AbbVie Still A Buy Despite Shire Fallout, Says Analyst

October 17, 2014

By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Even if AbbVie's doesn’t merge with Dublin-based Shire Pharmaceuticals's and get the tax breaks the deal would have brought, it is still a solid buy for investors because of its low-risk portfolio, biotech analyst Mark Schoenebaum said Friday

Schoenebaum, who covers biotech for ISI Group, said that despite AbbVie’s scuttling of the deal yesterday—and the expected $1.64 billion write-down it will take as a breakup fee—the company still has significant value.

“Should our general investment thesis play out for ABBV (Humira upside, pipeline options, reasonably hepatitis C vaccine execution) we would likely have the option of raising our target,” he wrote in a note to investors. “In addition, we believe the downside is relatively limited as just 15 percent of ABBV's share price is derived from risky, unapproved pipeline drugs.”

AbbVie recommended Thursday that shareholders reject the $55 billion deal after pressure from the Treasury Department over so-called “tax inversion” deals became untenable. The deal was also likely thwarted by a decision made by the Irish government Monday to close lucrative tax loopholes for foreign countries domiciled in Ireland.

The two companies had announced in July of this year that they intended to merge. Chicago-based AbbVie is the manufacturer and marketer of the blockbuster arthritis drug Humira, which will lose U.S. patent protection in 2016.

None of that should affect AbbVie’s value in the long-term, said Schoenebaum.

“In the end, we viewed ABBV stock as a reasonably good investment, but perhaps not a true ‘table pounder" (yet),’” he concluded. “Thus, we settled on a ‘buy’ rating with around 10 percent upside target. Please note that our price target might also rise should ABBV indeed complete the Shire transaction (which we view as unlikely).”