Most pharmaceutical businesses are slow-moving by nature due to the lengthy amount of time it takes to develop a new medicine, and AbbVie (NYSE: ABBV) is no exception. Nonetheless, the next five years will likely see it growing faster than the last five years, and shareholders are apt to benefit.
Here's where this company will be going, and where it's probably going to end up.
It's hard to see this business getting any smaller
In the next five years, expect AbbVie to continue to compete in the disease areas that its pipeline and product mix are currently heavily focused around: immunology, neuroscience, and oncology. It'll also likely continue to compete at a much smaller scale in aesthetics, eye medicines, and a grouping of other areas like infectious disease, but these efforts are ancillary at most. Given the 14 early-stage oncology programs it has that are currently in clinical trials, cancer drugs will probably be more important to the top line than they have been in the past.
As shown by its recent acquisition of Cerevel, which it justified as bolstering its neuroscience portfolio, it wouldn't be too surprising to see AbbVie pursue more acquisitions, with an eye toward oncology or perhaps immunology. It currently has more than $7.2 billion in cash, equivalents, and short-term investments, and in 2023 it reported free cash flow (FCF) of nearly $22.1 billion. So it should have enough money and cash flow to buy a handful of small biotechs outright, or even a couple of larger ones if it's willing to lean on a bit of debt financing.
Presently, management calculates that the company's top line will expand with a compound annual growth rate of between 7% and 9% from 2024 through 2029. Driving that growth will be $27 billion in revenue from its leading immunology drugs, Rinvoq and Skyrizi, an aesthetics portfolio worth more than $9 billion annually, and a recovering oncology segment that should start growing instead of shrinking within roughly the next two years. A few of its other medicines are also slated to reach their peak sales years between now and the end of the decade.
So, with this information in hand, we can estimate using its 2023 annual revenue of $54.3 billion that AbbVie's top line for 2029 should be worth at least $75.4 billion, and roughly $83.1 billion at most.
Capital allocation is likely to favor shareholders
As it grows over the next five years, shareholders should expect AbbVie to continue hiking its dividend, as it's one of management's capital allocation priorities. But investors should temper their expectations about the pace of dividend growth. In the last 10 years, the company increased its payment by 235%. The pace of the increases has fallen, however, and for 2024, it raised its payout by just 5%.
That may pick up a bit as its payout ratio drops toward a more sustainable level than it is at right now, where its dividend obligations are substantially larger than its trailing-12-month net income of $5.1 billion.
The biggest risk facing AbbVie in the next five years is that it'll make research and development investments in its early-stage pipeline that are poorly calibrated toward the biggest disease markets of the future. There isn't any sign that it's doing so. Still, there's always the risk of its programs failing in clinical trials, though the extent to which failures can damage its share price looks fairly limited owing to the size of its pipeline.
Overall, the odds are good that this pharma will be more resourced and considerably larger before the end of 2029. It will probably also have made some progress on reducing its long-term debt load of $58.5 billion. Therefore, it's safe to say that the investment thesis in favor of buying the stock is alive and well, even for investors with somewhat more conservative risk tolerances.
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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.
