billion in 2013.

Foolish bottom line
While Humira remains AbbVie's rock-star drug, at least for the next few years, the impact of generic competition for its secondary lineup has AbbVie management conceding to the fact that 2013 and 2014 "will be a time of transition."  On its recent 2013 guidance call, management noted that sales will remain relatively flat as generic losses mute continued growth in Humira. Generic competition is a way of life in the pharma business, and as we'll cover in future articles, there's only one way to offset those losses -- continued innovation.

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