- Shares in AbbVie Inc. spiked sharply higher Friday, rising by nearly 10% in value to reach an all-time high as investors reacted bullishly to the pharma's forecasts of higher earnings and a dramatically lower tax rate in 2018.
- AbbVie expects its effective tax rate will fall to just 9% this year due to the impact of tax reform in the U.S., although it will absorb a one-time charge of $4.5 billion on 2017 results from tax on previously unrepatriated earnings. AbbVie paid an effective rate of between 23% and 25% over the past three years.
- Lower taxes ahead isn't the only bright spot, either. Sales of Humira beat expectations, growing by 14% year over year in the fourth quarter, while AbbVie's hepatitis C drug Mavyret continued to outperform.
Heading into this year, investor focus centered on the prospects for higher M&A activity in the wake of the beneficial changes to U.S. tax law.
Those expectations were vindicated recently by Celgene Corp.'s $9 billion buyout of Juno Therapeutics Inc. and Sanofi SA's $11.6 billion acquisition of Bioverativ Inc. Whether those deals pan out remains to be seen, but the pressure on other major biopharmas to follow suit appears heightened.
On Friday, AbbVie proved an exception, placating analysts with yet another quarter of double-digit growth in sales of Humira (adalimumab) and a surprisingly large bump to its forecasted earnings this year.
AbbVie now expects adjusted earnings per share to come in between $7.33 and $7.43 for 2018, up nearly a dollar from the previous range of $6.37 to $6.57.
"We expected an upward 2018 guidance revision, but not of this magnitude," wrote Jefferies analyst Jeffrey Holford in a Jan. 26 note to investors.
AbbVie had previously provided earnings estimates for 2018 during its third quarter earnings call. Since then, however, the newly enacted changes to U.S. tax law along with strengthening sales of its hepatitis C drug Mavyret (glecaprevir/pibrentasvir) gave AbbVie greater confidence in the future.
"We're on the front end of what will be tremendous growth for AbbVie," company CEO Richard Gonzalez said on an earnings call.
On tax, AbbVie expects to pay an effective tax rate of 9% in 2018 due to the timing of certain provisions in the Tax Cuts and Jobs Act. That rate will rise gradually over the next five years to 13%, AbbVie said. Even so, both figures would represent dramatic reductions from the 23% to 25% effective tax rate paid during the past three years.
Most of those savings appear likely to go back in shareholders pockets, with AbbVie executives spending more time on the prospects of increased dividends and share repurchases than in contemplating large scale M&A.
The company does plan to invest roughly $2.5 billion in U.S. capital projects, potentially including the expansion of domestic facilities.
On an individual product level, AbbVie's position is made stronger by Mavyret and its hepatitis C franchise outperforming expectations. In the fourth quarter, sales of hepatitis C drugs surpassed $500 million — an increase of 63% compared to the same period a year prior and $221 million higher than consensus forecasts from Wall Street.
AbbVie said Mavyret, which it priced cheaper than rival drugs from Gilead Sciences Inc., secured market leadership in several countries outside the U.S. Domestically, the drug's market share reached 32%, boosted by improved payer access.
Continued growth from Mavyret and from AbbVie's oncology business should ease investor worries about dependence on Humira moving forward. While competition to the drug isn't expected until 2023 in the U.S., biosimilars will likely enter the market in Europe this year, putting some degree of pressure on the world's best-selling drug.