AbbVie Inc (NYSE:ABBV): Investors Misunderstand the Effect of HUMIRA Going Off-Patent

May 11, 2016

Portfolio Manager Glenn Busch of American Money Management says his firm has kept AbbVie Inc (NYSE:ABBV) and even added more of the stock because of the misunderstanding of how HUMIRA going off-patent will affect the company.

Everyone is very worried about HUMIRA going off-patent. But I guess this is maybe where my physiology and neuroscience and science background came in was that these biologics are very large molecules. To make the whole process to make the biologic is the drug. You change one aspect of that process, and you can get a whole different drug. And there have been cases in Europe where they tried to make a copy of a biologic; they just didn’t sterilize the batch right. And so they thought they had the exact copy, but they had something else that actually harmed people.

So we keep saying, yes, HUMIRA can go off-patent, but it’s going to be very, very hard for these other companies to come in and replicate it because of that process, and also because what happens with biologics is they need to go under efficacy testing and safety testing almost as much as the original biologic, because it could be a different drug based on your process…

Busch adds that biologics are different in that because of all the testing, the cost of generics goes up.

You are only seeing discount pricing for 15% to 20%, which, hey, it’s a good discount on those drugs, but if I’m a doctor, and it’s like hey, this is a 15% discount, but we know HUMIRA works. This other one we’re not sure, it hasn’t gone through the testing, but we know this one can work, so it’s kind of like, do I really recommend it when you’re dealing with someone’s well-being…

So now we just kind of keep saying, kind of a little bit misunderstanding about their main drug. But they produce so much cash that they can start doing other deals. They have such a high dividend yield, they have a management that carries over from Abbott, who’re just all focused on dividend growth. So we see a lot of positive things over the next few years with them. And that was something that we’ve owned for a while, and given the recent swing in the biotech prices, we’ve added a little bit more to it.

Glenn Busch