Is ABBV a Long-Term Growth Stock Buy With a $27 Billion Sales Projection?

Pharma company AbbVie Inc. (ABBV), with a market cap of over $300 billion, has recently unveiled its fourth-quarter earnings report. Its revenue for the quarter amounted to $14.30 billion, down 5.4% year-over-year, while its adjusted EPS declined 22.5% from the year-ago quarter to $2.79. But both figures surpassed analysts’ estimates.

Following its 2013 spinoff from Abbott Laboratories, ABBV, under the leadership of CEO Richard Gonzalez, was confronted with the challenge of preventing sales dips amid increasing competition to its top-performing drug, Humira – which at the time accounted for roughly $9 billion in annual sales, making up over half the company's total sales.

Humira achieved staggering success, hitting its peak with $21.23 billion in annual sales in 2022 and accumulating more than $200 billion in lifetime revenue – shattering even the most optimistic Wall Street projections. Market analysts praised Humira's impressive growth trajectory, but the looming patent expirations provoked investor anxiety. Humira's impressive results equipped ABBV with additional resources and time to adapt to a post-Humira future.

Sales of Humira dropped 40.8% year-over-year to $3.30 billion worldwide in the fiscal fourth quarter that ended December 31, 2023. This decline notably outpaced the full-year sales downturn of 32.2% year-over-year, a trend the drug maker attributes to the emergence of biosimilar drugs on the market.

ABBV believes that Humira's fiscal 2023 revenue remains strong at $14.40 billion despite the introduction of biosimilars. As competition from these copycat medications is projected to surge in the upcoming year, ABBV forecasts that sales for Humira will drop to $9.6 billion.

ABBV foresaw the impending loss of exclusivity and strategically diversified its product line. ABBV's strategic plan, upon the entry of Humira biosimilars, aims to weather the initial financial impact in 2024 before regaining momentum in 2025.

To cushion against this looming loss of exclusivity – the most significant event of its kind across the industry to date – ABBV planned to leverage sales of its rapidly growing products, including Humira’s immunology heirs, Rinvoq and Skyrizi. ABBV's two innovative anti-inflammatory medications, Skyrizi and Rinvoq, are used to manage conditions like Crohn’s disease and arthritis.

ABBV's acquisition of Allergan in 2020 and the creation of these new drugs, however, did not entirely abate investors' apprehensions about the long-term viability of ABBV’s products or its ability to maintain sales and earnings growth as consistently as it did during Humira's reign. This residual anxiety has seen the stock oscillating between $134 and $175 over the past two years. Nonetheless, concerns were substantially eased following the company's strong fourth-quarter financial report.

Revenue from Skyrizi and Rinvoq climbed 51.9% and 62.9% year-over-year, respectively. This propelled their combined revenue contribution to $3.65 billion. The company projects the two drugs to generate an impressive $16 billion in sales revenue. In 2027, these medicines could amass $27 billion, thereby outperforming peak earnings from Humira.

Upon detailed examination, Skyrizi could accumulate over $17 billion by 2027, underpinned by increased market share in psoriasis treatment and its growing use in inflammatory bowel disease (IBD).

Rinvoq is also slated for success, with projections suggesting it will reach over $10 billion in revenue in 2027 across rheumatology, IBD, and atopic dermatitis applications. Rinvoq's forecast includes moderate additions from several new treatment areas, onto which ABBV hopes to introduce the drug during the latter half of this decade. These new indications have a combined peak sales capability equivalent to several billion dollars.

ABBV maintains a robust competitive stance with high capture rates, as confirmed by Chief Commercial Officer Jeffrey Stewart. While currently on the lower end of the prescription share spectrum, Stewart remains optimistic about potential growth opportunities. He states there remains significant scope for boosting patient uptake of Rinvoq and Skyrizi, particularly within their existing treatment applications.

Moreover, the company has submitted its Skyrizi application for use in treating ulcerative colitis, with approval anticipated by 2024. Rinvoq is concurrently undergoing Phase 3 trials for additional treatment indications, indicating an avenue for growth in the future. Potential applications for Rinvoq include conditions such as vitiligo, hidradenitis suppurative (HS), and lupus.

Beyond Skyrizi and Rinvoq, there is also ongoing development of next-generation drug options. Lutikizumab, for example, recently displayed beneficial outcomes in a Phase 2 trial in adults experiencing moderate to severe HS and is set to advance to Phase 3.

ABBV's proficiency spans beyond immunology, despite its Oncology division recording a 7.4% year-on-year decrease to $1.51 billion, attributed to competitive pressures on Imbruvica. This trend is expected to prevail for a few more years. Imbruvica's U.S. market share has dwindled in favor of other BTK inhibitors and is among the initial 10 drugs that will be subject to price negotiation for Medicare coverage.

Nevertheless, ABBV's $10 billion ImmunoGen acquisition deal is projected to bolster the company's presence in the solid tumor space – beginning with the already-approved Elahere, a second-line therapy for specific ovarian cancer types. The deal is anticipated to result in R&D synergies across multiple treatments in this area.

ABBV's aesthetics segment has demonstrated resilience, marking a 6.4% year-on-year appreciation, primarily driven by an 11.8% annual increase from Botox cosmetics. Given Botox's impressive market penetration, the aesthetics segment is envisaged to continue trending upwards.

In addition, ABBV's neuroscience division reported a substantial 22.6% year-over-year growth, fueled by successful launches of migraine medications and an extended indication for Vraylar for major depression treatment. Migraine medications Ubrelvy and Qulipta are projected to attain combined peak revenues of $3 billion.

A paramount development in this segment was the $8.7 billion Cerevel Therapeutics acquisition. ABBV's prevailing neuroscience portfolio, in conjunction with its combined pipeline with Cerevel, epitomizes a substantial growth prospect stretching into the next decade.

For the fiscal year 2024, ABBV anticipates its revenue to be $54.2 billion and adjusted EPS between $11.05 and $11.25. This guidance includes a $0.32 per share dilutive impact tied to the proposed ImmunoGen and Cerevel acquisitions, slated for completion around mid-2024.

Analysts predict ABBV's revenue for the same period will reach $54.53 billion, while EPS is projected to hit $11.25 billion.

Following an optimistic quarterly earnings report, a surge was noted in ABBV shares. Eliciting this rise were the post-earnings price target escalations by analysts tracking the trajectory of the pharma company. Wall Street analysts expect the stock to reach $176.53 in the next 12 months, indicating a potential upside of 3.1%. The price target ranges from a low of $135 to a high of $200.

Wells Fargo maintains an overweight rating on ABBV shares, raising the firm's price target to $200. The financial institution highlighted an improving growth narrative for ABBV, as its products – Skyrizi and Rinvoq – are positioned to surpass Humira.

Bottom Line

Global medicine expenditure grew 35% over the past five years, and it is anticipated to surge around 38% by 2028, underlining the increasing demand for medicinal products. Moreover, the escalation in autoimmune diseases, now the third most frequent reason for chronic afflictions in the U.S., has instigated an ascending demand for next-generation immunology drugs. The next-generation immunology drugs market is poised to grow at a 6.1% CAGR by 2029.

Pharma firm ABBV is taking considerable strides to foster investor confidence, exhibiting its ability to succeed Humira, the primary growth engine since its inception as an independent entity. Furthermore, robust sales of Skyrizi and Rinvoq, along with significant oncology and neuroscience acquisitions, have fortified its operational pipeline and enhanced portfolio balance.

Considering market dynamics and drug trajectory, ABBV's projected growth appears feasible. While Humira sales are projected to temper due to escalating biosimilar competition from 2024, consistent gains are expected for the company's immunology franchise post-2024. The adept transition after Humira's exclusivity termination played a pivotal role in the recent upgrade.

In the pipeline, ABBV will require bolstering phase 3 assets, although an improved phase 2 pipeline and recent acquisitions of ImmunoGen and Cerevel enhance the company's long-term outlook. With the ImmunoGen acquisition, optimism surrounds the cancer drug Elahere. Late 2024 or early 2025 should see promising phase 2 data for several Alzheimer’s drugs, potentially paving the way for major new blockbusters.

Moreover, the need for debt to finance acquisitions could potentially impact the company’s predicted net margin. However, improving bottom lines could be seen as the debt diminishes.

Investors relish substantial portfolio returns, especially income investors who prioritize consistent cash flow from liquid investments. ABBV pays an annual dividend of $6.20 per share, yielding 3.68%, far exceeding the industry average of 1.59% and the S&P 500's yield of 1.34%. ABBV's dividend has seen an 8.68% CAGR over the past five years.

Future dividend growth will be contingent on earnings growth and the payout ratio. ABBV's present payout ratio stands at 53.92%, signifying that over 53% of its trailing 12-month EPS was disbursed as dividends.

Additionally, the company has maintained an impressive track record, with a decade-long streak of increasing dividends. Over the past 10 years, its dividend payments grew at a 14.1% CAGR. Its trailing-12-month levered FCF margin of 43.65% notably exceeds the industry average. Moreover, as of September 30, 2023, ABBV had cash and equivalents of $13.29 billion. The overall scenario supports the notion that dividend hikes over the past decade have not impeded cash accumulation.

Moreover, its notable reserve could act as a buffer against unforeseen circumstances. Therefore, this stock presents a solid prospect for passive income generation, reinforcing investors' rationale for the inclusion of ABBV in their portfolios.

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