U.S. Humira Biosimilars Launch Pressures AbbVie Outlook

AbbVie ABBV reported solid fourth-quarter results largely in line with our estimates, and we don't expect any major changes to our fair value estimate. We continue to view the stock as moderately overvalued, with the 2023 headwinds of U.S. biosimilar Humira pressure in immunology disease not likely fully reflected in the stock. The U.S. loss of Humira exclusivity is also a major factor contributing to our narrow moat rating, rather than the wide moat rating held by most of AbbVie's peers. In the quarter, total sales increased 7.5% operationally with broad product support, a trend that should continue into 2022 but should significantly decline in 2023. We expect close to a 50% decline in U.S. Humira sales in 2023 as biosimilars begin to launch. Additionally, we expect further declines with the drug after 2023 that will make long-term growth much more challenging, especially on the bottom line, given the high-margin contribution of Humira. However, next-generation immunology drugs Skyrizi and Rinvoq posted major gains in the quarter and are increasingly well positioned with label expansions to mitigate the biosimilar Humira pressures. Management's peak annual sales projection of $7.5 billion for each drug looks reasonable for Skyrizi but potentially slightly too high for Rinvoq, given the recent U.S. warning updates in the drug's label. Outside of immunology, most drugs posted steady gains, but AbbVie's prospects look mixed, with solid potential in neuroscience and aesthetics and weaker potential with key drugs in hematology, eyecare, and hepatitis C. Oral migraine drugs Ubrelvy and Qulipta look increasingly well positioned compared with the slower-ramping new competitive injectable migraine drugs. Also, the increased marketing support behind cosmetic Botox is working well and holds potential for continued robust gains. However, cancer drug Imbruvica is facing stronger-than-expected competition, which will likely weigh on long-term growth.

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