Multiple revenue misses in one of our winners convinced us to take profits and get out

Published Fri, Oct 28 202212:36 PM EDT

AbbVie (ABBV) reported a mixed second-quarter Friday morning. Despite a pullback in shares after the release, we decided to lock-in a great 61% return and exit a stock that has been one of this year's winners. We never like to sell on a down day, but multiple quarters in a row of revenue misses raised our concerns about growth and convinced us that taking profits now would be the wise move in this uncertain market. On the top line, net revenue increased 5.4% on an operational basis to $14.81 billion, but that missed the consensus estimate of $14.91 billion. Adjusted earnings per share increased 29.3% to $3.66, beating estimates of $3.57. Included in EPS was 2 cents per share of unfavorable impact related to acquired in-process research and development (IPR & D) and milestone expense. This is an accounting expense for drug stocks that is now required by the Securities and Exchange Commission. Adjusted operating margin of 53.4% was higher than estimates of 52.4%. Bottom line It wasn't the cleanest quarter from AbbVie. While Skyrizi appears off to a great start, Rinvoq — the other key drug investors are watching to make up lost sales as Humira loses exclusivity — came up short. With 2023 and 2024 results set to decline from current levels due to Humira going off patent in the U.S. next year, and the broader market down materially year-to-date, we feel it is time to move on from AbbVie and reallocate funds into names that provide more attractive opportunities over the next six to 12 months. In our Friday morning commentary about exiting AbbVie, we also talked about why we put some of that money to work in Starbucks (SBUX). Q3 segment results AbbVie's Immunology sales of $7.65 billion, up 16.4% year over year, were a hair short of the $7.68 billion consensus. Sales within the segment are as follows. Humira: $5.56 billion, up 3.9% year over year, versus $5.57 billion expected. Skyrizi: $1.4 billion, up 78.3% year over year, versus $1.32 billion expected. Rinvoq: $695 million, an increase of 59.3% year over year, versus $710 million expected. As a reminder, immunology is a key focus of investors because this is portfolio in transition due to the Humira loss of exclusivity in the United States in the second half of next year. While it is still up for debate how fast Humira sales will decline in 2023 and 2024, what remains clear is that Skyrizi and Rinvoq have a promising future. First approved by the Food and Drug Administration in April 2019, they have since been