I'm biased. I wanted to mention that right out of the gate before discussing whether AbbVie (ABBV -0.75%) is a buy. I've owned AbbVie for a while and have a favorable view of the big drugmaker's long-term prospects. However, I'm not oblivious to the challenges AbbVie faces.
For investors trying to make a decision about buying AbbVie stock, it's important to consider the arguments both for and against it. Here are those arguments -- presented in what I hope is an unbiased way.
The biggest knock against AbbVie, by far, is that the company depends heavily on sales for a drug that's already under pressure and faces more threats in the not-too-distant future. I'm referring, of course, to Humira. The immunology drug generates close to 60% of AbbVie's total revenue.
Biosimilars to Humira hit the market in Europe beginning in October 2018. They're already taking a toll. AbbVie reported that international sales for the drug fell nearly 15% in the fourth quarter. The company predicts that international sales will plunge by 30% in 2019.
But the real problems for AbbVie begin in 2023. That's when Humira faces biosimilar competition in the U.S., where nearly three-quarters of total sales for the drug are made.
What about AbbVie's other products? Some industry observers have been skeptical about the company's projections for blood cancer drug Imbruvica since AbbVie acquired Pharmacyclics in 2015. Hepatitis C virus (HCV) drug Mavyret has been a big winner, but its growth has probably peaked. Other drugs, including Venclexta and Orilissa, as well as AbbVie's top pipeline candidates, have a long way to go to deliver on the company's predictions.
AbbVie has already demonstrated that it was overly optimistic about one candidate. The company acquired Stemcentrx in 2016 for $5.8 billion, adding cancer drug Rova-T to its pipeline. However, clinical flops for Rova-T left AbbVie writing off much of its investment related to the Stemcentrx acquisition in the fourth quarter.
Perhaps the most important argument to note in AbbVie's defense is that Humira isn't disappearing overnight. Market research company EvaluatePharma even predicts that Humira will remain the top-selling drug in the world for several more years, with expected sales of $15.2 billion in 2024.
AbbVie is shooting for peak sales for Imbruvica of around $7 billion. It's already more than halfway to that level, with 2018 sales for Imbruvica totaling nearly $3.6 billion. Sales also continue to soar: AbbVie reported that Imbruvica's revenue jumped 42% year over year in Q4. And the drug recently won its 10th FDA approval, this time as a first-line treatment in combination with Gazyva for chronic lymphocytic leukemia/small lymphocytic lymphoma.
HCV drug Mavyret isn't likely to be a growth driver for AbbVie. However, no one should dismiss the financial impact of a drug that should contribute $3.5 billion or more annually for years to come.
The launches for newer drugs, including Venclexta and Orilissa, are also going well. AbbVie plans to file for approval later this year for another indication for Orilissa, treating uterine fibroids. The company's chances of winning this additional approval appear to be pretty good.
AbbVie's prospects of success also look great for two new immunology drugs, risankizumab and upadacitinib. Both drugs are considered best in class and are expected to become blockbusters. Upadacitinib even beat Humira in a head-to-head phase 3 study targeting treatment of rheumatoid arthritis.
At the J.P. Morgan Healthcare Conference in January, AbbVie President Mike Severino said the company projects at least $35 billion in annual risk-adjusted sales from drugs other than Humira by 2025. It's important to note that this is a risk-adjusted amount, which means that AbbVie has attempted to factor in the potential for pipeline and commercial setbacks.
The more critical thing to know, though, is that $35 billion is more than AbbVie made in 2018 with Humira. And, as mentioned previously, Humira won't disappear overnight even after it faces U.S. biosimilar competition.
To buy or not to buy?
AbbVie's challenge with offsetting the inevitable sales decline for Humira is a big one. But it's not an insurmountable one. Can AbbVie meet the challenge? I think the facts indicate that it will.
Granted, investors have to take a calculated risk that AbbVie's other drugs, including Imbruvica, Venclexta, and Orilissa, and its top pipeline candidates, such as upadacitinib and risankizumab, will deliver on their potential. Even if these drugs don't fully meet expectations, though, AbbVie should be able to generate solid revenue and earnings growth in the future without Humira.
Check out the latest AbbVie earnings call transcript.
There are also two other things to remember with AbbVie. First, the market already has priced a significant level of risk into AbbVie's share price, with the stock trading at a little over 8 times expected earnings. This makes AbbVie a bargain if the company can execute on its strategy to replace Humira. Second, AbbVie's dividend yield of 5.3% enables investors to enjoy a pretty good total return even if the stock doesn't rise very much.
I think AbbVie is a slam-dunk buy right now. Fears about the company's prospects after Humira are overblown, in my view. AbbVie looks like a great growth stock, value stock, and dividend stock.
Yes, I'm biased. But biases can often be right.