Is It Time to Buy AbbVie Stock?

One month after two big announcements, the dust has settled somewhat for AbbVie (NYSE: ABBV  ) . Those major announcements, of course, were a blow-out second quarter and the acquisition of Shire plc (NASDAQ: SHPG  ) .

In the first few days after the news hit the street, AbbVie's stock traded pretty much at the same level that it started off the year. Now, though, shares are up a respectable percentage. With the wind seemingly at its back, would the Magic 8 Ball say that it's time to buy AbbVie stock?

Signs point to yes
The top three reasons to buy AbbVie are as follows: Humira, Humira, and Humira. These redundant (but accurate) answers aren't any different than they were when AbbVie spun off from parent Abbott Labs nearly two years ago.

Humira still reigns as the world's top-selling drug. During the last quarter, it notched an impressive 26% year-over-year sales gain. Only Duodopa increased by a greater percentage, but it only brought in $56 million compared to Humira's $3.28 billion. Humira generated 67% of AbbVie's total revenue, more than two and a half times that of the company's next 10 highest-selling drugs -- combined

There's no reason to think that Humira is about to hit a brick wall. The drug should continue to power AbbVie's revenue to higher levels. That being said, there are other positives that could impact the stock in both the near term and long term.

The acquisition of Shire, assuming it clears regulatory hurdles, will allow AbbVie to change its domicile to the United Kingdom. This move, known as a tax inversion, would slash the company's effective tax rate from 22.6% to 13% by 2016. Considering that AbbVie paid over $1.2 billion in taxes last year, those tax savings would make a significant difference on the bottom line. Barclay's research indicates that the company could save $500 million annually in taxes even if it doesn't change its domicile.

AbbVie also hopes to make a mark in the oral hepatitis-C drug market currently dominated by Gilead Sciences' (NASDAQ: GILD  ) Sovaldi. The company's all-oral regimen is currently under regulatory review in the U.S. and Europe. While Sovaldi boasts some advantages over AbbVie's combo, smart pricing by AbbVie could win nods from commercial and government payers trying to hold down skyrocketing specialty drug costs.    

Don't count on it
If we shook the Magic 8 Ball again, however, the answer about whether it's time to buy AbbVie could be different. Probably the biggest reason not to buy shares in the company is because of Humira. Contradictory? Not really.

While Humira isn't about to hit a brick wall in the immediate future, it could encounter some speed bumps. AbbVie expects sales growth for its blockbuster drug to be in the high teens for the third quarter. That's still great, but it's also a slowdown from last quarter.

And there is potentially a looming brick wall ahead: loss of patent exclusivity for Humira in 2016. Novartis' Sandoz business unit began a phase 3 study of a biosimilar of Humira last December. Should this study prove successful, Humira sales could be hit hard. 

AbbVie necessarily won't be able to count on taking a big bite out of Sovaldi's market share. That's because Merck is also nipping at the heels of Gilead with its own hep-C combo. Merck could just as easily play the price card and outgun AbbVie. 

Ask again later
For now, AbbVie doesn't appear to be a bad choice for investors. Humira will rock along for at least the next couple of years. The Shire deal should ultimately provide a nice financial boost. Even with the stiff competition, AbbVie's hep-C combo stands a good shot at succeeding commercially. And the 3.2% dividend yield continues to look quite attractive.

Over the longer horizon, though, the situation looks much murkier for AbbVie. The reality is that no one knows if Sandoz will gain approval for its Humira biosimilar. No one knows for sure how the hep-C market will shake out. Buying AbbVie now could lead to some gains. But is this stock one to buy and hold for a long period of time? As the Magic 8 Ball might say, "Ask again later" -- in 2017.

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