Big pharma and blue-chip biotech stocks rarely lose 8% of their value in a single week, but that's exactly what happened to AbbVie (NYSE:ABBV) last week. The drugmaker's stock sank after FDA Commissioner Scott Gottlieb stated that he is working toward making it easier for knock-off biologic drugs called biosimilars to enter the market, which could become a significant threat to AbbVie's top line. 

AbbVie's top-selling anti-inflammatory medicine, Humira, tends to make up over 60% of its total revenue on annual basis, and the drug's main ingredient has already lost patent protection in the United States.

To ward off would-be copycats, AbbVie has built a massive patent portfolio covering nearly every aspect of how the drug is manufactured, and more recently, the biotech signed licensing agreements with the likes of Amgen (NASDAQ:AMGN) and Mylan (NASDAQ:MYL) to postpone the U.S. launch dates for their respective biosimilars to Humira until mid-2023. 

A man in a business suit holds a bear and bull figurine in each hand.

Image source: Getty Images.

Gottlieb, however, is apparently threatening to undo all of this work, leading well-known short-seller Citron Research to call AbbVie "the next great drug short" in a tweet last week. Should investors fear the FDA's decision to double down on its commitment to making biosimilars more accessible? Or is this particular risk factor largely overblown? Let's dig deeper to find out the answers to these pivotal questions. 

Much ado about nothing

Citron's short thesis implies that biosimilars will erode Humira's earnings potential sooner than expected and to a greater degree than forecast. Both of these positions are untenable in light of the facts. 

AbbVie's various licensing agreements should suffice to keep biosimilars in the all-important U.S. market on the sidelines until 2023. And even if this initial approach fails for some unforeseen reason, the biotech's ginormous patent portfolio would almost certainly tie up any would-be competitor in court for a protracted period of time. In fact, that's the main reason Amgen and Mylan agreed to sign these fairly friendly licensing agreements with AbbVie. As such, there's no good reason to think that a Humira biosimilar will launch in the U.S. before 2023. 

Regarding the faster-than-expected erosion of Humira's earnings power, this part of Citron's short thesis is arguably a non-starter as well. Wall Street seems to think that Humira's revenues (sales plus royalties) will fall by no more than 20% in a worst-case scenario after 2023, and there's good reason to believe this estimate is spot-on.

Doctors and patients alike have shown a strong brand loyalty to biologic products following the entrance of biosimilars into the market, and insurance companies have yet to force the issue by modifying their reimbursement practices to favor biosimilars over branded biologics. Of course, this situation could change as the biosimilar market continues to evolve, but there's no real-world evidence that this emerging space is set to radically open up overnight. 

AbbVie's dip is a gift

The bottom line is that AbbVie's Humira revenue stream isn't about to crater anytime soon, and the drug's sales shouldn't even start to taper in a meaningful way for another six full years. When that event does come to pass, AbbVie has the goods to continue delivering top-notch levels of growth.

As proof, the biotech has already initiated the regulatory process for its next generation of anti-inflammatory drugs, namely risankizumab and upadacitinib. Moroever, AbbVie has also transformed into a top oncology player by virtue of its breakthrough cancer medicine Imbruvica, and its host of high-value cancer product candidates currently in mid- to late-stage development.

The point is that AbbVie's robust clinical pipeline and emerging portfolio of new growth products should be more than capable of picking up the slack to keep the drugmaker's top line moving in the right direction for years to come. 

So at approximately 10 times projected earnings, and with one of the fastest-growing dividends in all of healthcare to its credit, AbbVie's stock arguably comes across as a straight-up bargain after last week's hefty decline. 

   

George Budwell owns shares of AbbVie. The Motley Fool recommends Amgen and Mylan. The Motley Fool has a disclosure policy.