AbbVie Posts Solid Q3 Earnings, but Uncertain Outlook for Humira Likely Weighing on Stock

AbbVie (ABBV) reported third-quarter results slightly above our projections, but we don’t expect any major changes to our fair value estimate on the minor outperformance. We continue to view the stock as slightly overvalued with the market not fully appreciating the U.S. biosimilar Humira pressure likely starting in 2023. Nevertheless, we remain confident in AbbVie’s narrow moat due to the strong entrenchment of several newer drugs, especially immunology drugs Skyrizi and Rinvoq.

In the quarter, total sales increased 5% operationally with strong growth from Skyrizi and Rinvoq helping to offset declines from mature products. While we continue to expect robust sales growth from these new immunology drugs as new indications launch, we expect U.S. Humira sales to fall close to 50% in 2023 due to biosimilar pressure. We believe the high uncertainty and lack of additional details around management expectations for Humira (beyond guidance of a 45% decline, plus or minus 10% in 2023) is weighing on the stock. Also, while management is expecting a return to steady growth following 2023, we are skeptical growth will be robust in the following years due to the heavy continual headwinds of biosimilar Humira pressures. Biosimilar pressure tends to last longer than generic small molecule pressure that usually erodes branded drugs sales very quickly. Also, adding to near term pressures, AbbVie’s blood cancer portfolio looks increasingly less competitive as new competitive drugs enter the market. Additionally, AbbVie’s aesthetics business looks more exposed to any recessionary macro headwinds.

While AbbVie does face several near-term pressures, we believe the firm is making strides with its pipeline, but probably needs to augment internal efforts with increased acquisitions. Within the pipeline, we are bullish on recently filed lymphoma drug epcoritamab. Also, new indications for already approved migraine drugs should support further entrenchment for this franchise.