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Uncovering a Solid Investment Opportunity in Biotech

health care Dec 27, 2022

Price Target: $192 (19% upside)

Current Price: $162

Target Date: Q4 2023

Stock: AbbVie ($ABBV)

With growth markets still a little too volatile to throw a huge amount of confident coverage at, we're actually still finding solid wins in the Biotech space. 

Capital hasn't fled these markets, we're simply seeing a lot of gains hit pharma after a weaker growth stock year. 

And instead of a company poised for a breakout, this time we're bringing you a pick that's been unfairly undervalued. 

AbbVie is a solid biotech/ pharma play that is most famous for manufacturing Botox. 

However, the vast majority of their revenue in the past few years has come from immunology drugs -- e.g. treatments that help stop your immune system from doing damage to your larger body.

We're talking about everything from Arthritis to Crohn's disease. 

Humira has been AbbVie's biggest revenue line for a while now, but there were storm clouds gathering as it looked like the EU was going to force generic pressure on Humira and basically tank AbbVie's revenue. 

That pressure drove ABBV's stock way down in the last few months, but now things seem to be improving. 

First of all, Humira looks like it still has a lot of revenue left to give, and ABBV's other immunology drugs are starting to really take off. 

It's an increasingly sunny picture over at ABBV, so let's cover the details👇 

AbbVie Overview: 

Like a lot of pharma, you probably haven't heard of AbbVie before, but you've definitely heard of their drugs.

Their most famous is Botox -- but like we said in the intro, their heavy hitters are in the immunology department. 

AbbVie manufactures complicated immunology drugs like Humira and Skyrizi. These are hard-to-manufacture monoclonal antibody drugs.

If you're a real nerd, you may recognize those as the same class of drugs being used to treat COVID before we got drugs like Paxlovid. 

Long story short, these drugs help trick your immune system into not attacking your body. This is great for immune disorders like Crohn's disease and Arthritis.

This class of compound is pretty difficult to manufacture though, so AbbVie has had a strong advantage in immunology for a while now. Humira has been as much as 35% of AbbVie's revenue in recent quarters.

However, the EU managed to put pressure on ABBV to allow the generic manufacture of similar drugs to Humira. 

That pressure spooked the market enough this year to drop ABBV's share price nearly 25% from its all-time high in April. 

What we're seeing now though is that this is more of a market overreaction than anything. Humira isn't as threatened by generic pressure anymore, but more importantly, AbbVie has managed to put together another huge winner just in time. 


Skyrizi is a Striker:

ABBV's #2 immunology breakout, Skyrizi, has been quietly taking over its immunology segment. 

While it sounds more like a Scandinavian yogurt brand or a Gen-Z term, Skyrizi is actually a solid treatment for Psoriasis and other immune disorders. 

The thing that makes Skyrizi, as it slowly gobbles up more and more market share, is that it has some applications for Crohn's disease as well -- just like Humira. 

Skyrizi's revenue is up 75% from Q3 of last year while Humira's growth only grew 2.5%. On the year, Skryizi is already 30% of ABBV's immunology revenue and climbing. 

This is a classic pharma move and ABBV managed to pull it off just in time.

Even if ABBV gets hit with genuine generic pressure, Skyrizi has managed to achieve enough escape velocity that any hit they experience in revenue will be short-lived.

We love to see this and love even more that ABBV has a strong research pipeline that will keep them growing for the next 3 years with more drugs to come. 


AbbVie Outlook:

Pharma is an industry of constant change. Research is getting faster and faster and therefore competition is heating up in a big way.  

AbbVie has managed to prove that they're a deeply agile team pivoting well despite a huge amount of outside pressure on their blockbuster line of medications. 

In addition to immunology, we're also excited by the accelerating growth in revenue from their Vyralar treatment as well. 

AbbVie is tackling huge, complex issues in medicine with huge, complex treatments that are hard to target and harder to imitate.

We're really excited to see where they take things from here.  

Rating: Overweight

Risk / Reward:  High / High

P/E Ratio: 22x

Market Cap: $288B

Dividend Yield: 3.6%

Crohn's disease
Generic pressure
Monoclonal antibody drugs
Immune disorders
Hard-to-manufacture drugs
Strong advantage in immunology
Market overreaction
Classic pharma move
Strong research pipeline
Agile team
Blockbuster line of medications
Accelerating growth in revenue
Market share
Strong financials
Strong dividends
Undervalued stock
Solid investment opportunity