abbvie (abbv) ari lazar, gabriella wang, jessica kan, sai poddutur presented 4/7/15 1

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Abbvie (ABBV)Ari Lazar, Gabriella Wang, Jessica Kan, Sai Poddutur

Presented 4/7/15

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Agenda Introduction

Macroeconomic Review

Stock Market Prospects

Company and Business Review

Financial Analysis

Financial Projections

Valuation

Recommendation

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Company DescriptionBiopharmaceutical Company

Research Based Not Generics

High focus on disease treatment and prevention Chronic Autoimmune Diseases

Spun off from Abbott in 2013

Based in Chicago Illinois

26,000 Full time employees

Has market share in approximately 170 countries

Abbvie 2014 10k, Yahoo Finance, Google Finance

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Historic PositionOur Position 400 Shares

Cost Basis of $11,591Cost Basis of $28.98/share

Our Position 400 Shares4/28/11 200 shares at $27.1011/11/11 100 shares at $27.5312/10/12 100 shares at $34.22

Current Market Price $57.0197 % Return

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Historical Returns

Abbvie 10k 2014

Current Quarterly Dividend $0.49 Per Share at a 3.44% annualized yield

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Macroeconomic OverviewPharmaceutical Sector grew 2.4% in 2014

Drug spending increased by 13% in 2014

Hot Market for mergers and Acquisitions within healthcare sector

Avalon Health Economics, MarketWatch.com, Whoeswholegal.com

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Key Product DescriptionsHumira

Chrohns Disease, Rheumatoid Arthritis, and Other similar problems

Main driver of sales (63% of total sales in 2014)

Viekira Pak Hepatitis C treatment for patients with genotype 1 Recently approved in December 2014

Imbruvica Chronic lymphocytic leukemia Mantle cell lymphoma Acquired from recent merger

Abbvie 2014 10k

Humira Sales

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Revenue Breakdown

Location of 2014 Sales

USA 54%

International 46%

Abbvie 2014 10K

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Revenue Breakdown2014 Revenue

HumiraAndroGelKaletraSynagisLupronSynthroidSevofluraneCreonDyslipidemiaDuodopaViekira PakOther

Abbvie 2014 10K

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Recent Acquisition of Pharmacyclics (PCYC)

Announced on March 4th 2015

Management expects acquisition will be accretive $0.6 per share by 2017 Over $1.00 per share by 2021

21 Billion dollar purchase price PCYC purchase price $261.25 20% Premium Many analysts think Abbvie overpaid

Imbruvica pipeline was driver for sales

58% Cash and 42% stock Management plans to repurchase shares for acquisition

Pharmacyclics Acquisition Press Release

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Management OutlookCEO and Chairman Richard A Gonzalez

Over 70% of salary in stock and stock options

Management Guidelines Strong growth form HumiraViekira expected to reach 3 Billion in

salesPartially offset by generic competitors

Strong growth in EarningsPlans to continue to increase Dividends

Abbvie 2014 10K, Salary.com

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Pipeline Explanation Phase 1

Safety 30% Average success rate

Phase 2 Safety and Dosing Larger population samples 14% Average success rate

Phase 3 Efficiency and Side Effects 3 phases usually take 6-11 years to complete 9% Average success Rate

Registration Government Approval 0.6-2 Year time period Around 8% of drugs survive process on average

FDAReview.org

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Pipeline

Pharmacyclics Acquisition Press Release

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Key Competitors Gilead

HIV medication Competes with Viekera and may need to lower price up to 46%

Johnson and Johnson 50% steak in Imbruvica

Pfizer Oncology medication

AstraZeneca Autoimmune Disease mediation Competes with Humira

Eli Lilly

Forbes.com

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Porter 5 AnalysisBuyer Bargaining Power

Low

Supplier Bargaining PowerModerate

Threat of SubstitutesVery High

Threat of New EntrantsLow

• Rivalry• Moderate

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SWOT Analysis Strengths

Humira market dominance

Weaknesses Patent expirations High reliance on Humira Sales

Opportunities Drug Pipeline Revenue Diversification

Less reliance on Humira sales with Viekera and Imbruvica

Threats Generics Currency Exchange Rates

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Risks Patent Expirations

Humira USA patent expires at the end of 2016 Humira International patent expires mid 2018 Dyslipidemia Case Study

Competitors and Biosimilars/Generics Viekera will be competing directly with a biosimilar beginning in 2016

Research and Development shortcomings

Government Regulations Especially regarding Medicare/Medicaid payments

Currency Exchange Rates

Doubtful Receivables from Europe Greece Spain

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Technical Analysis

Bigcharts.com

Bearish Signal

Data from Capital IQ 19

Ratio Analysis / ROE

1 2 30.00

0.50

1.00

1.50

2.00Dupont Analysis Tax

Burden Interest BurdenROE Asset Turnover Operat-ing Margin

Data from Capital IQ 20

Comparable Analysis

Data From Capital IQ 21

Revenue Projections

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Assumptions

Data From Capital IQ

Capital IQ, Yahoo Finance 23

Cost of Capital

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DCF

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Sensitivity Analysis

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Price TargetPrice Target is below market price

Technical Analysis is a sell

Valuation methods lead to sellLooming expiration of Humira Patents

Overpaid for PCYC Acquisition

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Recommendation

Sell 200 Shares

Limit $55.00 GTC

Will be a 90% gain on investment