Jefferies Adds AbbVie To Franchise Pick List After Conducting HumiraCo Deep Dive

In a report published Monday, Jefferies analyst Jeffrey Holford maintained a Buy rating on AbbVie Inc (NYSE: ABBV), while raising the price target from $86 to $90, following a detailed review in which HumiraCo has been dis-aggregated from the remainder of the business, which inlcudes StumpCo.Analyst Jeffrey Holford commented, "Our base case model looks for Humira biosimilars no earlier than mid-2019 in the US and H2 2018 in the major OUS territories. Our own ongoing investigations into the Humira patent estate as well as recent management commentary give us increased confidence in this scenario."Holford addresses the "Fortress Humira" concept, referring to its durability and the scope for considerable margin improvement available to HumiraCo when the franchise "eventually begins to slow and decline." Humira's operating margins, which are currently at around 59 percent, can be improved "in the face of biosimilars by the drop-off in royalty stack and lower SG&A costs" to achieve a long-run rate of about 77 percent even after allowing for increased rebates. In the report Jefferies noted, "Our StumpCo model illustrates the low margins (we estimate c13%) currently in the remainder of the business as it bears heavy R&D expenditure, pipeline launch costs and the group's corporate overheads. However, Imbruvica and a rapidly maturing pipeline should drive significant revenue growth and operating margin expansion (to c43%) over the mid to long term, acting as a strong base for further accretive acquisitions from Humira cash flows."The EPS estimates for 2016 and 2017 have been raised from $5.31 to $5.38 and from $6.13 to $6.41, respectively.