It's rarely a good sign when a company's quarterly revenue drops from the prior-year period. But that's exactly what happened in the first quarter for AbbVie (NYSE: ABBV). The big pharma's sales slipped 1.3% year over year to $7.83 billion. It marked the first quarter in AbbVie's history to report a revenue decline.
Make no mistake: AbbVie now faces its toughest challenge ever. However, the company's Q1 results don't tell the full story. Actually, AbbVie is in better shape than you might think.
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Although AbbVie's revenue fell in the first quarter, the big drugmaker still managed to beat the consensus analysts' estimate. However, the real silver lining for AbbVie came on its bottom line. The company reported solid year-over-year adjusted earnings per share (EPS) growth of 14.4%. This improvement was better than even the highest end of the range of Wall Street estimates.
For full-year 2019, AbbVie expects adjusted EPS growth of 11%. Keep in mind that it anticipates delivering this double-digit percentage growth despite having nearly $5 billion of Humira's international sales under attack by biosimilar competition and another $500 million or so at risk for Androgel as a result of losing patent exclusivity.
And there's even a sliver of good news from Humira. AbbVie CFO Robert Michael noted in the company's Q1 conference call that adjusted gross margin increased 310 basis points year over year in Q1 to 83.3% of sales. This included a bump of 280 basis points related to the expiration of royalties that AbbVie has to pay on Humira.
Investors should also know that several timing factors will combine to make 2019 more challenging for AbbVie than the next few years will be for the company. Several products that should help offset declining international sales for Humira and falling overall sales for Androgel are only in their early stages.
For example, AbbVie thinks that Venclexta will be a blockbuster success story. The drug generated revenue of $151 million in the first quarter, though, and still has a considerable way to go to reach peak sales estimates. AbbVie and its partner Roche await another key FDA approval for Venclexta in combination with Gazyva as a first-line treatment for chronic lymphocytic leukemia (CLL).
The commercial launch for Orilissa is also still cranking up. AbbVie expected that this launch would be slower than for other products because of the education that was needed in the physician community for the first new endometriosis drug in years. Orilissa is expected to make around $200 million this year. However, with the slow-but-steady rollout in treating endometriosis and an anticipated regulatory filing for treating uterine fibroids coming up within a few months, Orilissa should become another blockbuster for AbbVie over time.
Then there's Skyrizi (risankizumab). AbbVie won FDA approval for the drug in treating psoriasis last week. CEO Rick Gonzalez said in the company's Q1 call that AbbVie expects to have "more than 50% commercial access by the end of July, a 90-day access metric not achieved by any other recent launch in the psoriasis category."
Gonzalez stated that the company only anticipates sales for Skyrizi of around $150 million this year, most of which will come in the second half of 2019. But the drug seems likely to achieve peak annual sales of more than $2 billion.
The crown jewel in AbbVie's pipeline has yet to win regulatory approval. But that should change soon. The FDA is expected to announce an approval decision for upadacitinib in treating rheumatoid arthritis (RA) in the third quarter of this year.
In phase 3 studies, upadacitinib demonstrated clear superiority over Humira in treating RA. As Rick Gonzalez has stated in the past, Humira is currently "the gold standard" for the indication. Upadacitinib could become the "platinum standard." AbbVie thinks the drug could make $6.5 billion annually at its peak.
Another late-stage pipeline candidate for AbbVie that doesn't get as much attention is Depatux-M (formerly known as ABT-414). AbbVie President Michael Severino liked what he saw in the phase 2 data for the drug in treating EGFR-amplified glioblastoma multiforme, an aggressive form of brain cancer. He thinks that Depatux-M is an intriguing pipeline candidate to "keep an eye on."
Strong cash flow
Last but not least, AbbVie continues to generate exceptionally strong cash flow despite the headwinds for Humira. The important thing to know is that the company has used and will continue to use this cash flow in ways that reward shareholders.
At the top of the list is AbbVie's great dividend. Its dividend yield currently stands north of 5.3%. The company also plans to continue buying back shares, which boosts its EPS growth. And AbbVie could make more deals in the future to bolster its pipeline.
Rick Gonzalez said in AbbVie's Q1 call that the company is "well-positioned to continue to deliver top tier financial performance in 2019 and beyond." I think he's right. AbbVie really is in better shape than you might think.
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