Leerink Flash 25 januari 2019 (17.12h)
AbbVie filed the lower dose of upadacitinib for rheumatoid arthritis.
AbbVie announced that the lower 15mg upadacitinib (selective JAK1 inhibitor) dose has been submitted for regulatory approval for rheumatoid arthritis, due to an internal analysis of the data from the SELECT clinical program. Though no further details were disclosed, this choice is likely due the loss of JAK1 selectivity at higher doses noted in multiple assays. The higher 30mg dose did not confer a significant efficacy benefit relative to the 15mg, and has been discarded for this indication given the known safety liabilities and potential dose-dependent increases in these toxicities. The potential upadacitinib US approval date is unknown, but the guidance is in H2.
NYSE: ABBV / MARKET PERFORM
($80.37, Mkt. Cap. $122B)
What Happened on the Call? 2019 Sales Guided Flat; $2bn ex-US Humira Headwind
Bottom Line: This morning AbbVie reported slightly soft Q4 2018 results with revenues of $8,305mm, <1% below consensus, and adjusted EPS of $1.90, under consensus by 2%. The results were driven by lower-than-expected Humira sales, a steep decline in AndroGel due to generic competition, and higher COGS, which could not be offset by strength from HCV sales, a lower tax rate, and share repurchases. EPS grew 27% driven in large part by 2018 tax reform and the recent share-repurchases. EBIT grew by 10% annually, which more realistically reflects the underlying business performance. AbbVie unveiled 2019 adjusted EPS guidance of $8.65-8.75, which brackets consensus. Revenue is expected to be flat, based on operational growth of 1% and an F/X headwind of 1%.
Key comments from the earnings call included…
AbbVie is definitively not contemplating a large M&A transaction.
Management was asked on the call about their appetite to execute a large, transformative M&A transaction, whether the takeover is friendly or unfriendly. Management offered a terse response that stated flat out that the company is not contemplating a large transaction that would involve a merger, and even added that they considered their prior Pharmacyclics transaction to a large acquisition (albeit a bolt-on).
Ex-US Humira biosimilars expected to erode $2bn in 2019, higher than previous estimate.
Full year 2018 ex-US Humira sales were $6,251mm, and AbbVie announced expectations for $2bn revenue erosion due to biosimilar competition in 2019. This translates into a ~30% decline for 2019, higher than the 26-27% decline AbbVie suggested was likely back on the Q3 call (which itself was materially higher than their prior expectations). Biosimilars are now competing in markets that encompass 75% of ex-US Humira, or 25% of global Humira revenues. The remaining 25% of ex-US Humira volume will face biosimilar competition in 2021. AbbVie has built into this forecast an expectation for continued price decline. Management stated that price is still evolving in Southern European countries and Germany and expects there to be a stabilization of erosion in 2020, and then another step down in 2021 as new markets lose exclusivity.
US Humira expected to grow only $1bn in 2019, below consensus expectations of +$1.4bn.
This guidance contemplates growth of 7%, down from 10% achieved in 2018. Management stated that this is not due to a change in volume trends, but is due to a lighter price contribution for the year. AbbVie executed one-time 6.2% price increases for some of its portfolio products in January 2019, which is less than the 9.7% increase taken in January 2018 for Humira.
AndroGel revenue will decline $400mm in 2019.
Exacerbating the decline of Humira sales, AbbVie also expect $400mm headwind for AndroGel in 2019 due to generic competition which started in Q4. This generic launch has already reduced sequential sales for the product by 44% in Q4 2018.
Despite headwinds, management expects double-digit earnings growth in 2019, which we believe is largely driven by share buybacks.
Management gave detailed guidance for product revenue and the P&L for 2019 (see the exhibit inside for guidance versus consensus and our estimates). AbbVie is guiding to essentially flat revenue for 2019, based on a 1% operational increase offset by a 1% F/X decline, but expects double-digit EPS growth in 2019. However, this is largely driven by the reduction in the Humira royalty rate and a reduction in share count delivered through 2018, which will continue into 2019 after the Board authorized a further $5bn buyback program in December 2018. Due to the Humira royalty decline, AbbVie is guiding to ~200bps of operating margin expansion in 2019 (up to 46.5%). On the call, management commented that future operating margin improvement to obtain the >50% goal will be driven by sales leverage, not expense reduction.
2020 targets seem unlikely to be achieved, which calls into question bullish 2025 targets.
Based on the trends AbbVie expects in 2019, it appears unlikely that the company will meet its previously announced 2020 targets of Humira sales of $21bn and an operating margin of >50%. Other prior guidance items that are questionable include Duodopa and Imbruvica.
AbbVie filed the lower dose of upadacitinib for rheumatoid arthritis.
AbbVie announced that the lower 15mg upadacitinib (selective JAK1 inhibitor) dose has been submitted for regulatory approval for rheumatoid arthritis, due to an internal analysis of the data from the SELECT clinical program. Though no further details were disclosed, this choice is likely due the loss of JAK1 selectivity at higher doses noted in multiple assays. The higher 30mg dose did not confer a significant efficacy benefit relative to the 15mg, and has been discarded for this indication given the known safety liabilities and potential dose-dependent increases in these toxicities. The potential upadacitinib US approval date is unknown, but the guidance is in H2. AbbVie announced that an FDA Advisory Committee has not yet been announced, but it is common for new drugs in rheumatoid arthritis to go to an Advisory Committee and the company is planning for this possibility. AbbVie’s other new immunology asset, risankizumab for psoriasis, has a FDA PDUFA date of April 25.
Revenue missed consensus by <1%.
Global Humira sales declined 4% sequentially to $4,918mm, and were 1% below consensus of $4,978mm and 2% below our forecast of $5,005mm. US Imbruvica sales grew 3% sequentially to $839mm, which was 5% above consensus of $801mm and 1% above our forecast of $831mm. AbbVie’s ROW profit share for Imbruvica grew 4% q/q to $167mm and was 1% above consensus. AbbVie’s HCV revenue for the quarter from Viekira and Mavyret declined in the US but grew ex-US sequentially. US HCV revenue was $408mm, decreased 8% sequentially, and came in 1% above consensus estimates and 4% below our expectation. ROW HCV revenue was $454mm, increased 9% sequentially, and came in 12% above consensus estimates and 16% above our expectation.
EPS missed consensus by 2%.
Total non-GAAP expenses were $4,840mm, more than consensus (1%) and our estimate (6%), and were driven primarily by higher product and selling costs. AbbVie’s tax rate for Q4 was ~9%, which was 1 percentage point below expectations. Reported non-GAAP EPS was $1.90, which was 2% below consensus of $1.93 and 5% below our $2.01 estimate.
AbbVie unveiled 2019 guidance that brackets consensus.
AbbVie unveiled 2019 guidance for the first time today. AbbVie expects 2019 adjusted EPS to be in the range of $8.65-8.75, compared to consensus of $8.71 and our initial estimate of $8.54. See the exhibit inside for the detail of AbbVie’s product and P&L guidance.