Last week wasn't a great one for a lot of pharmaceutical stock investors. Shares of AbbVie (ABBV -0.56%) dropped by about 8% on Thursday, April 27. The market was responding to an earnings report that was the company's first since its lead product, Humira, lost patent-protected exclusivity in the U.S. market.
Humira losing market share to Amgen's Amjevita and other biosimilars isn't the only reason AbbVie's stock tanked. Wall Street analysts who follow AbbVie were quick to point out decelerating sales growth for two recently launched drugs that are expected to offset Humira's losses.
The bad news
Going into 2023, AbbVie was leaning on U.S. Humira sales for about one-third of total revenue. Competition from lower-cost biosimilar versions hammered first-quarter Humira sales down by more than $2 billion compared to the previous quarter.
Humira is a treatment for arthritis and psoriasis that the Food and Drug Administration (FDA) first approved in 2002. Its sales peaked last year at $21.2 billion, but its losses could be more than offset by a pair of more recently launched drugs aimed at the same patient groups as Humira.
Skyrizi for psoriasis and Rinvoq for arthritis are both blockbuster new drugs that earned their first FDA approvals in 2019. For a long time now, AbbVie has eased investors' concerns about Humira's demise by touting the strength of these two treatments. Last year they generated a combined $7.4 billion in sales; in January, management said it expects this figure to exceed $21 billion in 2027.
| Product | Q3 2022 | Change (YOY) | Q4 2022 | Change (YOY) | Q1 2023 | Change (YOY) |
|---|---|---|---|---|---|---|
| Skyrizi | $1.40 billion | 75% | $1.58 billion | 76% | $1.36 billion | 45% |
| Rinvoq | $695 million | 54% | $770 million | 49% | $686 million | 48% |
Data source: AbbVie. YOY = year over year.
Losses for Humira were expected, but investors were caught off-guard by a pullback in sales of Skyrizi and Rinvoq. While sales of these two are still way up year over year, there was a noticeable decline compared to previous quarters. This is making investors nervous that AbbVie may have miscalculated the effect Humira biosimilars would have on demand for new psoriasis and arthritis treatments.
The good news
U.S. Humira sales fell so quickly in the first quarter that now they're responsible for just 24% of total revenue. There are still a lot of potential losses to overcome, but by the end of 2023, the heaviest quarterly losses will all be in the rearview mirror.
The sudden availability of Humira biosimilars in January limited new prescriptions of Skyrizi and Rinvoq during the first quarter of 2023. Luckily, there's a good chance these drugs will earn approval for new indications that can give them a sales boost in the years ahead.
Skyrizi and Rinvoq aren't AbbVie's only growth drivers. Vraylar, an antipsychotic first approved to treat schizophrenia in 2015, grew first-quarter sales by 31% year over year to $561 million.
Looking ahead, the FDA's recent approval of Qulipta to prevent migraine headaches could make it another big contributor. Qulipta is a tablet, while the treatments it competes against are all injected.
The bottom line
We've known for a long time that 2023 isn't going to be a great year for AbbVie. Selling the stock because Rinvoq and Skyrizi hit a little speed bump doesn't seem wise. In fact, right now could be a good time to add to your position.
AbbVie is taking Humira's losses in stride. Despite sinking sales, management raised its adjusted earnings outlook for 2023 by $0.10 to a range between $10.72 and $11.12 per share.
At recent prices, you can buy the stock for just 13.6 times the midpoint of management's guidance for 2023 earnings. At this low valuation, investors can come out ahead over the long run, even if the business creeps forward at a low-single-digit percentage.
The stock could be more volatile than usual this year as Humira losses batter the company's quarterly income statements. But a juicy dividend yield, which works out to 4% at recent prices, will make holding on to the shares through any potential turmoil relatively easy.
