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ABBV Scoreboard

Who Are ABBV?

ABBV is a global biopharmaceutical company that discovers, develops, and commercializes advanced therapies that have an impact on people’s lives. The company has a focus on oncology, immunology, and virology, and its products are used to treat a wide range of diseases, including rheumatoid arthritis, psoriasis, cancer, and HIV/AIDS.

The Bull Case

1. Valuation

Based on ABBV’s current DCF valuation, the share price should be worth a whole lot more than the company is currently trading at.

The stock has undoubtably fallen on tough times, being 9% down YOY – and it’s more than likely we’re looking at a bargain.

I would say, though, that this figure may be misleading – not least because AABV’s revenue growth is set to slow; and because of the company’s high level of debt.

Moreover, when looking at P/E – AbbVie comes well above its peers – so I don’t think we are actually looking at a bargain here at all.

2. Revenue, Gross Profit and Income

Revenue, Gross Profit, and Net Income have all steadily been rising over the last ten years.

Revenue has looked especially strong – hitting $58b for 2022.

EPS has also been on the rise – and dividends have been increasing too.

3. A Healthy Dose of Products

In bear case 1, I outline the fact that ABBV will soon be hit hard by the loss of exclusivity for its flagship drug Humira.

It should be noted, though, that the company still have a fair few heavy hitters on their books.

Skyrizi, Rinvoq, and Venclexta have all been on the uptrend in the last few quarters – and will combine to fill the hole left by Humira.

The Bear Case

1. Loss of Humira

For the past 10 years, since the company’s entrance to the NYSE, the bulk of their revenue has been generated by their exclusive use of Humira, a drug used to treat arthritis.

In 2022, 36% of ABBV’s revenue was generated from the sale of Humira.

In 2023, however, their term of exclusivity has come to an end.

Biosimilars can now be produced and sold, ultimately eating into ABBV’s monopoly.

Is this a worry? Many say no, but I say yes. It is the biggest pitfall with pharmaceuticals, that so much of any company’s success is dependent on the patents.

2. Debt and Interest Expense 

As a value investor, I am keen to find companies with a certain level of debt. That’s to say – a company with debt as low as possible.

ABBV does not fit into that category.

The company has $62b worth of debt – showing they are heavily reliant on borrowing to finance its activities.

In fairness, this level has come down a lot in the past 3 years. In 2020, total debt sat at $87b – showing me that the company is on the right track.

However, a 470% debt/equity is still far too high for me to invest.

3. Dividends

As a value investor, I am keen to find companies with a certain level of debt. That’s to say – a company with debt as low as possible.

ABBV does not fit into that category.

The company has $62b worth of debt – showing they are heavily reliant on borrowing to finance its activities.

In fairness, this level has come down a lot in the past 3 years. In 2020, total debt sat at $87b – showing me that the company is on the right track.

However, a 470% debt/equity is still far too high for me to invest.

Final Thoughts

Additional Notes

Yesterday, on 23rd June, Abbvie’s anti-migraine treatment was endorsed by the European Medicines Agency.

I rate ABBV’s management, especially their CEO, very highly – although his (Rick Gonzalez’s) stake in the company is fairly limited.

There has been no buying activity from key personnel in the past 12 months, with minor selling.

Conclusion

So what am I thinking here? Clearly we have a company with a great track record; excellent management; and an impressive set of pharmaceuticals.

Debt levels are concerning, but acquisitions have been made and levels are decreasing. Meanwhile, profits are high and consistently growing, as are dividends (a plus that could easily be maneuvered, if need be).

The loss of Humera is undoubtedly important, but it may be that it is a blessing in disguise, since the stock is clearly trading at a discount. This discount is hard to value, mind you, as DFC metric is now well over stock price, but P/E remains high at 31.

Overall, the stock is doing a lot to tempt me, but just not quite enough.