It's a good time to be AbbVie (NYSE: ABBV). And with the biotech's share price up more than 50% year to date, it's a good time to be an AbbVie shareholder. The company reported a strong third-quarter performance a couple of weeks ago. AbbVie also increased its dividend for the 45th year in a row (including the years it was part of Abbott Labs (NYSE: ABT)).
But can the good times continue to roll? AbbVie's top executives indirectly answered that question in different ways at the Credit Suisse healthcare conference in Arizona on Wednesday. Here are seven things management said that you'll want to know.
Image source: Getty Images.
When asked about Humira, AbbVie CEO Richard Gonzalez was able to essentially respond with "see, we told you so." Gonzalez said that the company is seeing the strategy that AbbVie developed in 2013 "play out the way we anticipated." Actually, it's going even better than expected.
AbbVie updated its strategy in 2015, projecting 2020 sales for Humira of $18 billion. That estimate was too pessimistic. The company now thinks Humira will generate revenue of nearly $21 billion by 2020. Gonzalez acknowledged that the drug would see some erosion in international markets from biosimilar competition, but said the U.S. market would continue to drive overall growth, thanks to Humira remaining "the gold standard."
2. Beyond Humira
While AbbVie believes Humira will remain a big moneymaker for years to come, it's looking beyond Humira to the next generation of autoimmune-disease drugs. The two candidates at the top of the list are upadacitinib and risankizumab.
Michael Severino, AbbVie's chief scientific officer, said the company is "very pleased" with the profile seen for upadacitinib so far. The JAK1 selective inhibitor is in late-stage studies targeting treatment of rheumatoid arthritis and psoriatic arthritis, with additional late-stage studies planned for Crohn's disease and ulcerative colitis. Severino also was enthusiastic about the potential for risankizumab, citing its durable efficacy as a key differentiator for the anti-IL-23 antibody.
3. Cancer drugs' market potential
AbbVie has also become a leader in oncology. The biotech projects that Imbruvica will generate roughly $11.5 billion in U.S. sales by 2025. (Johnson & Johnson markets Imbruvica outside the U.S.) It also anticipates around $6 billion in revenue by 2025 for Venclexta.
Severino said there are two keys for Imbruvica to achieve AbbVie's goals. Moving into front-line treatment areas in chronic lymphocytic leukemia (CLL) and mantle cell lymphoma (MCL) is one important pathway for sales growth. The other is expanding into new indications. For Venclextra, Severino said that "transitioning to a broader relapsed and refractory population [in treating CLL] will be an inflection point."
4. Operating margins
The company doesn't just expect to grow its top line -- it also projects impressive improvement in operating margins, from 42% of sales now to 50% by 2020. AbbVie CFO Bill Chase pointed to two ways the company will be able to hit this projection.
First, Chase said that AbbVie won't have to pay royalties on Humira beginning in 2018. Second, a combination of rapidly growing overall revenue and controlled spending that doesn't increase as fast will improve margins. Even with this spending discipline, though, Chase said that no one should interpret that as meaning AbbVie won't invest in new products.
Amazon's (NASDAQ: AMZN) hints at moving into the retail pharmacy business have stirred up much speculation in the industry. How might Amazon impact AbbVie? Not much, according to Gonzalez.
He noted that AbbVie is primarily focused on specialty drugs. Most of its products are distributed through specialty pharmacy channels rather than retail channels. Gonzalez said that potential disruptions by Amazon will "primarily impact the retail environment" and won't significantly affect AbbVie's business.
Image source: Getty Images.
6. Tax reform
Bill Chase said that AbbVie is "pleased we're seeing positive progress" on U.S. tax reform. However, he acknowledged that a lot of uncertainties remain. Chase stated that "the No. 1 benefit for the company and the country" relates to repatriation of cash parked overseas.
Gonzalez added, though, that tax reform won't change AbbVie's priorities with capital allocation. He said that the company will continue to invest back into its business first in order to drive growth. AbbVie's second priority, according to Gonzalez, is to return cash to shareholders through dividends and stock buybacks.
7. Potential deals
AbbVie's primary areas of focus for potential deals -- either acquisitions of companies or licensing assets -- are in immunology and oncology. Gonzalez said that lupus and early psoriasis are two areas of high interest for the company. He also stated that AbbVie will invest in early-stage oncology assets.
Will AbbVie make a big acquisition anytime soon? Gonzalez said the company will begin looking at a long-term growth strategy that extends out more than 10 years in the future within the next year or two. He added that AbbVie will make decisions in the 2019 or 2020 time frame that could lead to "something of a more significant size."
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights owns shares of AbbVie. The Motley Fool owns shares of and recommends Amazon and Johnson & Johnson. The Motley Fool has a disclosure policy.