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Is AbbVie’s Arthritis “Heartache” Curable?
Stock Analysis & Ideas

Is AbbVie’s Arthritis “Heartache” Curable?

The recent FDA conclusion about the heart-related risks associated with arthritis drugs nearly gave a heart attack to investors. Shares of pharma giants AbbVie (ABBV), Pfizer (PFE), and Eli Lilly (LLY), which sell Janus kinase (JAK) inhibiting drugs, tanked after the announcement.

The FDA said that all approved arthritis medications involving these drugs are found to increase the chances of severe heart-related events, cancer, clotting and other complications leading to death. Henceforth, all JAK-inhibiting drugs like AbbVie’s Rinvoq, Pfizer’s Xeljanz, and Lilly’s Olumiant, have been ordered to include a warning label on the medicine containers in order to be sold in the U.S.

What is interesting here is, the FDA review was primarily conducted as part of the Oral Surveillance Study for Pfizer’s Xeljanz drug as a medication for high-risk rheumatoid arthritis patients. Nonetheless, AbbVie’s shares were a bigger victim of the knee-jerk reaction than those of Pfizer or Lilly. AbbVie’s shares surprisingly tumbled 7.1% as markets closed on September 1, as compared with Pfizer’s and Lilly’s 0.1% and 0.3% respective share declines. However, the FDA indicated similar risks in the case of AbbVie’s Rinvoq and Lilly’s Olumiant, as they share similar components and processes of action. (See AbbVie Dividend Date & History on TipRanks)

On the bright side, AbbVie’s diverse portfolio of products and the acquired assets of Allergan are generously adding to its compelling immunology and hematologic oncology businesses. These are also expected to gradually reduce the company’s dependence on its flagship product Humira, which is rapidly losing its competitive strength. This keeps me bullish on AbbVie, despite the current negative sentiment around the stock.

Expert’s Take

The panic sell-off of AbbVie took Wall Street analysts by surprise. As analysts wait with bated breath for the FDA to conclude the ongoing regulatory review of Rinvoq and other JAKs in the treatment of atopic dermatitis and other indications, Mizuho analyst Vamil Divan reiterated a Buy rating on the stock with a price target of $131. He argued that investors are possibly “pricing in a ‘worst-case’ scenario for Rinvoq, while missing the other attractive parts to the AbbVie story.” His theory indicates that in the event of a similar order announced for Rinvoq once it’s approved for treatment of atopic dermatitis, AbbVie’s shares shouldn’t fall beyond the current level.

Moreover, AbbVie has established treatments for various indications in the field of rheumatology, that are witnessing strong uptake outside the U.S. Notably, management at AbbVie also informed Divan and his associates that about 30% of their $8 billion Rinvoq sales projection for 2025 should come from outside the U.S. This takes a little steam off the pressure building for the company.

The rest of Wall Street also doesn’t seem to be overtaken with temporary panic about AbbVie’s prospects. The consensus rating for the company is a Strong Buy, based on 11 Buys and 2 Holds. The average AbbVie price target of $128.62 indicates a 14.6% upside potential from current levels.

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