Shares of the Illinois-based AbbVie (NYSE:ABBV) sank by an eye-catching 10.7% last month, according to data provided by S&P Global Market Intelligence. That’s equivalent to a $20 billion drop in market capitalization. What caused investors to hit the panic button on the drugmaker’s stock last month? Early on in September, the U.S. Food and Drug Administration issued a wave of new warnings for a class of drugs known as JAK inhibitors.
The warning stemmed from a large safety-related study showing that patients taking Pfizer‘s JAK inhibitor medication Xeljanz, an arthritis drug, were at increased risk of heart attack, stroke, cancer, blood clots, and death. AbbVie’s next-generation rheumatoid arthritis med, Rinvoq, received a similar warning from the FDA because it belongs to the same class of medications as Pfizer’s drug. Investors apparently took this regulatory setback to mean that AbbVie’s new growth product will ultimately be negatively impacted by this news.
AbbVie has been going through a long-winded metamorphosis for a number of years. The biopharma has been working diligently to build a portfolio of newer growth products to soften the blow from the patent expiration for Humira, an autoimmune disease medication used for a laundry list of conditions. Humira was formerly the world’s best-selling pharma product of all time before the COVID-19 pandemic, and a big reason AbbVie has been one of the fastest-growing pharma companies over the prior decade.
Rinvoq, unfortunately, was a key part of AbbVie’s plan. Wall Street estimated that the drug could bring in over $10 billion in sales a little past the middle of the decade. This new warning, however, could slow of the adoption rate for this entire class of potent medications. That’s not guaranteed to happen of course. But the market seems to think this dire outcome is a foregone conclusion, at least based on how AbbVie’s stock has reacted to this news so far.
Is AbbVie’s stock a bad news buy? Prior to this pullback, I thought AbbVie’s stock was getting a little overheated. The drugmaker’s shares were up by close to 17% for the year (when including dividends as part of the total return), and it sported a price-to-earnings ratio well over 30. Even after this drop, though, AbbVie’s shares aren’t exactly cheap (with trailing P/E of about 30), and this JAK regulatory news will take a while to fully understand. All told, investors might be better off to sidestep this beaten-down biotech stock for the time being.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.