Company Reports

We are holding steady to our fair value estimate for AbbVie following largely in-line first-quarter results. AbbVie continues to execute very well around the US Humira loss of exclusivity, which was a key factor in our moat rating increase to wide earlier in the year.

AbbVie’s announcement that Robert Michael has been appointed to succeed Rick Gonzalez as CEO supports the continuity of the company’s overall strategy, and we don't expect any changes to our fair value estimate. Gonzalez is 70 years old, so we believe his retirement from the top spot is natural. Michael brings excellent experience to the CEO role, having spent more than 30 years at AbbVie and former parent Abbott in many leadership positions, including chief financial officer and chief operating officer. We expect the transition, which will occur July 1, to be seamless. Gonzalez will continue with AbbVie as executive chair of the board, continuing to provide higher-level oversight of the company. Under Gonzalez’s leadership, AbbVie navigated one of the industry’s largest patent losses (immunology drug Humira) and emerged as a well-positioned drug company with a wide economic moat. We expect continued successful development and marketing of next-generation drugs with Michael as CEO.

AbbVie holds a strong portfolio of marketed and pipeline drugs. While the increasing competition to the company's key drug Humira should slow the growth for the company in the near term, we believe the firm's remaining portfolio will mitigate these losses.

AbbVie reported strong fourth-quarter earnings and increased long-term guidance well above our expectations, and we plan to increase our fair value estimate based on the firm’s strengthening position.

We are increasing AbbVie’s moat rating to wide from narrow largely based on the successful navigation through the Humira patent losses. Following U.S. biosimilar Humira launches in 2023, AbbVie has developed a strong, diversified portfolio that is heavily protected with long-dated patents. In particular, immunology drugs Skyrizi and Rinvoq are well positioned for growth based on leading efficacy in several large immunology indications, and both carry patent protection into the early/mid-2030s. Further, the well-positioned aesthetics business (led by Botox) provides long product cycles due to brand power and physician entrenchment. With Humira representing close to half the company’s profits before international biosimilars launched in 2019, the ability to work through the biosimilar competition and emerge with a strong portfolio shows solid strategic execution. The firm’s successful ability to redeploy capital to set up a stronger, more diversified intangible asset base supports a wide moat.

AbbVie holds a strong portfolio of marketed and pipeline drugs. While the increasing competition to the company's key drug Humira should slow the growth for the company, we believe the firm's remaining portfolio will mitigate these losses.

We are holding firm to our $126 fair value estimate for AbbVie following the announced $8 billion acquisition of Cerevel. We believe the deal yields several higher-risk and higher potential reward neuroscience drugs, led by schizophrenia drug emraclidine. While the neuroscience treatment potential is very large given the high unmet medical need, the risks remain elevated as the scientific community is still in the earlier stages of fully understanding most neurological disorders.

AbbVie's $10 billion acquisition of ImmunoGen doesn't affect our $126 fair value estimate or our narrow moat rating for the firm. We believe AbbVie is largely paying a fair price for ImmunoGen, which is primarily driven by ovarian cancer drug Elahere.

AbbVie reported third-quarter results slightly above our expectations, but we are not making any fair value changes based on the minor outperformance. The firm continues to execute well on driving growth for its next generation immunology drugs Skyrizi (up 52%) and Rinvoq (up 60%), which should enable the firm to mitigate biosimilar pressures to the firm's top drug Humira (down 36%). AbbVie's strong ability to offset patent losses with new innovative drugs is a key reason behind the firm's narrow moat.

As part of the Inflation Reduction Act, the U.S. Department of Health and Human Services on Aug. 29 announced the first 10 drugs selected for mandated 2026 Medicare price negotiations. This doesn’t have a major impact on our valuations or moat ratings for the biopharma industry. The 10 drugs have been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.

AbbVie reported strong second-quarter results ahead of our projections, and we are increasing our fair value estimate to $126 from $120 based on the improving outlook. In particular, the strong gains for immunology drug Skyrizi support an increased long-term outlook for the drug. Skyrizi’s leading efficacy in psoriasis along with strong data in inflammatory bowel disease should support peak annual sales over $15 billion. Beyond Skyrizi, the rest of the business is largely performing well, except for the expected declines for immunology drug Humira (due to biosimilars) and blood cancer drug Imbruvica (due to intensifying branded competition). The strong, broad-based support provides us with increased confidence in the firm’s moat.

While AbbVie holds a strong portfolio of marketed and pipeline drugs, the increasing competition to the company's key drug Humira should slow the growth for the company. At close to 40% of total sales and a higher portion of earnings (due to higher margin revenue), Humira is a key determinant of AbbVie's earnings performance over the next three years.

While AbbVie holds a strong portfolio of marketed and pipeline drugs, the increasing competition to the company's key drug Humira should slow the growth for the company. At close to 40% of total sales and a higher portion of earnings (due to higher margin revenue), Humira is a key determinant of AbbVie's earnings performance over the next three years.

AbbVie posted first-quarter results largely as projected, and we don’t expect any major changes to our fair value estimate. With the arrival of the first U.S. biosimilar to Humira, AbbVie’s results took a material hit; we expected this, but it was probably more jarring to the market. With likely six more biosimilars launching later in the year (most around the July time frame), we expect Humira sales to continue to rapidly decline. However, the robustness of the remaining portfolio helps to support AbbVie's narrow moat.

AbbVie reported fourth-quarter results largely in line with our expectations, and we don’t expect any major fair value estimate changes. We continue to view the stock as slightly overvalued, as we see less likely growth potential over the next five years versus the market. We are more concerned with the long-term outlook for immunology drug Humira and cancer drug Imbruvica (collecting representing close to half of total sales). While management’s guidance for a 37% U.S. decline in Humira sales for 2023 followed by another decline in 2024 seems reasonable given close to 10 likely biosimilar launches this year, we expect the heavy competition to force continued Humira declines after 2024 instead of management’s expectations for stable Humira sales by 2025. Similarly, management’s 2023 guidance for declines in Imbruvica sales are reasonable given recent competitive drug launches with superior profiles, but longer-term guidance for Imbruvica to stabilize seems too optimistic.

AbbVie reported third-quarter results slightly above our projections, but we don’t expect any major changes to our fair value estimate on the minor outperformance. We continue to view the stock as slightly overvalued with the market not fully appreciating the U.S. biosimilar Humira pressure likely starting in 2023. Nevertheless, we remain confident in AbbVie’s narrow moat due to the strong entrenchment of several newer drugs, especially immunology drugs Skyrizi and Rinvoq.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.

While AbbVie holds a strong portfolio of marketed and pipeline drugs, the increasing competition to the company's key drug Humira should slow the growth for the company. At close to 40% of total sales and a higher portion of earnings (due to higher margin revenue), Humira is a key determinant of AbbVie's earnings performance over the next three years.

Yesterday, multiple media sources reported that AbbVie is stopping its phase 1 clinical trial of lemzoparlimab (“lemzo”) as part of a combination treatment for myelodysplastic syndromes, or MDS, and acute myeloid leukemia, or AML, as per I-Mab’s Form 6-K filed with the SEC. Lemzo, a CD47 inhibitor, is one of I-Mab’s two core global assets, and its ex-China rights were out-licensed to AbbVie. Unlike AbbVie’s previous termination of its trial in multiple myeloma, or MM, AML and MDS are significant indications for lemzo and this news has a significant impact on I-Mab’s future revenue potential. We lower our fair value estimate of no-moat I-Mab to $32.50 per share from $51.00 per share.

The likelihood of drug-pricing policy changes in the United States changed dramatically over the course of July, and we are now assessing the impact of the various measures included in the Inflation Reduction Act of 2022 in our Big Biopharma valuation models. Assuming the bill is eligible to pass via reconciliation (the Senate parliamentarian is reviewing the bill), we think Democrats will be able to pass the Senate bill, paving the way for it to be signed into law. Overall, we don’t expect major changes to our fair value estimates or moat ratings, as the changes net out to a moderate negative that we believe is manageable, likely through a combination of cost-cutting, agreements with generic firms for limited authorized generic launches (to avoid the list for negotiated drugs), and higher launch prices (to counter pressure on price increases and earlier declines due to negotiation).