ABBVIE, INC: THE ARISTOCRAT OF PHARMA GROWTH

By Dabin Im, Pharmaceutical Analyst

AbbVie ($ABBV) is the third largest pharmaceutical company in the world with a 2020 revenue of $45.8 billion and 48,000 employees. AbbVie is a dividend aristocrat, which means that for 25 consecutive years, its dividend yield has increased and is in the S&P 500. Although it was founded in 2013, it is a spin-off of Abbott Laboratories (also a dividend aristocrat). Since its first dividend payment in January 2013, AbbVie’s quarterly dividend has tripled: currently it yields 4.46%. This increase was only possible due to its continuous growth and a strong cash flow. Because dividend aristocrats prioritize giving back to investors rather than re-investing into the business, it means they are that well-established. Only 65 companies are crowned this prestigious title. Considering AbbVie was founded less than 10 years ago, that is an amazing accomplishment. 

But is it worth it to invest in AbbVie just for its dividends? Dividend stocks are notorious for being “boring” due to their limited growth potential because they are already so “big”. But from a positive stance, it just means that they are very stable, profitable, and predictable. Dividends are a nice cherry on top, but it would not make sense to invest in something that keeps losing share value, just for its dividends. For example, people should not invest in a company that continuously loses value (let’s say, 10% annually on average) for a 6% dividend yield. AbbVie really is the best of both worlds because it not only pays dividends, but it is also growing as a company. With further long-term growth and a generous dividend yield, it really is a win-win for the company and investors.

One of the main concerns with AbbVie is the upcoming U.S. patent expiration of Humira in 2023. As one of AbbVie’s leading medications, Humira accounts for about 40% of the company’s sales. In fact, it is the most sold medication in the world of 2020 at $19.8 billion. However, there are a few reasons why losing the patent should not be concerning. Humira came off its European patent in 2018, but it was still able to retain 70% of its patients. International sales only fell by 8% this year. To offset is competitors, AbbVie offered discounted prices. The approved generic biosimilars are also very expensive and not readily accessible to patients. If the pricing remains competitive, there is no reason for physicians to prescribe a new generic version over the proven original.

Moreover, AbbVie is much more than Humira. In fact, it has over 30 products on the market and over 50 drugs in development. Not only that, AbbVie goes the extra mile by finding ways to utilize its existing treatments for other conditions. For example, Humira was first approved for treatment of rheumatoid arthritis (autoimmune inflammatory disease). Now, Humira can be used to treat a total of 11 conditions, including psoriasis (a skin disease) and colitis (inflammation of the colon). These disease states may not sound relevant to the average Joe, but AbbVie is far from average. It knows how to connect the dots and make the most out of its innovations. Expanding the clinical uses for its current medications is a smart, efficient way to increase its revenue. AbbVie is not only developing seeds for money trees, but it is also taking care of and nourishing the trees that they planted years ago. This combination will inevitably lead to a forest of money trees. In fact, AbbVie has at least 70 additional filings for other uses of their products across its various product lines, including immunology, neuroscience, oncology and eye-care.

Other medications that have the potential to make it to Humira’s level are Skyrizi (plaque psoriasis medication) and Rinvoq (rheumatoid arthritis medication). Skyrizi grew in sales by 91.1%, and Rinvoq grew by 600% from 2019 to 2020. These two drugs alone have been filed for approval for dozens of indications. One that stands out is Rinvoq for eczema because in its final-phase study, it topped Dupixent, the first biologic approved for eczema. More patients that used Rinvoq experienced at least 75% eczema clearance by week 16. With its rapid growth, AbbVie expects these two drugs to bring in $15 billion in sales globally by 2025. Sales of AbbVie’s cancer medications, Imbruvica and Venclexta, also increased by 7.3% from Q1 2020 to Q1 2021. 

AbbVie makes medications that can save people’s lives and significantly improve their quality of lives. It made and delivered what patients needed. But through its acquisition of Allergan, it addressed the question, “What do people want?” Well, most people want to look good. Allergan is a medical aesthetics company that makes Botox, Juvederm (fillers), CoolSculpting (body contouring via fat reduction), and AlloDerm (regenerative tissues). AbbVie’s acquisition of Allergan was a bold but smart move. The aesthetics industry is only going to grow as people are living longer but want to look younger. Allergan also has a pharmaceutical division and has medications in eye care, central nervous system (migraines and depression), and gastroenterology (digestive disorders). 

Aesthetics is a very profitable industry as the expenses are usually not covered by insurance and consumers must pay out-of-pocket. To make matters more expensive, there is no price regulation within the aesthetics industry. AbbVie’s expansion into this highly profitable sector does not stop here. AbbVie is currently actively seeking to complete its acquisition of Cypris Medical, a medical device company that specializes in tools and technology for plastic surgery, minimizing its risk and invasiveness. It is also in the process of developing a medical device that performs neck lifts and treats midface descents, which are popular cosmetic surgeries. The global cosmetic surgery market is expected to have a CAGR (Compound Annual Growth Rate) of 5.9% by 2025. Therefore, acquiring Cypris Medical is like planting a grown money tree in AbbVie’s forest to make it grow even bigger.

Pharma + Biotech = Cutting Edge Pipeline

Two is better than one, especially if the two are big pharma and biotech. AbbVie has been strategically collaborating with various biotech companies to create innovative treatments that work outside the box. With these collaborations, AbbVie is not putting all of its seeds in one basket. Below is a list of AbbVie’s current partnerships.

1. Oncology collaboration with Danish company Genmab  ($GMAB)
2. Inflammatory disease with Japanese biotech Sosei Heptares
3. Immuno-oncology deal with clinical stage Chinese biotech I-Mab ($IMAB)
4. Autoimmune disease (e.g, systemic lupus erythematosus) research with Alpine Immune Sciences based in Seattle, WA ($ALPN)
5. Oncology collaboration with Chinese company Jacobio Pharmaceuticals 
6. Finding a target for a potassium ion channel involved in Parkinson’s Disease and other neurodegenerative conditions with Caraway Therapeutics 
7. Cancer cell target treatments with Caribou Biosciences ($CRBU)
8. Next-generation tissue-targeted gene therapies for up to 3 central nervous system diseases with Capsida Biotherapeutics 
9. Precision medicine for small molecules that target hard-to-treat protein targets with Frontier Medicines (chemoproteomics to identify small molecules)

AbbVie heavily relies on these partnerships to discover not just one next blockbuster medications like Humira but multiples of them. For example, AbbVie’s oncology drug, Venclexta, was discovered from a partnership with Genentech, a biotech company.  Partnerships are an efficient way to save patients’ lives faster. They are also looking ahead in extremely lucrative disease states, such as Parkinson’s disease, cancer, and gene therapy. Aside from these direct partnerships, AbbVie also invests in fairly small companies in early-stage development for immunology, oncology, and neuroscience, which align with AbbVie’s R&D (research and development) interests. AbbVie Ventures’ portfolio, consisting of 24 companies in the US and Europe, can be found here.

With a continuously growing dividend yield, promising future pipeline, and exponential growth of current medications, it cannot get much better than this. The stock price is even undervalued. Compared to big pharma’s average forward PE ratio of 14.68, AbbVie has a forward PE ratio of 10.45. Also, keep in mind that all of this was done in less than 10 years. It can grow even more rapidly due to the snowball effect. For example, it took 44 years for Microsoft’s valuation to reach $1 trillion. With some simple math, it is reasonable to say that it may take another 44 years for it to reach $2 trillion. But in reality, it only took 2 years for Microsoft’s valuation to double. Money makes money. That is the power of compound interest (exponential growth), which remains the eighth wonder of the world. 

Disclosure: The Sick Economist owns shares of $ABBV