Company Overview: AbbVie Inc. (NYSE: ABBV) is focused on treating acute chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology; virology; neurological disorders; pain associated with endometriosis; as well as other serious health conditions. AbbVie came into existence on 1 January 2013, post the divestment of Abbott Laboratories’ pharmaceutical division. The company has a strong presence in rheumatoid arthritis, cancer, psoriasis, HIV, hepatitis C virus (HCV), Crohn’s disease, thyroid disease, Parkinson’s disease, endometriosis, ulcerative colitis, and cystic fibrosis markets. The company operates in one business segment called pharmaceutical products.
 

ABBV Details
 

 
Higher Investments & Synergies from Acquisitions are Key Catalysts: AbbVie Inc. (NYSE: ABBV) is headquartered in North Chicago, Illinois, and was incorporated in Delaware on 10 April 2012. ABBV is one of the top research-based biopharmaceutical companies worldwide, which is engaged in developing and marketing advanced treatments that tackle complex and serious diseases.
 
In June 2019, the company entered into a definitive agreement to acquire Allergan plc (Allergan). The acquisition is likely to position ABBV as one of the leading pharma companies after it finalizes the Allergan buyout in a cash-and-stock deal for $63 billion this year. AbbVie will pay Allergan a price of $120.30 in cash and 0.8660 AbbVie shares for each Allergan share.
   
In FY19, the company reported total sales of ~$33.3 billion, an increase of 1.6% year over year. Humira and Imbruvica two key products of ABBV, accounted for 58% and 14%, respectively, of AbbVie’s total revenues in FY19. The company remains on track to leverage its growing oncology portfolio. The company opines that oncology will be its key growth driver in the years ahead. The company has been successful in developing a significant oncology franchise with Imbruvica and Venclexta. Notably, the combined revenues from these two drugs accounted for ~$5.5 billion revenues in FY19. The momentum is expected to be continued, and the company expects strong double-digit growth in FY20. 
 
In the 4QFY19, both the revenues and earnings increased year over year. The company witnessed a CAGR of 9.8% and 11.3% in total revenue and net earnings, respectively, over the period of FY15-FY19. The company has been investing in new technology to evaluate the drugs alone or in combination with different patient segments. Cash dividend declared increased from $2.1 per share in FY15 to $4.39 per share in FY19. 
 

Past Performance Highlights (Source: Thomson Reuters)
 
The company also remains on track to analyze and boost the Venclexta brand in order to treat the wider deteriorated CLL patient population and grow into earlier lines of therapy. It also aims to develop other hematologic cancers’ medicines to cure diseases like multiple myeloma and acute myeloid leukemia (“AML”). Most recently, the company stated a positive interim analysis data from a phase III study, called The VIALE-A, which assessed a combination regimen of its blood cancer drug, Venclexta in earlier-untreated AML patients, who are not qualified for rigorous chemotherapy. This, in turn, will boost the sales from the drug.
 
Going forward, the company expects robust demand trends of Humira in the United States. A growing portfolio of new drugs and sustained focus on enhancing the sales performance of Imbruvica and Venclexta are expected to boost the revenues of ABBV in the coming quarters. The coronavirus pandemic has caused chaos all over the world. AbbVie is among the numerous biotech companies working on producing treatments and vaccines to treat COVID-19 virus. With the condition in China getting harsher and the risk of global coronavirus outbreak soaring, ABBV stands to benefit with the faster development of medicines to curb the impact.
 
4QFY19 Key Highlights for the Period Ended 31 December 2019: During the quarter, the company reported earnings of $2.21 per share, up from $1.90 per share in the year-ago period. The company’s revenues for the quarter stood at $8.70 billion, which increased from $8.3 billion reported in 4QFY18. Revenues from Humira stood at $4.92 billion, up 0.5% on an operational basis. Humira’s sales in the United States soared 9.8% and came in at $3.97 billion. However, revenue from Humira went down 4.5% operationally in the international markets and came in at $948 million. Revenues from Skyrizi and Rinvoq during the period came in at $216 million and $33 million, respectively.
 
The company’s hematologic oncology (which incorporated Imbruvica and Venclexta) sales stood at $1.55 billion, during the quarter, up 37.2% on an operational basis. Imbruvica revenue for the quarter went up 28.9% year over year.U.S. sales of Imbruvica earned $1.07 billion, soaring 28% from the year-ago figure. International sales of the drug climbed 33.8% and came in at $223 million.
 
The company’s other products also witnessed positive results, with revenues from Duodopa product, rising 7.1% on an operational basis and 4.1% on reported basis. Revenues from Creon generated sales only from U.S. markets, which soared 11.5% year over year.
 

Key Highlights (Source: Company Reports)
 
4QFY19 Operating Highlights: During the quarter, adjusted gross margin stood at 81.6%. The adjusted SG&A expense as a percentage of net revenues stood at 21.6%, whereas adjusted R&D expense came in at 15.3% of net revenues, indicating higher investments in all stages of its pipeline. During the quarter, adjusted operating margin stood 44.6%
 
Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 35.15% of the total shareholding. The Vanguard Group, Inc. and Capital Research Global Investors hold the maximum interests in the company at 8.49% and 5.86%, respectively.
 

Top 10 Shareholders (Source: Thomson Reuters)
 
Key Metrics: The Company reported FY19 gross margin at 77.1%, higher than FY18 figure of 76.9% and FY17 figure of 74.6%. EBITDA margin, during FY2019 stood in at 46.8%, higher than FY18 figure of 42.4% and FY17 figure of 40.6%. Operating margin during FY19 came in at 39%, higher than FY18 figure of 19.5%. Net margin, in the same time span, stood at 23.7%, higher than FY18 figure of 17.6% and FY17 figure of 20.2%.
 

Key Metrics (Source: Thomson Reuters)
 
Industry Outlook: Players in the healthcare sector are poised to benefit from the evolving healthcare landscape, a shift in global market, adoption of new and innovative business models, investing in new technologies, increased investments in personalized medicines and pursue external partners and collaborators for harmonizing strengths. In recent years, scientific and technological innovations have made it feasible to create personalized therapies. Enhanced focus on adopting and exchanging information exchange via the use of health IT, improving overall patient outcomes and investment in developing and emerging markets are few positives of these pharmaceuticals’ companies. Further, positive innovations stemming in new drug approvals, vital advances in clinical studies, tactical partnerships and frequent M&A activity have kept these companies buoyant in a competitive market.
 
For FY20, the company anticipates adjusted EPS to be in the range of $9.61-$9.71 (which excludes the acquisition of Allergan), depicting an increase of 8.1% at the mid-point. The company also expects revenue to grow ~8% on an operational basis. Going forward, the company expects launches of Skyrizi and Rinvoq to aid its financial performance, in 2020 and beyond. The company remains on track to complete Allergan acquisition and realize synergies thereafter.
 
New Drugs to Drive Long-Term Growth: The company along with J&J recently stated that it has received its 11th FDA approval for Imbruvica and sixth in CLL, the most common form of leukemia (cancer) in adults. Post the nod, the companies can now expand their main blood cancer drug, Imbruvica (ibrutinib) in combination with Rituxan (rituximab) for the first-line treatment of adult patients (70 years or younger). Earlier, ABBV also received FDA approvals for Skyrizi and Rinvoq drugs that are expected to lower AbbVie’s dependence on Humira. Notably, Skyrizi and Rinvoq are off to strong starts and the company predicts combined revenues of these two drugs to be ~$1.7 billion in FY20. In fact, AbbVie anticipates introducing > 20 new products of marketed drugs before Humira biosimilar competition begins in the United States in 2023.
 

Key Valuation Metrics (Source: Thomson Reuters)
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation 

 
EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of ABBV closed at $81.47 with a market capitalization of ~$120.3 billion. The stock made a 52-week low and high of $62.55 and $97.86, respectively, and is currently trading close to the average of its 52-week trading range. At the closing price of $81.47, current yield for the stock stands at 5.62%. The stock has given returns of ~16.77% and 3.6% in the last one month and one year, respectively. The business witnessed decent fourth-quarter results with both top and bottom-line increasing on a year over year basis. ABBV remains on track to benefit from robust demand for essential medicines amid COVID-19 impact. Considering the above factors, we have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers like Merck & Co Inc (NYSE: MRK), Bristol-Myers Squibb Co (NYSE: BMY), and Eli Lilly and Co (NYSE: LLY), to name few. Hence, we recommend a “Buy” rating on the stock at the current market price of $81.47, up 1.38% on 22 April 2020. 
 
 
ABBV Daily Technical Chart (Source: Thomson Reuters)

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