1. Jing Chen Hisham Haider Dewan Harout Sahakian
AbbVie, Inc.
Date: 12 November 2013

2. Agenda Introduction Holding information Macro-economic overview
Industry analysis
Company overview
Financial analysis and projections
Valuation
Recommendation

3. Introduction to AbbVie, Inc.
On January 1, 2013 AbbVie was spun off from Abbott Lab.
Incorporated in Delaware on April 10, 2012 and is comprised of Abbott's former research-based pharmaceuticals business
AbbVie develops and markets advanced therapies
21,500 employees
Innovation-driven biopharmaceutical company focused on delivering breakthrough products
Products sold in over 170 countries
Source: AbbVie Inc. 10K Filing 2012, Page 1, 6, 13

4. Pharmaceuticals Business Segments Metabolics/Hormones Virology
Endocrinology
Dyslipidemia
Other
Source: AbbVie Inc. 10K Filing 2012, Page 1-3

5. Products and Revenue in Q1-Q3 FY 2013
HUMIRA: $7,620 mil.
Metabolics/Hormones products: Synthroid, AndroGel, Creon $1,476m
Virology products: Kaletra, Norvir, $816m
Endocrinology products: Lupron, $576m
Dyslipidemia products: TriCor and TRILIPIX, Niaspan, $893m
Other products: Synagis, Anesthesia product Sevoflurane, Duodopa and Duopa, Zemplar, $1,259m
20 products in pipeline
add sales number 2013
Source: Bloomberg Terminal, Revenue by product

6. Revenue Breakdown by Major Drugs
50.40% of FY2012 sales
HUMIRA
6.26% of FY2012 sales
AndroGel
5.97% of FY2012 sales
TriCor/TRILIPIX
5.51% of FY2012 sales
Kalerta
4.95% of FY2012 sales
Niaspan
Pg 47, break down of sales
Source: AbbVie, Inc K filing page 45

7. Where Does AbbVie Sell? Source: AbbVie, Inc. 2012 10K filing page 45
Mexico, Canada, EU – 170 countries
update it to 2013
Source: AbbVie, Inc K filing page 45

8. Revenue by Product Source: AbbVie, Inc. 2012 10K filing page 45
by product quarterly over time 7 Q's
Source: AbbVie, Inc K filing page 45

9. Patent of HUMIRA
HUMIRA entitled to 12 years exclusivity under the Biologics Price Competition and Innovation Act
EU has created a pathway for approval of biosimilars
In the US patent for Humira is expected to expire in December 2016, and the EU patent is expected to expire in the majority of EU countries in April 2018
HUMIRA entitled to exclusivity under the Biologics Price Competition and Innovation Act, which was passed on March 23, 2010 as Title VII to the Patient Protection and Affordable Care Act. The law provides a pathway for approval of biosimilars following the expiration of 12 years of exclusivity for the innovator biologic and a potential additional 180 day-extension term for conducting pediatric studies.
The European Union has also created a pathway for approval of biosimilars and has published guidelines for approval of certain biosimilar products.
AbbVie believes that no single patent, license, trademark (or related group of patents, licenses, or trademarks), except for those related to adalimumab (HUMIRA), are material in relation to the company’s business as a whole.
Source: AbbVie, Inc. 10K 2012 page 5

10. R&D Process and Patents
U.S Patent Protection
20 years from the day filed
Discovery to Launch
8 – 12 years
Idea to Product
Phase: I, II, III
AbbVie R&D Expense $2.8B in FY2012
Source pg 6
Source: AbbVie, Inc. 10K 2012 page 3 and 4

11. Distribution and Marketing
Distributors
McKesson – 38%
Cardinal Health – 27%
AmerisourceBergen – 26%
Three largest distribute 91%
Target market
Physicians
Health Care Providers
Hospitals
Government Agencies
Source: AbbVie, Inc. 10K 2012 page 6

12. Current Holdings 400 shares 200 shares @ $27.08 100 shares @ 27.53
Total Purchase Price (adjusted for split) = $11,591
Current Market Value = $19,428
Holding period return (from Jan 02, 2013 to Nov 11, 2013) = 67.61%
Double check prices…..
Source: Yahoo Finance

13. Macro-economic Overview
Slowing growth in BRICS countries
Increasing number of physician visits1
Adults aged 65 and over 13.7% of US population & rising
High birth rates in emerging markets
Increasing socio-economic status in emerging markets
Increasing emphasis on disease prevention
Changing regulatory environment
Source: 1. IBISWorld Industry Report 33451b Medical Device Manufacturing in the US October 2013, page 4
2. US Census Bureau

14. Brand Name Pharma. Industry in U.S.
Source: Brand Name Pharmaceutical Manufacturing in the US industry report Page 4

15. Pharma. Industry In The U.S.
U.S. spending on prescription medicine down 1% in 2012 – first decline since 1957
Spending on name brand drugs in the U.S. declined 4.7% in 2012
Market share of generic drugs accounted for 84% of dispensed prescriptions – 5 years ago the share was only 69%
Reasons for decline include lower volume growth, loss of patent protection on major drugs, and less spending on new drugs
Source: Mergent. North America Pharmaceuticals Sector. July Pg 9.

16. Where’s the Growth Opportunity?
Emerging Markets
- By 2018, global drug makers expect emerging markets to account for more than 33% of company sales
FDA Approvals
- In 2012, the FDA approved 39 new medicines – the highest in 15 years
Hepatitis C
- Affects 150 million people worldwide
- 10 drugs in development for treating disease
Source: Mergent. North America Pharmaceuticals Sector. July Pg

17. Patient Protection & Affordable Care Act: Impact on ABBV
Healthcare coverage available to all Americans
An attempt to keep costs lows
Changes how care is paid for
Annual Fee on branded prescription pharmaceutical manufacturers and importers
Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers
The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On Aug. 15, 2011, the IRS issued temporary regulations and a notice of proposed rulemaking on the branded prescription drug fee. The temporary regulations describe the rules related to the fee, including how it is computed and how it is paid. On Aug. 5, 2013, the IRS issued Notice , which provides additional guidance on the branded prescription drug fee for the 2014 fee year. For information on the fee for the 2012 fee year and for the 2013 fee year, see Notice  and Notice
Source: IRS website

18. Risks to AbbVie Increased regulation
Loss of patents, trademarks, or intellectual property
Delays in regulatory approval of new products
Increased delay in receipt of payments from government entities
Product liability claims

19. Porter's Five Forces Analysis for ABBV
Rivalry among existing firms (High)
Threat of New Entrant (Low)
High barriers to entry
Challenging to find "blockbuster drugs"
Challenging regulatory conditions
Supplier bargaining power (Medium)
Suppliers generally have little room for negotiation
Buyer bargaining power (High)
Only have three distributors in U.S., high dependency on distributors
Pricing pressure from government
Consolidation of managed care providers
Threat of substitute products ( Medium)
Threat from generic competition and biosimilars
Generic companies are increasing focused on establishing global operations
Humira expires on Dec 2016 in U.S.
Approval of follow–on biosimilars
2)  Degree of rivalry among existing firms - HIGH
Mature, consolidating, highly competitive industry (many large pharmaceutical acquisitions closed in 2007 including AstraZeneca’s $15.6Bn purchase of Medlmmune Inc. and Schering-Plough’s $15Bn acquisition of Organon BioSciences).
Strong credit profiles: companies operate off of high margins (high 70%), healthy balance sheets, and good liquidity
Industry benefits from strong demand from consumers.
Weak, small companies usually go out of business (bankruptcy) if they have no potential “blockbuster” in future pipeline. Others that have some significant research or valuable assets will be bought by big and strong pharmaceutical companies. 

20. SWOT Analysis for AbbVie
Strengths
Patent protection
Brand recognition
International distribution channel
Humira extremely popular
Weaknesses
R&D cost and lengthy investment timeframe
Humira's patent expires in Dec 2016 in U.S.
Opportunities
New ground breaking drug for HCV
Rising healthcare needs in the international arena
Collaborate with third party to develop near-term pharmaceutical pipeline
Threats
Barriers to entry are decreasing as the tax incentives program targeting small pharmas
Challenging regulatory conditions
Increased tax burden
Generic pharmaceutical manufacturers
Biosimilars

21. AbbVie Life Cycle
Challenge- medium pressure coming from the competitors and customers
Focus- mainly focused on the nutritional, diagnostics, genetic drug market
Money Source- stayed stable over the years
Source:

22. Recent Financial Performance
Humira sales grew 22.3% in U.S. Q3 FY2013
TriCor/Trilipix sales decline due to the loss of exclusivity
R&D was 15.2% of sales in 3Q, reflecting growing need to fund mid and late-stage pipeline asset
Expects to commercialize HCV by 2015
jp morgan, two sentences
Source: ABBV 8K filed on , ABBV CFO presentation in JP Morgan Healthcare Conference

23. Equity Performance
Source: Google Finance Jan 2, 2013 to Nov 11, 2013

24. Technical Analysis
Source: Google Finance Feb 5, 2013 to Nov 11, 2013

25. Quarterly Ratio Analysis
Profitability
Q1 FY 2013
Q2 FY 2013
Q3 FY 2013
Return on Assets %
12.1%
13.8%
13.82%#
Liquidity
Q1 FY 2013
Q2 FY 2013
Q3 FY 2013
Current Ratio
2.2x
2.3x NA
Quick Ratio
1.7x
1.8x
Solvency
Q1 FY 2013
Q2 FY 2013
Q3 FY 2013
Total Debt/Equity*
512.6%
425.9%
LT Debt/Equity*
497.9%
413.8%
Total Liabilities/Total Assets*
89.1%
87.3%
EBIT / Interest Exp.
18.3x
19.3x
24.0x
Source: Capital IQ Ratios based on quarterly data; #based on end of Q2 FY 2013 Total Assets;
*Assumes book value of debt and equity

26. DCF, Comparable, Ben Graham formula
Valuation
DCF, Comparable, Ben Graham formula

27. Cost of Capital Cost of equity using CAPM Beta 1.18
9.74%
Weighted average cost of debt
2.40%
Cost of equity using goal post method (CAPM Re % )
11.59%
Market value of debt $Mil. *
14,758
Market value of equity $Mil. *
76,148.1
Weight of debt*
16.23%
Weight of equity*
83.77%
Tax rate
22.00%
Number of shares outstanding
1,577
WACC
10.01%
Cost of equity using CAPM
Beta
1.18
Market risk premium (Rm-Rf)
6.00%
10 year treasury yeild
2.66%
9.74%
* Assumes market value of debt & equity instead of book value on the balance sheet

28. Free Cash Flow to Firm 2013 2014 2015 2016 2017 2018 EBIT $6,217.04
2013
2014
2015
2016
2017
2018
EBIT
$6,217.04
$6,465.72
$6,724.35
$6,993.32
$7,273.05
$7,563.97
Taxes
$1,295.99
$1,361.94
$1,422.31
$1,485.10
$1,550.33
$1,588.57
Plus: Depreciation & Amortization
$1,190.11
$1,152.98
$1,101.13
$1,043.29
Less: Capital Expenditures + Acquisitions
($1,083.27)
($1,126.60)
($1,171.67)
($1,218.53)
($1,267.27)
($1,317.97)
Less: Change in Net Working Capital
($7.00)
$358.70
($200.83)
($187.29)
($194.78)
($202.57)
Free Cash Flow to Firm
$5,034.88
$4,771.45
$5,432.33
$5,520.26
$5,693.51
$5,903.30

29. Discounted Cash Flow WACC 10.0118% % Growth Rate 4.00%
Implied Enterprise Value
$88,933.79
Less: Debt
$14,758.00
Value of equity
$74,175.79
Shares Outstanding
1,577.00
Estimated price per share
$47.04

30. DCF – Sensitivity to WACC and G
Growth rate
Discount rate
$47.04
3.00%
3.50%
4.00%
4.50%
5.00%
9.5118%
$44.61
$47.94
$51.87
$56.58
$62.33 %
$40.97
$43.77
$50.89
$55.52 %
$37.82
$40.20
$42.95
$46.15
$49.94

31. Scenario Analysis (based on revenue)
Best case 
2013
2014
2015
2016
2017
2018
Hepatitis C Virus Franchise
800
1,200
1,700
2000
Daclizumab (Multiple Sclerosi)
100
175
200
Revenue boost from pipeline
1,300
1,875
2,200
Base case
2013
2014
2015
2016
2017
2018
Hepatitis C Virus Franchise
800
1,200
1700
Daclizumab (Multiple Sclerosi)
100
175
Revenue boost from pipeline
1,300
1,875
Estimated share price (Best case)
$51.77
Estimated share price (Base case)
$51.21
Estimated share price (Worst case)
$47.04

32. Comparable Companies to AbbVie
Company Name
Market Capitalization ($Mil)
Total Revenue ($Mil)
Actavis plc (NYSE:ACT)
27,278.5
7,648.5
Amgen Inc. (NasdaqGS:AMGN)
85,374.6
18,086.0
AstraZeneca PLC (LSE:AZN)
65,698.2
26,149.0
Bristol-Myers Squibb Company (NYSE:BMY)
86,196.5
16,135.0
Eli Lilly and Company (NYSE:LLY)
55,371.1
23,261.7
Johnson & Johnson (NYSE:JNJ)
265,356.3
70,515.0
Merck & Co. Inc. (NYSE:MRK)
136,746.3
44,450.0
Mylan, Inc. (NasdaqGS:MYL)
15,471.3
6,823.5
Pfizer Inc. (NYSE:PFE)
207,347.8
56,246.0
Teva Pharmaceutical Industries Limited (NYSE:TEVA)
31,493.2
20,133.0
AbbVie Inc. (NYSE:ABBV)
76,148.1
18,885.0

33. Implied price per share
Comparable analysis
Comparable ratio
Multiple
Weight
Implied price per share
TEV/Total Revenues
3.6x
5.0%
$36.71
TEV/EBITDA
11.5x
10.0%
$47.84
TEV/EBIT
16.6x
15.0%
$59.15
TEV/Forward Total Revenue (Capital IQ)
3.4x
$36.49
TEV/Forward EBITDA (Capital IQ)
10.1x
$42.72
Market Cap/Total Revenues
3.3x
$39.42
P/Diluted EPS Before Extra
22.4x
$65.30
Market Cap / Forward Total Revenues (Capital IQ)
3.2x
$39.38
Forward P/E (Capital IQ)
14.6x
25.0%
$44.77
P/BV
3.7x
0.0%
$8.35
Implied price using comparable company data
100%
$48.49

34. Valuation using Benjamin Graham's formula
Earnings from 2013
$4,594.87
Expected Annual growth rate G
4.00
Value of equity (E*8.5+2*G)
Implied price per share
$48.08

35. Key decision driver Upside Strong presence and growth of Humira
Potential breakthrough in hepatitis C therapy and 20 products in pipeline
Skilled management capable of delivering groundbreaking therapy
Downside
Failure to deliver new products or getting regulatory approval
Sales dependent heavily on Humira & limited diversity of products
Product recalls, litigation, high tax burden
Changing regulatory requirements

36. Recommendation
HOLD
Current price/share: $48.57 (Nov 11, 2013) DCF $47.04 DCF Scenario: Best case $51.77, Base case $51.21 Comparable $48.49 Ben Graham $48.08