The Allergen takeover should payoff – Take the dividend for now.

AbbVie is one of the largest global biopharmaceutical companies which was formed as a spin-off from Abbott Laboratories in 2013. It engages in the research and development of therapies for some of the most serious human diseases. 

AbbVie’s portfolio of products includes a broad line of therapies. It produces drugs for treating chronic diseases across four primary therapeutic areas such as rheumatology, oncology, virology, and neurological. The company has a strong global presence reaching out to 28 million patients in more than 170 countries each year. AbbVie’s products are sold worldwide directly to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, etc. Humira, Imbruvica, Venclexta are AbbVie’s blockbuster products. 

The U.S. accounts for more than 70% of the company’s revenue while the rest comes from international markets. AbbVie has 22 research and manufacturing centers around the world. AbbVie operates in one business segment, pharmaceutical products.

Investment Data

Revenue Growth & Market Exposure

AbbVie is trusted worldwide for its quality products and innovative medicines. It continues to generate nearly 30% of its global sales from products launched since its inception in 2013. Humira is its primary revenue-generating drug and accounted for ~58% of AbbVie’s 2019 revenues. It is sold in numerous markets worldwide, such as North America, the European Union, Japan, China, Brazil, and Australia.

AbbVie continues to launch new immunology therapies resulting in new and differentiated options for its patients. The company spends a fortune on R&D activities and has increased its annual R&D budget by roughly 80% since its inception. AbbVie has a robust pipeline with more than 60 active clinical development programs, and its early- and mid-stage pipeline continues to advance rapidly. AbbVie is supporting COVID-19 clinical research by collaborating with health authorities and institutions globally.

AbbVie’s operational revenue grew in the last year despite the entry of biosimilars to Humira in most international markets. In order to combat rising competition, the company acquired Allergan, a leading company in medical aesthetics, women’s health, and eye care with nearly $50 billion in global sales. Allergan’s Botox and CoolSculpting make it a leading player in the growing aesthetics sector. AbbVie remains confident that the combination will generate significant cash flows to support future growth. However, aesthetics business will be adversely affected in the near future, due to stay-at-home orders. 

AbbVie’s Q1 revenues increased by more than 19% driven by robust demand across its product portfolio. The management in the recent quarterly update has said that AbbVie is adequately placed to meet the expected demand for key medicines including Kaletra and Nimbex, two therapies that have experienced a demand increase for treatment of coronavirus. It is not anticipating any product supply issues and its manufacturing sites remain operational. 

A huge portfolio of successful products, a strong late-stage pipeline of promising medicines, a well-known brand, extensive R&D capabilities, and a large patent portfolio are AbbVie’s key competitive strengths. The company stands in a good position to benefit from the growing drug demand for complex and serious diseases. AbbVie is also targeting to launch 20 new products by 2020 which should fuel future growth.

Dividends

Since its inception, AbbVie has increased its dividends by 195% making it a member of the S&P 500 Dividend Aristocrat Index. The company has raised its dividend for 47 consecutive years (since the time it was a part of Abbott). The average dividend per share growth was 21% CAGR per year over the last three years and AbbVie recently raised its dividend by more than 10%. It has a juicy annual dividend yield of 5.7% but a high payout ratio of 89%. 

In 2019, AbbVie delivered its fifth consecutive year of double-digit EPS growth. Its acquisition of Allergan should result in significant cash flow that should support future dividend growth, long-term investment, and debt reduction. The AbbVie-Allergan deal will also add the much-needed revenue diversification as Humira is currently, AbbVie’s largest cash cow. Its new immunology drugs – Rinvoq and Skyrizi should also support revenues in case of eventual revenue declines. AbbVie’s management expects an immediate 10% increase in EPS in the first full year of the combination, strong durable operating cash flow generation, and intends to reduce debt levels by $15 billion – $18 billion by the end of 2021. However, the company’s balance sheet is highly levered at the moment. Humira cash flows will also be used to pay down the incremental debt.

Given the growing worldwide demand for quality drugs and the company’s capabilities, AbbVie should be able to continue its double-digit dividend growth pace in the future as well.

Competition

AbbVie competes with other research-based pharmaceuticals and biotechnology companies. It competes with the likes of Johnson & Johnson, Becton Dickinson & Co, and Cardinal Health Inc. Johnson & Johnson is one of the biggest healthcare companies having an extensive global presence, while Becton, Dickinson & Co is a leading global medical technology company and Cardinal Health is a global, integrated healthcare services and products company. 

Bottom Line

Strategic acquisitions should continue to diversify AbbVie’s earnings and enlarge its revenue base. Its primary revenue-generator, Humira is now facing direct biosimilar competition in Europe and other countries. The company is investing heavily in its pipeline and making strategic acquisitions to lessen reliance on a few products. The acquisition of Allergan and an attractive product pipeline should also support growth.

ABBV vs INDICES

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.