With AbbVie's (ABBV -1.34%) third-quarter earnings report scheduled for Oct. 29, shareholders and prospective investors should be on alert. AbbVie is in the middle of transitioning its revenue base away from dependence on its blockbuster drug Humira, as its exclusivity protections are starting to expire outside the U.S. That means the company's stock is in a particularly sensitive time, as the prospective replacements for Humira are still in the process of ramping up. 

The earnings report will likely give investors updates on progress in the clinical trial pipeline, but the main dish will be the story about the pace of its revenue growth in Humira's replacements, or lack thereof. Of course, if Humira's market share crumbles even faster than predicted, it'll leave AbbVie in a pickle, and there's a little evidence that it's already happening.

A person stands in front of a blackboard where he has drawn a stock chart.

Image source: Getty Images.

Will Humira revenue finally hit the wall in the U.S.?

As the world's leading immunology drug, AbbVie's Humira is approved for no fewer than 16 different indications in dermatology and other specialty areas. In 2020, it made AbbVie $20.4 billion, making the drug one of the best sellers of all time. But, its reign will soon be ending.

Humira's revenue will soon start to fall rapidly as its exclusivity rights expire and biosimilar drugs hit the market in the U.S., which follows an influx of biosimilars in the E.U. and elsewhere worldwide that started from 2018. In the first year Humira faced erosion of its market share from biosimilars in the E.U., its sales dropped by a shocking 45%. Management expects the same thing to happen in 2023 in the U.S. when at least eight competitors to the drug will launch.

Until that point, however, sales are predicted to keep rising by as much as 8% per year in the U.S. In the second quarter, quarterly income from Humira sales in the U.S. only grew by 7.1%, whereas its international revenue dropped by 6% on a reported basis. If the upcoming earnings update shows further deceleration of growth, the total at year-end might be paltry in comparison to what was expected.

All successful pharmaceutical companies eventually face the same problem that AbbVie is facing with Humira, but that doesn't mean the market is going to be any gentler to the stock. Many investors are banking on management's timeline for Humira's phase-out being correct, not to mention the phasing-in of other revenue sources. If in the earnings report, domestic growth is even slower than that or if international sales start to collapse even faster, it could spell serious short-term trouble, as the market's appraisal of AbbVie's future revenue will dim even more.

How are Humira's replacements shaping up?

Management estimates that the collection of immunology therapies the company is advancing to replace the revenue from Humira will be worth more than $15 billion per year by 2025. The two most important projects to reach that estimate are Rinvoq and Skyrizi, both of which are indicated for many of the same conditions as Humira, like atopic dermatitis and psoriatic arthritis. 

Work is currently underway to investigate Rinvoq and Skyrizi for a plethora of additional indications, which will be key to increasing their total revenue potential. Many of these investigations concluded in regulatory approvals in 2021, and even more, are scheduled to be sent to regulators for consideration in 2022. 

In the meantime, investors will need to take a look at how quickly Rinvoq and Skyrizi's sales volume is rising. For the second quarter, globally Skyrizi brought in $674 million whereas Rinvoq only made $378 million. If management's strategy to replace Humira with Skyrizi and Rinvoq is going to work -- and it looks like it will -- the proof will be in the pudding.