Investors might be numb to the common reminder that "past performance is no guarantee of future returns," but that doesn't stop companies like AbbVie (ABBV 0.69%) from working hard to replicate their prior successes. With the end of patent exclusivity looming for its rock star drug, Humira, the pharma juggernaut is scrambling to line up heirs to its revenue throne.
For the moment, the lack of a clear heir apparent to Humira makes Abbvie a riskier investment than some of its peers whose top lines aren't quite as dependent on a single program. But where there's danger, there's opportunity. And there's one specific number in AbbVie's latest earnings report that hints at the likelihood that it will be successful in replacing the lost sales from its fading star.
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Humira's fall remains nigh, but it's less important than before
In case you're not familiar with AbbVie's present conundrum, here's a quick recap.
Humira, a biologic drug that treats a number of conditions including psoriatic arthritis, Crohn's disease, and ulcerative colitis, is approaching the end of its patent protection period in the U.S. In 2023, it'll lose its exclusivity protections, at which point biosimilars (the large-molecule drug equivalent to generics) will start eating into sales of the branded original. Indeed, many of its protections have already expired abroad, and its international sales are already plummeting.
That's a massive problem for AbbVie, as Humira accounted for a whopping $20.7 billion of the company's trailing 12-month revenue of $56.2 billion. Worldwide, sales of Humira grew by 3.5% to $5.33 billion in the fourth quarter. Most of that sum was from U.S.-based sales as international sales were only $781 million and falling sharply from quarter to quarter. But, the fact that sales are still advancing shows that there's just a bit more time for the company to continue cashing in before the loss of patent protection starts to smash its top line.
Finding new sources of revenue to replace the sales it's going to lose is of paramount importance for Abbvie, which is why the company has been developing a pair of drugs, Rinvoq and Skyrizi, which between them can treat all of the same conditions as Humira. How those two therapies perform on the sales front over time will determine whether AbbVie investors face a brutal contraction in share value as a result of falling revenue, or whether they'll be rewarded for holding onto their shares through this period of uncertainty.
AbbVie's fourth-quarter earnings report included one number that hints that the odds are tilted toward the latter possibility.
Skyrizi is starting to support the top line with gusto
In the fourth quarter of 2021, international sales of Humira fell by 9.1% to $781 million. In the same period, international revenue from Skyrizi grew to $134 million whereas Rinvoq brought in $135 million.
Despite Humira's steep international revenue drop, growth from the combination of Skyrizi and Rinvoq led the international segment of AbbVie's immunology portfolio to gain 0.5% in Q4. So management's plan to push Rinvoq and Skyrizi as replacements for Humira's share of the revenue pie appears to be gaining some early traction based on the pair's international sales outgrowing the top line impact of Humira's decline in the international segment -- which is a big green flag.
There will need to be a lot more where that growth came from over the next few years to call the scheme a success, however. Management remains firm in its guidance that the combination of the two drugs will produce $15 billion in annual revenue in 2025. That's quite a hill to climb in just three years, considering that the pair only brought in $4.6 billion in 2021 against Humira's $17.3 billion in U.S. net revenue alone.
This could be the buy signal the market has been waiting for
Thankfully for investors, AbbVie is constantly making headway in the right direction. It recently submitted a trio of regulatory filings seeking to expand the prescribing indications for Rinvoq, and it also submitted a similar filing for Skyrizi.
And it will have three more such applications in the works, provided that all the late-stage clinical trials it has underway for the two drugs conclude successfully. In total, during 2022 alone, these two drugs could get regulatory approval for as many as six additional indications, each of which would drive higher revenue.
Of course, it also has a smorgasbord of other medicines on the market and candidates in late-stage development. Though few of the treatments in the pipeline have the same individual potential as Humira revealed, it's entirely feasible that as a group they will have the ability to power the company's revenue to still greater heights even as Humira's sales recede.
Given AbbVie's R&D track record, that possibility is an investment thesis that's worth acting on.
