Recently, pharmaceutical giant AbbVie (ABBV) has demonstrated strong financial performance, driven primarily by its key growth engines, Skyrizi and Rinvoq. However, these two immunosuppressants will lose patent exclusivity within the next decade. Although the patent cliff is still some distance away, given the time required to develop entirely new therapies, now is an appropriate time for AbbVie to begin planning how to address this challenge. The company has recently taken a step in this direction through a large-scale acquisition. So, do these latest developments make AbbVie stock a worthy buy?
AbbVie faced difficulties in 2023 after its blockbuster autoimmune disease drug Humira lost U.S. patent exclusivity. However, the company offset the pressure with two newer immunology drugs, Skyrizi and Rinvoq, which are expected to generate combined sales exceeding $31 billion by 2027. Over the past three years, AbbVie has also invested more than $20 billion in acquisitions to diversify its product portfolio.
Since its spin-off from Abbott Laboratories (ABT) in 2013, AbbVie has raised its dividend every year. It currently offers a forward dividend yield of 2.7%, and over the past 12 months, dividends have consumed only 59% of free cash flow. Wall Street projects that, driven by Skyrizi and Rinvoq, expansion in the neuroscience business, stabilization of the oncology portfolio, and resilient sales of Botox (acquired through the Allergan purchase in 2019), AbbVie’s adjusted earnings per share will grow by 42% in 2026 and by 14% in 2027. At 18 times forward earnings, the stock still appears attractive in today’s red-hot market.
On June 22, AbbVie announced that it would acquire Apogee Therapeutics (APGE), a biotechnology company focused on developing drugs for immune and inflammatory diseases. AbbVie will pay approximately $10.9 billion in cash for this acquisition. In exchange, it will gain a pipeline containing multiple drug candidates, the most notable of which is zumilokibart, an investigational therapy for treating eczema. The drug has performed well in mid-stage studies and could fill an unmet medical need in this niche—many patients fail to achieve significant symptom improvement and continue to suffer from issues such as dry, itchy skin and plaques. If zumilokibart successfully completes Phase 3 studies and receives marketing approval, it could become a significant growth driver for AbbVie.
A substantial portion of AbbVie’s historical revenue has come from the immunology field. The company’s former top-selling drug, Humira, treated multiple diseases in this market and reached peak annual sales of $21.2 billion. The current growth pillars, Skyrizi and Rinvoq, are also major drugs in this area. According to company forecasts, these two drugs will generate combined revenue exceeding $31 billion this year.
Acquiring another potential future immunology star aligns perfectly with AbbVie’s strategy. Of course, zumilokibart may still fail to demonstrate efficacy in Phase 3 studies. Even if that possibility materializes, AbbVie’s stock remains attractive for several reasons. First, this would not be the first time AbbVie has overcome a late-stage clinical trial failure. The company possesses a deep R&D pipeline with promising candidates across multiple fields, including the rapidly growing anti-obesity area.
Moreover, there is ample time before Skyrizi and Rinvoq lose patent exclusivity. Therefore, even if zumilokibart ultimately fails, AbbVie will regroup and continue trying. Second, the pharmaceutical company has various other drugs in its portfolio that are driving robust revenue growth, not relying solely on Skyrizi and Rinvoq; the migraine treatment Qulipta, among others, is also contributing. Finally, AbbVie is an exceptional dividend stock, having increased its dividend for over 50 consecutive years (54 years, to be exact), qualifying it as a “Dividend King.” Based on all these reasons, AbbVie represents a solid investment choice, particularly suitable for income-seeking investors.
