What’s Occurring With AbbVie Inventory?

AbbVie stock (NYSE: ABBV) was down 12% on Monday, November 11, after the corporate introduced that two mid-stage scientific trials of its drug Emraclidine to deal with schizophrenia failed to fulfill their major objective. Emraclidine was developed by Cerevel Therapeutics, which AbbVie acquired for round $9 billion earlier this yr. Emraclidine was anticipated to be a blockbuster drug for AbbVie, and this improvement didn’t sit properly with traders.

Nonetheless, this got here as excellent news for traders in AbbVie’s peer Bristol Myers Squibb (NYSE:BMY) as the corporate not too long ago secured the U.S. FDA approval for its schizophrenia drug Cobenfy, and AbbVie’s stumble ought to restrict competitors for Cobenfy. Take a look at how Cobenfy approval brings 20% upside to BMY stock.

Barring the latest fall, ABBV inventory has fared properly, with 90% good points since early January 2021 — leaping from ranges of $92 then to round $175 now — vs. a rise of about 60% for the S&P 500 and a 31% rise for the S&P 500 Healthcare index over this era. This will primarily be attributed to:

1. a major 60% rise within the firm’s P/S ratio to 5.7x now, versus 3.6x in 2020. Traders have rewarded ABBV inventory because of the uptick in its gross sales regardless of the biosimilar competitors for its blockbuster drug – Humira; and
2. a 20% rise within the firm’s income from $46 billion to $55 billion over the identical interval; partly offset by
3. a 0.5% rise in complete shares excellent.

Let’s dive deeper into these elements which might be driving ABBV inventory development.

1. What’s Driving AbbVie’s Gross sales Development?

AbbVie’s income rose round 20% from $45.8 billion in 2020 to $55.5 billion within the final twelve months. The corporate’s income development has been buoyed by its Allergan acquisition in 2020. AbbVie is finest recognized for its blockbuster drug Humira – used to deal with rheumatoid arthritis and Crohn’s illness, amongst others. Humira’s gross sales peaked at $21.2 billion in 2022, earlier than falling 32.2% y-o-y to $14.4 billion in 2023. For the nine-month interval ending Sep 2024, Humira gross sales plunged one other 34% to $7.2 billion. This may be attributed to the biosimilar competitors after the lack of market exclusivity.

AbbVie, to some extent, is ready to fight the lack of income from Humira by market share good points for a few of its comparatively new medicine — primarily Skyrizi and Rinvoq. These medicine are used to deal with plaque psoriasis and rheumatoid arthritis. For perspective, these two merchandise garnered $11.7 billion in 2023, reflecting a stable 53% y-o-y development. The gross sales of its anti-depressant Vraylar additionally spiked 35% y-o-y to $2.8 billion in 2023. For the nine-month interval ending September 2024, Skyrizi and Rinvoq continued their market share good points, with gross sales rising round 50% y-o-y to over $12 billion.

AbbVie can be taking a look at inorganic development. After its acquisition of Allergan in 2020, it acquired ImmunoGen for $10.1 billion this yr, giving it rights to Elahere — an ovarian most cancers remedy – with estimated peak gross sales of over $2 billion. AbbVie acquired Cerevel Therapeutics for $8.7 billion earlier this yr, giving it rights to Emraclidine, which not too long ago failed to fulfill its mid-stage scientific trials. It’s at the moment within the technique of buying Aliada Therapeutics for $1.4 billion, primarily for its Alzheimer’s remedy in pipeline.

2. How Are AbbVie’s Revenue Margins Trending?

Though AbbVie has seen its revenues rise recently, its working margin has contracted barely from 27.8% in 2020 to 26.1% now. This clubbed with bills associated to IPR&D and milestones has weighed on its backside line recently. For the full-year 2024, the corporate expects its adjusted earnings per share to be within the vary of $10.90 and $10.94, in comparison with a determine of $11.21 in 2023.

3. What About Monetary Danger?

AbbVie has seen its money fall from $8.5 billion in 2020 to $7.3 billion now, whereas its complete debt fell from $86.1 billion to $71.1 billion over this era. With the corporate’s money as a share of belongings at 5.1%, and its debt as a share of fairness at 23.1%, we expect AbbVie appears moderately positioned from a monetary threat perspective.

4. Does ABBV Inventory Provide Any Room For Development?

ABBV inventory has risen 17% this yr, underperforming the broader markets, with the S&P500 index rising 26%. Even when we have a look at a barely long term, the rise in ABBV inventory over the latest years has been removed from constant, though annual returns had been significantly much less risky than the S&P 500. Returns for the inventory had been 32% in 2021, 24% in 2022, and 0% in 2023.
Notably, the Trefis Excessive High quality (HQ) Portfolio, with a set of 30 shares, is much less risky. And it has outperformed the S&P 500 annually over the identical interval. Why is that? As a bunch, HQ Portfolio shares offered higher returns with much less threat versus the benchmark index; much less of a roller-coaster experience, as evident in HQ Portfolio efficiency metrics.

Given the present unsure macroeconomic atmosphere and developments round its pipeline, may ABBV face an analogous state of affairs because it did in 2023 and underperform the S&P over the following 12 months — or will it see a robust leap? From a valuation perspective, ABBV inventory appears prefer it has ample room for development. At its present ranges of round $170, ABBV trades at 5.7x revenues, versus the inventory’s common P/S ratio of 4.4x seen during the last three years.

Nonetheless, an increase in valuation a number of appears justified given the market share good points for its new medicine. AbbVie seems to be combating properly with the lack of gross sales from Humira. Rinvoq and Skyrizi will seemingly proceed to see market share good points – main gross sales development over coming years. Skyrizi could be known as Humira 2.0 for AbbVie, with its peak gross sales estimated to be a whopping $20 billion. Even Rinvoq’s peak gross sales are anticipated to be very excessive at round $12 billion. Regardless of Humira’s patent loss, we expect AbbVie would be capable to develop its gross sales and earnings – making a case for an upward revision in valuation a number of. The latest fall in ABBV inventory after the Emraclidine replace appears stretched, and we expect it gives a chance to select the inventory for sturdy long-term good points.

Whereas ABBV inventory appears like it might see greater ranges, it’s useful to see how AbbVie’s friends fare on metrics that matter. You will see different worthwhile comparisons for firms throughout industries at Peer Comparisons.