Abbvie Stock Analysis – November 2018 Harsha Talakad Rajashekhara, Saraja Samant, Shalin Rajpara Presented November 13, 2018

About the company Founded in 2013 as a spinoff of Abbot Labs and trading on NYSE with a market cap of $134.45 billion 14 manufacturing facilities in 5 countries 5 Year revenue CAGR of 10% 8 research facilities in 3 countries 29000 employees 1101 products on the market

Portfolio and Market Data Number of Shares Held 100 Current Market Price $88.79 Market Capitalization $134.45 B Industry Bio- Pharmaceutical Exchange NYSE

Source: JP Morgan Healthcare conference January, 2018

Macroeconomic Drivers Major Influencers Technological Innovation New Regulations Increasing cost of drug production New Demand Companies work out deals to prevent product encroachment and eliminate redundancies in research cost. Abbvie entered into an agreement with Amgen to not release their Humira biosimilar till 2023 in the USA. Royalty agreement with Mylan for Humira biosimilar in Europe. Source: Deloitte Global Life Science Outlook 2018 Prescription drug sales to grow with an expected CAGR of close to 6.5% from 2017 to 2022.

Corporate Lifecycle Company Trends Decreasing revenue growth from a major revenue stream (Humira) Modifications to existing formulas to expand their utility New acquisitions and research partnerships Significant number of drugs in the pipeline A growth trend in earnings and revenue Launch Growth Maturity Decline Revenue Timeline Conclusion We believe that Abbvie is at the precipice of growth and maturity stage

SWOT Analysis Strengths Weaknesses Global reach: Products sold in 200+ countries Robust Pipeline: 20 new drug approvals expected by end of 2020 High dependence on Humira, Imbruvica and Mavyret Highly Levered growth strategy can prove risky in case of an economic downturn Opportunities Threats Leukemia drug market expected to grow to $12B by 2022 High barriers of entry Aging population Patents and Litigations are a general threat in the pharmaceutical industry Biosimilars tend to eat into drug sales

Bargaining power of suppliers Bargaining power of buyers Porters Five Forces Threat of Competition Threat of Substitutes Bargaining power of suppliers Bargaining power of buyers Barriers to entry Expiring patents Biosimilar drugs High Biosimilar drugs Generic drugs Major revenue streams patent protected High Large number of products sourced from a single supplier Moderate Buyers have a low bargaining power in the drug market Low High fixed cost Long drug development process Supply chain development High

Strategic Acquisitions Stemcentrx develops therapies that cure and significantly improve survival for cancer patients. It provides disease specific treatments that attack tumors at the roots. Date: 28th April, 2016 Deal Size: $5.8 billion Pharmacyclics Inc. is a clinical-stage biopharmaceutical company focused on discovering and developing innovative small-molecule drugs for the treatment of cancer and immune mediated diseases. Date: 4th March, 2015 Deal Size: $21 billion ImmuVen develops drugs to treat infectious diseases, cancer, and autoimmune disorders. Date: 1st January, 2014 Deal Size: Unspecified

Product Pipeline Source: Abbvie Strategic Update 2017

Management Discussion and Analysis Stock Repurchase Program 2017 13 million shares $1 billion 2016 34 million shares $2.1 billion Interest rate Risk 100 basis point change in interest rate adversely impacts interest rate swap contracts by $509 mn in December 2017 Credit Risk (Amounts as on Dec, 2017) Greece Portugal Italy Spain $225 mn Saudi Arabia $149 mn Russia $152 mn Foreign Currency Risk Major exposure to Euro, Japanese Yen, British Pound A 10% appreciation in these currencies decreases fair value of contracts by $1 billion and would impact earnings over the life of the contract No change in credit Rating in 2017 The recorded accrual balance for litigation as on 31st December, 2017 was $445 mn. Ultimate decisions of pending litigation would not have a material impact on the company’s operations or financial position.

Financial Statistics (Amounts in USD)

Comparable Company Analysis – DuPont Model ($ in millions)

Comparable Company Analysis – Valuation

Discounted Cash Flow Analysis

Source: JP Morgan Healthcare conference

Recommendation Hold recommended Strong earnings growth Growth financed through debt Healthy liquidity 80% drop in Humira prices in Europe Release of biosimilars in Europe Share price supported by equity buyback Current Share Price: $88.79 as on 9th November, 2018 Valuation Range: $88.12 – $106

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