Biotechnology stocks are regaining a bit of their luster lately; but not every biotech stock is right for your portfolio. Is AbbVie Inc. (NYSE:ABBV) a name you can stash away for the long haul? I think so. Here are three reasons why.
1. Sidestepping the Humira threat
One of the biggest reasons not to buy shares in AbbVie is its heavy reliance on Humira, the top-selling autoimmune disease drug commonly used to treat rheumatoid arthritis and psoriasis. With more than $14 billion in annual sales, Humira accounts for 60% of AbbVie's revenue, and that's admittedly a big problem given that patents protecting Humira in the U.S. expire later this year. The risk to Humira sales posed by future copycats shouldn't be ignored, but it should be kept in perspective.
Humira is losing protection on its formulary patent, but it's still protected by method-of-use patents that could delay competitors for a few more years. In May, the U.S. Patent Office agreed to review challenges to some of those method-of-use patents; however, a decision from that review isn't expected until May 2017. If the decision goes against AbbVie, it can file an appeal that would delay the process another year.
In fact, AbbVie's management is so convinced that its patent portfolio can keep lookalikes in check that it recently forecast Humira sales growing, rather than shrinking, to $18 billion in 2020.
2. Expanding into new markets
Up until recently, AbbVie has been known as an autoimmune disease giant; but it's quickly transforming itself into a much-more diversified company. Last year, it spent $21 billion acquiring Pharmacyclics to get its hands on the chronic lymphocytic leukemia (CLL) drug Imbruvica. Imbruvica is commonly used as the second-line therapy in this indication, and a recent label expansion into the first-line setting has pushed its annualized sales into billion-dollar-blockbuster territory.
AbbVie also spent $5.8 billion earlier this year to buy Stemcentrx, a company with a small-cell lung-cancer (SCLC) drug ready for registrational-stage clinical studies. That drug, Rova-T, targets a protein commonly expressed on solid tumors.
So far, results have been solid, especially in the third-line treatment setting where there are currently no FDA-approved treatment options. In 12 SCLC patients who over express this protein, and who have failed on two prior treatment regimens, 92% of them experienced at least a stabilization of their disease.
AbbVie also notched an FDA go ahead in April for Venclexta, a second-line therapy for CLL patients possessing the 17p deletion mutation. Because most patients with CLL see their disease return, and 20% of relapsing CLL patients have this mutation, Venclexta could generate hundreds of millions of dollars in additional annual revenue for AbbVie.
The FDA also recently gave the nod to Zinbryta, a multiple sclerosis drug that AbbVie developed in concert with MS drug Goliath Biogen. Zinbryta's black-box warning means it may be destined for niche status, but its once-monthly dosing could make it a good option for patients whose disease fails to be controlled by other medications.
3. Leveraging its financial firepower
Sidestepping threats to Humira and grabbing share in new markets could give AbbVie the time it needs to put its balance sheet to work to further insulate itself against competition.
Exiting March, AbbVie had $8.5 billion in cash and short-term investments on its books, which generates $2.1 billion in quarterly operating cash flow. The company's $24 billion in trailing 12-month sales, and $5 billion in trailing 12-month net income, means there's plenty of money to fuel R&D, keep its foot on the M&A pedal, and pay investor-friendly dividends. (Shares currently yield a healthy 3.6%.)
Last quarter, AbbVie plowed 15.9% of its revenue back into R&D, including programs evaluating four different potential Humira successors. If AbbVie's deep pockets allow it to buy additional late-stage drugs and innovate a Humira 2.0, then it may significantly be able to blunt sales that will be lost when Humira finally faces off against competitors.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this. The Motley Fool recommends Biogen. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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