Why Is AbbVie (ABBV) Up 12.7% Since Last Earnings Report?

A month has gone by since the last earnings report for AbbVie (ABBV). Shares have added about 12.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is AbbVie due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AbbVie Beats on Q1 Earnings & Sales

Earnings of $2.42 per share in the first quarter comfortably beat the Zacks Consensus Estimate of $2.27 and came ahead of the guided range of $2.28-$2.30. Earnings rose 13% year over year.
 
Revenues of $8.62 billion beat the Zacks Consensus Estimate of $8.44 billion. Sales rose 10.1% on a reported basis. Excluding currency headwinds of 0.6%, operational revenues increased 10.7%, driven by continued strong performance of AbbVie’s immunology and hematology/oncology drugs despite the impact of international biosimilar competition for Humira. Operational revenue growth was much higher than the guidance of approximately 7%.

As a result of reduced physician and patient contacts due to COVID-19 related lockdowns, patients and pharmacies stocked up AbbVie’s medicines, which benefited sales. First-quarter operational sales growth included 240-basis point stocking benefit related to the COVID-19 pandemic.

However, mainly from late March and April, AbbVie saw a negative impact on the number of new patient starts for drugs like Humira and Skyrizi as fewer patients visited doctors. Meanwhile, the company also saw lower new patient utilization of hospital-based treatments like Venclexta.

Quarter in Details

Humira sales were up 5.8% (up 6.4% on an operational basis) to $4.7 billion as higher U.S. sales were offset by decline in international markets.

Sales in the United States climbed 13.7% to $3.66 billion driven by market growth across all indications and COVID-19 related stocking benefit. However, Humira sales in the ex-U.S. markets were down 12.8% on an operational basis and 14.9% on a reported basis to $1.05 billion.

International sales were severely impacted by the launch of several direct biosimilar drugs in Europe and other international markets.

In 2020, Humira is expected to record revenue growth of approximately 7% in the United States versus 9% expected previously. International Humira sales are expected to approach $3.4 billion in 2020.

New immunology drugs, Skyrizi and Rinvoq registered sales of $300 million and $86 million, respectively. In the previous quarter, Skyrizi and Rinvoq recorded sales of $216 million and $33 million, respectively. Strong sequential growth in sales of both drugs in the past couple of quarters demonstrates strong uptake.

AbbVie expects Skyrizi global revenues of approximately $1.4 billion, higher than $1.2 billion expected previously. Rinvoq global revenues are expected to be approximately $500 million.

AbbVie’s oncology/hematology (including Imbruvica and Venclexta) sales surged 32.3% on an operational basis to $1.55 billion in the quarter, driven by strong growth of both Imbruvica and Venclexta.

First-quarter net revenues from Imbruvica were $1.23 billion, up 20.6% year over year operationally driven by continued penetration for patients with CLL as well as COVID-19 related stocking benefit. U.S. sales of Imbruvica grossed $966 million, up 16.6% from the year-ago figure, driven by strong share in all lines of therapy in CLL. AbbVie logged $266 million of international profit sharing with J&J, up 37.9% year over year.

Venclexta brought in revenues of $317 million, up more than 100% year over year driven by continued share gains across all approved indications.

In 2020, Imbruvica global revenues are expected to be approximately $5.5 billion while Venclexta global sales are expected to be approximately $1.3 billion

HCV products, including Viekira and Mavyret, recorded sales of $564 million, down 30.8% (down 30.2% on an operational basis) year over year. Mavyret sales totaled $559 million in the quarter, down 29.2% (down 28.6% on an operational basis) year over year due to a decline in the United States as well as international markets. International sales of Mavyret declined 14.7% in the quarter on an operational basis due to lower treated patient volumes in some markets. U.S sales were down 42% year over year due to increased competition in management Medicaid segment.

Other products that delivered an encouraging performance include Duodopa, Lupron and Kaletra, which recorded revenue growth of 14%, 2.1% and 11.4%, respectively on an operational basis. Creon and Synthroid, generating sales only from U.S. markets, witnessed a revenue increase of 21.9% and 12.3%, respectively.

Newly launched drug Orilissa recorded sales of $31 million versus $34 million in the previous quarter. U.S. sales were $30 million while international sales were $1.0 million. The sales ramp up of the drug has been slower than expected.

Other drugs that recorded sales decline include Synagis, AndroGel and Sevoflurane, down 4.1%, 89.1% and 12.2%, respectively, on an operational basis during the quarter.

Costs Rise

Adjusted gross margin declined 70 bps to 82.7% in the quarter due to collaboration profit sharing arrangements for Imbruvica and Venclexta. Adjusted SG&A expenses increased 2.3% to $1.6 billion. R&D expenses were $1.2 billion in the first quarter, rising 2.9% year over year due to greater investments in the pipeline. Adjusted operating margin represented 49.8% of sales, up 170 bps year over year.

2020 Outlook

AbbVie maintained its earnings guidance but slightly lowered its operational sales growth guidance for the year.

AbbVie maintained its previous outlook for adjusted EPS to be in the range of $9.61-$9.71 for 2020 for the standalone company, which means excluding Allergan. The earnings guidance indicates a year-over-year increase of 8.1% at the mid-point.

AbbVie’s guidance assumes that the lockdowns will be lifted in May across Europe and the United States. Two months after stay-at-home orders are lifted, AbbVie expects physician offices and hospitals to return to normal operations. Meanwhile, the guidance also incorporates the impact of increased utilization of patient affordability programs and changes in segment mix due to increased unemployment.

The company now expects standalone revenue growth to be approximately 7% on an operational basis versus 8% expected previously. Currency headwinds are expected to have a 70-basis point unfavorable impact on reported sales growth in 2020.

Adjusted gross margin is expected to be approximately 82% of sales compared with 81.5% expected previously. Operating margin is expected to be approximately 49% of sales versus 48% expected previously. While R&D is expected to be slightly above 14% of sales (maintained), SG&A is expected to be approximately 19% of sales (prior expectation was above 19%).

Second-Quarter 2020 Outlook

AbbVie expects the COVID-19 crisis to significantly impact its business in the second quarter.

Second-quarter earnings are expected between $2.10 and $2.16 per share. AbbVie expects adjusted revenues of approximately $8.1 billion for standalone AbbVie.

It expects the first-quarter benefits of inventory stocking to reverse in the second quarter. This coupled with slower new patient starts of physician-administered drugs due to COVID-19 is expected to hurt sales in the second quarter. Also, sales of Allergan’s aesthetics products (including Box therapeutics) could be under pressure in the near term as spending on those products is deferred during the economic downturn.

Adjusted operating margin is expected to be approximately 47.5% of sales

COVID-19 Related Research Efforts

AbbVie has initiated a phase II study – iNSPIRE – to evaluate the potential of Imbruvica to treat patients with moderate to severe COVID-19. The study will evaluate if Imbruvica can prevent pro-inflammatory cytokines and reduce the risk of pulmonary failure, the most common reasons for COVID-19 related deaths.

AbbVie is coordinating with European health authorities, FDA, Centers for Disease Control and Prevention and other U.S. health agencies to support clinical studies on Kaletra/Aluvia for COVID-19 treatment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, AbbVie has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise AbbVie has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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