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Morningstar | ABBV Updated Forecasts and Estimates from 30 Jul 2018

AbbVie reported second-quarter results slightly ahead of both our and consensus expectations, but we don't expect any changes to our fair value estimate based on the results. Further, we view the stock price pullback following the earnings release as overdone and consider the stock slightly undervalued. While we continue to expect much faster declines for immunology drug Humira versus both consensus and management guidance due to biosimilar pressures by 2021, the stock appears to be implying even sharper declines relative to our expectations. The concerns over Humira's outlook along with the drug representing over 60% of total sales lead us to stay with a narrow moat rating despite an improving pipeline and growing contributions from recently launched drugs.

In the quarter, strong growth from Humira, cancer drug Imbruvica, and hepatitis C drug Mavyret helped propel total sales growth of 17%, but we expect this strong growth rate will slow due to Humira biosimilar launches in Europe by mid-October. We expect European biosimilars to erode AbbVie's Humira sales at an annual rate close to the mid-20% rate seen with Remicade when it faced biosimilar competition in Europe. Additionally, we continue to model an at-risk launch of a U.S. Humira biosimilar by late 2020, likely by Pfizer, which has shown a willingness to launch at-risk in the past with its Remicade biosimilar Inflectra launch in 2016.

Despite the challenges ahead for Humira, AbbVie is making steady progress with recently launched drugs and holds a late-stage pipeline with several new blockbusters. Even with Imbruvica's recent setback in a diffuse large b-cell lymphoma study, we still project the drug will hit peak annual sales over $5 billion, led by support in other blood cancers. Also, we expect AbbVie's hepatitis C platform to support over $3 billion annually for several years based on reaching more patients despite the curative impact of the drug.

In the pipeline, we expect recently approved endometriosis pain drug Orilissa, cancer drug Venclexta (recent label expansion into the second-line setting of chronic lymphocytic leukemia), JAK-1 immunology drug upadacitinib (approval expected in 2019), and IL-23 immunology drug risankizumab (approval expected in 2019) to all become blockbusters based on excellent clinical data. These next-generation drugs should help mitigate the upcoming biosimilar Humira competition.