Pipeline Advances And Acquisitions Will Open Obesity And Oncology Markets

Key Takeaways

• Focusing on pipeline growth and strategic acquisitions aims to drive future revenue in obesity and other key therapeutic areas.
  
• Strong performance of Skyrizi and Rinvoq, along with investment in manufacturing, ensures sustained growth and improved margins.
  
• AbbVie faces revenue and margin pressures from biosimilar competition, economic challenges, and regulatory uncertainties, especially impacting key drugs Humira, Skyrizi, and Rinvoq.

Catalysts

A research-based biopharmaceutical company, engages in the research and development, manufacture, commercialization, and sale of medicines and therapies worldwide.

• AbbVie is focusing on advancing its internal pipeline and adding external opportunities, including the acquisition of Nimble Therapeutics and a license agreement with Gubra for an amylin analog in obesity, aiming to contribute to future revenue growth.
  
• The company’s expansion into the obesity market, a significant global health concern, is a major forward-looking catalyst for growth, expected to impact revenue positively.
  
• Continued investment in next-generation oncology treatments, such as promising ADCs and the multiple myeloma bispecific ABBV-383, could drive future revenue.
  
• Skyrizi and Rinvoq's strong performance and increasing indications in immunology, dermatology, and rheumatology are expected to sustain growth, affecting both revenue and margins.
  
• Investments in U.S. manufacturing are aimed at supporting volume growth and expanding operations, potentially enhancing AbbVie's cost structure and net margins.

AbbVie Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AbbVie's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.2% today to 27.4% in 3 years time.
• Analysts expect earnings to reach $19.2 billion (and earnings per share of $11.03) by about April 2028, up from $4.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $22.3 billion in earnings, and the most bearish expecting $10.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.8x on those 2028 earnings, down from 82.4x today. This future PE is greater than the current PE for the GB Biotechs industry at 20.4x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.75%, as per the Simply Wall St company report.

AbbVie Future Earnings Per Share Growth

Risks

• AbbVie faces ongoing risks from biosimilar competition, particularly with Humira experiencing significant sales erosion, which could negatively impact its revenue and earnings.
  
• The potential implementation of sectoral tariffs, especially without accounting for these in the current guidance, could adversely affect manufacturing costs and net margins.
  
• Economic headwinds and declining consumer sentiment affecting the aesthetics market could lead to reduced sales growth, impacting overall revenue.
  
• AbbVie's heavy reliance on the success of Skyrizi and Rinvoq, along with potential pricing pressures on these drugs, could strain the company's net margins if competitive dynamics shift unfavorably.
  
• Regulatory and policy uncertainties, such as potential international reference pricing and changes in trade policies, could impact both pricing strategies and cost structures, affecting earnings and revenue expectations.

Valuation

• The analysts have a consensus price target of $210.243 for AbbVie based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $250.0, and the most bearish reporting a price target of just $173.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $70.0 billion, earnings will come to $19.2 billion, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $193.51, the analyst price target of $210.24 is 8.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.