Pharmaceutical giant AbbVie (ABBV -4.58%) is undergoing significant changes. Last year, the company lost U.S. patent exclusivity for its biggest cash cow, immunosuppressant Humira, and is now seeing its sales move in the wrong direction. And more recently, AbbVie CEO Richard Gonzalez announced he was stepping down to become the company's executive chairman.
Gonzalez had been at the head of AbbVie since it split from its former parent company, Abbott Laboratories, in 2013. The stock delivered excellent returns under his leadership. Does this signal the end of AbbVie's market-beating days? Let's consider whether the shares are still worth buying.
ABBV Total Return Level data by YCharts
Meet Humira's replacements
It is difficult to overstate how important Humira has been for AbbVie. The medicine kept grinding out indications, growing its sales, and contributing significantly to the drugmaker's top line. In 2022, the final year before it lost patent exclusivity in the U.S., Humira's sales of $21.2 billion accounted for nearly 37% of AbbVie's total revenue.
It is also the best-selling drug in the history of the industry. Replacing it is no easy task. Yet AbbVie seems capable of doing so thanks to a duo of immunology medicines: Skyrizi and Rinvoq. Combined, these two therapies have earned approvals across all of Humira's major indications.
They have also generally proven as effective -- sometimes more effective -- than AbbVie's former crown jewel in clinical trials. For instance, in a head-to-head study, Skyrizi was better at clearing moderate to severe plaque psoriasis. So although AbbVie's sales are declining right now, Skyrizi and Rinvoq are growing rapidly and will eventually fill the hole left by Humira -- and then some.
Management expects the two medicines to hit combined annual sales of more than $27 billion by 2027. That's roughly $5 billion more than Humira's peak sales of $22.3 billion. In the meantime, AbbVie expects to return to top-line growth next year. So losing patent exclusivity for Humira clearly won't destroy the company's business.
The dividend matters
One of AbbVie's priorities as far as its capital allocation goes is to grow its dividend. The company has been exemplary in that regard. AbbVie has increased its payout by 287.5% since it became a stand-alone, publicly traded company despite also spending a fortune on acquisitions, among other things. The drugmaker's 2020 buyout of Allergan alone cost $63 billion.
AbbVie is now part of the exclusive group of Dividend Kings, having raised its payouts for 52 consecutive years (the time it spent under the wing of Abbott Laboratories counts). There should be no end in sight here: Humira's patent loss didn't dent AbbVie's dividend plans, either. AbbVie's current yield tops 3.51%, much better than the S&P 500's average of 1.47%. The company's payout ratio is at a very reasonable 47.8%.
AbbVie's stock is still a buy
AbbVie's new CEO will be Robert Michael, a longtime company executive. He currently occupies the position of president and CFO. According to Gonzalez, he and AbbVie's board of directors have been planning a seamless CEO succession -- to take place in July -- for a while. Tapping an executive who is familiar with the company's culture and goals should help AbbVie continue down the same path it has crafted since its inception.
Even without Humira, Michael is inheriting a robust business with two immunology superstars that will eventually replace the world's former best-selling drug on the company's books. It also has a deep pipeline at its disposal: AbbVie currently boasts several dozen clinical trials. Expect brand-new approvals and label expansions regularly.
AbbVie may be going through a challenging period right now, but the stock remains an excellent pick for long-term, income-seeking investors.
