AbbVie (ABBV) operates as a research-based major pharmaceutical company that combines advanced science, expertise, and passion to improve lives by solving serious health issues. The company was created as a spin-off from Abbott Laboratories (ABT) in 2011.
Abbvie faces the challenge of replacing declines in Humira revenue which was $19.9 billion in 2018. Humira is the company’s biggest seller which comprised 57% of AbbVie’s total sales in Q1 2019. Humira is used to treat rheumatoid arthritis [RA], Crohn’s disease, chronic plaque psoriasis, psoriatic arthritis, ankylosing spondylitis, polyarticular juvenile idiopathic arthritis, and non-infectious uveitis.
Humira’s patent expired in the E.U. in October 2018. Humira is protected from competition in the United States until 2023. There was a 28% decline in international Humira sales in Q1 2019 as compared to Q1 2018, which reflects the patent expiration in Europe. Humira’s U.S. sales increased 7% in Q1 2019 since the drug is still protected from competition in the states.
The company’s second best seller is Imbruvica which comprised 13% of AbbVie’s total revenue in Q1 2019. Imbuvica’s sales were $3.6 billion in 2018. Imbruvica has indications for: chronic lymphocytic leukemia, previously treated mantle cell lymphoma, Waldenstrom’s Macroglobulinemia, previously treated marginal zone lymphoma, previously treated chronic graft versus host disease.
AbbVie’s third highest selling drug is Mavyret, which had total 2018 sales of $3.4 billion. Mavyret is the #1 prescribed chronic hepatitis C medicine. It is also the only 8-week cure for all common types of hepatitis C (types 1-6 not previously treated and without cirrhosis).
AbbVie also has other FDA approved drugs on the market and an extensive pipeline of drugs being developed.
Strengths
Abbvie’s primary strength is their large and diverse pipeline of drugs being developed. The pipeline has the potential to create a long-term source of growing revenue.
- AbbVie has a drug that has the potential to be a replacement for lost Humira revenue with their drug, upadacitinib. Upadacitinib demonstrated positive results in a Phase 3 study for treating RA. Upadacitinib was found to be superior to Humira (adalimumab). AbbVie filed for FDA approval for the drug.
- AbbVie has strong manufacturing capabilities with a reliable supply chain. So, the company has an effective ability to get drugs manufactured and distributed to drive sales.
- High gross margin of 77%, EBITDA margin of 42.7% and ROIC of 21%.
- Strong cash flow growth of 34% over the industry average of 10.2%.
- Diverse pipeline with numerous compounds spanning the following areas: immunology, oncology, neuroscience, virology, and general medicine.
- Strong research & development [R&D] program, where AbbVie spends over $5 billion or about 16% of total revenue.
source: AbbVie.com
Weaknesses
AbbVie is subject to competition for their largest seller, Humira, as patent protections expire. That will be the biggest hurdle to overcome over the next 3 to 5 years.
- AbbVie is highly dependent on sales of Humira as it comprises 57% of total sales.
- The company is highly dependent on their top three selling drugs, Humira, Imbruvica, and Mavyret, which together comprise about 80% of total revenue.
- Weak balance sheet: High amount of debt relative to cash (7.25x more total debt than total cash), negative stock holders equity of $7.83 billion.
Opportunities
AbbVie’s largest opportunity is to ensure that they replace revenue lost to patent expirations to achieve ongoing revenue growth.
- Aggressive marketing of upadacitinib if it receives FDA approval. This drug has blockbuster potential and could replace revenue lost to Humira’s competition. Revenue estimates for upadacitinib are $2.2 billion for 2023.
- Continued development of new drugs for unmet medical needs.
- Gain FDA approvals for additional indications for the company’s drugs that are on the market.
- Strategic acquisitions that could add to revenue and offset revenue lost to patent expiration.
- Strategic partnerships with other companies for drug development where synergies could be realized from each company’s expertise.
Threats
AbbVie faces near-term threats from biosimilar competition outside of the United States where the patent for Humira expired. The company is already experiencing declines in revenue as a result. Larger losses are possible in 2023 after the U.S. protections expire.
- The company is subject to waiting for FDA and international approvals before marketing new drugs and new indications for existing drugs. This can create delays in getting drugs to the market.
- There is a lawsuit challenging AbbVie’s protection against competition for Humira in the U.S. until 2023. If AbbVie lost this lawsuit, the company could face competition in the U.S. for Humira earlier than 2023.
- AbbVie faces competition from other major pharmaceutical companies: Pfizer (PFE), Merck (MRK), Roche (OTCQX:RHHBY), Bristol-Myers Squibb (BMY), and AstraZeneca (AZN). These companies could develop similar drugs for the same indications which could compete with AbbVie’s markets.
Long-Term Business Outlook
Although faced with serious challenges, AbbVie has a strong pipeline of future revenue potential. AbbVie has a near-term potential catalyst with a pending FDA approval for upadacitinib, which could be considered an improved treatment over Humira for RA since it was found to be effective in patients that didn’t respond to Humira and other drugs.
Over the longer-term, AbbVie’s extensive pipeline could create revenue growth for multiple decades. Upadacitinib is in four Phase 3 studies for additional indications including: atopic dermatitis, Chrohn’s Disease, psoriatic arthritis, and ulcerative colitis. However, it is not clear how quickly AbbVie will be able to replace revenue lost to Humira competition within the next five years.
AbbVie also has 12 other Phase 3 studies for new drugs and FDA approved drugs with new indications. AbbVie’s drug, Venclexta, is awaiting FDA approval for the new indication of treating first line chronic lymphocytic leukemia [CCL].
Although the revenue picture might be a little fuzzy due to the Humira situation, AbbVie is poised to add multiple new drugs to the global market over the next five years and beyond. So, there could be multiple positive catalysts during this time period from new drug/indication approvals. As a result of the strong pipeline, AbbVie is poised to grow and recover from the Humira-related competition over the next 10 years and beyond.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Business relationship disclosure: The article was written by David Zanoni with feedback from Kirk Spano.
Additional disclosure: The article is for informational purposes only (not a solicitation to buy or sell stocks). David is not a registered investment adviser. Kirk Spano is an RIA. Investors should do their own research or consult a financial adviser to determine what investments are appropriate for their individual situation. This article expresses my opinions and I cannot guarantee that the information/results will be accurate. Investing in stocks involves risk and could result in losses.
