If you think about it, discovering new treatments in healthcare can be similar to building a sound investment portfolio. A great deal of time is spent on research and monitoring, finding the right mix, and then waiting for that magical day. For pharmaceutical companies, that day might come when a product is approved or hits the market for commercial sales. For investors, that day might come when you cash in on your portfolio's gains that were the result of your hard work and due diligence.
Research-based pharmaceutical company AbbVie (ABBV 0.97%) is experiencing the excitement of U.S. Food and Drug Administration (FDA) approvals while also carrying an honored distinction of being a Dividend Aristocrat, combining to give investors three good reasons to consider it part of their long-term investment strategy.
1. FDA-approved eye drops are a first-of-their-kind
On Dec. 9, AbbVie celebrated the announcement of its Vuity 1.25% prescription eye drop, the first and only FDA-approved eye drop to treat age-related blurry vision (presbyopia). An inability to focus clearly on near objects typically affects adults over 40, which makes up nearly one half of the U.S. population -- 128 million people. Age-related blurry vision is usually remedied through the use of reading glasses or by zooming in on mobile device content while also holding it further away from the face, which can be quite annoying -- trust me on this one.
AbbVie's Vuity provides a treatment that could offer an alternative to surgery, reading glasses, or the minor annoyances experienced by those using the zoom-and-hold-at-a-distance method. It offers a once-daily prescription that lasts from six to 10 hours, aimed at improving near and intermediate sight without altering distance vision.
Many of us have been to an eye doctor. A routine exam sometimes consists of receiving eye drops. Afterwards they tell you that while your eyes are dilated, you may be sensitive to light and possibly have blurry vision for a short period of time. Vuity basically does the opposite, leaning on the eye's own ability to reduce pupil size, which results in the improved vision.
According to the World Health Organization, the number of people worldwide with age-related blurry vision is at 1.8 billion. That number is expected to increase to 2.1 billion by 2030. At an average cost of $79 per patient for a 30-day supply for even a fraction of the 2 billion people with age-related blurry vision, the potential for strong revenue growth is clear.
2. Expanded usage of Rinvoq could propel annual sales to increase eightfold
The announcement of Vuity came on the heels of another announcement by the company during the same week. AbbVie proudly announced that phase 3 clinical studies were performing well for the safety and efficacy of Rinvoq, as a treatment for moderate to severe Crohn's disease in adults who previously had inadequate response to biologic therapy.
The results of the studies showed that the oral therapy met its primary endpoints of clinical remission and endoscopic response. Compared to placebo treatment, clinical remission jumped from 21% to 39% at week 12, while endoscopic response jumped from 4% to 35% over the same time period, meaning patients reported that stool frequency and abdominal pain were significantly reduced.
The success of the studies will go a long way toward the ultimate goals of achieving FDA approval for Rinvoq as a treatment for Crohn's disease. It will not be the first approval for Rinvoq, which is currently FDA-approved for treating rheumatoid arthritis. But with sales success of Rinvoq comes ongoing concern related to the side effects caused by JAK inhibitors such as Rinvoq, leading the FDA to require mandatory label updates on the product warning of the potential for serious heart-related risks or the risk of cancer.
For now, the product continues to sell, and is expected to see an increase in sales over the next three to four years. Rinvoq brought in $425 million for the third quarter, and $1.1 billion through the first nine months of the year. The company expects that number to increase to $8 billion by 2025.
3. This Aristocrat's yield crushes other healthcare companies in the S&P 500
In addition to FDA approvals and positive clinical studies, AbbVie offers investors a little extra bonus, paying out quarterly dividends at a yield of 4.3%. This comes in at nearly twice the average healthcare company yield of 2.28% and above that of healthcare companies in the S&P 500, which average 1.75%. The overall S&P 500 dividend yield was at 2% for November, which also pales in comparison to AbbVie.
With these dividend payouts, investors could choose to receive the funds as cash in their brokerage account or reinvest dividends toward the purchase of additional shares of the company stock. To give you an idea of how much that might be, the quarterly dividend in 2021 was $1.30, resulting in an annualized payment of $5.20 per share. For 2022 the dividend has been raised to $1.41, which should equate to $5.64 annually if the remainder of the year stays consistent. This represents an 8.5% dividend increase for investors, and will begin paying out in February.
If you invested $5,000 in AbbVie stock at the current price of $126, it would get you 40 shares. Those 40 shares would gain you an extra $225 of annual dividends. That's an additional $225 in your pocket before taxes, or an extra 1.8 shares of stock if reinvested. And it's worth pointing out that in cases of stock price appreciation, an extra 1.8 shares can result in even more gains down the road.
As a result of increases in dividend from year to year, AbbVie has the honored distinction of being a Dividend Aristocrat, meaning it has increased annual dividends for 25 consecutive years. It gets this distinction through its spin-off from Abbott Laboratories in 2013.
It should also be noted that Abbott is one year shy of becoming a Dividend King, meaning it has increased dividends for 49 consecutive years -- next year being the magic 50. This should bode well for investors looking at AbbVie, because it provides support and confidence that AbbVie will continue its run of consecutive dividend increases well into the future.