AbbVie turns a corner; patent cliff fears were overblown

Key Points

• AbbVie's treatment for patent-cliff woes is working and has the company on track to return to growth soon. 
• Humira continues to outperform, and the non-Humira portfolio is more robust than expected. 
• The pipeline is robust and amplified by recently announced acquisitions expected to close this year. 

AbbVie NYSE: ABBV is turning an important corner in 2024 and is on track to resume growth. Its Humira-related patent cliff aside, the business is stronger than ever, and the patent cliff is more of a bump than a steep drop. The takeaway for investors is that Humira sales are resilient, doctors and patients remain slow in switching to off-brand replicas, and the non-Humira portfolio is stronger than expected. The forecasts for sales of Rinvoq and Skrizi were raised along with peak targets for up-and-comers Ubrelvy and Qlipta for migraines. 

"2024 is an exciting year for AbbVie, as we are well positioned to fully absorb Humira erosion and achieve modest operational revenue growth, followed by a return to robust growth in 2025 and a high single-digit CAGR through the end of the decade."

AbbVie has a solid quarter, guides for growth 

AbbVie had a solid quarter in Q4 despite softening Humira sales. The company reported $14.3 billion in net revenue for a decline of 5.4% that outpaced consensus by 190 basis points. The decline is due primarily to Humira sales, which outpaced consensus but fell 40%, dragging the Immunology portfolio down 12.3%. Weakness was also seen in the Oncology segment, down 7.4%, but offset by gains in critical drugs and segments. 

The company’s key Humira replacements, Rinvoq and Skyrizi, grew by 63% and 52%, making up more than 25% of sales, respectively. Neurology grew by 22% on a single-digit increase in Botox, a 15% increase in Ubrelvy and a 40% increase in Vraylar sales. Aesthetics, including Botox cosmetics, grew by 6.5%. 

Margin new is mixed but otherwise favorable to shareholders. The GAAP and adjusted margin contracted compared to last year due to increased IP, RD and milestones associated with acquisitions and deals. The net result is a $0.15 headwind to the adjusted earnings that completely offset perceived weakness. The adjusted $2.79 is down 22.5% YOY and short of the Marketbeat consensus by a penny. 

Guidance was raised, but there is a caveat. The company raised its adjusted EPS target above the previous range, but the top end is still below the analysts' consensus target. The news helping to lift share prices is the outlook for a return to growth this year and accelerating growth next. 

The company also has a solid pipeline of candidates, with several milestones reached in the quarter. Additionally, the guidance includes a $0.32 impact from the expected closing of acquisitions, which was confirmed in the earnings release. Acquisitions in the oncology and neurosciences arenas complement the existing portfolio and strengthen its non-Humira, non-immunology business. Earnings may be weaker than expected today, but the company is building leverage for long-term sales and margin. 

AbbVie's capital return is safe

AbbVie is a higher-yielding stock with a payout near 3.7%, trading at 15X earnings. The valuation is hard to pin down relative to peers; the range is wide among pharma companies, but it isn’t the highest, and AbbVie’s yield is above average. The payout is reliably safe at 50% of earnings and is expected to grow. AbbVie has a decade of sustained increases in its history and is technically a Dividend King because of its link to Abbott Laboratories. Increases are running in the 9% range and should continue at a high-single-digit pace for the next few years. 

The technical outlook is bullish, but there is resistance to overcome. The stock is up following the release and extending a trend that began in late 2023. The market is approaching an all-time high; it is already at a new closing high level and may break out to new highs soon. Because the analysts have been upgrading the stock and raising their price targets, ABBV may sustain a rally that takes it to the $200 to $220 level this year.