Pharma giant AbbVie (ABBV -4.58%) performed poorly in the first part of the year, especially after it reported its first-quarter results. This was its first quarterly update following the loss of patent exclusivity for its blockbuster immunology medicine Humira in the U.S. However, AbbVie has performed much better over the past three weeks, although its shares remain in the red for the year.
Will AbbVie's rebound continue? It's difficult to predict how things will unfold in the next six months, but investors interested in dividend-paying stocks should consider scooping up shares of AbbVie at current levels, whether or not it performs well in the short run. Here is why.
Revenue is declining, but that won't last forever
The loss of Humira's patent exclusivity is leaving a gaping hole in AbbVie's business. It isn't just that it was the company's best-selling medicine. It was one of the top-selling drugs in the history of the entire pharmaceutical industry. Even after losing patent exclusivity in Europe in 2018, it grew to its peak annual sales of $21.2 billion last year after a brief decline post-2018.
Now that biosimilars have entered the U.S. market, it's not surprising to see AbbVie's sales decline, although things aren't that catastrophic. In the second quarter, AbbVie's net revenue came in at $13.9 billion, dropping 5% year over year. Digging deeper, Humira's sales dropped by about 25%, but Skyrizi and Rinvoq -- AbbVie's two other immunology stars -- picked up much of the slack, growing revenue by 50% and 55% year over year, respectively. There is progress elsewhere, too.
Cancer medicine Venclexta, Botox Therapeutics, migraine treatment Qulipta, and depression medicine Vraylar all saw solid increases. On the bottom line, AbbVie's adjusted earnings per share of $2.91 was 13.6% lower than the year-ago period. The top-line decline isn't great, but investors will have to get accustomed to that for now. Management expects revenue to start growing again in 2025.
Still, considering it is losing its main cash cow since its 2013 split from Abbott Laboratories, AbbVie's financial results aren't that bad.
You can rest easy: The dividend is safe
AbbVie has consistently raised its dividends over the past 10 years. The company is also a Dividend King, having raised its payout for 51st consecutive years (including its time as part of Abbott). It also offers a competitive yield of 3.89%, compared to just 1.54% for the S&P 500. There are excellent reasons to believe that AbbVie's dividend is about as safe as they come.
First, the company raised its payouts again this year despite the challenges with Humira.
ABBV Dividend data by YCharts.
That should send a signal to investors. Management knows better than anyone that the next couple of years will be challenging as AbbVie adjusts to this post-Humira world. Despite these challenges, the company is confident that its business can still support payout raises -- that's a great sign. Second, there are good indications within the company's financial results that it can eventually make up for the loss of exclusivity of Humira.
That is especially true with its two immunology medicines, Skyrizi and Rinvoq. These two therapies have earned a bunch of indications that substantially overlap with those of Humira. In some cases, they proved just as effective -- or even more so -- than AbbVie's former crown jewel. For instance, in one clinical trial, Skyrizi proved superior to Humira in treating people with plaque psoriasis, specifically in clearing patients' skin.
Third, AbbVie should successfully add more products to its vast portfolio, with dozens of ongoing programs spanning several therapeutic areas, from oncology to immunology, eye care, neuroscience, etc. AbbVie has more than 50 programs in phase 2 or phase 3 studies. Many are targeting label expansions for existing products, but some are brand-new clinical compounds. For instance, AbbVie is going after Alzheimer's Disease (AD) -- a notoriously difficult target -- with several medicines.
It's too early to tell whether AbbVie's attempted ventures into the AD market will bear fruit, but at least some of its brand-new products will eventually make it to the market. These factors highlight why AbbVie's business remains strong and why, despite the Humira problem, its dividend is safe. As a bonus, investors can get the company's shares right now while they trade at a forward price-to-earnings ratio of 13.8, compared to an average of 15.5 for the pharmaceutical industry.
That makes AbbVie an excellent buy for income investors.
