AbbVie hikes 2018 forecast and promises shareholder rewards, thanks to U.S. tax changes

AbbVie
AbbVie CEO Richard Gonzalez is under pressure to share the company's cash with investors and to deploy it towards boosting the company's pipeline.

AbbVie’s earnings report is always a good-news-bad-news occasion, because its ownership of the world’s top-selling drug, Humira, raises inevitable questions about what will happen to the company when that product’s patents expire. But today’s fourth-quarter earnings report got a boost from a powerful force beyond the company’s walls: the new tax code.

The company did take a net charge of 77 cents per share in the fourth quarter for “mandatory taxation on previously unrepatriated earnings,” it explained in its announcement, but the long-term impact of the tax law is mostly positive. The company said its 2018 adjusted earnings per share would come in somewhere between $7.33 and $7.43, largely because of tax reform. It has previously told analysts to expect EPS $6.37 to $6.57. AbbVie earned $5.3 billion in 2017, or $5.60 per share on an adjusted basis, on revenues of $28.2 billion.

"The company’s tax rate guidance for 2018 is for an astonishing 9%, compared to an expected 20%, which is the most important contributor to their guidance increase," noted Leerink analyst Geoffrey Porges in a note to investors that he appropriately titled "Wow!"

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The tax benefits will be so great that AbbVie plans $2.5 billion in capital projects in the U.S., as well as accelerated pension funding of $750 million and a $350 million charitable contribution. The company will also “enhance nonexecutive employee compensation,” it announced. Not surprisingly, AbbVie is cooking up a strategy to return some of the tax benefits to shareholders, promised CEO Richard Gonzalez in a conference call with analysts after the earnings release.

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But Gonzalez was quick to point out that the sunny 2018 forecast isn’t just about taxes. AbbVie’s fourth-quarter sales of autoimmune-disease treatment Humira came in at $4.9 billion, up 12% from the same period a year ago, beating analyst estimates and proving the fruits of the company’s ongoing efforts to fight off generic competition. Last September, AbbVie struck a settlement that forces Amgen to wait until 2023 to launch its biosimilar rival, Amjevita, in the U.S. That led AbbVie to forecast Humira sales of $21 billion by 2020. And it no doubt played into today’s forecast of total 2018 revenues of $32 billion, which surpassed the average analyst estimate of $31 billion.

Other products also exceeded expectations, including Mavyret, which was approved by the FDA last summer to treat all genotypes of hepatitis C. AbbVie priced the product at $13,200 per month—undercutting rival products like Gilead’s Sovaldi, which sells for $28,000 per month. AbbVie’s hepatitis C revenues in the fourth quarter came in at $510 million, soaring past the average forecast of $289 million. Pickup of Mavyret was so strong in the latter half of the year that Gonzalez declared the product a “major growth driver” in the conference call.

RELATED: 2018's best-sellers? AbbVie's Humira, obviously, but newcomers are on their way

With Humira’s eventual patent loss hanging over the festivities, AbbVie focused heavily during the call on the company’s pipeline. One bright point during the quarter was AbbVie’s JAK-1 selective inhibitor upadacitinib for eczema, which received “breakthrough” designation from the FDA earlier this month. That could speed the drug's path to market. The nod came just months after AbbVie released positive results from a phase 2b trial of the drug that indicated the product will be a formidable competitor to Regeneron and Sanofi’s popular Dupixent. One advantage AbbVie will be able to tout is that upadacitinib is a once-daily oral drug, whereas Dupixent has to be injected.

During the conference call, one analyst pressed Gonzalez for details on how AbbVie would deploy the “pile of cash” expected from the U.S. tax overhaul, suggesting that the company could be more aggressive in making acquisitions to boost its pipeline. Gonzalez agreed, saying the company is “constantly looking at what is out there that fits our strategy.” He noted that AbbVie’s primary focus is looking at investments that will drive strong growth in the 2023 to 2025 timeframe—when Humira faces its biggest biosimilar threat—and pipeline assets in oncology and neuroscience.

President Donald Trump has long promoted the idea that tax reform would spur hiring, and certainly there’s a chance that the $2.5 billion in capital projects that AbbVie is planning could create jobs—but there was no mention of that during the fourth-quarter earnings release. Instead, Gonzalez made it clear during the conference call that AbbVie is coming up with a plan to return much of the cash haul to investors.

“This is a business that generates a tremendous amount of cash, and now with tax reform we have access to that cash in a much more efficient way than we did previously,” Gonzalez said. “You can assume … a combination of acceleration of the dividend growth and more share buybacks.”

AbbVie plans to announce the details of the dividend and stock-buyback plans after its board meeting in February, Gonzalez promised.