AbbVie, Inc.'s (ABBV -1.03%) on a roll and it wants its investors to profit. The company's dividend payments and stock buybacks since becoming public in 2013 have steadily increased, and on Thursday management outlined a new plan to return even more money to its shareholders.
Cashing in on clarity
AbbVie generates 65% of its sales from Humira, a best-selling autoimmune disease drug. Until recently, worry over Humira's patent protection has created uncertainty among investors that has weighed down the company's share price.
Image source: Getty Images.
Concern over Humira's future began easing last fall, and that has management and investors cheering. A patent ruling on Humira in September thwarted a challenge by Coherus Biosciences', and shortly thereafter Amgen (AMGN -0.19%) signed a non-exclusive license prohibiting it from marketing a Humira biosimilar in the U.S. until 2023.
The two events add conviction to management's claims that it can protect its biggest cash cow for a few more years. In January, management forecast that Humira's sales could grow from $18.4 billion in 2017 to $21 billion in 2020. Furthermore, it said it believes that Humira will contribute significantly to its sales until at least 2025.
The bullish outlook is encouraging because it suggests that management has plenty of time to expand its existing drugs into new indications and establish drugs that are currently in its pipeline as blockbusters.
In the past, AbbVie's said that peak sales of Imbruvica, a cancer drug, could be $7 billion. With a recent label expansion for use in graft-versus-host disease and full-year global sales of $2.573 billion in 2017, up 40.5% from 2016, it appears to be well on its way. Venxclexta label expansions, including one that's pending for its use alongside Rituxan in relapsing or refractory chronic lymphocytic leukemia, could significantly grow its sales, and if Elagolix wins FDA approval this year in endometriosis, then it could be an important revenue-producing drug, too. Management also has high hopes for its hepatitis C drug Mavyret, predicting last month its sales could drive hepatitis C revenue up to $2.5 billion this year from $1.3 billion in 2017.
Rova-T, a solid-tumor cancer drug, upadicitinib, a rheumatoid arthritis drug, and risankizumab, a psoriasis drug are the three most exciting potential blockbuster drugs in AbbVie's pipeline. Management's targeting FDA approvals for each in the coming year. If approved, all three have multibillion-dollar per year sales potential, according to forecasts.
Given the additional clarity into Humira's future, a stable of fast-growing drugs, and multiple blockbusters making their way to market, AbbVie should have plenty of cash flow coming in to support dividend payments and buybacks.
AbbVie boasts one of the best operating margins in the industry, and that's allowing it to return a substantial amount of money to investors. Since being spun-off from Abbott Labs in 2013, AbbVie's dividend has increased 77% through Wednesday. Following Thursday's announcement that it's increasing its quarterly dividend payment to $0.96 from $0.71, that figure jumps to an eye-popping 140% growth.
In addition to increasing its dividend by 35% Thursday, AbbVie announced a new $10 billion share buyback program. The program replaces its existing buyback plans, and over time it should provide additional support to future earnings-per-share growth.
The takeaway
If clinical trials go AbbVie's way, then it thinks its non-Humira revenue can grow from $9.6 billion in 2017 to over $16 billion in 2020 to over $35 billion in 2025. A lot could go wrong between now and then, but if sales end up anywhere near those projections, AbbVie should be able to offset any sales decline for Humira when it does eventually face-off against biosimilar copy-cats.
Overall, AbbVie's decision to increase its dividend by so much has me thinking management's comfortable that its cash flow isn't going to shrink anytime soon. With a runway toward ongoing double-digit top- and bottom-line growth and a forward dividend yield that's now 3.3%, an argument can be made that AbbVie's become the most shareholder-friendly stock investors can buy.
