AbbVie Inc. (ABBV, Financial) is facing aggressive competition against its blockbuster Humira, which has put pressure on its stock. But with a robust research and development pipeline boasting over 90 compounds and devices, AbbVie still holds promising prospects for long-term growth in my view. Notably, the company has made significant strides in immunology, with products like Rinvoq and Skyrizi showing impressive results in clinical trials.
R&D pipeline: A bullish catalyst
AbbVie's R&D pipeline demonstrates strong potential for long-term growth and success. With over 90 compounds, devices, or indications in development, AbbVie has a robust portfolio of advanced medicines aiming to deliver clinical performance and patient benefits. The company's commitment is evident through its substantial $7.1 billion R&D investment in 2022 and over 50 mid- and late-stage development programs.
As of the first quarter of 2023, in immunology, AbbVie's Rinvoq has received European approval for Crohn's disease, positioning it as the first JAK inhibitor for this indication. The U.S. Food and Drug Administration (FDA) approval for Rinvoq in Crohn's disease is still pending as of this writing. Skyrizi, another AbbVie product, has shown impressive results in its Phase 3 induction study for ulcerative colitis. With high efficacy rates and positive outcomes on stringent measures, Skyrizi has the potential to become a highly effective therapy for patients.
Progress in oncology and neuroscience
Further, AbbVie's progress in oncology is also noteworthy. The company expects regulatory approval for Epcoritamab in relapsed refractory large B-cell lymphoma, phase 3 data from the Venclexta Canova trial and Navitoclax's Transform-1 trial in myelofibrosis. Additionally, phase 2 data for Teliso-V in non-small cell lung cancer could support a regulatory submission for accelerated approval. The promising data for AbbVie's next-generation CMAT ADC in the solid tumor basket study suggests potential expansion into other cancers such as colorectal, pancreatic and liver cancer.
In neuroscience, AbbVie's Qulipta has received FDA approval as a preventive treatment for chronic migraine, making it the only oral CGRP antagonist approved for both episodic and chronic migraine. Atogepant's European approval is anticipated in the third quarter, further expanding AbbVie's presence in the migraine prevention market.
The company's early-stage neuroscience pipeline is also progressing, with phase 1 studies of the selective D3 dopamine receptor agonist ABBV-932 showing potential for enhanced efficacy in anxiety disorders and other psychiatric disorders.
Collaboration with Calico and Aesthetic Pipeline
AbbVie's collaboration with Calico is yielding positive results, with four assets in clinical trials, including PTPN2 inhibitors in oncology and an eIF2B activator for neurodegenerative diseases. The eIF2B activator 7262 has enrolled the first patient in the HEALEY ALS platform trial, aiming to accelerate the development of breakthrough treatments for ALS.
While AbbVie has discontinued its cystic fibrosis program due to interim analysis results not meeting the criteria for advancement, the company remains focused on other therapeutic areas.
Botox has shown promising results in phase 3 studies for platysma and masseter muscle prominence in the aesthetic pipeline, indicating the potential for a significant reduction in unwanted appearances. Regulatory submissions for these indications are expected in the near future, which will contribute to AbbVie's growth in the aesthetic market.
Humira on the decline
AbbVie's blockbuster drug, Humira, is on the decline with the introduction of biosimilars, and it will lose patent protection in 2023. The company's strategy of negotiating pricing while maintaining access has yielded results, with over 90% market access achieved. AbbVie has carefully studied the market structure and identified two broad segments: low wholesale acquisition cost (WAC) and rebate seekers. Around 20% of the commercial market values a low list price, which was expected, as seen in the pricing strategies of competitors like Amgen Inc. (AMGN, Financial) and Coherus BioSciences Inc. (CHRS, Financial).
Market erosion and contracting dynamics
The company's guidance for the year's first half indicates erosion in the range of 26% to 27%, primarily driven by price rather than volume. However, as biosimilars enter the market in the second half, AbbVie anticipates increased price erosion and volume from WAC-sensitive accounts. These projections align with the previously provided guidance of approximately 37% erosion for 2023.
Looking ahead to 2024, Humira's contracting dynamics and coverage outlines remain uncertain. Negotiations with payers typically begin in the late spring and continue throughout the summer and early fall, with deals typically closing in the winter. Regarding formulary positioning, AbbVie aims to maintain parity for Humira, recognizing the importance of patient continuity and minimizing disruptions caused by switching medications. The objective is to negotiate with appropriate standards for parity positions, although some payers may attempt to switch Humira patients, particularly in low WAC-leaning accounts. By positioning for parity, AbbVie seeks to provide a strong value proposition for patients and maintain their loyalty.
The revised forecast from AbbVie indicates a deterioration in its outlook for the entire year of 2023. The company has adjusted its diluted EPS guidance, reducing the expected profit range from $10.72–$11.12 per share to $10.57–$10.97 per share. This downward revision is primarily attributed to $280 million in milestone and in-process research and development (IPR&D) expenses incurred during the second quarter of 2023.
The unfavorable impact of $0.08 per share related to acquired IPR&D and milestone expenses incurred in the first quarter has also contributed to the reduced outlook. These expenses were higher than initially anticipated, leading to a more conservative estimate for the full year.
The revised forecast falls short of Wall Street analyst expectations, which have an average forecast of $10.97 per share.
Risks and downsides
AbbVie faces several concerning risks aside from the Humira downside. Primarily, its high level of debt raises concerns about long-term sustainability. Additionally, the company's dividend yield of 4.30% may not be sustainable due to a drastic decline in EPS.
Takeaway
In conclusion, I have a bullish outlook on AbbVie in the long-term due to its robust R&D pipeline, strong product performance and focus on market expansion and differentiation. Although the revised 2023 forecast indicates a deterioration in near-term utlook, I believe the company's long-term prospects remain positive. However, risks associated with high debt, the sustainability of dividends and insider selling should be carefully considered.
