Is AbbVie's Dividend Safe?


Published on

AbbVie (NASDAQ: ABBV) is one of the globe's top drugmakers and it's quickly become a staple in dividend investors' portfolios since separating from Abbott Labs (NYSE: ABT) in 2013. Big drug companies such as AbbVie, Johnson & Johnson (NYSE: JNJ), and Amgen (NASDAQ: AMGN) offer investors predictable, dividend-boosting revenue regardless of the economy's whims and whispers. But investors are correct to wonder if AbbVie's dividend can be sustained in light of billions in at-risk revenue tied to the future patent expiration on its top selling drug, Humira. In the following slideshow you'll see whether I think AbbVie's dividend is safe and gain insight into how AbbVie matches up with industry peers.

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Is AbbVie's Dividend Safe?

  1. 1. Is AbbVie’s Dividend Safe?
  2. 2. Is AbbVie’s dividend safe? 1. Patent expiration – Humira, a treatment for autoimmune disease like rheumatoid arthritis, is AbbVie’s best selling drug. • Humira accounts for 57% of AbbVie’s annual revenue. • Humira sales totaled $10.6 billion in 2013. • Humira’s U.S. patent expires in December 2016 and its European patent expires in 2018. 2. Shrinking margin – Operating margin has fallen from 33% to 30% in the past year. 2 big and important question marks hang over AbbVie’s dividend.
  3. 3. Patent expiration First, let’s consider AbbVie’s patent calendar. Expiring patents on TriCor, Trilipix, and Niaspan shaved $1.1 billion in sales off AbbVie’s top-line in 2013, but Humira’s 2016 patent risk is most significant given that Humira’s U.S. sales totaled $5.2 billion last year. To offset that risk, AbbVie will need wins from its R&D program, but it may also benefit from the fact that Humira is a biologic and the pathway to approval for biosimilars remains unclear. Biosimilars also tend to carry higher prices than traditional generics and so far biosimilars that have won approval have captured less market share than small molecule counterparts. That suggests AbbVie’s sales risk may not be as big as some fear.
  4. 4. Shrinking margin The race to replace potential lost sales when Humira loses patent protection is increasing AbbVie’s spending on R&D and weighing on its operating margin, which peaked north of 33% last year. R&D spending is likely to remain a headwind as AbbVie advances pipeline candidates through pricey late stage trials, so investors will need to keep a close eye on margin to see if net income drops.
  5. 5. Reasons for dividend optimism 1. A maturing pipeline of new products – 20 compounds or indications in phase 2 or phase 3 trials. • A doubling of compounds in its pipeline over the past 5 years. – Humira successors. • Tregalizumab in phase 2b for rheumatoid arthritis & psoriasis. • GLPG0634 in phase 2b for rheumatoid arthritis. • ALX-0061 in phase 2 for rheumatoid arthritis. – Hepatitis C potential. • FDA & EU decisions pending on 3 drug hepatitis C cocktail. – Oncology potential. • Elotuzumab is in phase 3 for multiple myeloma. • Veliparib is in phase 2b for BRCA mutated breast cancer. • ABT-199 is in phase 3 for chronic lymphocytic leukemia. AbbVie is developing new products that could offset Humira’s patent risk.
  6. 6. Cash dividend payout AbbVie’s cash dividend payout ratio, which measures how much of a company’s operating cash minus capital expenses and preferred dividends is being spent to pay common dividends, is nearly 50%. That’s significantly higher than Amgen and roughly in line with Johnson & Johnson. Given AbbVie’s R&D expenses and its future risk to Humira revenue, the company has less room to boost its current dividend. That said, AbbVie had $9.5 billion in cash exiting 2013, up from $5.9 billion exiting 2012, suggesting it has room to maintain its dividend.
  7. 7. Current yield AbbVie’s current dividend yield is 3.18%, higher than both Johnson & Johnson and Amgen. However, question marks remain suggesting investors may want to wait for the company’s pipeline to mature and for more insight into the biosimilars threat to become available before buying.
  8. 8. . The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.