There’s no sense in tap dancing around the issue. Drug maker AbbVie (NYSE:ABBV) is on the defensive, and owners of AbbVie stock are paying the price. Although AbbVie stock got the year started on a heroic foot, the current ABBV stock price is about 33% below its January peak.

Sales of the company’s flagship drug Humira, are about to run into a brisk headwind, as the drug’s patent protection continues to deteriorate.

What if, however, the doubters have overshot the target and priced in far too much pessimism?

Arguably, they have.

While a great deal of the company’s revenue is increasingly in jeopardy now that generic versions of its best-selling drug are on the radar, AbbVie stock may well be a good name to buy in this sea of doubt.

The Bad News for AbbVie Stock

The worries about AbbVie stock certainly have merit. Humira, which is mostly used to combat Crohn’s disease but is also an effective treatment for plaque psoriasis, accounts for roughly 60% of the pharmaceutical giant’s revenue.

That proportion will assuredly drop in the near future. Mylan (NASDAQ:MYL) will be allowed to start selling its version of Humira in mid-2023 when AbbVie’s primary U.S. patent finally expires. Between now and then, however, Amgen (NASDAQ:AMGN), Biogen (NASDAQ:BIIB) and other smaller pharma players are all planning launches of generic Humira in regions where it will be legal to do so.

As for the potential impact on AbbVie’s financial outlook, the picture isn’t perfectly clear. EvaluatePharma, an industry research firm, predicts that sales of Humira will slide from 2017’s $18.4 billion to a still-respectable $15.2 billion by 2024. But it will still be the best-selling drug in the world, barring miraculous growth from another drug before then.

From 2024 onwards, though, things change dramatically. With the U.S. patent set to expire in 2023, two-thirds of the total revenue Humira now generates will be up for grabs.

AbbVie may have more weapons in its arsenal than many investors appreciate, however.

The Good News for AbbVie Stock

Despite the failure of AbbVie’s Rova-T lung cancer treatment, AbbVie has a fairly impressive pipeline.

Rova-T had shown enough efficacy to push the treatment all the way into Phase 3 trials. But as the expansive Phase 3 data started to roll in, the company recognized that the drug wasn’t performing as well as the topotecan treatment with which it would ultimately have to compete.

The Rova-T flop is likely to be the exception to the rule rather than the rule for AbbVie, however. One only has to look at its blood cancer drug, Imbruvica, to appreciate that AbbVie can still bring blockbuster drugs to the market. Last quarter, Imbruvica’s sales jumped 48% year-over-year to $972 million.

Though Imbruvica was in mid-stage and late-stage trials when AbbVie added it to the pipeline through its 2015 acquisition of Pharmacyclics, ABBV finished the R&D of the drug, and is working on getting approval to use Imbruvica to treat other diseases.

AbbVie believes that sales of Imbruvica will peak at more than $7 billion and reach $5 billion by 2020.

Mavyret and Venclexta are two other names in the pipeline that the Street is largely underestimating. Risankizumab and upadacitinib are difficult-to-pronounce names that aren’t quite as far down the developmental path, but have potential. Both drugs could end up generating more than $5 billion of annual sales at their peak.

The Bottom Line on AbbVie Stock

Don’t get the wrong message. Nothing can really replace Humira, but only because Humira is freakishly marketable.

However, Humira doesn’t need to be replaced with a single drug. A mix of up-and-coming treatments could do the job just as well… an idea that most investors haven’t chosen to believe in. Time will cure that problem, though.

With AbbVie stock only trading at around ten times next year’s expected earnings and its dividend yielding 4.8% — a dividend that’s grown reliably for years — that cure may come sooner than most of the recent naysayers suspect.

You could certainly take much riskier swings than stepping into ABBV stock here. The overwhelming pessimism linked to Humira’s future can’t drown out all the upside of AbbVie stock forever.

— James Brumley

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Source: Investor Place