AbbVie Posts Solid Q4, but Competitive Pressures to Limit Long-Term Growth

AbbVie Stock at a Glance

• Current Morningstar Fair Value Estimate: $120
• AbbVie Stock Star Rating: 2 Stars
• Economic Moat Rating: Narrow
• Moat Trend Rating: Negative

AbbVie Earnings Update

AbbVie ABBV reported fourth-quarter results largely in line with our expectations, and we don’t expect any major fair value estimate changes. We continue to view the stock as slightly overvalued, as we see less likely growth potential over the next five years versus the market.

We are more concerned with the long-term outlook for immunology drug Humira and cancer drug Imbruvica (collecting representing close to half of total sales). While management’s guidance for a 37% U.S. decline in Humira sales for 2023 followed by another decline in 2024 seems reasonable given close to 10 likely biosimilar launches this year, we expect the heavy competition to force continued Humira declines after 2024 instead of management’s expectations for stable Humira sales by 2025. Similarly, management’s 2023 guidance for declines in Imbruvica sales are reasonable given recent competitive drug launches with superior profiles, but longer-term guidance for Imbruvica to stabilize seems too optimistic.

Despite the headwinds on Humira and Imbruvica, AbbVie’s next generation of drugs are continuing to develop well and should be able to replace lost sales from maturing products, a key driver for the firm’s narrow moat. The new immunology drugs Skyrizi (up almost 80%) and Rinvoq (up over 50%) hold potential for future gains based on approvals in new indications and upcoming head-to-head studies versus branded competitors that should post successful data based on very strong previous clinical data. The recently launched migraine drugs Ubrelvy and Qulipta hold reasonable efficacy but importantly offer convenient oral dosing, which will likely drive robust demand.

To really accelerate growth, we believe AbbVie needs to invest more in research and development (R&D). Spending at close to 13% of sales on R&D, AbbVie trails the industry average of high teens. Nevertheless, the firm holds a few key pipeline drugs, and we are most excited about cancer drug epcoritamab (approval likely in 2023).