Is AbbVie a Bad News Buy?

The U.S. Food and Drug Administration recently announced restrictions on JAK inhibitors that hurt AbbVie's (ABBV 1.06%) prospects for autoimmune disease drug Rinvoq. AbbVie stock sank more than 10% after the FDA's decision. In this Motley Fool Live video recorded on Sept. 8, Motley Fool contributors Keith Speights and Brian Orelli discuss whether or not AbbVie stock is now a bad news buy.

Keith Speights: Now, Brian, there was some more big news over the last several days. The FDA seems to have taken, what I would say is a really hard line, on JAK inhibitors that treat rheumatoid arthritis.

The FDA is limiting the use of these drugs only to patients who've previously tried and failed on a TNF blocker. Now, this news caused AbbVie stock, in particular, to sink. Do you think the sell-off was warranted, or do you think AbbVie could be a bad news buy right now?

Brian Orelli: We've been talking about this story basically for the entire year. Pfizer (PFE 2.40%) had some bad news in January that showed its JAK inhibitor, Xeljanz, increased the likelihood of patients to get cancer and also, it increased the likelihood of developing cardiovascular events, so heart attacks, strokes, that sort of thing.

The FDA has been reviewing the data, and it put off making decisions on multiple JAK inhibitors, ones from Pfizer and AbbVie and then one that's being developed by Eli Lilly (LLY -2.63%) and Incyte (INCY -0.89%), and that's for various different indications.

The FDA is requiring safety warnings on Xeljanz, but it's also put those same safety warnings for the JAK inhibitors that are approved right now. Olumiant from Eli Lilly, and then Rinvoq from Insight and AbbVie. I'm sorry, Olumiant is from Eli Lilly and Incyte, and then Rinvoq is from AbbVie. Rinvoq is a lot more important to AbbVie's future than Xeljanz is to Pfizer, or Olumiant is to Eli Lilly and Incyte, so I think that's the reason why it fell 10%.

AbbVie is looking to expand Rinvoq beyond rheumatoid arthritis into eczema and psoriatic arthritis and ankylosing spondylitis. The ironic part of this news is that TNF inhibitors will benefit and AbbVie, of course, has Humira, which is a TNF inhibitor. But of course, investors are rightfully worried about the long-term prospects of Humira since the drug has a potential for having biosimilar competition as early as 2023.

Overall, I think this is a negative and definitely warranted for the drop. I'm a little surprised it wasn't already priced into the stock. I haven't really looked at the valuation of AbbVie that much. I felt this was coming, so I was a little surprised at the 10% drop, but apparently, generally investors weren't really expecting it.

But whether it's a good value right now, I don't really know. There's a lot of moving parts for AbbVie in its future that make it so hard to value in. It's not a company that I keep an eye on its valuation all that much. I follow the company and its drugs, especially if they're going to compete with other drugs of companies that I do own, but I don't know how to value AbbVie that well.

What did you think? Do you think it's a good buy?

Speights: It's been cheap for a while. This was a tougher line from the FDA than some expected, a little tougher line than I expected. It is important to note that AbbVie does have another autoimmune disease drug, Skyrizi, that it was counting on along with Rinvoq to be its successors to Humira.

It'll be interesting to see if the company comes out and really starts pushing Skyrizi more, or if they get creative on how they're going to prop up Rinvoq and try to push for its sales to be closer to what they wanted.

I think overall, AbbVie is still a pretty good buy, especially if you're an income-seeking investor. It's a dividend aristocrat, wonderful dividend, high yield. The company is going to have plenty of cash flow, even with Humira losing exclusivity or facing biosimilar rivals in the US in a couple of years. It's not a good stock for everybody, but I think it's a pretty good stock for some types of investors.

Orelli: It reminds me a lot of Pfizer when Lipitor was about to go off patent. It seemed like it was really cheap, and it just kept getting cheaper and cheaper, and so that's my worry with AbbVie right now.