Will AbbVie's Drug Pipeline Cloud Its Growth Prospects?

Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Abbott (NYSE: ABT) has officially shed its pharmaceutical unit to focus on the medical equipment and nutrition supplement divisions, according to company officials. The company’s drug portfolio, led by Humira, will be part of the new company, AbbVie (NYSE: ABBV).

AbbVie’s ace in the hole has been Humira, its rheumatoid arthritis drug. Humira netted $8 billion in annual sales in 2011. In the first nine months of 2012, domestic sales of Humira jumped 26% to $6.6 billion. The money-maker will support AbbVie as it wades through the murky pharmaceutical environment. But Humira faces patent expiration in 2016 and potential competition from other pharmaceutical giants like Pfizer (NYSE: PFE)Pfizer received the green light from the Food and Drug Administration in November to go ahead with Xelljanz, its answer to Humira. Analysts say Xeljanz should bring in $3 billion. Pfizer is hoping for a big hit as sales if its blockbuster drug Lipitor lag with the infusion of generics. Is investing in AbbVie a smart move?

Looking Beyond Humira

Competition and patent expiration would not be such a burden if AbbVie had a stronger drug portfolio. Four of AbbVie’s drugs, including Lupron and its HIV-1 Kaetra, have seen decreases in sales. The exception is AbbVie’s testosterone treatment, AndroGel, which saw growth of about 26% in the past nine months. Sales so far have reached $811 million. AbbVie CEO Richard A. Gonzalez described the company's pipeline as “solid”, with more than 20 drugs in mid to late-stage clinical programs. These drugs are intended to treat a vast number of diseases, including Hepatitis C, Alzheimer’s, Parkinson’s and multiple sclerosis, among others.

Competitors

Merck (NYSE: MRK) recently experienced a setback as a court settlement allowed a generic maker of Nasonex to enter the U.S. On top of this, Merck's lackluster results from its combination cholesterol treatment has forced the company to dump its plans to seek FDA approval for the drug. Eli Lilly (NYSE: LLY) has seen a third quarter drop in revenue of 11%. It blames the drop on the expiration if its drug Zyprexa, although worldwide sales of Cymbalta jumped 16%. Johnson & Johnson (JNJ), one of Abbott’s largest competitors, is still hampered by recall costs and generic competition leading to a third quarter drop in profit of 6%. This comes despite an increase in sales internationally.

Costs

The Abbott split hasn’t been cheap. A bond of $14.7 billion was issued back in November 2012, of which at least $6 billion is being used to offset the costs of the spinoff. Another $8.6 billion is being used as a cash infusion for Abbott. The bond sale is one of the largest seen in the past few years and, according to officials at Abbott, is being made now while the rates are favorable. Abbott CEO Miles White called the split an “organic” decision. Sales in the medical equipment side have lagged due to economic conditions and require more focus. White cited the medical optics division, which has seen sales drop about 6% during the third quarter of 2012. White said optic products, which deal with cataracts and refractive treatments among others, are electives, and sales have coincided with a weakened economy. The split will also allow White to concentrate on expanding his business into new markets. The company has spent millions to develop plants in China and India, where it intends to produce and sell products like the infant formula Similac and adult nutrition product Ensure.

Conclusion

Look to Abbott stock for stability. AbbVie is a risky bet with the impending patent expiration of its superstar drug Humira.


StockCroc1 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus