The biggest issue is of course the patent of Humira which will expire in 2023. If sales of that antirheumatic drug tumble, dividends will consequently follow and make AbbVie’s status as a dividend darling questionable. Here we try to dig deeper and give a detailed perspective about what really happens through our AbbVie dividend stock analysis.
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Too Long, Didn’t Read
- Threat from Patent and Competition. AbbVie has Played the Hard Ball But Investor Need to Anticipate The Worst.
- The Illinois-based company surely will miss glorious days of Humira, but It Has Prepared Through Allergan Acquisition.
- High Debt and Dividend Policy Could be Achiless Heel if Not Managed Properly.
Patent Expiration of The Best Drug In The World Become Key Theme of Our AbbVie Dividend Stock Analysis
2020 Sales of Humira
AbbVie Total Sales
To tell you how much Humira is for Abbvie, It accounts for more than 50% of AbbVie sales. consider this. In the last 15 years, Humira prices rise from 17K to 72K1, for 20 years, this is the most profitable drug on this planet. Most investors believe that losing Humira means damage to AbbVie’s revenue.
Actually, the situation is not that bad. Once the patent expires, AbbVie still gets a royalty fee for that drug from another manufacturer that makes a similar product. What AbbVie loses is its control over Humira prices. There will be a generic version of it. In at worst case, AbbVie revenue will be eroded to around 60%2.
If AbbVie pays a dividend of 4.5 bucks per share in the last 12 months, losing Humira may trim it to around 2.6 bucks per share3
AbbVie makes a strategic move to weather these declining sales via its acquisition which we cover in the Opportunity section.
Our AbbVie Dividend Stock Analysis Cover The True Strength of AbbVie. Life After Humira
AbbVie has a solid and excellent Research and Development team – but that isn’t its most powerful resource. It will be harsh – but Its spotting opportunity capability along with deep pocket are the true game-changer that brings smart acquisition.
Even its blockbuster Humira – it is not AbbVie’s original neither Abbott’s. The “blueprint” of Humira was developed by Knoll Pharma – Subsidiary of BASF – were then acquired by Abbott Lab in 2000. The strategy is loud and clear, to take the lead monoclonal antibody business at that time.
Implicitly, in its annual report 2003, AbbVie stated that Humira will become the backbone of the company. Intelligently, AbbVie then develops that uncompleted Humira into its finest form: The best drug on the planet.
And history may repeat once again.
AbbVie’s acquisition of Allergan has opened another opportunity: Other than Botox, Allergan has expertise in many areas such as ophthalmology, gastroenterology, and the central nervous system (CNS). This will help AbbVie to diversify its business which too concentrated on Humira.
Contribution to AbbVie
Allergan Total Sales
Patent expiration is a common thing in the drug industry, most of the company life and copes it. We suggest the reader access our article that covers a similar issue with Amgen here and here.
Financial Show Some Weakness.
As we already know. AbbVie is highly leveraged. The Firm 86 Billion total debt far exceeds its cash and equivalent with only an 8.4 Billion level. The bright side is – the Operating Cash Flow could handle the interest expense of its massive debt.
The debt itself actually not that bad, it needed to diversify the business of AbbVie – to life after Humira’s glorious days. It will open a new beginning of opportunity. But It states an important fact: AbbVie could not rely on its own resource to sustain its business. AbbVie needs acquisition and it needs debt. So, we think that this is acceptable.
Another notable rise is Stock-based Compensation or stock bonus for management and maybe for employees. In the fiscal year of 2020, AbbVie’s net earnings drop from 7.8 Billion in 2019 to 4.6 Billion in 2020. The contrary to that decrease, SBC rise from 430 to 730 Million in the same period. We think this increase was also contributed by the acquisition of Allergan – but we need to see this item for the next couple of years to confirm our hypothesis.
What makes us really worry is its dividend policy, in the last three years, AbbVie paid dividends at more than 80% of its net earnings. Even in 2020, AbbVie pays 166% of its earnings as dividends. Seems that The firm exploits Humira as it can. Here is the detail:
80.77% of earnings
166.9% of earnings
Allergan Acquisition bring New Adventure
Management takes a step to acquire Allergan as the new lifeline after AbbVie’s honeymoon with Humira is over. Allergan itself is a good company with potential prospects. If you read the annual report, you will find that Allergan is always identical with the word “leading, number 1, potential.” in almost all segments.
Actually, we need to make another article to discuss this move, but to bring you a quick take, the Allergan acquisition will bring a new identity for AbbVie, as we take from its investor presentation last December 2019:
Depend on Himura, the rheumatoid drug and cancer.
Operates in therapeutic segments, Medical Aesthetics and Neuroscience; further builds out gastroenterology and women’s health franchises
Allergan opens a new chapter of AbbVie’s life. Allergan Botox aesthetics is well-positioned in the market, especially with aging people but still needs to look young, Allergen eye care is also a solid cash cow, moreover, its gastrointestinal will not cannibalize AbbVie’s product.
We also hear about Vraylar (No, it isn’t Daenerys dragon), which clearly in AbbVie’s annual report stated as a promising blockbuster. We need to see whether Vraylar will become the next Humira or just one season wonder.
Well, actually AbbVie is nothing left after Humira’s expiration. Even though Humira still contributes royalty to AbbVie, but the nominal will be minimal so once again we say that nothing’s left after Humira. The New AbbVie is the Allergan itself, with a more solid R&D team and deeper pocket and scale. Actually, it isn’t transformation – it just takes another identity. But it doesn’t change the fact that AbbVie now has opportunities wide open on the front.
Recapping Our AbbVie Dividend Stock Analysis
Let us quantify this SWOT analysis
A larger number means the more firm has power. AbbVie has a solid R&D team and support from its parent. It has a brilliant move in the acquisition and has a team to enhance that acquired entity. We give it a strength score of 7.
A larger score of weaknesses means firms could handle them more. The expiration of Humira should be anticipated in all firm’s policies, unfortunately, paying a massive dividend doesn’t fit with the situation where your best product going to be eroded.
The expiration of Humira will not bring catastrophic consequences for AbbVie, but surely it will not be the same again. Moving to Allergan is a smart move, but to replace the best drug in the world with Allergan Botox is like replacing Lionel Messi with Memphis Depay. Not because Allergan isn’t good, but because Humira is too good.
Good move, but we need how this acquisition brings growth to AbbVie which we will wit in the next chapter. 8 the score.
Final Thought, Question and Answer
Ok, what do we have?
The best timing to buy is when a good company gets temporal trouble. Humira’s expiration isn’t temporal, but AbbVie somehow will achieve that figure again – someday. We will wait till the effect of expiration fully materializes and all bad news decorates the headlines.