How AbbVie Compares with Peers in Pharma Sphere



AbbVie and peers

AbbVie (ABBV) is a global research-based biopharmaceutical company with operations in over 170 countries. It has many close competitors, including Merck (MRK), Novartis (NVS), Eli Lilly (LLY), Pfizer (PFE), and AstraZeneca (AZN) in different therapeutic areas.

Pharmaceutical and healthcare companies are capital intensive, and at times they have high debt on their balance sheets stemming from acquisitions and joint ventures.

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The EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) is often used to value capital-intensive, cyclical, and volatile industries. It’s also capital-structure neutral and reflects the value of the business to both debt and equity holders. The above chart compares the forward enterprise multiple (forward EV/EBITDA multiple) trend for AbbVie and the industry over the last 30 months.

EV/EBITDA multiple

AbbVie’s forward EV/EBITDA multiple is ~11.8x, which is lower than the industry average of ~14.6x. This is due to its higher leverage and, in part, as a result of expected revenue loss related to its key product, Humira, in the near term. Here’s how the enterprise multiples of other pharmaceutical companies compare:

  • Merck (MRK) – ~11.7x
  • AstraZeneca (AZN) – ~12.5x
  • Pfizer (PFE) – ~10.5x

Price-to-earnings multiple

The PE (price-to-earnings multiple) is one of the simplest multiples used to assess valuations. PE is generally more applicable to established companies with a high degree of revenue visibility. It’s one of the most widely used valuation multiples and measures what price shareholders are willing to pay per unit dollar of a company’s earnings.

AbbVie’s forward PE is ~15x for 2015, while the industry’s is ~20.4x. The company’s forward PE is lower due to the termination of a proposed transaction with Shire as well as the patent expiry of AbbVie’s key product, Humira, in December 2016.

The Health Care Select Sector SPDR Fund (XLV) and the iShares U.S. Healthcare ETF (IYH) focus on pharmaceutical companies.


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