Bad timing for my new buy – AbbVie?
Last week, on Monday the 24thof June, I’ve made a new buy for my Vrijheid Fonds. I’ve averaged down on one of mine Dividend Aristocrats and I have bought 8 shares of ABBV at $ 78.425 per share (incl. fees). For more information about this buy, just read my post recent buy Abbvie.
I was very happy with this buy, because with this buyI’ve added almost €13 (after taxes) of projected dividend to my Vrijheid Fonds for 2019. And at the time of buying, I continued to believe that AbbVie was going to fill the gap that Humira will leave mid 2013. The gap you ask, well Humira generated nearly $20 billion in sales last year, or around 60% of AbbVie’s revenue. And the patent runs out in mid-2023.
Pharmaceutical companies, like AbbVie, make money by investing in R&D to develop drugs that they can then patent and sell at good prices. However, patents aren’t granted for an indefinite term. So, companies continue to earn profits through the life of the patent while developing other drugs than can be patented to generate revenue that takes its place.
And this cycle then continues. Because once the patent runs out, generics flood the market and then of course the increased competition ensures that prices and sales drop off sharply
As I have written, I was happy with my buy. But then I heard the news the next day. On Tuesday, June 25th, AbbVie announced a new take over which came as a surprise for most investors. AbbVie announced it will buy Allergan for $63 billion, combining the companies behind Humira and Botox. It is still just an announcement, it’s far from a done deal. Because the companies will need necessary approvals, although the lack of overlapping products likely means that there won’t be anticompetitive concerns.
AbbVie said combining with Allergan will give it a “diversified product portfolio [that] meets our strategic goal to reduce reliance on Humira.” At this moment I find it hard to analyze this take-over. However, the deal should greatly benefit AbbVie, and should help protect its growth after Humira loses exclusivity in the U.S.
Most investors weren’t happy with this news because AbbVie stock fell 15% on the news. This was the first (emotional) reaction. In the next days the stock price slowly raises again.
I just bought my shares the day before this announcement. Couldn’t I have waited just another day? That is the question that went through my mind a couple of times on that Tuesday. And every time when I asked myself that question, I came to the conclusions that is impossible to time the market.
And as I wrote in my buy-post: I’ll rather be on time in the market, then timing the market. Or as PassiveCanadianIncome wrote: Stock price is a kind of short term noise. 😉
This is a big acquisition by AbbVie. And I have read a lot of positive things about this acquisition. And yes, also some negative. But I’m a positive guy. I did a quick analysis on AbbVie and I still like what I see. So, I wouldn’t have made another decision if I knew of this acquisition. I still would have pulled my buy trigger. The only difference is that probably would have bought 1 or 2 stocks more. But hey, you can’t win them all.
What are your thoughts about this acquisition? Do you think AbbVie is still a buy?
I like to hear from you.