Regulatory approvals for AbbVie, J&J bolster the Club investment case

Published Thu, Oct 20 20223:18 PM EDT

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

Regulators in Canada and the U.S. have greenlit new product offerings from two Club pharmaceutical giants, AbbVie (ABBV) and Johnson & Johnson (JNJ) — positive developments that validate our investment case in both holdings. AbbVie The news: Canada's national drug regulator, Health Canada, on Thursday approved AbbVie's Skyrizi as a treatment for Crohn's disease, an inflammatory bowel disorder. The regulator had previously cleared Skyrizi to treat active psoriatic arthritis and, for certain adults, severe plaque psoriasis. Skyrizi has been approved by the U.S. Food and Drug Administration to treat all three of those conditions. In the European Union, it's authorized to treat plaque psoriasis and psoriatic arthritis, while its use against Crohn's disease is under active consideration . Separately, AbbVie on Thursday announced it was buying privately-held biotech startup DJS Antibodies for $255 million in cash. The U.K.-based firm focuses on chronic inflammatory diseases and developed the HEPTAD platform — used to discover antibodies — which AbbVie said in a statement would complement its biotherapeutics research. The Club take: We pay close attention to all headlines involving Skyrizi because it's one of AbbVie's most important engines for current and future growth. Its other crucial drug is Rinvoq, a rheumatoid arthritis treatment. They are helping propel AbbVie forward, as the company prepares for its blockbuster drug, Humira, to lose exclusivity in the U.S. next year. As a health-care name, AbbVie is the kind of defensive stock we like in this uncertain market. And while this latest Skyrizi approval in Canada is not by itself a reason to buy the stock, it's positive that it continues to gain momentum as a Crohn's disease treatment. That helps expand its total addressable market. Buying DJS also is not a sole reason to invest in AbbVie on Thursday. Acquisitions of this nature — a big, established player buying a smaller pre-clinical startup — aren't uncommon in biotech. Companies like Abbvie tend to take a lot of shots with these sorts of acquisitions in the hope a few will land. Investors continue to look for more information on when AbbVie management expects earnings will bottom out from the Humira patent expiration. While we may not receive full-year 2023 guidance when the company releases third-quarter earnings before the bell on Oct. 28, we may gain a little more insight into the thinking around Humira. The less uncertainty that lingers, the better it is for the stock. Johnson & Johnson The news: One of Johnson & Johnson's medical device companies received FDA clearance for a technology used in spine surgeries. The technology platform — called Teligen — was developed by DePuy Synthes, a J & J subsidiary under the medical technology umbrella. J & J said Thursday it expects Teligen to be available in the U.S. later this year. Medical technology was J & J's second-largest division by revenue in the company's better-than-expected third quarter , at $6.8 billion, behind the pharmaceutical unit's $13.2 billion in sales. The Teligen platform is specifically meant for use in MIS-TLIF procedures, shorthand for minimally invasive surgical transforaminal lumbar interbody fusion. Those surgeries are performed to treat painful spine-related ailments like herniated discs and degenerative disc disease . The Club take: The regulatory approval demonstrates some of the innovation going on inside J & J's medical technology business, which also includes products like catheters and contact lenses. J & J CEO Joaquin Duato, who took over the role earlier this year, has spoken about the complementary nature of the med tech and pharmaceutical divisions. That's why those two units are being paired together as part of J & J's impending split. They will form one publicly traded company, while the consumer health unit will become its own entity. "The future of medicine, it's going to be a combination of biopharmaceutical and surgical interventions. That's where Johnson & Johnson is going to play, in that intersection. That's why it makes sense to keep med tech and pharmaceuticals together," Duato told CNBC last month. We like owning J & J for its defensive characteristics right now, while all three divisions are under the same roof. Long term, we also support the breakup, which is expected to be completed by the end of next year. We view that as a positive catalyst on the horizon and see this week's post-earnings pullback as a buying opportunity . (Jim Cramer's Charitable Trust is long ABBV and JNJ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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A sign stands outside a Abbvie facility in Cambridge, Massachusetts, May 20, 2021.

Brian Snyder | Reuters