Buy, Sell, Or Hold AbbVie Stock?

Core Viewpoint - AbbVie experienced a significant drop in stock price following the failure of its drug Emraclidine in clinical trials, which was anticipated to be a major revenue driver. This has raised concerns among investors about the company's future growth prospects [1][2]. Group 1: Stock Performance and Market Reaction - AbbVie stock (NYSE: ABBV) fell 12% on November 11 after the announcement of failed clinical trials for Emraclidine [1]. - Despite the recent decline, ABBV stock has seen a 90% increase since January 2021, rising from $92 to approximately $175, outperforming the S&P 500 and the S&P 500 Healthcare index during the same period [3]. - The stock's price-to-sales (P/S) ratio increased by 60% to 5.7x, compared to 3.6x in 2020, reflecting investor confidence due to rising sales despite competition [3]. Group 2: Revenue Growth Factors - AbbVie's revenue grew by approximately 20% from $45.8 billion in 2020 to $55.5 billion, largely driven by the acquisition of Allergan [5]. - Sales of Humira peaked at $21.2 billion in 2022 but fell by 32.2% year-over-year to $14.4 billion in 2023, with a further decline of 34% to $7.2 billion for the nine-month period ending September 2024 due to biosimilar competition [5][6]. - Newer drugs, Skyrizi and Rinvoq, generated $11.7 billion in 2023, marking a 53% year-over-year growth, while Vraylar's sales increased by 35% to $2.8 billion [6]. Group 3: Inorganic Growth and Acquisitions - AbbVie has pursued inorganic growth through acquisitions, including ImmunoGen for $10.1 billion and Cerevel Therapeutics for $8.7 billion, although the latter's drug Emraclidine has faced setbacks [7]. - The company is also in the process of acquiring Aliada Therapeutics for $1.4 billion, focusing on its Alzheimer's treatment pipeline [7]. Group 4: Profit Margins and Financial Health - AbbVie's operating margin has slightly decreased from 27.8% in 2020 to 26.1% currently, impacted by increased expenses related to research and development [8]. - Cash reserves have declined from $8.5 billion in 2020 to $7.3 billion, while total debt has decreased from $86.1 billion to $71.1 billion, indicating a manageable financial risk profile [9]. Group 5: Future Growth Potential - ABBV stock has risen 17% in 2024, underperforming the S&P 500, which increased by 26% [10]. - The stock trades at a P/S ratio of 5.7x, above its three-year average of 4.4x, suggesting potential for growth given market share gains from new drugs [12]. - Skyrizi and Rinvoq are expected to continue gaining market share, with peak sales estimates of $20 billion and $12 billion, respectively, which could support AbbVie's revenue growth despite the decline in Humira sales [13].