It's always a good sign when a company successfully navigates a period of uncertainty with the help of a well-executed plan. For AbbVie, (NYSE: ABBV) it looks like some celebration is in order, because it just resolved one of its most pressing issues of the past few years.
Here's how this drugmaker proved the bears wrong, and why that means it's worth investing $1,500 in today.
A major period of uncertainty is ending
At the start of 2023, U.S. patent exclusivity expired for the blockbuster drug Humira, AbbVie's chief cash cow. During the 20 years the immunosuppressive drug has been on the market, it brought in roughly $200 billion in total revenue, being prescribed for a host of ailments from arthritis to Crohn's disease to plaque psoriasis.
Now, biosimilar generic versions of the drug are available, and its time in the limelight is over. When it comes to the original version's sales levels, it's all downhill from here.
That presents a major problem for AbbVie. In Q3 2022, U.S. sales of Humira generated more than $4.9 billion of the company's total revenue of $14.8 billion. Investors and onlookers were far from confident in its ability to gracefully replace nearly a third of its revenue within a couple of years, considering the long length of the drug development cycle and the odds against candidate drugs successfully earning regulatory approval.
The bull investment thesis was based on the idea that a pair of newer immunology medicines, Skyrizi and Rinvoq, would pick up the slack.
AbbVie management's goal was to get one or the other of those two drugs approved for all of the different conditions that Humira treats, allowing them to roughly recapture the sales that would otherwise be at risk of being lost to the older drug's biosimilars. That required some heavy investments in research and development, not to mention favorable data from clinical trials and the assent of regulators. Failures along the way would have hampered the ability of Skyrizi and Rinvoq to prop up the top line.
But the plan worked.
As of Q3 2024, Humira sales were $2.2 billion globally, but AbbVie's total revenue was $14.4 billion. Its immunology portfolio (which includes all three of the medicines) grew by 3.9% year over year to more than $7 billion.
Soon enough, AbbVie's immunology segment should be larger than it was when Humira was at its peak, as sales of both Rinvoq and Skyrizi are growing, and there's no indication that they'll stop growing anytime soon. The company will return to moderately paced growth, having successfully transitioned away from its reliance on one of the most profitable drugs of all time without incurring any damage to its share price.
The bulls were right.
This stock's future is bright
AbbVie's successful pivot away from Humira isn't the only reason retail investors should consider adding the shares to their portfolios.
The company estimates that in 2026, its oncology portfolio will have enough new products on the market to lift that segment back to growth. Beyond that point, the future looks even more intriguing. Right now, the company has 14 oncology programs in early-stage trials. In a few years, we can expect that at least some of them will have delivered worthwhile results in clinical trials and be en route to eventual approval. By 2027, management is anticipating that the two replacements for Humira will be generating at least $27 billion in revenue annually, with growth continuing through the early 2030s. And according to AbbVie's long-term projections, in 2029, its aesthetics portfolio is expected to generate at least $9 billion in annual sales.
In sum, looking at the road ahead for AbbVie during the next decade or so, it's not hard to see a host of catalysts for revenue and earnings growth. It also won't face any patent cliffs in that period as daunting as the one it just overcame with Humira.
Of course, matters are unlikely to work out perfectly. Most of its early-stage cancer treatment candidates probably won't make it to the market, and some failures elsewhere in the pipeline are statistically guaranteed. Some of those stumbles are bound to dent the stock, at least temporarily.
But it's hard to avoid the conclusion that the coming years are going to be easier for AbbVie than the past few. With that in mind, it's worth buying $1,500 of its stock now, if not an even bigger helping.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie. The Motley Fool has a disclosure policy.
