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Pharmaceutical stocks are less susceptible to economic risks. After all, medicines are administered and needed at all times. That is why pharmaceutical stocks are considered stable assets and are popular in many investors' portfolios. However, caution is advised if an important patent expires or competition intensifies. Only the best pharmaceutical companies continue to achieve rising sales and earnings, even when patent protection for an important drug expires.
Does the American pharmaceutical company AbbVie (ISIN US00287Y1091) belong to this elite circle? Patent protection for the once-important drug Humira expired some time ago. Nevertheless, the share price is only a few percent below its all-time high reached this year.
Source: AbbVie stock price
In 2021, Humira still accounted for over 40 percent of the American company's total sales and achieved record sales of over $21 billion. Since then, the company has had to cope with a significant decline in sales for Humira. Nevertheless, total sales last year remained at a similar level to that seen in Humira's record years. So we are dealing with an interesting pharmaceutical company, which we will examine in more detail in the following AbbVie stock analysis.
The largest pharmaceutical companies usually have a very long history. Among others, Eli Lilly, Merck & Co. and Johnson & Johnson were founded before 1900.
With AbbVie, a biotechnology company that has only been independent for 12 years, currently ranks third among the largest medical companies in the world.
Source: Screener
Until 2013, AbbVie was part of the medical technology company Abbott Laboratories, which was founded in 1888. Today, AbbVie has already surpassed its parent company in terms of market capitalization.
Source: Key Facts | AbbVie
AbbVie is a global biotechnology company with over 55,000 employees. Over 60 million people come into contact with AbbVie products every year.
The American company is headquartered in North Chicago, Illinois, where Abbott Laboratories is also located.
AbbVie researches, develops, manufactures, and markets drugs for human medicine. Its focus is on immunology, oncology, neurology, and products for aesthetic medicine.
To get to know AbbVie better, let's look at its revenue mix in fiscal year 2024.
We can see that immunology accounts for around half of total sales of $56.33 billion. Sales of Humira fell by 38 percent.
However, two drugs, Skyrizi and Rinvoq, each recorded 50 percent sales growth.
Humira is a drug used to treat Crohn's disease (chronic intestinal disease), plaque psoriasis, and rheumatoid arthritis.
Like Humira, Skyrizi can be used to treat Crohn's disease, plaque psoriasis, and psoriasis.
Rinvoq is used to treat rheumatoid arthritis.
Source: AbbVie 2024
In the field of oncology, two further blockbuster drugs are available: Imbruvica and Venclexta. Pharmaceutical companies refer to a drug as a blockbuster if it generates sales of at least $1 billion.
Venclexta is used to treat leukemia (blood cancer). Sales of this drug have been growing steadily since 2022 at around 10 percent per year.
Imbruvica can be used to treat various types of cancer. These include MCL (mantle cell lymphoma), chronic lymphocytic leukemia, and Waldenström's macroglobulinemia (also a lymphatic disease).
Elahere is a recently approved drug for ovarian, peritoneal, and fallopian tube cancer. In its first year of approval, it already generated sales of $480 million.
The aesthetics segment contributes nine percent to total sales with Botox products for various areas of the face. AbbVie's neurology segment is significantly more important.
Source: AbbVie 2024
The high growth of Vraylar and Ubrelvy is particularly striking here. Vraylar is used to treat schizophrenia and bipolar disorder. Ubrelvy, on the other hand, is prescribed to reduce migraines. Both drugs achieved sales growth of around 20 percent last year.
With Qulipta, AbbVie is achieving high sales growth with another migraine drug. It is used for prevention and achieved growth of 61 percent in 2024. The product is still in the implementation phase internationally.
In addition, Botox is also an important product in this segment. In the field of neurology, it is used in particular for chronic migraine, spasticity, and cervical dystonia. With current sales of approximately $3.3 billion, this is another blockbuster product. However, AbbVie did not research the Botox drugs itself, but acquired the company Allergan five years ago. The acquisition price was $63 billion and was paid in both cash and stocks.
AbbVie's sales mix shows a diversified product portfolio, with immunology accounting for around half of total sales in 2024 with Humira, Skyrizi, and Rinvoq. However, the Americans have some young and fast-growing products in other divisions, so the sales mix could develop toward less dependence on the immunology segment.
A pharmaceutical company needs a promising drug pipeline in order to achieve further growth, as the patents for its current blockbuster drugs will expire in the future. This enables other pharmaceutical manufacturers to launch generic drugs (preparations with the same active ingredient, which are usually cheaper to produce) on the market, thereby reducing the sales of blockbuster drugs. This can be seen very clearly at AbbVie with the example of Humira.
Source: AbbVie Pipeline Update January 2025
AbbVie has many active ingredients in phases 1 and 2 of testing. However, as various factors often lead to the research process being discontinued at this stage, we are focusing on the preparations in phase 3, as these have the best chance of being approved by the drug regulatory authorities.
Oncology clearly predominates among the active ingredients in phase 3.
First, however, we will look at Rinvoq and the field of immunology. The drug, which is already approved for the treatment of arthritis, is being tested for efficacy against other diseases. Positive test results for the treatment of alopecia areata were recently reported. This is already the second study on this disease. Alopecia areata is a rare autoimmune disease that leads to sudden hair loss.
Rinvoq is also being used in other Phase 3 studies. Tests are currently underway for the treatment of acne inversa(also known as hidradenitis suppurativa, or HS for short). This is a hereditary chronic skin disease. The active ingredient is also being tested against vitiligo, another skin disease.
In the field of oncology, Venclexta is already approved for the treatment of blood cancer. The active ingredient is now undergoing further testing for high-risk patients. This could further accelerate sales growth if the authorities approve the drug for a larger patient group.
Epkinly is another oncology drug in phase 3. Already approved for the treatment of B-cell lymphoma (a cancer of the lymph nodes), the next study is now pending. This study will investigate whether the active ingredient is also suitable for the treatment of follicular lymphoma (FL for short). FL is also a disease that can be detected via the lymph nodes.
Perhaps the most interesting drug in the Phase 3 pipeline is called Tavapadon and comes from the neurology segment. It is used to treat Parkinson's disease and has already achieved very promising results. The drug is used in the early stages of Parkinson's disease and can slow down the loss of motor skills.
The global market for Parkinson's drugs is estimated at $7-13 billion for 2030.
AbbVie's pipeline offers a wide range of new drugs that, if approved, could drive further revenue growth.
The acquisition of Allergan had a major impact on AbbVie's balance sheet. We will therefore take a closer look at its development.
Particularly striking are the high liabilities and high intangible assets.
Source: AbbVie balance sheet
Long-term debt currently stands at $97.5 billion. After the takeover in 2020, long-term liabilities amounted to over $110 billion. Since then, part of this has already been paid off. With total assets of $137 billion, this is a highly leveraged balance sheet.
Source: AbbVie stock
Net debt (liabilities minus cash) relative to EBITDA is currently at a factor of 5. Investors should monitor debt more closely once it reaches a value of 3. The multiplier on free cash flow is 7.5. A maximum factor of 5 would be desirable here.
In addition to the leveraged balance sheet, there has been increased dilution of shareholders following the Allergan acquisition.
In contrast to long-term liabilities, which were reduced by over 10 percent after the acquisition, the number of outstanding shares has risen by around 7 percent over the last 10 years. Over the last 5 years, the number has remained the same.
AbbVie management therefore currently prefers to pay off debt rather than carry out stock buybacks.
AbbVie's balance sheet is not yet a cause for concern due to the stable earnings and high cash generation of AbbVie's products. However, investors need to monitor developments regularly.
The high cash generation can be seen clearly in the StocksGuide chart tool.
Source: AbbVie StocksGuide
The free cash flow (FCF) has risen significantly over the past 10 years. Only with the expiry of Humira's patent has there been a decline in FCF. Nevertheless, cash generation looks stable in the long term. Although the free cash flow margin has been declining for some time, at 31 percent it is still above the average for other pharmaceutical giants.
AbbVie pays a dividend to its shareholders. This currently accounts for around 60 percent of free cash flow. This leaves management with sufficient leeway to reduce debt or make further acquisitions, for example. We already know that stock buybacks are not an option. However, this would be desirable for long-term investors in order to reduce dilution.
The dividend situation looks better, on the other hand.
Source: dividend score
Although the American security is not a top scorer in terms of dividend strategy, the current dividend yield of approximately 3 percent appears attractive. The payout ratio of 150 percent, based on earnings per share (EPS), makes a top ranking impossible, as these 3 points are exactly what is missing to reach the minimum requirement of 12 points. In terms of FCF, however, the dividend is always covered by a payout ratio of 25 to 75 percent, which would account for the 3 missing points.
In addition, AbbVie has been paying a dividend to its investors since the days of its independence, which has been increased annually ever since.
The annual dividend growth of around 7.5 percent over the last 5 years is a very good figure for an established pharmaceutical company. For example, Novartis, Roche, Johnson & Johnson and Pfizer have a maximum annual increase in profit distribution of 5 percent.
For AbbVie's management, reducing debt and maintaining a stable dividend growth in the high single-digit percentage range is currently the priority in the allocation of its free cash flow. Shareholders will have to continue to wait for stock buybacks.
A few weeks ago, AbbVie reported its quarterly figures.
This is because sales revenue rose by 7 percent to $15.4 billion. Due to lower production costs, gross profit even increased by 8 percent. Operating income was particularly noteworthy. EBIT increased by 16 percent to $5.7 billion.
Source: financial data
Net profit, on the other hand, fell by 32 percent compared to the same quarter last year. Net income amounted to only $928 million. However, this was mainly due to one-off factors and does not reflect the company's overall earnings power.
For a pharmaceutical company as large as AbbVie, the reported quarterly figures are a respectable result, especially against the backdrop of the patent cliff for Humira. Thanks to Skyrizi and Rinvoq, the decline in Humira sales was well offset.
Analysts expect AbbVie to see further single-digit sales growth in the coming years.
Source: Revenue estimates
The expected sales revenue in 2025 of approximately $62 billion is around 10 percent higher than the sales revenue in 2024. An increase to $83.5 billion is expected for 2032. This corresponds to an annual growth rate of 3.8 percent.
These are realistic, but by no means high, sales increases. For an established pharmaceutical company with a broad product portfolio, high growth rates can only be achieved with a steady stream of new blockbuster drugs.
When it comes to profitability, however, experts are more optimistic.
Source: net profits & estimates
For the current fiscal year, the average expectation for net profit is $21.7 billion. The net margin is expected to be around 35 percent. By 2029, earnings growth is expected to reach $33 billion. This would represent annual profit growth of 8.7 percent.
These assumptions could also be accurate. The prerequisite for this is stable cost management.
Source: R&D / Revenue
With around 15 percent of total sales, AbbVie is very disciplined in its approach to research and development costs compared to other large pharmaceutical companies.
If spending increases, profitability could suffer and analysts' assumptions could prove to be overly optimistic.
The AbbVie stock was recently listed as the top scorer with 4 points according to the Levermann strategy. To date, the score has melted away to zero points. Nevertheless, we will take a look at the compilation.
Source: Levermann analysis
One point is awarded for the stock price performance over the last 12 months.
The EBIT margin contributes another point. It stands at around 29 percent. There is also one point for the return on equity of 127 percent. However, this point gain is offset by the low equity ratio of only 2 percent. At the same time, it explains the high return on equity. We have already discussed the leveraged balance sheet.
Source: AbbVie equity ratio
The equity ratio has fallen steadily in recent years. Investors should monitor this more closely.
There are further deductions for the valuation. The average price-earnings ratio (P/E ratio) for the last five years was 27. At 17, the P/E ratio for the forecast annual profit for 2025 is also too high, resulting in a point deduction. Only a profit multiple below 12 earns a point.
According to the Levermann strategy, AbbVie stock scored well thanks to good price growth and good profit growth. The return on equity and EBIT margin are also positive factors. Deductions are made for the low equity ratio and the increased valuation.
The price-earnings ratio (P/E) is currently 101, based on expected annual earnings of 17. Measured against the forecast earnings growth for the coming years, the valuation appears to be fair at most. The enterprise value/sales (EV/sales) ratio of 7 appears expensive for a cost-intensive business model. AbbVie will continue to have to allocate a considerable portion of its operating costs to research and development in order to achieve the expected single-digit sales growth in the coming years.
Source: AbbVie key metrics
The stock does not appear to be cheap, but how does the American security compare with other pharmaceutical companies?
At first glance, we rated AbbVie stock as fair to expensive. How does it compare with other US pharmaceutical giants?
Source: AbbVie comparison
Looking at the usual valuation metrics, AbbVie stock still does not appear cheap.
The EV/sales ratio is above that of its competitors. Only Eli Lilly is valued significantly higher, with a factor of around 14. On the other hand, the Indiana-based pharmaceutical giant scores points with significantly more growth potential thanks to its obesity drugs, which we were unable to identify at AbbVie. Merck & Co and Pfizer have ratios below 4. Both companies face the challenge of having to bring new blockbusters to market in order to continue to achieve sales growth. Merck's patent for the very important drug Keytruda expires in around three years, while Pfizer is still looking for high-growth blockbusters after the special economic boom caused by the coronavirus vaccines. As a result, both companies are currently trading at a valuation discount.
That leaves the comparison with Johnson & Johnson. The company is more broadly diversified and has similarly high expected sales growth for the next few years. However, its valuation is currently lower and its balance sheet is less leveraged than AbbVie's. With a dividend yield of around 3 percent, the American dividend king also appears attractive to dividend-oriented investors.
Even after the comparison, AbbVie's stock does not currently present an attractive entry point.
The high cash generation from current products and the successful market launch of new products after the end of Humira's patent protection are arguments in favor of an investment. With Rinvoq and Skyrizi, as well as other preparations, AbbVie should continue to be in a position to increase its sales. With a broadly diversified pipeline in Phase 3 trials, there is also further potential for new blockbusters and thus further revenue growth.
Analysts are also optimistic, with the majority rating the American stock as a buy.
Source: AbbVie forecast
Of 31 ratings, 70 percent currently consider the stock worth buying. In contrast, 30 percent would only hold the stock. There are no sell ratings.
This is somewhat surprising. The leveraged balance sheet does not seem to be a cause for concern among experts. The price potential also appears to have been exhausted, given the relatively high valuation measured against growth expectations. However, analysts have recognized this and see little potential for price growth.
We therefore conclude that AbbVie stock is not currently a compelling investment opportunity. However, the American company has demonstrated that it is an absolute top player among pharmaceutical companies. For this reason, an EV/sales alert of 5 or below could represent an interesting entry point.
The author and/or persons or companies associated with StocksGuide own or may own shares of AbbVie. This article represents an expression of opinion and does not constitute investment advice. Please note the legal information.