The iconic Dow Jones needs no introduction to those fully immersed in the investing world. It is composed of 30 leading companies in the U.S. and stands as one of the country’s oldest and most popular stock market indexes. Like other major U.S. indexes, it has delivered solid returns over the long run, so perhaps investing in an exchange-traded fund that tracks the Dow Jones isn’t a bad idea.
However, some companies are more than capable of providing even better returns. Pharma giant AbbVie (NYSE: ABBV) falls in that category. Here is why.
This patent cliff won’t sink AbbVie’s prospects
Since splitting off from Abbott Laboratories in 2013, AbbVie has comfortably beaten the Dow Jones.
But the company’s key asset in this period is now under threat. AbbVie’s immunology drug Humira — its top-selling product and one of the most successful drugs in history — could start facing generic competition in the U.S. in 2023. Humira’s sales have been declining in international markets since 2018 when it lost patent exclusivity in Europe.
But AbbVie was able to keep its revenue associated with the medicine afloat thanks to the U.S. market. Now, Humira’s sales might drop off a cliff when generics enter that market. What will happen to AbbVie’s top line? Thankfully, it shouldn’t be the end of the world. Drugmakers often plan well in advance when they know they will face important patent cliffs, and that’s what AbbVie did.
First, the company’s blockbuster 2020 acquisition of Allergan helped expand its lineup with products like Vraylar — which recently earned a label expansion as an adjunctive treatment for depression — and Allergan’s Botox franchise. These products should help offset Humira’s declining sales. Second, AbbVie earned approvals for new key products.
Most notably, it expanded its immunology lineup with Skyrizi and Rinvoq, two medicines that have earned approvals across many of Humira’s indications and have grown their sales at a rapid clip. AbbVie won’t stop there. The company has plenty of pipeline programs that will help it strengthen its lineup down the line. In October 2022, it submitted epcoritamab, a potential cancer medicine, for approval in the U.S. and Europe.
In May 2022, the company submitted an application for ABBV-951 to the U.S. Food and Drug Administration for approval. ABBV-951 is the subcutaneous version of AbbVie’s oral combo medicine, carbidopa/levodopa, which treats Parkinson’s disease. AbbVie boasts dozens of other programs, including brand-new clinical compounds in various stages of development.
The company’s track record and pipeline strongly suggest that losing patent exclusivity for Humira in the U.S. won’t be a death sentence.
AbbVie’s strong dividend record
In the third quarter, AbbVie reported revenue growth of 3.3% year over year to $14.8 billion, while its adjusted earnings per share came in at $3.66, 29.3% higher than the year-ago period. It seems very plausible that AbbVie’s revenue and earnings growth rates will drop once it starts facing generic competition from Humira, at least momentarily. But that’s unlikely to affect the company’s dividend.
AbbVie is part of the club of Dividend Kings; it has raised its payouts for 50 consecutive years when considering the time it spent under the banner of Abbott Laboratories. With a cash payout ratio of almost 45%, the company’s cash balance more than covers its dividends, leaving plenty of room for payout increases even if revenue and earnings drop for a few quarters.
AbbVie raised its dividends throughout the pandemic period and the subsequent economic troubles to the tune of 25% in the past three years. It currently boasts a yield of 3.66%, well above the average S&P 500 dividend yield of 1.82%. AbbVie’s dividend track record is impeccable.
A solid forever stock
After a down 2022, the iconic Dow Jones may recover in 2023, although there is no guarantee that it will. AbbVie, on the other hand, had a solid showing in 2022. Given the upcoming issues related to Humira, investors could sell off the stock in the short term, but the company has all the tools needed to be successful over the long run.
AbbVie’s solid business should lead to more approvals, a broader revenue base, stronger top-line and bottom-line growth, and consistent dividend increases. Whatever happens to the pharma company in 2023, AbbVie has an excellent chance of outperforming the Dow Jones in the next five years and beyond.
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