AbbVie sees near-term slowdown; looks prepared to tackle patent expiration

AbbVie, Inc. (NYSE: ABBV) has delivered yet another quarter of strong top-line and earnings performance but issued cautious guidance for fiscal 2023 citing an estimated drop in sales due to the expiration of its top-selling drug Humira’s patent.

Interestingly, ABBV remained mostly unaffected by the market downturn that put Wall Street under pressure in 2022, to the extent that its stock rose to a record high early last year. That reflects investors’ confidence in the company’s ability to deal with the situation when Humira loses exclusivity.

Dividend Power

AbbVie has raised dividends regularly over the past several years, and currently offers an impressive yield of 3.9% which is above the average yield. Market watchers are divided in their recommendations for the stock, which is expected to grow modestly this year. The specialty biopharmaceutical company, which is headquartered in North Chicago, owes its success mainly to the diversified portfolio and large pipeline. But the business model will be put to test soon, as the market will be keeping a track of how the company deals with generic competition to Humira.

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AbbVie Q4 2022 Earnings Call Transcript

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Humira, which is indicated for the treatment of multiple diseases including rheumatoid arthritis, psoriatic arthritis, and ankylosing spondylitis, is probably the most popular drug in that segment. So, losing market share to Humira’s biosimilars would have a negative impact on the company. But AbbVie has other high-demand products that contribute significantly to the top line.

Alternatives

Since the patent expiry was expected, the company started making preparations well in advance to confront that. And, it developed and launched Skyrizi and Rinvoq to cover all of Humira’s major indications, with an additional distinctive indication for atopic dermatitis. These agents are also being studied for five additional indications.

Combined, they generated more than $7 billion in sales in 2022. They are expected to gather further momentum this year and exceed the all-time high sales of Humira by 2027. The impressive sales performance so far indicates the two drugs have the capacity to take over when Humira loses exclusivity.

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“We have successfully created a well-diversified portfolio with multiple growth platforms in attractive and sustainable markets. This includes the rapid development and launch of Skyrizi and Rinvoq across all of HUMIRA’s major indications, plus a distinct new indication, atopic dermatitis. We anticipate these two products will collectively exceed the peak revenues achieved by HUMIRA by 2027 with significant growth expected through the end of the decade,” said AbbVie’s CEO Richard Gonzalez in a recent statement.

Strong Q4

AbbVie has been exceptionally good at delivering stronger earnings than widely expected, with the numbers beating estimates in almost every quarter in the past. It was no different in the December quarter when non-GAAP profit jumped 17% to $3.60 per share. That is attributable to high margins in the core Immunology division that generated 17% more revenues than in the year-ago quarter – representing more than 50% of the total business. Meanwhile, weakness in the other operating segments and lower sales in the non-US markets restricted total revenue growth to just 2%.

On Monday, shares of AbbVie traded slightly above their 52-week average, aided by last week’s post-earnings gains. The stock had experienced weakness in the early weeks of the year.