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Should You Buy AbbVie (ABBV) After Q2 Beat, Guidance Raise?

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On Jul 25, AbbVie (ABBV - Free Report) announced strong second-quarter results. AbbVie beat estimates for both earnings and sales. Earnings declined 8.9% year over year due to costs related to recent acquisitions and deals. Sales rose 5.6% year over year on an operational basis.

AbbVie lost patent protection for its blockbuster immunology drug Humira in the United States in January 2023 and in the EU in 2018. Sales of Humira are declining due to loss of exclusivity and biosimilar erosion. However, in the second quarter, sales of AbbVie’s ex-Humira drugs rose more than 18% (on a reported basis), driven by robust sales of key drugs, Rinvoq, Skyrizi, Venclexta and Vraylar, coupled with significant contributions from newer drugs Ubrelvy, Elahere, Epkinly and Qulipta.

Sales of blockbuster immunology drugs Rinvoq and Skyrizi rose 60.4% and 46.6%, respectively, on an operational basis due to label expansions to the drug to include new patient populations. Sales of Humira and Imbruvica declined in the quarter.

AbbVie raised its earnings and sales guidance for 2024. The company expects adjusted EPS in the range of $10.71-$10.91, up from the previous guidance of $10.61-$10.81.

Total revenues are expected to be approximately $55.5 billion, up from the prior expectation of approximately $55.0 billion. AbbVie raised its sales expectations for Rinvoq, Skyrizi and Venclexta while lowering the same for its aesthetics products, Botox and Juvederm. AbbVie said on the conference call that the aesthetics market growth trends in the United States and China are below the company’s expectations.

In the second half of the year, AbbVie expects its operational growth to be slightly more than 4% recorded in the first half, driven by ex-Humira drugs.

Nonetheless, a single quarter’s results are not so important for long-term investors, and the focus should, rather, be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock in the post-earnings scenario.

Successful New Drugs Skyrizi and Rinvoq: AbbVie has successfully navigated Humira's loss of exclusivity by launching two other successful new immunology medicines, Skyrizi and Rinvoq. Skyrizi and Rinvoq are performing extremely well, bolstered by approvals in new indications, which are likely to support top-line growth in the next few years. AbbVie expects the combined sales (risk-adjusted) of Skyrizi and Rinvoq to be more than $27 billion by 2027. These drugs have the potential to replace Humira.

In the popular inflammatory bowel disease (IBD) space, which includes two conditions, ulcerative colitis (“UC”) and Crohn’s disease (”CD”), Rinvoq's uptake continues to be very strong for both the UC and CD indications. Skyrizi is seeing tremendous performance in CD and expects rapid access for the UC indication, for which approval was received in the United States in June and in the EU in July. On the second-quarter conference call. AbbVie said that Skyrizi and Rinvoq are expected to double their respective sales in IBD indications in 2024.

Meanwhile, new migraine drugs, Ubrelvy and Qulipta/Aquipta, represent a combined $3 billion-plus peak sales opportunity.

Boosted by its new product launches, AbbVie expects to return to robust revenue growth in 2025 with a high single-digit CAGR through the end of the decade.

Attractive Pipeline: AbbVie has several early/mid-stage pipeline candidates that have blockbuster potential. The company expects several regulatory submissions and approvals and key data readouts in the next 12 months.

In blood cancers and solid tumors, AbbVie has an exciting and diverse pipeline of promising new therapies like ABBV-383, a BCMA CD3 bispecific, in late-stage development for relapsed/refractory multiple myeloma and Teliso-V, a promising c-Met ADC, which has been developed for nonsquamous non-small cell lung cancer. AbbVie will file regulatory applications for Teliso-V in the third quarter of 2024.

AbbVie and partner Genmab’s (GMAB - Free Report) Epkinly/Tepkinly (formerly epcoritamab) was approved for relapsed or refractory (r/r) third-line diffuse large B-cell lymphoma in the United States and EU in 2023 and for third-line r/r follicular lymphoma in the United States in June 2024.

AbbVie has also faced its share of pipeline setbacks. Its Parkinson’s candidate, ABBV-951, has hit a roadblock, having faced the FDA’s rejection twice.

Accretive Acquisitions: AbbVie has been on an acquisition spree lately, which is strengthening its pipeline. Particularly, it is signing several M&A deals in the immunology space, its core area, while also signing some early-stage deals in oncology and neuroscience areas.

Recently, it acquired smaller biotechs like Landos Biopharma and Celsius Therapeutics, which are making novel drugs for treating IBD. It also signed a license agreement with China’s FutureGen to develop a next-generation anti-TL1A antibody for IBD. In recent years, there has been a surge in the prevalence of IBD conditions, CD and UC, which has attracted big drugmakers’ attention to this space.

Among some other larger deals, AbbVie acquired ImmunoGen last year, which added the latter’s antibody-drug conjugate, Elahere, for ovarian cancer to AbbVie’s oncology portfolio. In December last year, it announced the acquisition of neuroscience drugmaker Cerevel Therapeutics . The deal is expected to close soon. 

Valuation, Estimates and Price

AbbVie stock has gained 19.6% compared with an increase of 17.7% for the industry so far this year, as seen in the chart below. The stock has also outperformed the sector and S&P 500 index.

ABBV Stock Outperforms Industry, Sector & S&P 500

Zacks Investment ResearchImage Source: Zacks Investment Research

From a valuation standpoint, AbbVie appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 16.07 forward earnings, lower than 19.61 for the industry.

ABBV Stock Valuation

Zacks Investment ResearchImage Source: Zacks Investment Research

The Zacks Consensus Estimate for earnings for 2024 has declined from $11.27 to $10.86 per share over the past 30 days due to a cut in guidance for acquisition costs. However, for 2025, earnings estimates have risen from $12.10 to $12.12 per share over the past 30 days.

ABBV Estimate Movement

Zacks Investment ResearchImage Source: Zacks Investment Research

Conclusion

AbbVie faces its share of headwinds like Humira biosimilar erosion, increasing competitive pressure on cancer drug Imbruvica and slow market growth trends for fillers in the United States and China. However, AbbVie has faced its biggest challenge — Humira’s patent cliff — quite well and looks set to return to robust growth next year. 

AbbVie expects its ex-Humira growth drugs, which cover more than 80% of its total sales, to outperform its initial expectations, driven by strong performance in immunology and oncology. It expects its ex-Humira growth platform to deliver nearly $6 billion of sales growth in 2024. Importantly, the erosion in Humira sales in the United States has been lower than management’s expectations. The stock has an attractive dividend yield of around 3.3%.

After AbbVie’s better-than-expected second-quarter results and the bullish outlook for the year, investors who own AbbVie’s stock may stay invested. Buying AbbVie’s stock at its present reasonable valuation can prove prudent for long-term investors.

AbbVie currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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