Prompt Recovery and Strategic Acquisitions Poised to Propel Future Growth

What are the underlying business or industry changes driving this perspective?

• The expected return to operational sales growth just 1 year following the U.S. Humira loss of exclusivity, driven by the growth platform, hints at a prompt recovery mechanism for revenue, indicating potential undervaluation.
• Investment in R&D has increased by nearly $600 million in 2023 and is set to increase again in 2024, supporting several promising pipeline programs. This signifies potential for innovation-driven revenue growth.
• The proposed acquisitions of ImmunoGen and Cerevel, aiming to strengthen the oncology and neuroscience pipelines respectively, suggest future revenue expansion opportunities in rapidly growing healthcare segments.
• The updated forecast for Skyrizi and Rinvoq, anticipating these therapies to collectively exceed more than $27 billion in sales by 2027, reflects a significant upward revenue trajectory supported by market growth and share momentum.
• The commitment to increasing the quarterly dividend, having grown it by more than 285% since inception, reflects a strong cash flow generation capability, indirectly supporting the argument for stock undervaluation through investor return mechanisms.

How have these above catalysts been quantified?

• Analysts are assuming AbbVie's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.0% today to 22.8% in 3 years time.
• Analysts expect EPS to reach $8.51 ($14.0 billion in earnings) by about February 2027, up from $2.75 today.

What could happen that would invalidate this narrative?

• The anticipated tax changes in the U.S. and internationally might challenge AbbVie's financials, affecting the company's overall tax rate and potentially its net margins.
• Potential cannibalization between Skyrizi and Rinvoq in the treatment of ulcerative colitis (UC) could impact revenue growth for one or both drugs, despite management's efforts to position them complementarily.
• The implementation of the Part D restructure and the IRA could negatively impact AbbVie-s revenue, given the company-s range of drugs likely to be affected by these changes, impacting net revenues and possibly earnings.
• The GILTI tax rate is set to increase from 10.5% to 13.1%, potentially around 2026, which could reduce AbbVie's earnings and impact net margins due to the incremental tax burden.
• The competitive dynamics in the oncology market, especially concerning ovarian cancer treatments, could challenge AbbVie's market share and revenue growth in this segment, reflecting potential risks to revenue and earnings depending on how its products interact with competing treatments.