Here's Why Imbruvica Caused BMO To Upgrade AbbVie

In a report published Monday, BMO Capital Markets analyst Alex Arfaei upgraded the rating on

from Market Perform to Outperform. AbbVie's shares have underperformed the S&P 500 by 4.6 percent since November 2014, and by 7.4 percent year-to-date. The low expectations for the Hep-C franchise and eventual biosimilar competition for Humira now appear to be "mostly priced in the stock," Arfaei said. In the report BMO Capital Markets noted, "More importantly, although we were initially skeptical about the Pharmacyclics acquisition, after extensive review of Imbruvica's potential, we now believe that it can mostly offset Humira's decline in biosimilar years." The analyst expects Imbruvica to generate revenues of $7.8 B by 2025, mostly offsetting the expected decline of $8.2B for Humira from 2017-2025 because of biosimilar competition. "We are also becoming more comfortable with AbbVie's biosimilar defenses for Humira, and expect that the company will likely tie up early filers of Humira biosimilars (e.g., Amgen) in court for ~two years in the U.S," "We also do not expect interchangeability in the U.S. until the 2020s. As a result, we have increased our 2017 Humira forecast by ~$560 mm and slowed our 2017-2020 expected rate of decline. From 2015 to 2020, we forecast that ABBV+PCYC can grow revenues by a CAGR of ~5% and EPS by 12%. However, given the uncertainty of the Humira biosimilar impact, we continue to expect ABBV shares to trade at a discount," Arfaei added.