ABBV AbbVie Inc Continues To Impress (NYSE:ABBV)
Intro & History on ABBV (NYSE:ABBV) :
In the biotech and medical marijuana arena, we think that ABBV AbbVie Inc. (NYSE ABBV) is an interesting and well known stock to keep an eye on. ABBV is a pharmaceutical development, discovery, manufacturing and sales firm based in Illinois near Chicago, and traded on NYSE and they are, according to Wikipedia, the world’s eighth-largest independent biotech company by market cap. AbbVie falls squarely into the “Big Pharma” category. From their own company literature they are:
“…a global, research-driven biopharmaceutical company committed to developing innovative advanced therapies for some of the world’s most complex and critical conditions. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to markedly improve treatments across four primary therapeutic areas: immunology, oncology, virology and neuroscience. In more than 75 countries, AbbVie employees are working every day to advance health solutions for people around the world.”
AbbVie originated in 2013 when Abbott Laboratories decided to separate into two separately traded companies. Abbott is now focused only on medical devices, equipment and nutrition products whereas AbbVie is strictly in the pharmaceutical research and manufacturing business.
They manufacture several products, which in this day and age of ubiquitous pharma adverts, can arguably be called household names. The two most prominent of which – for our purposes anyway – are Humira and Marinol. Humira – This immunosuppressive drug accounts for over 60% of AbbVie’s revenue and is used to treat Crohn’s disease and happens to be the highest grossing drug *in the world*, with over 15% growth in the past year alone. There are so-called “patent cliff” concerns looming, but I’ll address those momentarily. Marinol – This marijuana derivative, also known as Dronabinol, is marketed to chemotherapy, AIDS and other patients dealing with nausea, vomiting and suppressed appetite resulting from a pathology or treatment regimen. It is currently regulated as a Schedule III substance under the Controlled Substance Act, differing markedly from marijuana which sits at Schedule I and carries unreasonably harsh criminal penalties in many places in the United States and abroad. Medicinal cannabis/marijuana is currently approved in over half of the United States.
Recent News & Developments:
ABBV currently has an alphabet soup of promising experimental drugs in the hopper. The one drawing the most publicity is Upadictinib (formerly research chemical ABT-494) which recently significantly outperformed a placebo in clinical trials for rheumatoid arthritis. The FDA recently rejected Baricitinib (developed and submitted by Eli Lilly and Incyte) thereby seriously limiting competition for Upadictinib. Now all AbbVie has got to do is find a catchier name for Ubpadictnib it and send out the sales force. I kid, of course; if history is any indication, it could be named “Thistuffakillyatinib” and it wouldn’t make a bit of difference – so long as it continues to work without any previously unforeseen large scale side effects and the accompanying class actions cropping up.
The one big question mark at this point; and one which doesn’t have too many informed investors and biotech experts worried given the timeframe, is the expiration of Humira’s patent in 2022 and the introduction of competing drugs. Since ABBV derives so much of their current income from this product, it is of course incumbent on them to develop replacement revenue drivers between now and then. Again, most analysts with whom I am familiar are bullish on the likelihood that this will indeed happen.
Market Data & Performance:
During the last one-year period this Large Cap stock has fluctuated between $55.06 (low) and $73.67 (high) with an average volume of 5,560,234, a current volume of over 9,000,000 and higher than average yield. The characteristic zigzag graph indicates rallies and reactions over the past five years, but the stock has trended generally upward in every year for which data is available since 2012. To further belabor the point, almost every new peak or trough has been higher than the preceding peak or trough through time, and the line-of-best-fit has a definitively positive slope. ABBV has used about 58% of free cash flow to cover their past four quarterly payments which isn’t ideal, but far from abnormal. Price closed at $73.18 on June 22, 2017 and is currently trending down, but only by about 1% on June 23. Other mostly current stats are as follows:
- Market Cap: 469B
- PE Ratio: 18.97
- EPS: 3.86
- 6% yield
The company released its first quarter 2017 financial results and outlook at the end of April and it contained the following statement:
AbbVie is confirming its GAAP diluted EPS guidance for the full-year 2017 of $4.55 to $4.65. AbbVie expects to deliver adjusted diluted EPS for the full-year 2017 of $5.44 to $5.54, representing growth of 13.9 percent at the mid-point. The company’s 2017 adjusted diluted EPS guidance excludes $0.89 per share of intangible asset amortization expense and other specified items.
Paying down of the relatively high debt load has not, and looks to continue to not be a priority, which could mean that the C-suite is confident in the likelihood of continued future growth.
Looking Ahead:
To those of you with a particular interest in the cannabis market sector, AbbVie has had Marinol since 1985 and has over 30 years of research into cannabinoid compounds. Several experts have speculated that one path away from ABBV disproportionately heavy reliance on Humira and the dangers associated with the impending collapse of its veritable monopoly, would be in medical marijuana derivatives – the market for which is in the process of moving from $5 Billion in 2015, to over $20 Billion by 2020.
Conclusion:
Humira is facing existential competition, but not anytime soon. Toward weaning themselves from Humira, ABBV acquired rights to ½ of sales of Imbruvica, a cancer drug, in 2015 and it is joined in their oncology drug portfolio by Venclexta another novel cancer treatment drug. There are, again, many more products in the research phase.
Even if there is an overall market correction in biotech, it would affect all such stocks equally and probably hit the smaller companies harder – and given the increasingly positive reception to relaxed medical (and recreational) marijuana laws and the tax revenues that decriminalization and legalization would bestow at the state and national levels, it would behoove AbbVie to seriously consider this market vertical for continued research, development, and acquisitions. They have the benefit of their extensive previous research and the notion that the DEA simply has to be trending toward totally re-scheduling marijuana (and its derivatives); and we feel like they can afford to be; actually – they NEED to be very aggressive in pursuing innovations in this market.
Further, given Humira’s continuing status as the #1 revenue grossing drug on the planet, the next 3 or so years look promising as a mid-term investment – depending on how proactive AbbVie can be in staking out aforementioned (or currently unannounced) new market footprint(s). Overall, in our opinion, the lower AbbVie trends toward the $60-65 threshold, the better the mid-to-long term bargain for investors and the more closely it should be followed.
Cara Therapeutics Continues to Climb (NASDAQ:CARA)
We think Cara Therapeutics (NASDAQ: CARA), a boutique “clinical stage” biotech/biopharma firm which develops novel compounds (including cannabis derived chemicals) for neuropathic pain is worthy of a close look. Cannabis regulation has been relaxing both globally and in the United States and this influences our stance on CARA stock. But there has also been positive recent product news. Furthermore, current trend analysis indicates that CARA could be on the cusp of becoming a real steady performer on the market.
Good news: The U.S. Food and Drug Administration (FDA) just granted “breakthrough therapy status” to Cara’s CR845, a unique therapeutic compound which has provided significant clinical benefits to some patients with chronic kidney disease and osteoarthritis (more on that in a bit) and trading has picked up significantly in recent days likely as a result.
Cara is based in Stamford, CT and was founded by Derek T. Chalmers, Michael E. Lewis, and Frédérique Menzaghi in 2004 (initial IPO on January 30 of that year) with the following mission:
… to fundamentally change the way acute pain, chronic pain and pruritus are managed. We aim to achieve this by developing new products that selectively target the body’s peripheral kappa opioid receptors. Cara is developing a novel and proprietary class of product candidates that target the body’s peripheral nervous system and have demonstrated initial efficacy in patients with moderate-to-severe pain and pruritus (itch) without inducing many of the undesirable side effects typically associated with currently available pain and itch therapeutics.
Recent News & Developments:
The FDA granted breakthrough therapy status for CR845, a drug for treating itching (uremic pruritis), which is an intractable and common (affecting up to 50% of patients) presenting symptom with chronic kidney disease patients undergoing hemodialysis. Currently CR845 is an intravenous drug, but an oral version is in late stage development. This is significant because of the lack of available effective systemic treatments that is compounded by a dearth of new product development by other pharmaceutical companies. Available treatment regimens span the gamut from oral antihistamines to topical creams, standard analgesics (NSAIDs) to risky ultraviolet light treatments which can cause skin cancers in individuals with fair complexions. CR845 showed a 68% reduction in worse itching scores and a 100% improvement to quality of life.
A quick note on the meaning of breakthrough therapy status: According to Wikipedia, breakthrough therapy is a United States Food and Drug Administration designation that expedites drug development that was created by Congress under Section 902 of the July 9, 2012 Food and Drug Administration Safety and Innovation Act. It allows the FDA to grant priority review to drug candidates if preliminary clinical trials indicate that the therapy may offer substantial treatment advantages over existing options for patients with serious or life-threatening diseases. The FDA will work with the sponsor of the drug application to expedite the approval process. This can include rolling reviews, smaller clinical trials, and alternative trial designs. In short, it simply means that 3-9 months are potentially shaved off of the standard review and approval cycle time.
Cara’s pipeline consists of CR845, variants upon CR845 and CR701, a chronic pain treatment which operates on peripheral cannabinoid receptors, particularly in immune cells such as leukocytes and mast cells, which have been shown to be involved in pain and inflammatory responses but do not affect cannabinoid receptors of the Central Nervous System (CNS). CR701 is an advanced compound presently in preclinical development for hyperalgesia (extreme sensitivity to pain) and allodynia (perception of harmless stimuli as pain) where it has been proven significantly effective in laboratory trials involving rodents.
Looking to extend their coverage abroad,Cara has in place licensing agreements with Chong Kun Dang Pharmaceutical Corporation to develop, manufacture, and commercialize products containing CR845 in South Korea; and Maruishi Pharmaceutical Co., Ltd to develop, manufacture, and commercialize drug products containing CR845 in Japan.
Market Data & Performance:
In 2017, Cara shares have risen a phenomenal 134+%, with stocks going for about $4.50 in July of 2016 trending all the way up to where they sat at $22.87 on Friday June 23, 2017. There was a slight dip in afterhours trading ending at $22.59 – but overall performance for CARA definitely defied the general biotech sector’s slide for the past month or so. Market Cap is $736.28M. Financials appear to be up-to-date and are listed at www.sec.gov or at their investor relations webpage. An EPS of $-2.52 might usually raise red flags, but given that we’re talking about a biotech – a sector in which firms lose money for years during the development of patient-ready products – CARA’s negative earnings per share is probably not a big deal.
Conclusion & Looking Ahead:
With the recent good news from the FDA and resulting trading performance, you can probably assume that EPS and share prices will improve in the near- to mid-term, but it will be important to keep an eye on how CARA manages its revenues and expenses moving forward.
Regarding the negative EPS, in Q1 2017 CARA managed to expend $22M, but the prospect of having its first product reach the market many months ahead of schedule means they have a good shot of reversing cashflow into the black sooner rather than later – and making a serious run at $30/share in the next six months. Of course there are well documented risks for retail investors in small cap biotech so it’s not wise to make such a stock the centerpiece of your portfolio or go in too heavy before the medical sector starts buying CARA’s products in quantity. We think this is a cannabis related stock to watch closely through the end of Q2 and into Q3, 2017.