Tuesday, 10 September 2024
by BD Banks
One of the world’s top biopharma companies, AbbVie (NYSE: ABBV) is a fairly complicated stock to approach as an independent investor. Aside from the scientific chops needed to evaluate the quality of its pipeline and the competitive landscape it operates in, you need to understand a suite of governance and business matters before buying the stock.
Let’s take a moment and identify three primary areas of interest, so you’re better equipped to determine whether the company is a smart buy for you.
First, pay attention to changes in executive leadership, especially when a highly effective leader is departing.
AbbVie’s longtime CEO, Richard Gonzalez, who held his position since the business spun off from Abbott Laboratories in 2013, stepped down in early July; he’s now the chairman of the board of directors. The former president and chief operating officer (COO), Robert Michael, will now lead the company.
Michael was once AbbVie’s chief financial officer (CFO), among other senior roles, and he’s also another alumnus of the former Abbott Labs management team. In sum, he’s a well-tenured insider, and is certainly already deeply familiar with the company’s strategy, pipeline, and senior personnel, among other matters. Plus, as Gonzalez will be sticking around on the board, it’s not necessarily a complete loss of execution knowhow with the CEO transition, though there may be a new direction in leadership.
These are all good signs for shareholders, as well as for anyone considering an investment in the stock.
It behooves you to know how a pharmaceutical stock is expected to grow, including which segments it plans to compete in.
AbbVie’s trailing-12-month (TTM) revenue is $55 billion. By the end of this year, management expects two medicines, Skyrizi and Rinvoq, to bring in a total of $16 billion, making them a significant proportion of the top line. By 2027, the expectation is for the pair to bring in more than $27 billion annually; that may be an even larger proportion of total annual sales than they account for today, with sales growth continuing even into the 2030s.
Between the two drugs, Skyrizi and Rinvoq treat an impressive group of immunological conditions, including Crohn’s disease, ulcerative colitis, plaque psoriasis, psoriatic arthritis, eczema, and ankylosing spondylitis. There’s ongoing research and development (R&D) in late-stage clinical trials to expand that set of conditions even further for Rinvoq, assuming regulators assent. If all goes well, the pair will continue to be cash cows for a long time.
Finally, while AbbVie doesn’t have any medicines that treat Alzheimer’s disease today, that could be changing in a big way soon. It has three separate programs for the condition in phase 2 clinical trials.
Importantly, two of those programs use mechanisms of action making them different from the therapies on the market produced by Biogen and Eli Lilly. That means they could, in theory, avoid some of the drawbacks associated with the current options, or perhaps help patients deal with their symptoms more effectively. Of course, there’s no guarantee that any of the three will make it to the market, as they still need to undergo phase 3 trials and apply for regulatory approval.
But the odds are fair that at least one of the programs will eventually earn FDA approval, and hence commercialized, growing AbbVie’s neurology segment. And while it’s too early to predict, if these candidates get approval, the company will likely study them for more related indications, further enhancing the pace of growth substantially.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.