What can you do if you’re a biopharmaceutical company whose top-selling drug is seeing rapidly declining sales?
You go on a buying spree—or at least, that’s what this top biotech is doing.
Here’s why the results for shareholders are set to be fantastic.
More than a third of AbbVie’s (ABBV) 2022 revenue came from Humira, a treatment for 14 inflammatory diseases like arthritis. Humira was once the world’s best-selling medication; its 2022 sales came to $21.2 billion. However, Humira prescriptions have tumbled since Amgen (AMGN) and other competitors began offering cheaper biosimilar versions, dragging the drug’s latest quarterly sales down 36% from a year ago, to $3.55 billion.
AbbVie has other problems as well. Its cancer drug Imbruvica, a lymphoma treatment, was tabbed in August for U.S. government price negotiations under the Inflation Reduction Act. This put a crimp in anticipated cash flow and triggered an impairment charge of $2.1 billion.
On the plus side, revenue from Skyrizi and Rinvoq—autoimmune disease treatments—jumped more than 50% in the latest quarter. The company is seeking approval in the U.S. and Europe to extend Skyrizi’s use to ulcerative colitis patients, and has said Rinvoq will advance to a late-stage trial for treating vitiligo, a skin-discoloring condition.
Skyrizi sales of $2.13 billion and Rinvoq revenue of $1.11 billion in the latest quarter beat estimates. That allowed AbbVie to raise its full-year revenue outlook for both drugs as a result of strong sales.
But AbbVie’s management knows that the company will need more top-selling drugs to overcome the hole created by slowing sales of Humira. That’s why AbbVie has gone on a buying spree in recent months.
AbbVie Buying Spree
On December 7, AbbVie announced a decision to buy Cerevel Therapeutics (CERE) for $8.7 billion. It gained a portfolio of drugs being tested for a range of neurological conditions, including emraclidine for schizophrenia and Alzheimer’s disease psychosis.
It is interesting to note that Abbvie made the purchase before two key data readouts in 2024 on Cerevel‘s experimental schizophrenia treatment, which could be a blockbuster drug. Buying before the data is released may have helped AbbVie avoid a potential bidding war for Cerevel, but came with several risks.
First, Cerevel has not shown much data yet for emraclidine. Also, schizophrenia drug trials have had a historically higher chance of failure compared to most other disease spaces. Finally, Cerevel’s rival, Karuna Therapeutics (KRTX), has a two-year lead on emraclidine, thanks to a similar drug it is developing, Karuna’s lead asset, KarXT (xanomeline-trospium), is an antipsychotic with a novel mechanism of action (MoA) and differentiated efficacy and safety.
Karuna’s New Drug Application (NDA) for KarXT for the treatment of schizophrenia in adults was accepted for review by the FDA, with a Prescription Drug User Fee Act (PDUFA) date of September 26, 2024. KarXT is also in registrational trials both for adjunctive therapy to existing standard of care agents in schizophrenia and for the treatment of psychosis in patients with Alzheimer’s disease.
On December 22, Karuna announced a definitive merger with Bristol Myers Squibb (BMY), which is paying $330 a share for Karuna, or $14 billion. Bristol Myers Squibb believes KarXT represents a significant revenue contribution opportunity, and sees potential from Karuna’s early-stage and pre-clinical pipeline.
Getting back to Cerevel, the payoff could be big for AbbVie if trial data is positive. It expects emraclidine to retain market exclusivity until the early 2040s.
With a portfolio that has two other experimental neurological drugs—for Alzheimer’s and Parkinson’s disease—Cerevel makes an attractive target for AbbVie. It’s a very logical deal as AbbVie is already in schizophrenia and Parkinson’s, and, to a certain extent, Alzheimer’s. So, the company is building its long-term pipeline in areas it is familiar with.
In addition, the week before the Cerevel announcement, AbbVie said it would acquire cancer drugmaker ImmunoGen (IMGN) for $10.1 billion. ImmunoGen’s Elahere drug received accelerated approval in the U.S. in 2022 for treating advanced ovarian cancer, as well as fallopian tube cancer, based on positive early trial results.
Elahere is an antibody-drug conjugate, a type of therapy that precisely targets tumor cells, allowing stronger doses. This field is hot right now with drugmakers like Pfizer, which is buying Seagen to gain conjugate cancer drugs.
The AbbVie-ImmunoGen deal should be a pretty straight forward merger with little scrutiny from regulators, as the two companies have little overlap in their products. This acquisition helps AbbVie move further into treating solid tumors.
AbbVie stock is a buy following its recent merger & acquisition activity (Immunogen and Cerevel). Although are some near-term headwinds for AbbVie—most notably, the drop in Humira sales—the company’s two relatively new immunology drugs, Skyrizi and Rinvoq, will give it a growth boost. Management sees a combined potential for these two drugs for more than $15 billion by 2025. That’s an implied compound annual growth rate (CAGR) of at least 52%!
And if Cerevel’s drug, emraclidine, turns into a blockbuster drug (I think it will), then ABBV is a bargain at the moment. Buy it at a price up to $166 a share.