AbbVie Is Well-Positioned to Meet Long-Term Financial Targets by 2020



Long-term financial targets

Despite increasing research and development (or R&D) expenses, AbbVie (ABBV) remains confident in its strategy of reaching its long-term target of a 50% operating margin by 2020. This is mainly attributed to the rolling off of Humira’s royalty stack in the next few years. AbbVie must pay ~5%–6% of Humira’s global sales as royalties to third parties.

AbbVie will not need to pay one-third of these royalties until the end of 2017 and the remaining two-thirds until the end of 2018. This is expected to translate into margin gains for the company in 2018 and 2019.

If these trends help AbbVie approach its long-term margin targets, it may have a positive impact on ABBV stock and on the iShares Russell 1000 Growth ETF (IWF). AbbVie makes up about 0.90% of IWF’s total portfolio holdings.

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Growth drivers

The chart above shows the key assets that are expected to drive AbbVie’s long-term revenue growth. In addition to Humira, the company also expects label expansion of its oncology drugs, Imbruvica and Venclexta, as well as new product launches to drive its future performance.

AbbVie is confident of its long-term growth strategy despite projections related to the negative impact of partnership accounting, which totals ~200 basis points on AbbVie’s operating margins.

With its solid product portfolio, AbbVie (ABBV) is expected to pose tough competition to peers such as Amgen (AMGN), Celgene (CELG), and Gilead Sciences (GILD).

1Q17 projections

AbbVie (ABBV) expects to post earnings per share (or EPS) in the range of $1.24–$1.26 in 1Q17. Humira is expected to witness YoY revenue growth of ~20%. Imbruvica’s sales are projected to grow in the range of 5%–9%.


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