Predicting AbbVie's Position in the Next Five Years
Most pharmaceutical companies often move at a snail's pace due to the extensive time required to develop a new drug, and AbbVie (ABBV) is no exception. However, the upcoming five years might witness a more rapid growth pace compared to the last five years. This growth is anticipated to bring significant benefits to the company's shareholders.
The following sections outline where this company is headed and where it's likely to end up.
Expansion seems improbable
Over the next five years, AbbVie is likely to maintain its stronghold in the disease arenas that its current pipeline and product blend favor: immunology, neuroscience, and oncology. It will also continue to contend at a smaller scale in aesthetics, eye medicines, and a variety of other sectors such as infectious diseases, albeit these efforts are secondary at best. With 14 early-stage oncology programs currently in clinical trials, cancer drugs are expected to hold more significance for the company's overall revenue than before.
Its recent acquisition of Cerevel, justified as an enhancement of its neuroscience portfolio, serves as a testament to its potential interest in further mergers and acquisitions, primarily focusing on oncology or possibly immunology. With more than $7.2 billion in cash and cash equivalents, AbbVie reported an impressive free cash flow of nearly $22.1 billion in 2023. This financial strength could potentially allow it to acquire a few small biotechs, or even larger ones, if it's willing to assume some debt financing.
Growth projections
Management projects a compound annual growth rate ranging between 7% and 9% for the company's revenue from 2024 to 2029. This growth will be fueled by $27 billion in revenue generated by its leading immunology drugs Rinvoq and Skyrizi, a robust aesthetics portfolio worth over $9 billion annually, and a recovering oncology division that is expected to reverse its shrinking trend within approximately two years. A few other drugs are also anticipated to hit their peak revenue years within this decade.
With an annual revenue of $54.3 billion in 2023 as a reference point, we can estimate that AbbVie's revenue for 2029 should at least reach $75.4 billion and potentially exceed $83.1 billion.
Prioritizing shareholders
As it expands, shareholders can expect AbbVie to continue increasing its dividend, which is one of management's key capital allocation priorities. Investors, however, should manage their expectations regarding the pace of the dividend growth increases. In the past decade, the dividend was increased by 235%. Despite this, the rate of increases has gradually decreased, with a 5% increase in the dividend payment for 2024.
The pace may accelerate as its payout ratio begins to decrease towards a more sustainable level than its current ratio, which has led to dividend obligations that significantly surpass its trailing-12-month net income of $5.1 billion.
Potential risks
Despite its current success, AbbVie faces risks. The biggest threat is the potential for misaligned research and development investments in its early-stage pipeline that fail to target the largest disease markets in the future. While there's no indication of this occurring, there's always the possibility of clinical trials failing, although the potential damage to the company's share price appears to be moderated due to the size of its pipeline.
AbbVie's financial strength, as evidenced by its impressive free cash flow of nearly $22.1 billion in 2023, could potentially open up opportunities for investing in future mergers and acquisitions, primarily focusing on oncology or possibly immunology.
Investors can anticipate AbbVie to continue prioritizing its shareholders by increasing its dividend, with the dividend payment increasing by 5% for 2024, despite a decrease in the rate of increases in the past decade.
