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Morgan Stanley Calls AbbVie 'Unpredictable' With 'Upside'

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In a report published Thursday, Morgan Stanley analyst David Risinger resumed coverage of AbbVie Inc (NYSE: ABBV) with an Equal-weight rating and $72 price target.

The analyst believes that the acquisition of Pharmacyclics, Inc. (NASDAQ: PCYC) adds an attractive growth driver for AbbVie. The company is expected to witness near-term improvement in growth and gross margin during 2017-2018, although the sustainability of such improvement would depend on the outcome of its patent litigation.

According to the Morgan Stanley report, there is some long-term uncertainty, given the difficulty in predicting the magnitude or the timing of the Humira biosimilar pressure. "We project medium-term EPS above consensus due to higher Humira sales and margins but see long-term EPS in-line due to Humira biosimilar pressures," the report stated.

With Humira's patent expiring in December 2016 in the U.S. and April 2018 in Europe, biosimilar are likely to be launched in both the U.S. and Europe in 2018, which could have an incrementally negative impact on Humira's sales.

"Upside could occur if longer-dated Humira formulation patents protect the franchise beyond 2018 and the franchise surprisingly grows late decade. Downside could occur if biosimilars entries cause steeper branded sales declines than we model," said Risinger.

At the same time, there appear to be significant margin enhancement opportunities going forward. The analyst expects the company to report operating margins of 41 percent for 2015, which would rise to 50 percent in 2020. This margin expansion is expected to be driven by operating leverage, the elimination of royalties associated with Humira and future cost-cutting initiatives.

Latest Ratings for ABBV

Oct 2016Leerink SwannInitiates Coverage OnMarket Perform
Sep 2016JP MorganDowngradesOverweightNeutral
Sep 2016Raymond JamesInitiates Coverage onOutperform

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Posted-In: David Risinger Morgan Stanley VetrAnalyst Color Initiation Analyst Ratings


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