There's been considerable negativity in the investment community about AbbVie (NYSE:ABBV) lately. Noted short-seller Andrew Left with Citron Research recently called AbbVie "the next great short" because of potential changes coming related to biosimilars and drug rebates.
This negativity was evident last week when AbbVie reported its second-quarter results. Despite posting fantastic revenue and earnings growth and raising its full-year 2018 guidance for the third time, AbbVie's share price dropped following its quarterly update.
AbbVie CEO Rick Gonzalez was asked about investors' lack of confidence during the company's earnings conference call. Here are five things he said that you'll want to know. (Quotes courtesy of S&P Global Market Intelligence.)
1. Look at the company's performance
Gonzalez acknowledged that there was some skepticism about AbbVie right now. However, his first response was to look at the company's performance in its five-and-a-half years as a stand-alone entity. Gonzalez stated that AbbVie has "never once disappointed investors" and that in most quarters, like it did in its recent Q2 results, the company has beaten expectations.
He went on to say that "there's not a company that I'm aware of that's performing better than us, and there's not a company that has performed better over the past 5 years." Gonzalez pointed out that AbbVie will deliver 40% earnings per share (EPS) growth this year with 25% operational EPS growth excluding tax benefits. He said couldn't think of any other company AbbVie's size delivering that level of growth.
2. Overblown worries about Humira
But what about the worries about how changes for biosimilars and drug rebates proposed by the Trump administration will impact Humira? Gonzalez replied that while some concerns are reasonable, "some of it is driven by people who want to elicit fear for their own personal gain."
As for the proposed changes from the Trump administration, Gonzalez said that "there were probably more positives than there were negatives" from AbbVie's perspective. He noted that Humira was "in the middle or slightly below the middle from a percent rebate standpoint" and in the cost of therapy when compared to competitors. Gonzalez added that Humira has competed very well in socialized healthcare markets where there are no rebates.
Gonzalez also stated that "there is nothing in the feedback we've seen so far around the biosimilar plan that is significantly different than what we already assume." He said that AbbVie was prepared to execute on its strategies to defend Humira's market share in countries where it will go up against biosimilar competition later this year, but that he wouldn't "telegraph" those plans to competitors. He also denied that the company was exploiting any loopholes or gaming the system with respect to its licensing agreements with Amgen and Mylan that keep Humira biosimilars off the U.S. market until 2023.
3. Two other megablockbuster assets right now
AbbVie has come a long way from just being "the Humira company," according to Gonzalez. He pointed to two non-Humira assets that are each approaching $4 billion in annualized sales -- cancer drug Imbruvica and hepatitis C virus (HCV) drug Mavyret.
Imbruvica generated revenue of $850 million in Q2, up nearly 36% year over year. AbbVie thinks the drug can achieve peak annual sales in the ballpark of $7 billion. Mavyret made $932 million in the second quarter. The HCV drug has quickly captured enormous market share in the U.S. and in international markets. However, AbbVie CFO Bill Chase said the company expects Q3 revenue for its HCV franchise, which primarily consists of Mavyret sales, to drop to $850 million as patient volumes in the U.S. and Japan decline.
4. More blockbusters on the way
Gonzalez namechecked a list of assets that he thinks will be blockbuster success stories for AbbVie in addition to Humira, Imbruvica, and Mavyret. Venclexta was at the top of the list. AbbVie recently won Food and Drug Administration approval for the drug in combination with Rituxan as a second-line treatment for chronic lymphocytic leukemia (CLL). Venclexta could secure another key approval next year in treating acute myeloid leukemia (AML).
AbbVie also just won FDA approval for Orilissa (elagolix) in treating pain associated with endometriosis. While the company expects a relatively slow ramp-up, with sales of less than $50 million this year, Gonzalez said that AbbVie got "everything that we hoped for in the label" for the drug and sees Orilissa as a multibillion-dollar opportunity.
Two potentially best-in-class successors to Humira could also be on the way. AbbVie hopes to win FDA approvals for risankizumab and upadacitinib in 2019. Gonzalez stated that with the trio of Humira, risankizumab, and upadacitinib, AbbVie has "the most competitive and best portfolio in immunology."
5. No need for a major deal to be successful
A comment made by Gonzalez last month resulted in speculation that AbbVie was on the cusp of making a big acquisition worth $20 billion to $30 billion. Gonzalez said that comment "took on a life of its own far greater than I would've anticipated." He clarified that AbbVie doesn't have any big acquisitions on the horizon right now and would more likely look at smaller deals.
The biggest issue right now is that valuations are too high for AbbVie to get the level of return on investment it would like. If the right opportunity came along, though, Gonzalez said that the company would jump on it. For now, he thinks that AbbVie's pipeline will enable the drugmaker to be successful for years to come.
Believe it or not?
Rick Gonzalez obviously has an incentive to spin things in the most positive way possible for AbbVie. That's his job. Investors have to make up their own minds whether to believe what he or folks like Andrew Left are saying.
In my view, Gonzalez made some good points about AbbVie's track record and its strategy. I don't think sales for Humira are going to fall off a cliff anytime soon. Actually, I agree with market research firm EvaluatePharma that Humira will remain the world's top-selling drug for several more years.
Will Imbruvica, Mavyret, Venclexta, and AbbVie's lead pipeline candidates make as much as AbbVie thinks they will? Perhaps not. However, in my view, their combined growth should more than compensate for any sales declines for Humira.
As a result of investors' negativity about AbbVie, the stock now trades at only 10 times expected earnings. With solid growth prospects and a dividend yield of nearly 4%, I continue to see AbbVie as a cheap big pharma stock to buy and hold for years to come.