AbbVie, Inc. Chris Glotzbach, Tom Van Spankeren and Jeffrey Li October 23, 2014

Agenda 1.Introduction 2.Macroeconomic Review 3.Relevant Stock Market Prospects 4.Company Review 5.Financial Analysis 6.Financial Projection 7.Application of Valuation Methodologies 8.Recommendation

Introduction - Spin-off of Abbott Laboratories (2013) - Research based pharmaceutical company - 8th largest publicly traded pharmeceutical - Employs 25,000 worldwide - Drugs are sold in over 170 Countries Source: AbbVie, Inc. 10-K (Fiscal 2013) page 5, 10 16,

Position - Listed on NYSE - ABBV shares $ $ $ Cost Basis = $28.98 ($11,592) - Current Price = $56.90 ($22,760)

Industry Trends - Worldwide total prescription drug sales projected at 5.1% CAGR until $749 Billion  $1.05 trillion by Biologicals are increasing! From 22% to almost 30% of total pharmaceuticals by AbbVie has 7% market share of biologicals - Less patent approvals by F.D.A. - Intellectual Property Rights -2.3% market share of total prescriptions -Substantial M+A activity -Example: Valeant wants to buy Allergan (Botox) Source: EvaluatePharma Outlook to 2020, Page 3 & 7EvaluatePharma Outlook to 2020

Target Market and Demographics -Overall trend in demographics favorable for AbbVie -Emerging markets in focus -Increase emphasis on disease prevention Source: Age invaders, The Economist April Age invaders

Government Regulation -Biologics Price Competition and Innovation Act signed by President Obama in 2009 and vastly amended with the Affordable Care Act -Makes “biosimilars” very difficult to duplicate -They need to be “safe secure and potent” -However uncertainty exists with this legislation -AbbVie petitioned F.D.A. not to approve biosimilars for Humira Source: AbbVie, Inc. 10-K (Fiscal 2013) Page 9

Porter’s Five Forces -Threat of Substitutes: Moderate  Generics -Threat of New Entrants: Low  High R&D barrier -Bargaining Power of Suppliers: Low  But… -Bargaining Power of Buyers: Low  Dependent -Rivalry: High  Attractive market

S.W.O.T. Analysis -Strengths: Pipeline -Weaknesses: Fragile Drug Patent -Opportunities: Hep C, Breast Cancer, MS -Threats: Competition Source: Biopharmaceuticals in Perspective Page 52Biopharmaceuticals in Perspective

Where in the Growth Cycle? Growth Phase Source: Graph Template from QuickMBA

Guidance and Mgt “Last month, we raised our 2014 earnings-per- share guidance, reflecting strong underlying business performance. We continue to expect positive trends for the second half of the year, as well as additional progress from our pipeline, including the expected U.S. approval of our interferon-free HCV combination.“-CEO Richard Gonzalez 7/25/2014 “I wanted to send a note saying that I’m more energized than ever about our two companies coming together”-CEO Richard Gonzalez 9/29/2014 Source: AbbVie, Inc. FINANCIAL RELEASE 2014 Q2,AbbVie, Inc. FINANCIAL RELEASE 2014 Q2, AbbVie Tells Shire Employees: The Merger Will Go On, WSJ Sept 29,2014AbbVie Tells Shire Employees: The Merger Will Go On

Products -Total Revenue For Fiscal 2013 (in Millions) Total = 18,790 Source: AbbVie, Inc. 10-K (Fiscal 2013) Page 45

Humira -Uses: Rheumatoid arthritis, Chrohn’s disease and various other ailments/diseases -26.2% year over year sales growth -Costs approximately $2,246 a month -3 rd largest sales in US -AbbVie must diversify away from Humira Source: AbbVie, Inc. 10-K (Fiscal 2013) Page 6-15

Patents? -Loses US Humira patent in December 2016 and European patent in April Concerned considering it is blockbuster drug -Lack of clarity regarding biosimilar patents -Will it be similar to Niaspan and Tricor/Triliplex where sales declined 90%? Source: AbbVie, Inc. 10-K (Fiscal 2013) Page 6-15

Research & Development -2013: Just < $3 Billion or 15% of Sales Source: AbbVie, Inc. 10-K (Fiscal 2013) Page 57, AbbVie R&D PageAbbVie R&D Page

-Hepatitis C – Phase III. Accepted by FDA - Priority Review. Europe - Accelerated Review -Breast Cancer - Phase III - Clinical Trial -Multiple Sclerosis – Daclizumab – Biogenic - Phase III DECIDE Trial Source: AbbVie, Inc. 10-K (Fiscal 2013) Pages 41,41,47 Global Data, AbbVie Financial Analysis AbbVie’s Pipeline

Hepatitis C -“In our clinical trials, we're seeing the majority of patients - even up to 100 percent of patients - experiencing a cure. And patients are able to tolerate the therapy very well, with fewer than 2.3 percent having to discontinue treatment due to adverse events.” – CEO Richard Gonzalez million worldwide with Hepatitis C -3.2 million Americans and 17.5 million Europeans -Competition from Gilead’s Sovaldi (already in market) and Merck  15%-20% Discount Source: AbbVie Annual Stockholder Meeting May 9, 2014, World Health Organization; Hepatitis C Fact Sheet, Viral Hepatitis Action CoalitionWorld Health Organization; Hepatitis C Fact Sheet Viral Hepatitis Action Coalition

Risks for AbbVie -Creation of biosimilars -Humira patent loss -Inability to gain market share – Hepatitis C -Research and Development efforts are not sufficient -Loss of shareholder trust with management Source: AbbVie, Inc. 10-K (Fiscal 2013) Page

Shire Deal? - $55 Billion Pros: -“Would diversify itself internationally” -ADD and ADHD drug totaling 25% of revenues, rare diseases drugs -Tax rate falls to 13% from 22%  $8 billion savings in 15 years Cons: -New inversion laws -Huge premium being paid - Shire stock tumbled 30% at deal fallout - $1.64 billion breakup fee – tax deductible Source: AbbVie to Buy Shire for $54 Billion WSJ July : AbbVie to Buy Shire for $54 Billion WSJ July Collapse of AbbVie-Shire Deal Leaves Scars WSJ, oct

Technical Analysis Source: Fidelity Investments

Ratio Analysis Leverage Ratios 2011A2012A2013A Debt/AssetsNA Interest- Coverage Greenblatt 2011A2012A2013A EBIT/Tangible Assets EBIT/EVNA9.2%6% DuPont Analysis 2010A2011A2012A2013A Tax Burden Interest Burden Operating Margin30%21%32%30% Asset Turnover Leverage ROE27%29%157%92%

Cost of Capital Return to Owner 1 Year20% Half Year (Annualized)11% Adj ABBV Return to Owner14% Graham Growth Rate Trailing P/E22.05 Graham Implied g%6.78% Beta Beta from Yahoo Year1.43 Half Year (Annualized)1.38 ABT Beta0.86 Adj Beta1.41 CAPM Risk Free Rate2.40% Market Premium6% CAPM10% Cost of Equity % Allocate ABBV Return to Owner14%33% Graham Implied g%6.78%33% CAPM10%33% Cost of Equity10.3%100%

Cost of Capital Capital Structure Debt$14, % Equity % Total Financing$101, % Discount Rate% Allocate Cost of Equity10.3%100% Pre Tax - Cost of Debt2.49% Tax Rate22% After Tax - Cost of Debt2% Cost of Equity10.3%86.0% After Tax - Cost of Debt2%14.0% WACC9.1% Risk Premium1.0% Discount Rate10.1%

Cost of Capital BetaCapital Structure Beta from Yahoo Finance1.93Debt$14, % 1 Year1.43Equity % Half Year (Annualized)1.38Total Financing$101, % ABT Beta0.86 Adj Beta1.41Discount Rate% Allocate ABBV Return to Owner14%33% CAPMGraham Implied g%6.78%33% Risk Free Rate2.40%CAPM10%33% Market Premium6%Cost of Equity10.3%100% CAPM10% Pre Tax - Cost of Debt2.49% Return to OwnerTax Rate22% 1 Year20%After Tax - Cost of Debt2% Half Year (Annualized)11% Adj ABBV Return to Owner14%Cost of Equity10.3%86.0% After Tax - Cost of Debt2%14.0% Graham Growth RateWACC9.1% Trailing P/E22.05Risk Premium1.0% Graham Implied g%6.78%Discount Rate10.1%

Revenue Projection -Revenue projection: Major Product Revenue Estimation -Gross Profit Margin: 78% -SG&A: 28.46% -Research and development : 15% -Tax Rate: 22%

Revenue Projection Growth rate 2012A2013A2014E2015E2016E2017E2018E HUMIRA US27.7%19.6%25.0% 22.0%-15.0%-5.0% HUMIRA Inter8.5%10.9%15.0% 13.0%10.0%5.0% HUMIRA Total16.8%15.0%19.9%20.1%17.8%-3.8%0.1% AndroGel US31.8%-10.2%-15.0% -13.0%-10.0%-8.0% Kaletra Total-13.4%-5.0% Synagis Total6.5%0.2%2.0% Lupron Total-1.2%-1.9%-2.0% Synthroid Total5.6%12.9%12.0% Sevoflurane Total-9.5%-5.6%-5.0% Creon Total6.3%16.7%12.0% Duodopa Total19.2%19.5% 15.0%10.0%5.0% Dyslipidemia Total-14.3%-49.8%-5.0% Other-12.1%9.2%7.0%10.0%5.0%8.0%10.0% HCV Drug 20.0% Total5.4%2.2%11.2%16.6%12.1%-1.2%2.0%

Forecasted Figures in millions2014E2015E2016E2017E2018E Net sales$20,903.08$24,369.67$27,327.36$27,011.10$27, % growth11%17%12%-1%2% Cost of products sold$4,598.68$5,361.33$6,012.02$5,942.44$6, % of Sales22.00% Gross Profit$16,304.41$19,008.34$21,315.34$21,068.66$21, % margin78.00% Selling, general and administrative$7,589.16$6,935.77$7,777.55$7,687.54$7, % of Sales28.46% Research and development$3,167.71$3,693.04$4,141.26$4,093.33$4, % of Sales15.15% Acquired in-process research and development$397.20$463.07$519.27$513.26$ % of Sales1.90% EBIT$5,150.35$7,916.46$8,877.26$8,774.53$8, % Margin24.64%32.48% Interest expense, net$282.11$286.43$290.96$295.70$ % of Sales1.48%1.53%1.58%1.63%1.68% Net foreign exchange (gain) loss$39.72$46.30$51.92$51.32$52.34 % of Sales0.19% Other (income) expense, net($22.62)($26.37)($29.57)($29.23)($29.81) % of Sales-0.11% EBT$4,851.14$7,610.10$8,563.96$8,456.74$8, % Margin23.21%31.23%31.34%31.31% Income tax expense$417.25$1,674.22$1,884.07$1,860.48$1, % Tax Rate22% Net earnings$4,433.89$5,935.88$6,679.89$6,596.26$6, % Margin21.21%24.36%24.44%24.42%

Discounted Cash Flow Analysis Terminal Net Income$4,434$5,936$6,680$6,596$6,727 Depreciation & Amortization$1,353$1,578$1,769$1,749$1,783 CapEx($418)($487)($547)($540)($551) Change NWC$837$887$758$32$130 FCF$4,532$6,139$7,144$7,772$7,829$113,115 PV FCF$4,115$5,062$5,349$5,284$4,833$69,825 Implied Equity Value$94,467Discount rate10.13% Less Debt$14,292Terminal Value Growth Rate3.00% Implied Market Cap$80,175 Current Share Outstanding1, Estimated Share Buy Back40 Estimated Share Outstanding1,553.5 Implied share price$51.61

Scenario Analysis Sensitivity Analysis Discount rate ####9.17%9.67%10.17%10.67%11.17%11.67% lost on Humira sales on %$63.50$57.87$53.04$48.84$45.15$ %$62.40$56.88$52.13$48.00$44.38$ %$61.31$55.89$51.22$47.17$43.61$ %$60.22$54.90$50.32$46.33$42.84$ %$59.13$53.90$49.41$45.50$42.07$ %$58.04$52.91$48.50$44.66$41.30$ %$56.94$51.92$47.59$43.83$40.53$ %$55.85$50.92$46.68$43.00$39.76$36.90

Comparable Companies Analysis Target Company Last CloseMarket Cap Dividend Yields Price/ Sales Price/ BookP/E Forward P/E TEV/ EBITEBIT/EV AbbVie Inc.$ ,6703.1% % Comparable Companies Bristol-Myers Squibb Company$ ,9462.8% % Eli Lilly and Company$ ,0013.1% % Merck & Co. Inc.$ ,1243.3% % Pfizer Inc.$ ,4473.7% % AstraZeneca PLC$ ,5882.6% % Johnson & Johnson$ ,4712.8% % MultipleWeightImplied ABBV Stock Price Price/ Sales25%$41.95 Forward P/E25%$64.16 TEV/EBIT25%$51.58 Graham Ratio25%$57.12 ABBV Implied Stock Price$53.70

Valuation Summary WeightPrice DCF50% $ Comparable50% $ $ 52.65

Decision? HOLD Valuation Summary WeightPrice DCF50% $ Comparable50% $ $ 52.65

Main Reasoning? -Strong growth prospects with Hepatitis C drug -Uncertainty involved with Humira patent expiration -Pipeline in general is strong -Intrinsic value is less than market price -Poor management

Questions?