COVID-19 favors AbbVie (ABBV) in reporting upbeat Q1 results

AbbVie (NYSE: ABBV), which is expecting to close the acquisition of Allergan in this month, reported its first quarter 2020 earnings results last Friday. The drug manufacturer’s quarterly results surpassed the market’s estimates as COVID-19 related lockdown and social distancing made patients and pharmacies to build up some additional inventory of AbbVie drugs to ensure they had adequate supply. Also, during the quarter, the demand for KALETRA and NIMBEX, AbbVie’s key medicines, increased directly related to COVID patient treatment.

COVID-19 impacts

AbbVie, which is supporting clinical research efforts for COVID-19, had robust demand across its product portfolio heading into the COVID crisis. The US and other parts of the world started implementing stay at home orders and social distancing strategies in late February. Fewer new patients visited physicians’ offices, which had a modest impact on the number of new patients starts. The company stated in the earnings call that there were two fundamental effects of COVID-19 on it.

First, there has been a variable impact on new patient starts due to physicians’ offices restricting patient visits and patients adhering to stay at home orders. As an example, many dermatology offices are currently closed. AbbVie has a strong frontline position in dermatology with HUMIRA and SKYRIZI. And here, we see new patient starts for these two brands were lower by approximately 30% to 40% over this timeframe. Once these offices reopen, patient volume should return back to normalized levels. Second, we’ve also seen lower new patient utilization of hospital-based treatments such as VENCLEXTA and HCV internationally due to many hospitals limiting access to non-emergency non-COVID patients.

Outlook

AbbVie expects step-by-step relaxation in the stay at home orders starting in May across Europe and the US. 60 days after the relaxation, AbbVie expects physician offices and hospitals to reopen for more routine patient diagnosis and care, and patients to start returning to physicians’ offices for routine treatment in that timeframe.

The company also factored in a modest increase to patient assistance programs and a shift in the U.S. payer mix due to increased unemployment. At a time when many companies have pulled back their expectations, AbbVie reaffirmed its current full-year 2020 adjusted earnings per share guidance of $9.61 to $9.71 and lifted its GAAP earnings per share guidance to $7.66 to $7.76 from the earlier range of $7.60 to $7.70.

Allergan

AbbVie expects to close the Allergan acquisition in May. The company has completed all requirements with the FTC and they are in the final stages of their review process. Following the FTC process, this transaction has to get the Irish High Court approval. AbbVie estimates Allergan’s therapeutic business except for BOTOX Therapeutics to be impacted and recover from the COVID crisis.

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The company expects BOTOX Therapeutics to experience a more significant impact given that patients are being discouraged from going into the hospital for non-emergency procedures during the pandemic. AbbVie also anticipates a more pronounced impact on Allergan’s aesthetics business, as many of their customers, including plastic surgeons, med spas and dermatology offices are closed and therefore not performing procedures. Allergan’s aesthetics business is targeted to ramp back to normalized trends following the relaxation of quarantine restrictions in the US and major European markets.

When an analyst asked whether the value of the Allergan transaction has changed due to the current uncertain situation, CEO Richard Gonzalez said:

I would tell you that we don’t see any change, fundamental change in the long-term value of the transaction. The benefits that we were trying to drive by acquiring the Allergan business are the same, and the long-term valuation I believe is the same. Now I think what some of the investors are probably concerned about is obviously the aesthetics business is an important franchise, as I indicated before, represents about third of the revenues and about third of the profits, and it’s an attractive franchise.

There was a doubt raised by an analyst who asked whether Allergan will publicly report its first quarter results. CEO declined to comment on that and replied that Allergan has to respond to this question, not AbbVie.

Clinical trials

Given the current challenging environment, AbbVie delayed onsite start-up activities for new clinical studies. The company had planned to continue some start-up activities that can be performed remotely and to resume onsite activities as well as new study initiation on a case-by-case basis. AbbVie had halted screening of new patient recruitment for a small minority of non-critical ongoing studies. The rest of the studies continue to enroll, albeit with decreased screening rates in the short-term. The company expects the limited impact on already fully enrolled clinical trials and currently expects minimal impact to the overall timing of critical programs and key regulatory submissions.

Check out AbbVie’s full Q1 2020 earnings transcript here

Once the situation is stabilized, AbbVie plans to restart the paused clinical studies and evaluate the impact on its portfolio. As of now, the company does not expect the global pandemic to have long-term or significant impacts on the R&D programs.