1. Abbvie Stock Analysis – November 2018
Harsha Talakad Rajashekhara,
Saraja Samant, Shalin Rajpara
Presented November 13, 2018

2. About the company
Founded in 2013 as a spinoff of Abbot Labs and trading on NYSE with a market cap of $ billion
14 manufacturing facilities in 5 countries
5 Year revenue CAGR of 10%
8 research facilities in 3 countries
29000 employees
1101 products on the market

3. Portfolio and Market Data
Number of Shares Held
100
Current Market Price
$88.79
Market Capitalization
$ B
Industry
Bio-
Pharmaceutical
Exchange
NYSE

4. Source: JP Morgan Healthcare conference January, 2018

5. Macroeconomic Drivers
Major Influencers
Technological Innovation
New Regulations
Increasing cost of drug production
New Demand
Companies work out deals to prevent product encroachment and eliminate redundancies in research cost. Abbvie entered into an agreement with Amgen to not release their Humira biosimilar till 2023 in the USA. Royalty agreement with Mylan for Humira biosimilar in Europe.
Source: Deloitte Global Life Science Outlook 2018
Prescription drug sales to grow with an expected CAGR of close to 6.5% from 2017 to 2022.

6. Corporate Lifecycle Company Trends
Decreasing revenue growth from a major revenue stream (Humira)
Modifications to existing formulas to expand their utility
New acquisitions and research partnerships
Significant number of drugs in the pipeline
A growth trend in earnings and revenue
Launch
Growth
Maturity
Decline
Revenue
Timeline
Conclusion
We believe that Abbvie is at the precipice of growth and maturity stage

8. SWOT Analysis Strengths Weaknesses
Global reach: Products sold in 200+ countries
Robust Pipeline: 20 new drug approvals expected by end of 2020
High dependence on Humira, Imbruvica and Mavyret
Highly Levered growth strategy can prove risky in case of an economic downturn
Opportunities
Threats
Leukemia drug market expected to grow to $12B by 2022
High barriers of entry
Aging population
Patents and Litigations are a general threat in the pharmaceutical industry
Biosimilars tend to eat into drug sales

9. Bargaining power of suppliers Bargaining power of buyers
Porters Five Forces
Threat of Competition
Threat of Substitutes
Bargaining power of suppliers
Bargaining power of buyers
Barriers to entry
Expiring patents
Biosimilar drugs
High
Biosimilar drugs
Generic drugs
Major revenue streams patent protected
High
Large number of products sourced from a single supplier
Moderate
Buyers have a low bargaining power in the drug market
Low
High fixed cost
Long drug development process
Supply chain development
High

10. Strategic Acquisitions
Stemcentrx develops therapies that cure and significantly improve survival for cancer patients. It provides disease specific treatments that attack tumors at the roots.
Date: 28th April, 2016
Deal Size: $5.8 billion
Pharmacyclics Inc. is a clinical-stage biopharmaceutical company focused on discovering and developing innovative small-molecule drugs for the treatment of cancer and immune mediated diseases.
Date: 4th March, 2015
Deal Size: $21 billion
ImmuVen develops drugs to treat infectious diseases, cancer, and autoimmune disorders.
Date: 1st January, 2014
Deal Size: Unspecified

11. Product Pipeline
Source: Abbvie Strategic Update 2017

12. Management Discussion and Analysis
Stock Repurchase Program
million shares
$1 billion
million shares
$2.1 billion
Interest rate Risk
100 basis point change in interest rate adversely impacts interest rate swap contracts by $509 mn in December 2017
Credit Risk (Amounts as on Dec, 2017)
Greece Portugal Italy Spain
$225 mn
Saudi Arabia
$149 mn
Russia
$152 mn
Foreign Currency Risk
Major exposure to Euro, Japanese Yen, British Pound
A 10% appreciation in these currencies decreases fair value of contracts by $1 billion and would impact earnings over the life of the contract
No change in credit Rating in 2017
The recorded accrual balance for litigation as on 31st December, 2017 was $445 mn. Ultimate decisions of pending litigation would not have a material impact on the company’s operations or financial position.

13. Financial Statistics
(Amounts in USD)

14. Comparable Company Analysis – DuPont Model
($ in millions)

15. Comparable Company Analysis – Valuation

16. Discounted Cash Flow Analysis

17. Source: JP Morgan Healthcare conference

18. Recommendation Hold recommended Strong earnings growth
Growth financed through debt
Healthy liquidity
80% drop in Humira prices in Europe
Release of biosimilars in Europe
Share price supported by equity buyback
Current Share Price: $88.79 as on 9th November, 2018
Valuation Range: $88.12 – $106

19. Thank You