Pharmaceutical giant AbbVie (ABBV) had a swing and a miss; the company reported fourth-quarter financial numbers. The numbers failed to hit the mark with analysts, explains Steve Mauzy, editor of High Yield Wealth.
AbbVie reports non-GAAP earnings per share (EPS) of $1.90. This was $0.04 shy of expectations. Revenue, up 7.4% year over year to $8.3 billion, fell $60 million short of expectations. Investors were miffed that AbbVie took a $4.6 billion charge related to its $10 billion Stemcentrix acquisition in 2016.
AbbVie also announced that it was terminating enrollment for its phase three trial of TAHOE Rova-T, a once-promising cancer drug and AbbVie’s reason for acquiring Stemcentrix.
Management guided for 7% U.S. Humira sales growth in 2019. This is below previous guidance. Humira will suffer its first year-over-year growth decline. Management had previously estimated that Humira sales would peak in 2020 at $21 billion. Now sales will have peaked at $20 billion in 2018.
Because of Humira's first annual growth-rate decline, AbbVie management is guiding for 1% revenue growth and 10% EPS growth in 2019. That top-line growth rate is a far cry from the double-digit growth rates the company has enjoyed since 2013.
Humira is a big deal. It accounts for 60% of AbbVie sales and 70% of its operating earnings. Humira, a blockbuster medication used to treat a host of ailments, including rheumatoid arthritis, Crohn’s disease, and colitis, is losing traction sooner than expected.
In our view, the selloff is overdone. AbbVie sports a competent management team. The company is progressing on other growth drugs. For instance, AbbVie’s blockbuster cancer drug Imbruvica generated fourth-quarter revenue of $1.01 billion, a 43% year-over-year increase. Full-year Imbruvia revenue posted at $3.59 billion, a 39.4% year-over-year increase.
New drugs Orilissa (an endometriosis treatment) and Venclexta (a cancer treatment) are expected to generate $1 billion and $3 billion, respectively, in peak annual sales. Immunology drugs risankizumab and upadacitinib are expected to generate $10 billion to $12 billion in combined peak annual sales.
Management still expects AbbVie's overall drug pipeline to generate at least $35 billion in non-Humira sales by 2025. The company's total revenue in 2018 as $32.7 billion. Even when accounting for heightened biosimilar competition, management still expects 2025 global Humira sales to remain above $11 billion.
Combine expected Humira sales with expected sales of other drugs, and AbbVie should generate roughly $43 billion in risk-adjusted sales. AbbVie will remain a top grower in big pharma.
The recent selloff drops AbbVie's forward price-to-earnings (P/E) multiple to nine. The five-year average is 12. It raises the dividend yield to 5.3%. That cost-basis yield will likely rise. We expect AbbVie to increase its dividend before the year is over.
Yes, top-line growth will fail to match the recent past, but anyone buying even a slow-growing company at a single-digit multiple is more likely than not to generate a profit on his investment. Buy AbbVie shares up to $86.
