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AbbVie (ABBV) Up 10.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for AbbVie (ABBV - Free Report) . Shares have added about 10.3% 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 Q3 Earnings & Sales

Third-quarter 2019 earnings of $2.33 per share beat the Zacks Consensus Estimate of $2.29 and came in higher than the company’s guided range of $2.28-$2.30. Earnings rose 8.9% year over year.

The adjusted earnings excluded a net charge of 56 cents per share related to the impairment of intangible assets acquired as part of the Stemcentrx acquisition.

Revenues of $8.48 billion surpassed the Zacks Consensus Estimate of $8.41 billion. Sales rose 3% on a reported basis. Excluding currency headwinds, operational revenues increased 3.5%, backed by higher sales of several products, which offset the impact of international biosimilar competition for Humira. Revenues were also slightly ahead of the guidance of being approximately $8.4 billion

Quarter in Details

Humira sales declined 3.7% (3.2% on an operational basis) to $4.94 billion as higher U.S. sales were offset by decline in international markets.

Sales in the United States increased 9.6% to $3.89 billion, higher than the guidance of approximately 8% growth, driven by strong demand trends. Humira sales in ex-U.S. markets were down 31.8% on an operational basis and 33.5% on a reported basis to $1.05 billion. However, international sales were slightly higher than the expectation of being approximately $1 billion.

International sales were severely impacted by the launch of several direct biosimilar drugs in Europe and other international markets. On the call, the company said that biosimilar trends and dynamics were in-line with management expectations.

AbbVie’s oncology/hematology (including Imbruvica and Venclexta) sales surged 38.5% on an operational basis to $1.5 billion in the quarter, driven by strong growth of both Imbruvica and Venclexta.

Third-quarter net revenues from Imbruvica were $1.26 billion, up 29.3% year over year, slightly higher than the guidance of approximately $1.2 billion. U.S. sales of Imbruvica grossed $1.04 billion, up 28.3% from the year-ago figure, primarily driven by continued uptake in the front-line CLL segment. AbbVie logged $215 million of international profit sharing with J&J, up 34.5% year over year.

Venclexta brought in revenues of $221 million, up more than 100% year over year driven by continued uptake in the broad relapsed/refractory CLL setting and the recently approved indications for first-line CLL and AML.

HCV products, including Viekira and Mavyret, recorded sales of $698 million, down 19% (down 18.6% on an operational basis) year over year on lower sales of Mavyret as well as Viekira. In the United States, HCV revenues declined 17% to $368 million. International HCV revenues declined 20.4% on an operational basis to $330 million.

Mavyret sales totaled $695 million in the quarter, down 17.1% (down 16.7% 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 16.4% in the third quarter on an operational basis due to lower treated patient volumes in some markets. U.S sales were down 17% year over year due to increased competition in management Medicaid segment.

Other products that delivered an encouraging performance include Duodopa. It recorded revenue growth of 14.4% on an operational basis to $117 million. Creon and Synthroid generate sales only from U.S. markets. Creon witnessed an increase of 11.2% in revenues to $265 million. Sales of Synthroid grew 2.3% to $197 million. Synagis and Lupron sales increased 35.4% to $132 million and 8.2% to $230 million, respectively, on an operational basis during the quarter.

Drugs that recorded sales decline include Androgel, Kaletra and Sevoflurane, which fell 61.1%, 13.9% and 0.9%, respectively on an operational basis during the quarter.

Newly launched drug Orilissa recorded sales of $27 million, entirely from the U.S. market versus $19 million in the previous quarter. The sales ramp up of the drug has been slower than expected.

New immunology drugs Skyrizi and Rinvoq registered sales of $91 million and $14 million, respectively.
Per the company, both Skyrizi and Rinvoq are off to an impressive start.

On the call, the company said that Skyrizi is witnessing strong prescription volume. Through the first six months of launch, more than 9,000 patients were treated with the drug including both new patients, and switching patients. Following the solid launch progress, management raised its full-year expectations for the drug, for the second time this year. Management expects Skyrizi’s full-year global sales of approximately $275 million, up from the prior expectation of approximately $250 million.

Regarding Rinvoq, on the call, the company said that the early uptake trends were encouraging and the medicine is currently covering approximately 6% of in-play RA patients.

Margins Rise

Adjusted gross margin rose 30 bps to 82% in the quarter. Adjusted gross margin included a 140 bps benefit due to low Humira royalties owed. Adjusted SG&A expenses were almost flat year over year at $1.6 billion. R&D expenses were $1.23 billion in the third quarter due to greater investments in the pipeline. Adjusted operating margin was 48.4% of sales in the reported quarter, up120 bps year over year.

Dividend Increase

The company announced a 10.3% increase in its quarterly cash dividend from $1.07 per share to $1.82 per share beginning February 2020.

2019 Guidance

AbbVie raised the lower end of its guidance for adjusted EPS to the range of $8.90-$8.92 from the previous guidance of $8.82-$8.92 for 2019. The earnings guidance indicates a year-over-year increase of 12.6% at the mid-point

Revenues are expected to grow approximately 2.5% on an operational basis in 2019 versus prior growth expectation of approximately 2%. Currency headwinds are expected to hurt 2019 revenues by approximately 1%, same as the previous expectation.

In 2019, U.S. Humira sales are expected to rise approximately 8.5% (previously 8%). International Humira sales are expected to be approximately $4.3 billion, down approximately 28%.

The company expects Imbruvica sales of approximately $4.7 billion, up from prior expectations of $4.6 billion. U.S. sales of Imbruvica are expected to rise approximately 28% (previously 27%). Venclexta sales are expected to be approximately $775 million. Global HCV sales are expected to approach $3.0 billion, versus prior expectation of $3.1 billion.

Adjusted gross margin is expected to approach 82.5% of sales in 2019, slightly lower than the prior expectation of 83%. Operating margin is expected to be just above 47%, an increase of roughly 250 basis points year over year. While R&D is expected to be approximately 15.5% of sales, SG&A is expected to be approximately 20.5% of sales

Fourth-Quarter 2019 Outlook

Fourth-quarter earnings are expected between $2.17 and $2.19 per share. Operational sales growth is expected to be approximately 5%.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, AbbVie has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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. Notably, AbbVie has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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