Why AbbVie Shares Tumbled 11.6% in October

By Markets Fool.com

Image source: AbbVie Inc.

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What happened

After competitors reported news that could negatively impact its future sales, and ahead of third-quarter results that did little to spark enthusiasm, shares in AbbVie Inc. (NYSE: ABBV) fell 11.6% last month,according toS&P Global Market Intelligence.

So what

In early October, trial results for Johnson & Johnson's (NYSE: JNJ) clinical stage psoriasis drug,guselkumab, showed that it outperformed AbbVie's top-selling Humira. Among patients receiving three doses of guselkumab, 73.3%achieved PASI 90 (90% skin improvement), while 49.7% of patients receiving 10 injections of Humira achieved PASI 90.

Later in the month, Boehringer Ingelheim announced that its Humira biosimilar was equivalent to Humira in rheumatoid arthritis patients participating in a phase 3 trial. Boehringer's news comes roughly one month after the FDA approvedAmgen's Humira biosimilar,Amjevita.

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On Oct. 28, AbbVie reported third-quarter sales of $6.4 billion, up 7.4% from last year, and non-GAAP EPS of $1.21, up 7.1% year over year. The top-line results were shy of estimates by $160 million, but the bottom-line earnings beat estimates by one penny. Humira was AbbVie's best-selling drug in the quarter, generating$4.06 billion in revenue, up 11% from a year ago. Humira sales accounted for roughly 64% of AbbVie's total third-quarter revenue.

Now what

AbbVie's management believes Humira's remaining method of use patents can keep Humira biosimilars at bay for a few more years. In the meantime, they'reattempting to diversify the company's revenue away from Humira by expanding into new indications, such as cancer treatment.

Last year, AbbVie spent $21 billion buying the maker of the fast-growing blockbuster leukemia and lymphoma drug Imbruvica, and earlier this year, the company acquired Rova-T, a promising anti-tumor medicine that's in early-stage trials.AbbVie also secured FDA approval for its chronic lyphocytic leukemia drug Venclexta earlier this year.

Overall, AbbVie has a flurry of research and development activity going on, but Humira will eventually face competition, and it's not 100% clear to me that the company's pipeline will produce enough blockbusters to offset that risk. Because of that revenue uncertainty, AbbVie is a riskier big-cap biotech stock. However, investors are being nicely rewarded for accepting that risk in the form of the company's dividend: AbbVie's dividend payout has grown 60% since 2013, and its shares yield a healthy 4.5% right now.

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Todd Campbellhas no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.The Motley Fool recommends Johnson and Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.