One thing income seekers don't want to see from the businesses they invest in is a major disruption to their incoming cash flows. Unfortunately for shareholders of AbbVie (ABBV +0.72%), the drugmaker's top-selling product, Humira, lost patent-protected market exclusivity in the U.S. earlier this year.
U.S. Humira sales came in at $18.6 billion last year, or around 41% of total revenue. Its loss of exclusivity is creating a mighty big hole to fill, but there are some powerful new growth drivers in AbbVie's product portfolio.
NYSE: ABBV
Key Data Points
The dividend payout has grown 285% since its inception in 2013. Let's measure AbbVie's strengths against the challenges it's facing to see if it's still a good dividend stock to buy.
Managing the decline
When small-molecule drugs lose patent protection, competition from generic versions can cause sales of the branded product to fall more than half in the first year. There isn't going to be any generic Humira, though. It's a biologic drug produced by a specific culture of living cells, and AbbVie doesn't have to share that cell line with competitors.
AbbVie has had to lower Humira prices to compete with biosimilar versions that launched this year. So far, though, the losses have been manageable. Third-quarter Humira sales in the U.S. fell 39% year over year to $3 billion.
Over the past decade, AbbVie has invested Humira's profits back into the development of new treatments. As a result, overall third-quarter sales were down just 6% year over year.
Image source: Getty Images.
New growth drivers
Management thinks the company can return to rapid growth in 2025 with increasing contributions from more-recently launched drugs. Skyrizi is an injection that psoriasis patients receive every three months, and its sales are growing by leaps and bounds. The Food and Drug Administration (FDA) first approved it in 2019, and sales have already risen to an annualized $8.5 billion.
AbbVie is also reporting tremendous success with Rinvoq, a once-daily tablet for arthritis, eczema, and inflammatory bowel disease that also was launched in 2019. Management is predicting more than $21 billion in combined sales for Rinvoq and Skyrizi by 2027.
While Rinvoq and Skyrizi offset Humira losses, Vraylar could drive sales to new heights. First approved to treat schizophrenia and bipolar disorder in 2015, it earned a new label expansion last December to include the huge population of patients with major depressive disorder (MDD).
Third-quarter Vraylar sales jumped to $751 million from just $35.4 million in the prior-year period. Millions of MDD patients feel underserved by available treatments, and I won't be surprised if annual sales of this drug exceed $5 billion in 2024.
About the dividend
AbbVie's third-quarter earnings announcement came with a modest 4.7% dividend raise. At recent prices, the stock offers a 4.5% yield, which is huge when you consider that the average dividend-paying stock in the Dow Jones Industrial Average offers a yield of just 2.2% at the moment.
AbbVie raised its earnings outlook for 2023 to a range between $11.19 and $11.23 per share, which is more than enough to cover a dividend payout it recently raised to $6.20 per share annually.
Next year, AbbVie expects Humira's decline to pressure earnings further, but not by much. Management recently raised its floor on earnings guidance for next year to $11 per share.
Humira's decline is upsetting to watch, but we can be fairly confident about AbbVie's ability to offset those losses and return to growth in a few short years. Tucking some shares of this pharma stock into your portfolio now looks like a very smart move.
