The Future of AbbVie: Navigating Life After Humira

For major pharmaceutical companies, the presence of blockbuster drugs can create an exhilarating yet precarious environment. The anticipation surrounding these lucrative treatments often leads to substantial excitement among investors, driving up share prices in expectation of impending revenues. Yet, the eventual reality of patent expirations and competition can cast a long shadow over these profits. U.S. drug maker AbbVie finds itself navigating this challenging landscape as it transitions to a new era following the loss of exclusivity for its flagship drug, Humira.

Launched in 2002, Humira became a cornerstone of AbbVie’s financial success, contributing significantly to its sales growth after the company was spun out of Abbott Laboratories in 2013. Revenues surged from $18.8 billion to a staggering $58.1 billion by 2022, with peak annual sales of Humira reaching $21.2 billion that same year. However, the beginning of 2023 marked a pivotal moment as biosimilars—lower-cost imitators—started to enter the market, leading to projections that Humira’s sales would nosedive from $9 billion in 2024 to just $5.7 billion in 2025.

AbbVie’s Blueprint for Recovery

Despite the impending decline in Humira’s sales, AbbVie anticipates achieving high single-digit compound annual sales growth through the latter part of the decade. The company’s focus on drug development appears to be credentialing this optimism. Following Humira, AbbVie has successfully launched follow-on drugs, Skyrizi and Rinvoq, both of which have outperformed expectations in gaining market share. This success prompted the company to raise its guidance for combined sales of these drugs from $27 billion to $31 billion by 2027.

Crucially, these new treatments have provided AbbVie with a buffer against potential setbacks, as there are no significant threats from patent losses anticipated until well into the 2030s. Investors have welcomed this news, particularly as it comes shortly after Humira began facing generic competition.

Challenges Ahead

However, AbbVie’s journey post-Humira has not come without hurdles. In November last year, the company announced a $3.5 billion charge related to the unsuccessful clinical trial of Emraclidine, a schizophrenia drug acquired as part of the $8.7 billion purchase of Cerevel Therapeutics. This setback raised concerns about AbbVie’s strategy to diversify through acquisitions, shaking investor confidence amid an environment of transition.

Market Performance and Investor Sentiment

Despite these challenges, AbbVie’s stock remains attractively valued, trading at 15 times forecast earnings amid expectations of nearly 17 percent growth in earnings over the next two years. This valuation has not gone unnoticed; several top-performing fund managers have shown interest, with 21 holding AbbVie shares, granting it a top AAA rating by Citywire, reflective of strong institutional backing. AbbVie ranks as the 15th most popular share among these elite investors within a database of 6,000 stocks analyzed for smart-money ownership.

Diverse Revenue Streams

AbbVie’s revenue is not solely reliant on immunotherapy drugs like Skyrizi and Rinvoq, which account for nearly half of its sales. The company is also making strides in its aesthetics division, which includes the widely known anti-wrinkle treatment, Botox, and represents about 9 percent of total sales. This division is expected to yield high single-digit growth through the decade. Additionally, AbbVie’s neuroscience division, accounting for 16 percent of sales, shows solid prospects, while its oncology division aims to develop new treatments following last year’s acquisition of ImmunoGen for $9.7 billion.

Financial Outlook and Dividends

Although AbbVie’s debt levels have increased post-acquisitions, analysts predict that borrowing will decline from $59.9 billion at the end of last year to $32.6 billion by the end of 2027, potentially positioning it well below the forecast earnings before interest, tax, depreciation, and amortization (EBITDA) of $34.4 billion. This anticipated cash generation is reflected in AbbVie’s impressive track record for dividend growth, with shares forecasted to yield 3.4 percent over the next 12 months.

Conclusion

As AbbVie embarks on its journey beyond Humira, a nuanced approach focusing on innovation, strategic acquisitions, and diversification may fortify its position in a dynamic marketplace. The loss of exclusivity on Humira does not appear to spell doom for AbbVie; rather, it signals the dawn of new opportunities and growth potential. With a renewed vision and a strong underlying business model, AbbVie is poised to navigate this transitional phase, proving itself a resilient player in the pharmaceutical landscape.