Is AbbVie a bad news buy?

The United States Food and Drug Administration recently announced restrictions on JAK inhibitors that harm AbbVie‘s (NYSE: ABBV) outlook for the autoimmune disease drug Rinvoq. AbbVie shares fell more than 10% after the FDA ruling. In this Motley Fool Live video recorded on September 8Motley Fool contributors Keith Speights and Brian Orelli discuss whether AbbVie stock is now a bad news buy.

Keith Speights: Now Brian, there has been some other big news in recent days. The FDA seems to have adopted, what I would say is a very hard line, on JAK inhibitors that treat rheumatoid arthritis.

The FDA restricts the use of these drugs only to patients who have tried and failed TNF blockers. Now, this news has drained AbbVie’s stock, in particular. Do you think the sale was justified, or do you think AbbVie might be a bad news buy right now?

Brian Orelli: We have been talking about this story mostly throughout the year. Pfizer (NYSE: PFE) had bad news in January which showed that its JAK inhibitor, Xeljanz, increases the likelihood of patients developing cancer and also increases the likelihood of developing cardiovascular events, hence heart attacks, strokes cerebral, that sort of thing.

The FDA reviewed the data and delayed making decisions on several JAK inhibitors, those from Pfizer and AbbVie, and then the one developed by Eli lilly (NYSE: LLY) and Incyte (NASDAQ: INCY), and that’s for various different indications.

The FDA requires safety warnings on Xeljanz, but they also put these same safety warnings for JAK inhibitors that are currently approved. Olumiant from Eli Lilly, then Rinvoq from Insight and AbbVie. I’m sorry, Olumiant is from Eli Lilly and Incyte, then Rinvoq is from AbbVie. Rinvoq is much more important to AbbVie’s future than Xeljanz for Pfizer, or Olumiant for Eli Lilly and Incyte, so I think that’s why it’s dropped 10%.

AbbVie is looking to expand Rinvoq beyond rheumatoid arthritis to eczema, psoriatic arthritis and ankylosing spondylitis. The ironic part of this news is that TNF inhibitors will benefit and AbbVie, of course, has Humira, which is a TNF inhibitor. But of course, investors are rightly concerned about Humira’s long-term prospects, as the drug has the potential to have biosimilar competition as early as 2023.

Overall I think this is a negative point and certainly justified for the downside. I am a little surprised that it has not already been included in the stock. I haven’t really looked at AbbVie’s valuation much. I felt it was going to happen, so I was a little surprised at the 10% drop, but apparently investors in general weren’t really expecting it.

But if it’s good value right now, I’m not sure. There are a lot of moving parts for AbbVie in its future that make it so difficult to assess. It is not a company that I monitor valuation a lot. I follow the company and their drugs, especially if they compete with other drugs from companies I own, but I’m not sure how to rate AbbVie.

What did you think? Do you think this is a good buy?

Speights: It’s been cheap for a while. It was a harsher line from the FDA than some had expected, a bit harder than I expected. It’s important to note that AbbVie has another autoimmune drug, Skyrizi, which he relied on with Rinvoq to succeed Humira.

It will be interesting to see if the company comes out and really starts pushing Skyrizi more, or if they get creative on how they are going to support Rinvoq and try to get their sales to come close to what they wanted. .

I think overall AbbVie is still a great buy, especially if you are an investor looking for income. He’s a dividend aristocrat, a wonderful dividend, a high yield. The company is going to have a lot of cash, even if Humira loses its exclusivity or faces biosimilar rivals in the United States in a few years. It’s not a good deed for everyone, but I think it’s a pretty good deed for certain types of investors.

Orelli: It reminds me a lot of Pfizer when Lipitor was about to lose its patent. It seemed like it was really cheap, and it was getting cheaper and cheaper, so that’s my concern with AbbVie right now.