AbbVie stock (NYSE: ABBV) was down 12% on Monday, November 11, after the company announced that two mid-stage clinical trials of its drug Emraclidine to treat schizophrenia failed to meet their primary goal. [1] Emraclidine was developed by Cerevel Therapeutics, which AbbVie acquired for around $9 billion earlier this year. Emraclidine was expected to be a blockbuster drug for AbbVie, and this development didn’t sit well with investors.
However, this came as good news for investors in AbbVie’s peer Bristol Myers Squibb as the company recently secured the U.S. FDA approval for its schizophrenia drug Cobenfy, and AbbVie’s stumble should limit competition for Cobenfy. Look at how Cobenfy approval brings 20% upside to BMY stock.
Barring the recent fall, ABBV stock has fared well, with 90% gains since early January 2021 — jumping from levels of $92 then to around $175 now — vs. an increase of about 60% for the S&P 500 and a 31% rise for the S&P 500 Healthcare index over this period. This can primarily be attributed to:
- a significant 60% rise in the company’s P/S ratio to 5.7x now, versus 3.6x in 2020. Investors have rewarded ABBV stock thanks to the uptick in its sales despite the biosimilar competition for its blockbuster drug – Humira; and
- a 20% rise in the company’s revenue from $46 billion to $55 billion over the same period; partly offset by
- a 0.5% rise in total shares outstanding.
Let’s dive deeper into these factors that are driving ABBV stock growth.
1. What’s Driving AbbVie’s Sales Growth?
AbbVie’s revenue rose around 20% from $45.8 billion in 2020 to $55.5 billion in the last twelve months. The company’s revenue growth has been buoyed by its Allergan acquisition in 2020. AbbVie is best known for its blockbuster drug Humira – used to treat rheumatoid arthritis and Crohn’s disease, among others. Humira’s sales peaked at $21.2 billion in 2022, before falling 32.2% y-o-y to $14.4 billion in 2023. For the nine-month period ending Sep 2024, Humira sales plunged another 34% to $7.2 billion. This can be attributed to the biosimilar competition after the loss of market exclusivity.
AbbVie, to some extent, is able to combat the loss of revenue from Humira by market share gains for some of its relatively new drugs — primarily Skyrizi and Rinvoq. These drugs are used to treat plaque psoriasis and rheumatoid arthritis. For perspective, these two products garnered $11.7 billion in 2023, reflecting a solid 53% y-o-y growth. The sales of its anti-depressant Vraylar also spiked 35% y-o-y to $2.8 billion in 2023. For the nine-month period ending September 2024, Skyrizi and Rinvoq continued their market share gains, with sales rising around 50% y-o-y to over $12 billion.
AbbVie is also looking at inorganic growth. After its acquisition of Allergan in 2020, it acquired ImmunoGen for $10.1 billion this year, giving it rights to Elahere — an ovarian cancer treatment – with estimated peak sales of over $2 billion. AbbVie acquired Cerevel Therapeutics for $8.7 billion earlier this year, giving it rights to Emraclidine, which recently failed to meet its mid-stage clinical trials. It is currently in the process of acquiring Aliada Therapeutics for $1.4 billion, primarily for its Alzheimer’s treatment in pipeline.
2. How Are AbbVie’s Profit Margins Trending?
Although AbbVie has seen its revenues rise lately, its operating margin has contracted slightly from 27.8% in 2020 to 26.1% now. This clubbed with expenses related to IPR&D and milestones has weighed on its bottom line lately. For the full-year 2024, the company expects its adjusted earnings per share to be in the range of $10.90 and $10.94, compared to a figure of $11.21 in 2023.
3. What About Financial Risk?
AbbVie has seen its cash fall from $8.5 billion in 2020 to $7.3 billion now, while its total debt fell from $86.1 billion to $71.1 billion over this period. With the company’s cash as a percentage of assets at 5.1%, and its debt as a percentage of equity at 23.1%, we think AbbVie looks reasonably placed from a financial risk perspective.
4. Does AbbVie Stock Offer Any Room For Growth?
ABBV stock has risen 17% this year, underperforming the broader markets, with the S&P500 index rising 26%. Even if we look at a slightly longer term, the increase in ABBV stock over the recent years has been far from consistent, although annual returns were considerably less volatile than the S&P 500. Returns for the stock were 32% in 2021, 24% in 2022, and 0% in 2023.
Notably, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment and developments around its pipeline, could ABBV face a similar situation as it did in 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, ABBV stock looks like it has ample room for growth. At its current levels of around $170, ABBV trades at 5.7x revenues, versus the stock’s average P/S ratio of 4.4x seen over the last three years.
However, a rise in valuation multiple seems justified given the market share gains for its new drugs. AbbVie appears to be combating well with the loss of sales from Humira. Rinvoq and Skyrizi will likely continue to see market share gains – leading sales growth over coming years. Skyrizi can be referred to as Humira 2.0 for AbbVie, with its peak sales estimated to be a whopping $20 billion. Even Rinvoq’s peak sales are expected to be very high at around $12 billion. Despite Humira’s patent loss, we think AbbVie would be able to grow its sales and earnings – making a case for an upward revision in valuation multiple. The recent fall in ABBV stock after the Emraclidine update seems stretched, and we think it offers an opportunity to pick the stock for robust long-term gains.
While ABBV stock looks like it may see higher levels, it is helpful to see how AbbVie’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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