Have you ever had one of those days where everything seems to fall into place for you? AbbVie (ABBV -1.03%) is having one of those kinds of years.
The big biotech's stock is up more than 40% so far in 2017 -- the best performance of any biotech or pharma company with a market cap above $50 billion. Those gains can be traced to a string of positive developments for AbbVie, the most important of which happened in the last couple of months. Given everything that's going right for AbbVie, is it the best biotech stock to buy right now?
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A great streak of good news
AbbVie beat analysts' consensus earnings estimates in both the first and second quarters. Its revenue is growing, as are earnings. But those are probably the least important items on the good news list.
A few years ago, I jokingly referred to AbbVie's treatment lineup as "Humira and the seven dwarfs." The company has more drugs on its roster now, but Humira remains the crown jewel. With the anti-inflammatory drug still generating two-thirds of total revenue, as Humira, goes so goes AbbVie.
That's why AbbVie's recently announced deal with Amgen (AMGN -0.19%) is enormously important for the company. And it's a really good deal for AbbVie. Amgen won FDA approval for Amjevita, its Humira biosimilar, last year. AbbVie planned to fight tooth-and-nail in the legal system to enforce its patents for the drug, and management insisted that they would fend off competition in the U.S. through 2022. There were some doubters, though.
Those doubts have been largely, if not totally, erased. Amgen has acknowledged AbbVie's intellectual property rights to Humira, and agreed to delay a U.S. launch of Amjevita until Jan. 31, 2023. In addition, Amgen will pay AbbVie royalties at an undisclosed level. True, there are others pushing to get their biosimilars to Humira on the U.S. market, but AbbVie now appears well-positioned to keep competitors at bay on its home turf for another five years.
That deal with Amgen led Leerink analyst Geoffrey Porges to upgrade the stock to an outperform rating, and raise his price target to $106 -- a 19% premium over AbbVie's current level.
What's the other good news for AbbVie? The company won FDA approval for its new hepatitis C drug, Mavyret, in August. The discounted pricing it announced for the drug should position it to compete relatively well against Gilead Sciences' (GILD 0.07%)treatment. As if all of that wasn't enough, another rival in the hepatitis C market, Merck, announced that it was pulling the plug on two pipeline candidates for the disease.
Bright future
It's not all sunshine and roses for Humira. Amgen and others will market biosimilars in Europe. However, the U.S. market accounts for two-thirds of Humira's total sales, so AbbVie shouldn't feel too much pain.
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My joke from a few years ago about the big sales gap between Humira and AbbVie's other products isn't as applicable now that Imbruvica is a factor. The cancer drug is on track to make close to $2.5 billion this year. And Mavyret should be another blockbuster. In addition, Venclexta, which is already approved for one type of chronic lymphocytic leukemia (CLL), is being studied for several other indications, and should be yet another big winner.
There's a lot more on the way. Elagolix, which is being evaluated in late-stage studies as a treatment for endometriosis and uterine fibroids, could reach peak annual sales of more than $3 billion if approved for both indications. AbbVie's autoimmune disease franchise could be bolstered by two promising late-stage candidates: upadacitinib and risankizumab. Imbruvica and Venclexta could also be joined by a potential megablockbuster cancer drug -- Rova-T.
These drugs and others in clinical studies impressed market research firm EvaluatePharma enough that it ranked AbbVie's pipeline as the third-best in the entire biopharmaceutical industry. I agree with that assessment -- and look for AbbVie to complement Humira with several solid winners in the coming years.
Best biotech?
So is AbbVie the best biotech stock to buy right now? As enthusiastic as I am about the company's prospects, there are other biotech stocks that could grow faster. Celgene (CELG) stands out as one that, in my view, could be the leader of the pack in terms of stock returns among the big biotechs for the next several years. Like AbbVie, Celgene has a tremendously successful lead product (Revlimid) with a rich pipeline. Celgene's growth should be a good bit higher than AbbVie's.
But if you're looking for the total package -- growth, income, and value, I think AbbVie is the best biotech stock around. With Humira humming along and a strong pipeline, AbbVie should deliver annual earnings growth of around 14%. It pays a nice dividend with a current yield of close to 3%. And the stock trades at less than 14 times expected earnings. Everything might not go right for AbbVie in the future, but there's enough already going right that this stock should enjoy sustained momentum for a while to come.
