AbbVie Posts Strong Q3, Buoyed by New Immunology Drugs

AbbVie ABBV reported third-quarter results ahead of both our and consensus S&P CapIQ expectations, but we don’t expect any major changes to our fair value estimate based on the minor outperformance. We continue to view the company as undervalued with the market likely not ascribing enough value to the firm’s recently launched products and growing pipeline, which also help fortify our narrow moat rating for the firm.

In the quarter, total sales increased 4% (on a comparable operational basis assuming the Allergan acquisition closed in January 2019) with strong growth from new immunology drugs Skyrizi and Rinvoq along with oncology drugs Imbruvica and Venclexta offsetting weakness in eye care, aesthetics, and hepatitis C. We expect accelerating total growth until U.S. Humira biosimilars emerge in 2023, as COVID-19 pressure should ease on the aesthetics and eyecare businesses. Also, Skyrizi and Rinvoq look poised for significant gains based on low market share penetration in currently approved indications and major label expansion opportunities, including atopic dermatitis, ankylosing spondylitis, and inflammatory bowel disease (IBD) for Rinvoq and psoriatic arthritis and IBD for Skyrizi. An important head-to-head study of Rinvoq versus market leading drug Dupixent in atopic dermatitis should report in late 2020, and we expect Rinvoq to show a benefit on itch based on the drug’s mechanism of action. Overall, we expect these two new immunology drugs to post peak annual sales of over $10 billion, representing just over half of peak annual Humira sales. While the new immunology drugs along with expected continued growth from oncology drugs mitigate some of the biosimilar pressures for Humira, we still expect the company to face heavy pressure starting in 2023. However, we believe the emerging early-stage pipeline focused in oncology and immunology should support steady earnings by 2025, following the worst of the U.S. Humira biosimilar pressure.

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