AbbVie disappoints for the quarter as several promising drugs come up short

Published Fri, Apr 29 20222:51 PM EDTUpdated Fri, Apr 29 20224:05 PM EDT

Club holding AbbVie (ABBV) reported a mixed first quarter Friday morning. On the top line, net revenue increased 4.1% to $13.54 billion, but that missed the consensus estimate on FactSet of $13.66 billion. Adjusted earnings per share increased 9.3% to $3.16, edging estimates of $3.14, even with the inclusion of an unfavorable impact of $0.08 per share related to acquired in-process research and development (IPR & D) and milestone expense. (This is a super technical accounting expense for drug stocks that is now required by the Securities and Exchange Commission). Even with an unfavorable 110 basis point impact from acquired IPR & D and milestone expense, adjusted operating margin of 51.4% was slightly better than expectations of 50.95%. Bottom line This was a disappointing quarter from Abbvie because several of the key products that are expected to drive the company's growth post-2023 missed the mark. Without the typical "beat and raise" quarter investors have grown accustomed to, we think it is fair to see profit-taking in a stock that has been such a significant top performer over the past six months. Income-hungry investors may come back to AbbVie with the dividend yield now at 4% and the stock trading at a reasonable 10 times forward earnings. But we prefer to not buy this immediate dip until either the dividend yield is larger or we gain more confidence in the post-Humira growth outlook. So if you are an investor looking to buy a pharma stock on today's broader market weakness, we think Eli Lilly is the best name to put fresh money into. On Thursday, the drugmaker reported better-than-expected quarterly results and a positive update on their drug tirzepatide for the treatment of obesity. Every analyst who covers Eli Lilly had to increase their revenue forecasts for tirzepatide after the best-case outcome of yesterday's study result. For some perspective, analysts at Morgan Stanley now see tirzepatide sales for diabetes and obesity to be $17.2 billion in 2030, up from their prior view of $15.5 billion. Morgan Stanley also increased its price target from $364 to $369, implying roughly 25% upside from the current price. Based on our views about large-cap pharma, we are keeping our 2 rating on AbbVie but upgrading our Eli Lilly rating to a 1 as the latter remains the single best growth story in the industry. Major segment results Immunology sales of $6.14 billion (up 8.1% year over year) came up short versus the $6.24 billion consensus. Humira: $4.736 billion (down 1.8% year over year) vs. $4.89 billion expected Skyrizi: $940 million (up 65.6% year over year) vs. $909 million expected Rinvoq: $465 million (and increase of 57.3% year over year) vs. $490 million expected As a reminder, immunology is a key focus of analysts as this is portfolio includes Humira, which will lose exclusivity in the United States next year, and Skyrizi and Rinvoq, two drugs management is counting on to replace Humira sales. Given the importance of Rinvoq, it is a big disappointment to see sales fall short of expectations. But there might be a good reason for this. After the Food and Drug Administration updated Rinvoq's label to include class warnings related to JAK Inhibitors (the type of medication Rinvoq is), it saw an impact on new patient starting on the drug. But this slowdown may be short lived because management said on the call that prescription have now stabilized. Hematologic oncology sales of $1.65 billion (down 0.6% year over year) missed the $1.71 billion consensus. Sales within the segment: Ibruvica: $1.17 billion versus $1.12 billion expected Venclexta: $473 million vs. $483 million expected In aesthetics, sales of $1.37 billion (an increase of 22.5% year over year) edged estimates of $1.31 billion. Sales within the segment: Botox Cosmetic: $641 million vs. $570 million expected Juvaderm: $410 million vs. $377 million expected Other: $323 million vs. $368 million expected In neuroscience, sales of $1.49 billion (up 20.4% year over year) slightly missed the $1.5 billion consensus. Sales within the segment: Botox Therapeutic: $614 million vs. $606 million expected Vraylar: $427 million vs. $451 million expected Duodopa: $121 million vs. $130 million expected Ubrelvy: $138 million vs. $168 million expected Qulipta: $11 million (no estimates) Other: $177 million vs. $143 million expected In the eye care segment, sales of $771 million missed the $783 million consensus. Sales within the segment: Lumigan: $140 million vs. $143 million expected Alphagan: $107 million vs. $115 million expected Restasis: $246 million vs. $215 million expected Other: $278 million vs. $286 million expected Guidance On the top line, AbbVie expects 2022 revenues of approximately $59.4 billion, below the consensus estimate of $60.2 billion. On earnings, AbbVie now expects adjusted EPS to be in the range of $13.92 to $14.12, down from its previous view of $14 to $14.20. While the media headlines will say this is a "cut," AbbVie's new view includes an unfavorable impact of $0.08 per share related to acquired IPR & D and milestone expense incurred. We think investors should largely ignore the IPR & D-driven revised guidance, but if we add back in the $0.08 per share, the midpoint of AbbVie's outlook would have been $14.10, which is below the consensus estimate of $14.16. For the second quarter, AbbVie expects net revenue of $14.6 billion and adjusted earnings per share between $3.38 and $3.42. This outlook is below the consensus forecast of $14.8 billion in sales and adjusted earnings per share of $3.49. With no beat and raise this morning, a second-quarter guide well below estimates, and the stock outperforming year to date, we are not surprised to see the stock heavily under pressure this morning. Pipeline update AbbVie announced today that the interim analysis of a Phase 2 proof-of-concept study evaluating its triple combination therapy for cystic fibrosis did not meet the pre-specified criteria for advancing in development. We believe most analysts did not give this program any credit in their revenue models due to the uncertainty around the results, meaning we do not believe future earnings estimates will be cut specifically on this news. But investors were obviously hoping for a positive update today and the lack of good news compounds the disappointment in the quarterly results. (Jim Cramer's Charitable Trust is long ABBV, LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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Richard Gonzalez, chairman and chief executive officer of AbbVie Inc., listens during a Senate Finance Committee hearing on drug pricing on Capitol Hill in Washington, D.C., U.S., on Tuesday, Feb. 26, 2019.

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Club holding AbbVie (ABBV) reported a mixed first quarter Friday morning.

On the top line, net revenue increased 4.1% to $13.54 billion, but that missed the consensus estimate on FactSet of $13.66 billion.