Finding reasons to worry about AbbVie's (ABBV 1.42%) stock isn't too hard these days. Shares have dropped over 7% in the last few weeks -- and that was before the latest cause for uneasiness. The pharmaceutical company's board just announced that it is thinking twice about a previous recommendation to shareholders that they approve a merger with Shire plc (NASDAQ: SHPG). Despite these concerns, AbbVie's stock could easily rebound soon. Here are three reasons why.
Source: AbbVie.
1. Reconsidering the reconsideration
Some might jump to the conclusion that AbbVie's board has reversed direction on the potential Shire merger. However, that's not necessarily the case. It makes sense that the board of directors revisit the decision in light of new U.S. Treasury regulatory changes that make the deal more problematic than it looked earlier. That doesn't mean they will decide against the merger, though.
When the board deliberates in the meeting scheduled for Oct. 20, they will no doubt weigh the prospect of taking on more debt than expected to finance the merger with Shire against the inversion tax advantages. They will also mull over the new reality that those tax advantages will be less appealing with some of the changes imposed by the U.S. Treasury Department.
Still, though, after the regulatory changes were announced in September, many industry analysts felt the financial benefits to AbbVie would be enough to keep the merger process on track. AbbVie executives recently distributed memos pumping up employees of both companies that the deal was moving forward. The board could certainly make all of this moot, but if they don't -- a real possibility -- AbbVie shares will likely bounce back.
2. Hep, hep, hooray?
The hepatitis-C market is booming for Gilead Sciences (GILD 0.39%). Sovaldi is already a blockbuster drug for Gilead. The FDA recently approved Harvoni, which should generate billions of dollars more. Can AbbVie get its fair share of success in the hep-C market also?
It's true that AbbVie's all-oral combo doesn't stack up quite as well against Harvoni as the company would like. However, AbbVie might get a leg up on the competition if, as Bob Barker and Drew Carey might say, the price is right. Insurers haven't been happy campers with Sovaldi's $84,000 price tag. Shrewd pricing by AbbVie could win favor in the eyes of the payer community.
Gilead set Harvoni's 12-week regimen cost at $94,500, with an eight-week regimen at $63,000. AbbVie could come in at a lower price and do quite well. It won't be too long before the company finds out whether the FDA will give a thumbs-up or not. The agency accepted the NDA for AbbVie's hep-C combo in June and granted a priority review. FDA approval -- combined with the right pricing -- could send AbbVie's stock higher in the not-too-distant future.
3. Humira humming along
And then there's Humira. The drug generated a whopping $10.6 billion last year, and sales continue to look good so far in 2014. New indications could bode even better fortunes ahead.
AbbVie announced positive results earlier this week from a late-stage study of Humira in treating moderate to severe hidradenitis suppurativa, or HS. The chronic skin disease affects 1% of the world's population and has no approved treatments yet. The latest results are surely promising. If the jitters about the Shire merger fade away, investors could return to looking at Humira's powerhouse growth and decide that it's time to jump back into AbbVie.
Continuing story
Don't expect shares to surge as long as there is doubt about the Shire merger, though. If the board opts to recommend against the deal, AbbVie's stock will likely fall more. Of course, that doesn't mean shareholders will take the board's advice.
Investors should closely watch this story play out. My view is that after the dust settles, the potential for AbbVie, with its hep-C combo and with Humira, could present good buying opportunities for investors with a longer-term mind-set.
