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Is AbbVie's Stock Worth the Price?

The market isn't accounting for pressures on top drug Humira.

Bulls Say

  • AbbVie's strong dividend yield should act as valuation support, as the cash flows that support the dividend look secure over the next few years.
  • The company's increasing entrenchment in blood cancers should bode well for growth, since pricing power remains solid in this therapeutic area.
  • AbbVie's next-generation immunology drugs should help mitigate the competitive threats facing Humira.

Bears Say

  • Several of AbbVie's pipeline drugs in immunology have mechanisms of action similar to drugs already approved, taking away the company's first-mover advantage.
  • Humira's high profit margins are likely to have an amplified impact on earnings as sales are lost to eventual biosimilar competition.
  • The extra debt needed to finance the Allergan deal could put added pressure on AbbVie if core assets like Botox and Humira face tougher competition than expected.

Morningstar Analyst Damien Conover Says

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

With approvals in rheumatoid arthritis, psoriasis, and Crohn’s disease, Humira has a wide range of indications, but biosimilar pressure in international markets will probably lead to declining sales over the next few years, and we expect U.S. biosimilar competition to accelerate the decline in 2023. Also, branded competition is likely to weigh on Humira’s growth over the next several years. In particular, new JAK inhibitors and IL-17 and IL-23 antibodies represent major advancements in rheumatoid arthritis and psoriasis, which will likely lead to some market share losses for Humira.

However, AbbVie looks well positioned with next-generation immunology drugs to partly offset Humira’s eventual declines. In particular, its recently launched Skyrizi and Rinvoq have shown improved efficacy and safety over Humira and other currently leading treatment options.

Beyond immunology, cancer drug Imbruvica is the next-biggest sales contributor for AbbVie. Imbruvica’s strong clinical data in several forms of blood cancer should lead to peak sales above $6 billion. Additionally, the acquisition of Allergan brings several new products, including Botox for both cosmetic and therapeutic uses. Botox’s strong entrenchment bodes well for the treatment as new competition is emerging. Also, AbbVie holds several mature drugs with patent expirations long past, but with manufacturing or specific dosing complexities that make generic competition less likely.

Looking forward, AbbVie’s pipeline is weighted more toward new cancer and immunology drugs. The company should be able to leverage its solid entrenchment with Humira and Imbruvica to launch these new drugs.

Key Proprietary Morningstar Metrics

Fair Value Estimate: $114 Star Rating: 1 Stars Economic Moat Rating: Narrow Moat Trend Rating: Negative

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