Morgan Stanley: 4 Reasons We're Downgrading Abbvie

AbbVie Inc ABBV hosted its R&D day on June 1 and provided data disclosures at ASCO over the past weekend. Morgan Stanley’s David Risinger downgraded the rating for the company from Overweight to Equal-weight, while reducing the price target from $73 to $65. The analyst commented that although the company has a good pipeline, Humira threats limit upside potential.

Analyst David Risinger mentioned four reasons for downgrading the rating for AbbVie:

1. After the R&D day and data disclosures at ASCO, Abbvie's pipeline is now better appreciated by the market.
2. Following the recent IPR institution, there is greater concern regarding biosimilar threats to Humira, which makes an outsized contribution to AbbVie’s revenues and EPS [represented 61 percent of 2015 total sales]. It is unclear whether and when the company would be able to prove that its patents will block biosimilar entry. These concerns would continue to constrain multiples.
3. There is lack of clarity into Abbvie's long-term growth prospects, with new competitors entering for its key franchises, like Humira and Imbruvica, as well as its pipeline candidates.
4. There is limited upside to Abbvie’s shares, unless the company “surprisingly wins patent challenges (which we cannot predict),” Risinger said, adding that there was “more potential upside elsewhere in our coverage.”