AbbVie Stock Analysis Analysts: Marcin Szczepaniak and Dhwani Mehta, presented on April 4th, 2019

Agenda Introduction to Company Stock Market Prospects Core Issue Industry and Economic Overview Company Overview Financial Analysis Final Projections Recomendations

Stock Overview Business Sector     Healthcare Industry     Biopharmaceuticals Life Cycle Stage     Later Stage Growth Exchange NYSE Market Cap (mm)     119.41 B Shares Outstanding     1,456 M Stock Price (as of 04/1/2019)     $80.78 52 week High/Low     $107.25/$75.77 Current P/E      22.65   Recommendation: We recommend to HOLD this stock despite many significant headwinds

About AbbVie AbbVie is a global, research-based biopharma company. AbbVie develops and markets advanced therapies that address some of the world’s most complex and serious diseases Products are focused on conditions such as chronic arthritis, blood cancers; virology, hepatitis C virus, human immunodeficiency virus (HIV);Parkinson’s disease; thyroid disease and complications associated with cystic fibrosis; pain associated with endometriosis; as well as other serious health conditions AbbVie also has a pipeline of promising medicines in clinical development across medical specialties such as immunology, oncology and neuroscience, with additional targeted investment in cystic fibrosis and women’s health 3rd point – Address short term expectations. On January 1, 2013, AbbVie became an independent, publicly-traded company as a result of the distribution by Abbott Laboratories (Abbott) of 100% of the outstanding common stock of AbbVie to Abbott’s shareholders

AbbVie’s Strategic Focus Advance pipeline Drive strong commercial execution with new product launches Effectively manage biosimilar erosion Delivering operating margin expansion while continuing to invest in pipeline Commitment to return cash to shareholders Build an innovation driven, patient focused culture Drive superior performance with off-market brands Build a robust pipeline Gain trust and confidence from investors AbbVie markets to managed care providers including health maintenance organizations (HMOs) and pharmacy benefit managers (PBMs), hospitals, and government agencies (including the US Department of Veterans Affairs and the Department of Defense) AbbVie has a strong focus on R&D. The company has more than 60 compounds in the pipeline, including treatments in immunology, oncology, neuroscience, hepatitis C, chronic kidney disease, and women's health AbbVie continues to grow through strategic partnerships with startups and academia like the University of Chicago Phase 1 Phase 2 The First Five Years: (’13-’17) The Second Five Years (‘18-’22) Source: https://www.abbvie.com/our-company/our-growth-story.html

Company Performance Source: https://www.abbvie.com/our-company/our-growth-story.html

SWOT Analysis Strengths Weaknesses Opportunities Threats Humira as a blockbuster drug Acute focus on progressing many multiple drugs through regulatory approval Growing Free Cash Flow Reliance on Humira Average time to get drug from development phase to market takes 12 years and over $1.5 billion Patent protection is 20 years but in actuality it is much shorter Opportunities Threats Increase in consumer demand Humira continues to be approved for more conditions Growing economy and aging population Regulatory threats due to high costs of medications Competition through biosimilars Most recent lawsuits https://www.specialtypharmacytimes.com/news/something-has-to-give-balancing-specialty-drug-cost-with-value https://www.pharmaceutical-journal.com/publications/tomorrows-pharmacist/drug-development-the-journey-of-a-medicine-from-lab-to-shelf/20068196.article?firstPass=false

Porter’s Five Forces Power of Buyers Power of Suppliers Methodology Power of Buyers Power of Suppliers Threat of Substitutes Threats of New Entry Threat of Competition In 2018, three wholesale distributors - McKesson, Cardinal Health, and AmerisourceBergen- accounted for most of the company's sales in the US. This reliance on these firms could leave AbbVie vulnerable to distribution issues should any of them face financial difficulties AbbVie has not experienced any recent significant availability problems or supply shortages that impacted fulfillment of product demand. Humira patent protection The expiration or loss of patent protection for a product typically is followed promptly by substitutes that may significantly reduce sales for that product in a short amount of time. R&D Costs Smaller niche focused startups M&A environment Many competitors with few instances of communication amongst biggest makers High competition to get drugs approved and get to market Generic/biosimilar threats

Product Pipeline 20 products with potential for new drug or indication approvals by the end of 2020 15 programs in Phase III under way 8,000+ scientists working globally Phase III approval ultimately has a 60 percent chance of approval. Drug patents can be enjoyed for 20 years, time the patent as filed to the time it was approved is part of this time. So significant amount of the monopoly will be eaten up in the trial phases. In the mean time competitors are allowed to treat the same conditions but with different compounds. To find out a drug company’s patent protection, take a look in the 10-k under the  section Patents and Intellectual Property rights. Here you will find expiration dates and will likely have to go online to find more details than that. After a drug goes off patent is when generics can come in and cost 40-60 percent less and this is extended to consumers through a lower price. Companys have been known to lose up to 80% of sales after losing patents. But this is not necessarily death for the original proprietary company, because they could engage in efforts to move current users to a new generation of drugs that may also be patented. A company that doesn’t necessarily pass it trial III drug test isn’t necessarily doomed for death either. They can reapply. Source: Source: Abbvie Strategic Update 2017

Microeconomics/ Industry Trends Recent Relevant News Heading 1 Heading 2 Heading 3 In the Netherlands, AbbVie is discounting Humira as much as 89% to underprice biologics Six lawsuits target AbbVie’s Humira and its patent thicket with other drug making giants AbbVie has had 5 sales and 0 insider Buys since November 29,2018. This is a net activity of $21.78 million Microeconomics/ Industry Trends Supply Demand Industry Trends Aging, unhealthy habits, and growing population/unmet needs in emerging markets all lead to rising medicine needs Given the growing economy, drug sales and drug prices are expected to rise. There is a potential for government intervention to both destroy and enhance value (through priority vouchers) Increased supply of biosimilars and generics provides need for constant innovation

Technical Analysis

Weighted Average Cost of Capital

Sales Forecast

Comparable Company Valuation

Discounted Cash Flow Analysis – Base Case . Value of share – 83.75

Discounted Cash Flow Analysis – Upside Case Value of share – 86.73

Discounted Cash Flow Analysis – Downside Case Value of share – 80.77

Sensitivity Analysis

Profitability ratios

Liquidity Ratio

Industry Attractiveness (Growth) Final Recommendation GE-McKinsey Matrix Valuation Ranges Invest/Grow Hold Divest low medium high Competitive Strength Industry Attractiveness (Growth) Comparables:94.89 DCF:80.77-86.73 Share Price:83.08 Final Comments: "Despite significant headwinds to AbbVie with recent patents expiring and lawsuits coming up, we believe. However, Humira will still be a profitable drug for at least the next 5 years and in the past AbbVie has delivered on their commitment of extreme focus on developing the pipeline of drugs and returning value to shareholders.”

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