Despite generic threat, AbbVie (ABBV) remains a good long-term bet

Biopharmaceutical firm AbbVie Inc. (NYSE: ABBV) is currently at a crucial juncture as it strives to overcome the threat from generic competitors to its flagship product. While the company counts on its broad portfolio and strong pipeline to stay on the growth path, it seems investors are looking for tangible cues to make their buying decisions.  

After hitting a record high a few weeks ago, shares of AbbVie retreated to the pre-peak levels. It is one of the few stocks that remained unchallenged by the market selloff, but ABBV experienced weakness after the company reported mixed results for the first quarter. Though the downtrend is unlikely to last long and the price is seen recovering in the coming months, the stock still looks slightly risky due to continued softness in the sales of certain key products including cancer drug Imbruvica.

The Pros

However, AbbVie is unlikely to disappoint long-term investors, given its track record of paying good dividends and returning value to shareholders. After consistent hikes over the years, the current dividend yield is an impressive 3.5%. Also, despite the slowdown, sales constantly surpassed the market’s projection. That is significant because the benchmark pharma index lagged the broad market during that period. Above all, prospective buyers would find the current valuation attractive.

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AbbVie Q1 2022 Earnings Call Transcript

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Of late, there have been concerns over the deceleration in the sales of the company’s lead products including Humira, which is indicated for multiple medical conditions. It accounts for more than one-third of the company’s total sales and is considered the world’s top-selling drug. After losing patent exclusivity in Europe a few years ago, Humira is facing the risk of being replaced by generics in the U.S. by next year, setting the stage for stiff competition.

Beyond Humira

While the management is confident that the company’s immunosuppressants Rinvoq and Skyrizi could offset the impact of Humira’s slowdown, a clear picture with regard to the sale trends is yet to emerge. On the positive side, the alternative therapies are performing well and have been approved across all of Humira’s important indications.

“Skyrizi’s recent launch in psoriatic arthritis, as well as the anticipated regulatory approval in Crohn’s disease, should also serve as important growth drivers over the long term. Rinvoq is also contributing to compelling sales growth. Subscription trends in RA have recently stabilized as we expected and we’re making excellent progress repositioning the brand as the leading second-line agent based on the robust data generated across our broad development programs,” said AbbVie’s CEO Richard Gonzalez recently.

Q2 Report on Tap

AbbVie is all set to publish second-quarter results on July 29 before the opening bell. In the first quarter, revenues increased 4% annually to $13.5 billion but fell short of expectations. Adjusted earnings increased 9% to $3.16 per share and came in above the consensus forecast. The management recently guided its full-year earnings below estimates, while forecasting strong growth for Rinvoq and Skyrizi through 2025.

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ABBV on Tuesday traded slightly above $150 after moving sideways in the past couple of weeks. The current valuation is above the long-term average. The stock has gained 13% so far this year and mostly outperformed the market.