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AbbVie (ABBV) Down 1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for AbbVie (ABBV). Shares have lost about 1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AbbVie due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

AbbVie Beats on Q2 Earnings & Sales, Raises EPS View

Second-quarter 2019 earnings of $2.26 per share in the second quarter beat the Zacks Consensus Estimate of $2.21 and rose 13% year over year. Earnings per share were also better than the guided range of $2.20 to $2.22.

Revenues of $8.26 billion beat the Zacks Consensus Estimate of $8.1 billion. Sales were flat on a reported basis. Excluding 1.5% unfavorable impact from foreign exchange rate fluctuations, operational revenues rose 1.5%, 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 above $8.1 billion.

Quarter in Details

Humira sales declined 4.8% (6.1% on an operational basis) to $4.87 billion.

Sales in the United States increased 7.7% to $3.79 billion, slightly higher than the guidance of approximately 7% growth, driven by strong demand trends. Humira sales in ex-U.S. markets were down 31% on an operational basis and 35.2% on a reported basis to $1.1 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 rose 39.1% on an operational basis to $1.27 billion in the quarter driven by strong growth of both Imbruvica and Venclexta. Second-quarter net revenues from Imbruvica were $1.1 billion, slightly higher than the guidance of approximately $1 billion. Imbruvica sales rose 29.3% year over year. U.S. sales of Imbruvica grossed $886 million, up 27.9% from the year-ago figure, primarily driven by continued uptake in the frontline CLL segment. AbbVie logged $213 million of international profit sharing with J&J, up 35.9% year over year.

Venclexta brought in revenues of $169 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 $784 million, down 19.4% (down 17.1% on an operational basis) year over year on lower sales of Mavyret as well as Viekira. In the United States, HCV revenues declined 6.2% to $396 million. International HCV revenues declined 25.4% on an operational basis to $388 million.

Mavyret sales totaled $780 million in the quarter, down 6.9% (down 14% 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 20.4% in the second quarter due to lower treated patient volumes. U.S sales were down 6% year over year.

Other products that delivered an encouraging performance include Duodopa. It recorded revenue growth of 11.3% on an operational basis and 5.3% on a reported basis. While Creon, which generates sales from U.S. markets, witnessed an increase of 17.5% in revenues, sales of Synthroid grew 4.9%.

Drugs that recorded sales decline include Androgel, Synagis, Kaletra, Lupron and Sevoflurane, which fell 83%, 3.9%, 10.8%, 4.5% and 14.1%, respectively, operationally, during the quarter.

Newly launched drug Orilissa recorded sales of $19 million in the quarter, which included $18 million in the United States. On the call, the company said that the sales ramp of the drug was slower than expected and halved its full-year expectations for the drug. Orilissa sales are expected to be approximately $100 million in 2019, less than the prior expectation of $200 million.

Newly launched Skyrizi performed significantly above company expectations, contributing $48 million to sales in the second quarter. Management had expected a modest contribution from the drug in the second quarter. On the call, the company said that Skyrizi’s is off to a strong start and the drug is witnessing strong prescription volume. Through the first 11 weeks of launch, approximately 3,750 patients were treated with the drug. Following the solid launch progress, management raised its full-year expectations for the drug. Management expects Skyrizi’s full-year global sales of approximately $250 million. Earlier, management had guided that Skyrizi will contribute approximately $150 million of sales in the second half of 2019.

Margins Rise

Adjusted gross margin rose 220 bps to 82.7% in the quarter. Adjusted gross margin included a 290 bps benefit due to low Humira royalties owed. Adjusted SG&A expenses decreased 1.4% to $1.62 billion. As a percentage of sales, SG&A expenses declined 20 bps to 19.6% in the quarter. R&D expenses rose 2.8% to $1.23 billion in the quarter due to greater investments in the pipeline. Adjusted operating margin was 48.2% of sales in the reported quarter, up 290 bps year over year.

2019 Guidance

AbbVie raised its guidance for full-year earnings and sales on a strong first-half performance and a favorable outlook for the second half. Earnings are now expected in the range of $8.82-$8.92, up from the previous guidance of $8.73-$8.83 for 2019. The earnings guidance indicates a year-over-year increase of 12.1 % (previously 11%) at the mid-point.

Revenues are expected to grow approximately 2% on an operational basis in 2019 versus prior growth expectation of approximately 1%. 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%. The oncology/hematology franchise is expected to record sales of approximately $5.3 billion including Imbruvica sales of approximately $4.6 billion, both representing an increase from 2018 levels. U.S. sales of Imbruvica are expected to rise approximately 27%. Global HCV sales are expected to approach $3.1 billion, indicating a year-over-year decline.

Adjusted gross margin is still expected to approach 83% of sales in 2019. 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

Third-Quarter 2019 Outlook

Third-quarter earnings are expected between $2.28 and $2.30 per share. Revenues are estimated to be approximately $8.4 billion. Foreign exchange is expected to have a modest unfavorable impact on sales in the quarter.

While U.S. Humira sales are expected to rise approximately 8%, international Humira sales are expected to be approximately $1 billion. Imbruvica is expected to record sales of approximately $1.2 billion.

Adjusted operating margin is expected to be approximately 48%.

Discontinuing ABBV-8E12 in PSP

On the second-quarter conference call, AbbVie announced the discontinuation of the phase II study of ABBV-8E12 in progressive supranuclear palsy. A futility analysis showed that the candidate failed to demonstrate the expected efficacy.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, AbbVie has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 broadly trending downward for the stock, and the magnitude of this revision has been net zero. 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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