Any analyst will tell you that growth driven on the success of a single product is short term. It is myopic for a company to sit on the profit of one item, hoping it will reap dividends year after year. Somebody will come up with something different and better at some point. Ask Microsoft (MSFT, Financial), and the company’s meteoric rise, plateau and finally downturn should be a learning lesson for all corporations looking to remain a strong player in their respective industries. Going by the plans of AbbVie Inc. (ABBV, Financial), the U.S. drugmaker seems to be keeping in mind this one aspect of business growth. Although the quarter that ended March 31 showed a sound profit, driven mostly by the spectacular sales performance of drug Humira, the company is already making plans to diversify to maintain a sustained growth. The company’s policy will surely build the confidence of shareholders and investors who will reap long-term benefits, if the company makes the right investments now.
The wonder drug
AbbVie Inc. beat expectations and reported quarterly profit and revenue - earnings of 94 cents per share, up 32.4% from the year-ago quarter – with sales having increased 10.5% to $5.04 billion, above the $4.99 billion most analysts had expected. A huge chunk of this profit was because of strong demand of its arthritis drug, Humira. Sales of Humira increased by almost 18% to touch levels beyond $3.1 billion in the first quarter, which is about two-thirds of AbbVie’s total revenue. After shares had spiked by almost 2% to $65.69 on Thursday, the company raised its full-year adjusted profit forecast to $4.10-$4.30 per share, from $4.05 to $4.25 earlier. Playing second fiddle was sales contribution from all-oral hepatitis C treatment Viekira Pak, approved by U.S. regulators in December, but its impact was much lesser in terms of earnings as it recorded sales of $231 million.
Humira is a drug used in treating rheumatoid arthritis, Crohn’s disease and myriad other autoimmune conditions.
Alternative plan of action
However, not to put all its eggs in one basket, last month the company beat several other drug giants to buy Pharmacyclics Inc. (PCYC, Financial) to expand its cancer drug lineage. This deal of $21 billion will also reduce its dependence on Humira. Also, according to the company’s forecast, Viekira sale worldwide will account for almost $3 billion annually by the end of 2015, despite entering markets already dominated by pills sold by Gilead Sciences (GILD, Financial). The drug market is already congested with players vying for space, and AbbVie seems to be coming out with one after another show-stopper, including Pharmacyclics and its products which will also be in the company’s portfolio soon.
Abbvie chief executive Rick Gonzalez said on Thursday that the new as well as the existing products will bring “top tier growth through the rest of the decade and beyond,” adding that the company’s acquisition of Pharmacyclics is an on-going process and will close by the end of the second quarter. Pharmacyclics manufactures the oral pill Imbruvica which can treat several cancers but will also be expensive, costing around $100,000 for a year’s course. This drug at present is AbbVie’s “pipeline in a molecule” and will diversify the profit base. According current studies and data, Imbruvica has multi-billion dollar potential in the coming days if all goes well, and as Gonzalez rightly said: “2015 is a pivotal year for Abbvie and we are off to an impressive start.” Once Imbruvica hits the market, with good results, there will be no looking back for this company. Expectations are already high but not unrealistic and the company’s recent acquisition is sure to bring a smile on the investors’ face.
