The first-quarter results AbbVie (ABBV 0.25%) delivered before the market opened Friday were disappointing in several ways. The drugmaker's revenue of $13.5 billion undershot the consensus Wall Street estimate of $13.6 billion, and management also lowered its full-year adjusted earnings guidance.
The pharma stock slid by 6.1% on Friday after the update, and had been off by more than 10% earlier in the session. This wasn't all that surprising, especially considering that the overall market fell sharply as well. The S&P 500 was down 3.6% for the day.
However, AbbVie did narrowly beat analysts' earnings expectations. More importantly, though, there was some good news in its Q1 update that investors could be overlooking.
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A negative that's actually a positive
Sure, AbbVie reduced its 2022 adjusted earnings per share guidance from a range of $14 to $14.20 to a new range of $13.92 to $14.12. However, this seeming negative is actually a positive.
Every penny of the cut in guidance was due to acquired in-process research-and-development and milestone expenses incurred by the company during the first quarter. Investors should be glad that AbbVie has these higher expenses.
Investing in R&D is exactly what AbbVie should continue to do. In March, the company paid $130 million up front to acquire Syndesi Therapeutics. That deal also includes the potential for former Syndesi shareholders to receive up to $870 million in additional milestone payments. The purchase gave AbbVie a portfolio of neurological programs that are a good fit with its pre-existing pipeline.
Making milestone payments is also something that investors should applaud. When AbbVie incurs milestone expenses, it means that clinical studies have gone well or that regulatory decisions have been favorable.
AbbVie's Allergan acquisition is accomplishing its goals
AbbVie acquired Allergan in 2020. The company's goals for this transaction were to diversify its revenue sources and better position itself for long-term growth. AbbVie's Q1 results show that it's accomplishing these goals.
Allergan's crown jewel was its Botox franchise. In the first quarter, Botox generated therapeutic net revenue of $614 million, up 15.4% year over year. Cosmetic Botox net sales totaled $641 million, a 34.4% year-over-year jump.
But AbbVie got a lot more than just Botox with the Allergan acquisition. Antipsychotic drug Vraylar's sales rose 23.4% year over year in Q1 to $427 million. Sales of migraine drug Ubrelvy vaulted 70% higher to $138 million.
Overall, products obtained in the Allergan deal contributed revenue of more than $3.6 billion in the quarter. Allergan's aesthetics and neuroscience businesses stood out as major growth drivers for AbbVie. This momentum seems likely to continue.
AbbVie's post-Humira strategy is already working
The long-anticipated loss of U.S. exclusivity for Humira, its top-selling drug, will become a reality next year. However, AbbVie's Q1 results hint that the company's post-Humira strategy is already working.
Diversifying its revenue base through acquisitions was certainly a key part of that strategy. But AbbVie also planned to preserve its dominance in the immunology market even as its revenues from Humira fade due to biosimilar competition. That's exactly what we saw in the first quarter.
Sales for Rinvoq and Skyrizi -- its two successors to Humira -- soared 53.6% and 63.7% year over year, respectively. Combined, the two autoimmune-disease drugs generated net revenue of more than $1.4 billion.
Those numbers will almost certainly continue to climb sharply. Rinvoq picked up another big regulatory win in April when the Food and Drug Administration (FDA) approved it for treating ulcerative colitis. Skyrizi could soon add another indication to its label as well; an FDA decision on approving the drug as a treatment for Crohn's disease is on the way.
AbbVie forecasts that Rinvoq and Skyrizi will together generate more than $15 billion in sales in 2025. That will go a long way towards offsetting the expected sales declines for Humira.
