AbbVie Posts Largely In-Line Q1

AbbVie ABBV reported first-quarter results largely in line with our expectations, with some upside in cosmetic Botox and positive comments for pipeline drug epcoritamab in cancer that will probably support a moderate increase to our fair value estimate. Despite our moderately positive reaction to the quarter, the stock declined, which we think is largely due to increased concerns about AbbVie’s ability to offset the 2023 U.S. biosimilar pressure to Humira; the recent cystic fibrosis pipeline setback is also concerning. We have already incorporated this challenge into our fair value estimate, which is still well below AbbVie’s stock price, even after today’s price decline. While we believe AbbVie will be able to mitigate biosimilar pressure, we expect an over 20% earnings decline in 2023 followed by at least another year of earnings decline due to a prolonged period of Humira pressure. We believe the stock’s decline is partially factoring in a larger earnings decline that we had already have in our projections.

However, AbbVie’s narrow moat is intact, supported by the increasingly well-positioned immunology drugs Skyrizi and Rinvoq and the firm’s aesthetics business. The expansion of Skyrizi and Rinvoq into a broad array of immunology indications should support 2025 sales of over $12 billion collectively, but shy of management’s 2025 guidance of over $15 billion. If the drugs reach management’s guidance, there is upside to our fair value estimate. Additionally, cosmetic Botox increased 37% in the quarter, and we believe the strong marketing efforts of the firm will continue to drive sales gains. AbbVie’s marketing efforts appear to be providing a lift for Botox as Allergan (acquired by AbbVie in 2020) may have lacked the resources to fully maximize Botox’s potential.

On the pipeline side, we are very encouraged by epcoritamab’s overall response rate of 63% in a phase 1/2 refractory lymphoma study, which could support a filing later in the year.