1 Green Flag for AbbVie in 2022 and 1 Red Flag

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If there was one area of optimism in this market since the start of the year, I’d have to say it was healthcare. The S&P 500 healthcare sector grew 2.7% — until the first week of April hit. Then the bottom dropped out. Yet, year-to-date the healthcare sector is still down only 6% in 2022 vs. a 13.5% decline for the broader S&P 500. 

In the case of AbbVie (ABBV -1.44%), its shares have dropped 15.5% since the start of the year, due not only to the broader market decline but also because of challenges facing a top-selling product. But there’s reason to believe that both obstacles can be overcome.    

Lab technicians studying samples under a microscope.

Image source: Getty Images.

Red Flag: sales decline of top-selling drug Humira

The biggest problem facing AbbVie right now is how to make up for a decline in sales of its top-selling drug, Humira. Last year, Humira brought in $20.7 billion. That amounts to 38% of the $56 billion in total net revenue for the company. AbbVie ended the year with an increase of 3.7% in Humira sales over full-year 2020, but that number would have been stronger if not for a decline of 12.8% in the international market.

In 2018, five biosimilar drugs that compete with Humira were approved for international commercial availability. Among them is Amgen‘s Amgevita, which saw sales increase 33% during 2021 and is touted by its maker as the most prescribed Humira biosimilar in Europe.

Meanwhile, in the U.S. there are now seven approved biosimilars, which could bring a further decline in sales for AbbVie when they become commercially available in 2023. AbbVie will need to be concerned with Amgen’s top seller in Europe, but also in contention to steal sales will be Cyltezo from privately held Boehringer Ingelheim.

What makes Cyltezo interesting is that it’s the first biosimilar considered interchangeable with Humira , so it doesn’t require a new prescription. In some states, it can be easily substituted for Humira. Cyltezo should be available to enter the market in July 2023 upon Humira’s patent expiration, and it’s expected to have a lower price tag.

It basically took three years for Humira to see an annual sales decline of 12.8% from biosimilars sold in international markets. If that happens in the U.S., it could mean a $2 billion decline by mid-2026. And if inflation continues into next year, a lower-cost biosimilar could certainly be enticing to those looking for the same treatment for less money.

Unfortunately, that might be the best-case scenario. AbbVie CEO Rick Gonzalez has said the company will likely give 2023 sales guidance on its third-quarter earnings call later this year and that up to 45% erosion for Humira sales is reasonable.

Green Flag: product depth could save the day

In the pharmaceutical business, it’s important for a company to have more than one product on which its revenue depends. AbbVie knows that all too well, especially after acknowledging the potential impact of the pending patent expiration of Humira.

The company’s up and coming stars Skyrizi, and Rinvoq, used to treat plaque psoriasis and indications of arthritis, may be enough to ease the nerves of investors. After receiving FDA approval in 2019, both drugs saw a huge year-over-year sales increase in 2021 — 84% for Skyrizi and greater than 100% for Rinvoq. In a very short time span, the drugs have become two of the top revenue generators for AbbVie and helped solidify the company’s immunology segment, of which Humira is also a part.

The company is also benefiting from its acquisition of Allergan in 2020, which allowed it to obtain Botox Cosmetic and Botox Therapeutic. Those two treatments rose 23% and 43%, respectively, in sales on a year-over-year basis for 2021, and both sustained double-digit growth during the first quarter of this year.

But a deep portfolio is not the only thing that should drive investor confidence amid a biosimilar advance. The company pays an annual dividend of $5.64 per share, which currently comes to a yield of 3.73%, and its current price-to-earnings (P/E) ratio of 21 is slightly lower than its three-year average of 23 and in line with its industry average. 

When the broader market decline took a drastic turn downward since April 8, not even the top pharmaceutical stocks were safe. Now, AbbVie’s stock could be enticing after its 15% decline in share price for a company with enough depth to make it a top pick in an uncertain market.

Though much of the fear around Humira sales could be baked into the current stock price, investors who need a little more reassurance might want to wait for 2023 guidance before buying in. But for long-term investors looking for an opportunity at big gains, AbbVie’s ability to develop products, expand its portfolio, and produce consistent dividends should alleviate most concerns.





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