Even the most intrepid growth stocks experience doldrums, and such periods can be a great time to start an investment. If you can predict slower patches in advance, you'll be positioned even better, and that's why it may be worth considering an investment in AbbVie (ABBV -0.94%) stock in the coming months.
The pharmaceutical company's stock is up by more than 25% this year despite the market's 17% drop, but there's a good chance that 2023 will be a difficult one for the company and its investors. After that could lead to an excellent buying opportunity. Here's why.
What's the opportunity?
AbbVie is about to be tested. After raking in billions of sales from its psoriatic arthritis drug Humira, AbbVie is now seeing generic competitors start to devour its market share internationally. In 2023, the floodgates will open and generics will start to gobble up the U.S. market too. That's a big problem as Humira accounted for more than $5.5 billion of the company's $14.8 billion in revenue during the third quarter.
Management prepared for that eventuality for years by developing and launching immunology medicines Rinvoq and Skyrizi. In theory, these two medications should be able one day to bring in even more revenue than Humira did while targeting the same group of indications. And now the rubber is about to meet the road.
If AbbVie's leaders are correct about Humira's replacements leading to top line growth after a brief period of stagnation through 2025, people who invest in the business today or within the next year should harvest a considerable return for taking on the risk. That return will take the form of both share price appreciation as well as more hikes to the dividend, which already has a forward yield above 3.6%.
The first benchmark that AbbVie hopes to reach is a combined $15 billion in annual revenue from sales of Skyrizi and Rinvoq in 2025. Any revenue above that target will indicate that the plan is going even better than expected. The more distant goal is to top Humira's peak revenue, which was nearly $20.7 billion in 2021.
On the other hand, if Humira's decline is never fully compensated for by the latter half of the decade, AbbVie's share price will likely end up suffering considerably. The company could undergo at least a few years of falling revenue with little in the way of silver linings for shareholders. Even a dividend cut might be on the table if Skyrizi and Rinvoq aren't able to scale their penetration of the market according to schedule.
Risks are decreasing, but they aren't negligible
Per its latest earnings report, AbbVie doesn't have a long way to go before its replacements can fill Humira's shoes. Skyrizi brought in nearly $1.4 billion in the third quarter, whereas Rinvoq sales were $695 million. Both medicines exhibited rapid sales growth in excess of 50% year over year.
If we assume that a slightly slower pace of 40% year-over-year growth will continue as a result of ongoing marketing efforts and increased adoption of the newer medicines, the two medication could be bringing in slightly more than $5.7 billion per quarter by the end of 2025. That would handily eclipse Humira at its peak. And if growth continues at a similar rate, the company could make significantly more than it was able to with the older medicine.
But don't take this little financial model to mean that there's no risk of AbbVie falling short. Sustaining such a high growth rate will be difficult under the best of conditions. Its other medicines on the market could face stiff competitive pressure, meaning that there's a chance the Humira plan could succeed and the business as a whole could still fail to build on the top line as scheduled. Regulators could rebuff one or more of its myriad applications for commercialization over the next few years.
Still, the balance of factors suggests that AbbVie should be a good long-term investment for investors with a moderate tolerance for risk. Between its strong progress with Skyrizi and Rinvoq, consistent earnings accumulation over time, its dividend, and its massive pipeline of late-stage clinical programs, AbbVie is likely to succeed with its plan and continue to grow for the foreseeable future. That means it's an attractive stock to buy today, even with the possibility of a stumble in the near term.
