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Jing Chen Hisham Haider Dewan Harout Sahakian

AbbVie, Inc. Date: 12 November 2013. Jing Chen Hisham Haider Dewan Harout Sahakian. Agenda. Introduction Holding information Macro-economic overview Industry analysis Company overview Financial analysis and projections Valuation Recommendation. Introduction to AbbVie, Inc.

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Jing Chen Hisham Haider Dewan Harout Sahakian

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  1. AbbVie, Inc. Date: 12 November 2013 Jing ChenHisham Haider DewanHarout Sahakian

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

  3. Introduction to AbbVie, Inc. Source: AbbVie Inc. 10K Filing 2012, Page 1, 6, 13

  4. 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 Source: Bloomberg Terminal, Revenue by product

  6. Revenue Breakdown by Major Drugs Source: AbbVie, Inc. 2012 10K filing page 45

  7. Where Does AbbVie Sell? Source: AbbVie, Inc. 2012 10K filing page 45

  8. Revenue by Product Source: AbbVie, Inc. 2012 10K 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 Source: AbbVie, Inc. 10K 2012 page 5

  10. R&D Process and Patents AbbVie R&D Expense $2.8B in FY2012 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 @ 27.53 100 shares @ 34.22 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% Source: Yahoo Finance

  13. Macro-economic Overview Source: 1. IBISWorld Industry Report 33451b Medical Device Manufacturing in the US October 2013, page 4 2. US Census Bureau http://quickfacts.census.gov/qfd/states/00000.html 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

  14. Brand Name Pharma. Industry in U.S. Source: http://clients1.ibisworld.com/reports/us/industry/ataglance.aspx?entid=487 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 2013. 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 2013. Pg 15-16.

  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 Source: IRS website http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

  18. Risks to AbbVie

  19. Porter's Five Forces Analysis for ABBV

  20. SWOT Analysis for AbbVie

  21. AbbVie Life Cycle Source: http://marygardiner.wordpress.com/2013/05/28/product-cycles/

  22. Recent Financial Performance Source: ABBV 8K filed on 2013-10-25, ABBV CFO presentation in JP Morgan Healthcare Conference http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTY2OTgyfENoaWxkSUQ9LTF8VHlwZT0z&t=1 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

  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 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

  27. Cost of Capital * Assumes market value of debt & equity instead of book value on the balance sheet

  28. Free Cash Flow to Firm

  29. Discounted Cash Flow

  30. DCF – Sensitivity to WACC and G Growth rate

  31. Scenario Analysis (based on revenue)

  32. Comparable Companies to AbbVie

  33. Comparable analysis

  34. Valuation using Benjamin Graham's formula

  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

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