Initiating Coverage at Outperform — SKYRIZI + RINVOQ Already Past 2027 Guidance, ex-HUMIRA Platform +22%, FY25 Raised Twice; FV $215–245

Initiating Coverage

We are initiating coverage of AbbVie Inc. (ABBV) at Outperform with fair value $215–245, a ~13–14x multiple on our FY26 EPS framework of $16–17 (which assumes the company executes against its own guidance trajectory and the HUMIRA tail behaves as Stewart described).

The central question on AbbVie at this point in the cycle is whether the post-HUMIRA reconstruction — SKYRIZI + RINVOQ + Aesthetics + Oncology + Neuroscience — compounds to a higher growth algorithm than the multiple discount the market currently applies, or whether the diversified-pharma peer-multiple ceiling is the correct anchor through the LOE digestion period. The Q2 print resolves the core variable: the replacement engine is over-delivering against management's own milestones, not just consensus. SKYRIZI + RINVOQ on pace for ~$25B combined in 2025 (Reents disclosed Skyrizi alone at $17.1B) is past the previous 2027 long-term guidance level — two years early. The ex-HUMIRA platform grew 22% this quarter. FY25 has been raised twice (revenue cumulative +$1.5B since initial guide; EPS +$0.21). On those facts, paying ~12–13x for AbbVie versus mid-teens for the diversified-pharma peer set looks like a holdover from the LOE-shock pricing.

The rating reflects three convictions: (1) the SKYRIZI + RINVOQ trajectory has structurally re-rated the franchise relative to the pre-LOE peak; (2) the neuroscience platform is a second compounding engine the market has not yet priced; (3) the bear-case items (aesthetics weakness, IRA exposure, IPR&D drag) are appropriately scoped tail risks rather than thesis-breakers. We initiate at Outperform with full awareness that the setup will be tested through the back half of 2025 as additional HUMIRA exclusionary formularies kick in and the Vraylar IRA price becomes public in November.

Results vs. Consensus

Print delivered a clean beat-and-raise across every line that matters. Numbers below are reported.

Updated FY25 guidance (the second raise this year):

Therapeutic Area Performance

Immunology — The HUMIRA Replacement Math is Working

• Total: $7.631B, +9.2% op. SKYRIZI + RINVOQ together contributed $6.45B, up roughly $2.1B Y/Y — substantially more than the HUMIRA decline of ~$1.6B Y/Y. The franchise is growing on a net basis through Y2 of the LOE.
• SKYRIZI: $4.423B, +61.8% op. Stewart called out IBD frontline capture: "more than 1/3 of new or switching patients in Crohn's disease and nearly 20% of new or switching patients in ulcerative colitis." Skyrizi + RINVOQ together capture "1 out of every 2 in-play Crohn's disease patients and 1 out of every 3 in-play UC patients" in the U.S.
• RINVOQ: $2.028B, +41.2% op. Sixth rheumatology indication (GCA) launched. Phase III in alopecia areata met primary endpoint with 54% of 30mg patients reaching 80% scalp coverage at 24 weeks — ~20 percentage points above the highest approved doses of competing JAK inhibitors. Vitiligo Phase III readouts expected later in 2025; alopecia areata regulatory submission starting later this year.
• HUMIRA: $1.180B, −58.2% op. Stewart: "HUMIRA access in the U.S. will continue to decrease throughout the second half of this year as more plans select exclusionary formularies for existing patients." U.S. FY25 cut to $3.0B (from $3.5B). Y3 (2026) tail is the variable to watch — not a thesis variable yet.

Neuroscience — The Underpriced Second Engine

• Total: $2.683B, +24.0% op — the fastest-growing therapeutic area. Migraine, psychiatry, Parkinson's all contributing.
• VRAYLAR: $900M, +16.3%. Volume-driven (double-digit volume every quarter) with modest Part D redesign price benefit.
• BOTOX Therapeutic: $928M, +14.2%. ~40% of revenue is chronic migraine.
• Migraine oral CGRPs: UBRELVY $338M (+47.2%), QULIPTA $267M (+76.9%) — combined $605M. TEMPLE Phase III showed QULIPTA beats topiramate (the dominant generic) on both discontinuation and efficacy — a structural share-shift catalyst into a market where 40–50% of preventives are generics.
• VYALEV (Parkinson's): $98M, +56% sequential. Stewart sized the emerging Parkinson's portfolio (VYALEV + Duodopa + tavapadon) as a "multibillion-dollar opportunity."

Oncology — Mid-Cycle, ELAHERE Ramping

• Total: $1.676B, +2.4% op. IMBRUVICA $754M (−9.5% op) on continued CLL competition. VENCLEXTA $691M (+8.3% op) on CLL combination use with BTK inhibitors. ELAHERE $159M with double-digit growth post the 2024 ImmunoGen close. EPKINLY also growing double-digits. EMRELIS (c-MET ADC) accelerated approval received during the quarter for previously treated non-squamous non-small cell lung cancer.
• One Big Beautiful Bill Act: Michael flagged that orphan-drug exemption expansion means VENCLEXTA, with multiple orphan designations, is now exempt from IRA negotiation — a meaningful longer-term tailwind given prior modeling assumed eventual VENCLEXTA negotiation.
• Pipeline color: Temab-A (next-gen c-MET ADC) showing 63% ORR in EGFR-mutated non-squamous NSCLC with 9.8-month median DOR. ASCO presentations across ABBV-706 (high-grade neuroendocrine), PVEK (BPDCN, registration-enabling). Multiple T-cell engagers in multiple myeloma (etentamig, ISB-2001, SIM0500).

Aesthetics — Macro Headwind, Share Stable

• Total: $1.279B, −8.0% op. BOTOX Cosmetic $692M, JUVÉDERM $260M, both down operationally.
• Stewart's framing: "Economic challenges and lower overall consumer sentiment have impacted the aesthetics market, which continues to perform below historical levels." Critically, Michael added: "It's important to note, as you look at this, is it market growth versus market share — and the market share performance has been stable." Share stability is the right read — this is a macro problem, not a competitive one.
• Catalysts: TrenibotE (fast-acting short-duration toxin) regulatory submission; commercialization expected next year. JUVÉDERM Volux / SkinVive new-product activity. BOTOX consumer campaign ramping H2 investment. Three new training centers in the U.S.

Key Topics & Management Commentary

SKYRIZI + RINVOQ: The Long-Term Guidance Is Already Stale

The most consequential commentary on the call was Michael's response on long-term Skyrizi + Rinvoq guidance. The 2027 long-term guide of $20B+ Skyrizi / $11B+ Rinvoq was issued at JPMorgan in early 2025. Six months later, FY25 alone is tracking to $17.1B / ~$8B (combined ~$25B), already at the 2027 level minus ~$2B. Michael:

"We occasionally update the long-term guidance, while we've been doing that the last few years around the time of the fourth quarter call. So we do refresh long-term guidance. I'd say we're obviously tracking very well against the last long-term guidance we issued. And we will update that at the appropriate time. ... When you look at Street expectations as well, they have come up, too. And so we're very pleased with the performance, and we'll update that long-term guidance at the appropriate time, but the momentum is clearly there."
— Robert Michael, CEO

Read-through: An updated long-term guide in February 2026 (Q4 call) could be a meaningful upward revision — the market is currently anchored to $20B+ / $11B+ which is going to look conservative on a forward basis. We model SKYRIZI peaking above $25B and RINVOQ above $13B by 2029–2030, both with growth into the 2030s prior to LOE.

Cerevel / Tavapadon & Emraclidine: Status Update

The Cerevel acquisition closed in mid-2024 brought two priority assets into the pipeline. Emraclidine in schizophrenia had a disappointing Phase II readout late 2024 that compressed the deal economics. The current state on the call:

• Tavapadon (Parkinson's, D1/D5 partial agonist): Both monotherapy in early Parkinson's and adjunct to levodopa-carbidopa. Will be a "complementary offering for both VYALEV and Duopa" — positioning is the oral medication used before a patient progresses to advanced therapies. Submission timing not flagged on this call but the asset is moving toward a regulatory readiness state.
• Emraclidine (schizophrenia, M4 muscarinic agonist): Not discussed in detail on the call. Q4 2024 dose-escalation work referenced; the asset remains in development but the franchise positioning has been re-baselined.

The broader neuroscience pipeline beyond Cerevel is gaining attention: ABBV-932 (next-gen Vraylar follow-on) for bipolar depression and GAD; bretisilocin (psychedelic for MDD, acquired from Gilgamesh later in 2025); the Aliada-acquired pyroglutamated amyloid antibody for Alzheimer's. The neuroscience portfolio is becoming the second-most-pipeline-rich therapeutic area at AbbVie behind immunology.

BD Pace & the IPR&D Drag

Michael disclosed the company has executed "more than 30 business development transactions since the beginning of last year." Recent activity:

• Capstan Therapeutics (planned): in vivo CAR-T platform via mRNA-LNP. CD19-specific in vivo CAR-T cells for autoimmune disease — immune system reset without lymphoablation.
• Gubra (closed): Long-acting amylin analog for obesity. Strategic intersection with the aesthetics commercial channel (Stewart called out aesthetics clinics having become a meaningful obesity-drug distribution layer).
• ISB-2001 (in-license from IGI): BCMA/CD38/CD3 trispecific T-cell engager for multiple myeloma.
• ADARx collaboration: Next-generation siRNA platform across immunology, neuroscience, oncology.

The $0.42/share IPR&D drag this quarter is a function of this pace. Michael's framing — "we have, I think, a lot of very compelling investments. ... We have, I think, a lot of very exciting programs coming out of our internal pipeline" — positions IPR&D as a feature of the depth-replacement strategy, not a one-off charge to back out. Our framework treats it as a real cost but not a operating-trajectory variable.

IRA / Pricing — The 2027 Vraylar Drag Is the Setup

Michael declined to comment specifically on the in-flight Vraylar negotiation outcome (prices public in November). The framing was clean:

"As it relates to the IRA, I do think one important notable change as part of the One Big Beautiful Bill Act is the expansion of the IRA orphan drug exemption. Drugs with more than one orphan designation are now exempt from IRA negotiations, which will be a benefit to our own cancer therapy, Venclexta. So we previously would have assumed we had a time line as we model the impact of IRA. Now with this change, we would not expect Venclexta to be negotiated. And that's an example of a good policy change where innovation is being rewarded and not penalized."
— Robert Michael, CEO

Vraylar IRA price effective 2027. Imbruvica IRA price effective 2026. Both are in the cycle thesis already.

Aesthetics: Why This Cycle Is Different

Stewart was unusually candid about the aesthetics weakness lasting longer than past cycles:

"I think there is a difference between this and some other areas where we've had some economic uncertainty. It's been sort of more short-term recessionary issues. I think the longer-term impact on the pocket book of the consumers has just been more chronic, and we've seen that across even just recent reports on luxury good items and significant issues. So I do think it's more chronic than we've seen before. ... I do think something is different in terms of the sentiment around this natural look and worry about being overfilled in terms of the derma fillers."
— Jeffrey Stewart, Chief Commercial Officer

The "sentiment around this natural look and worry about being overfilled" framing is the most thesis-relevant disclosure of the quarter on aesthetics. It's a category-narrative shift that requires consumer education work, not a competitive-share problem. Recovery is a 2026–2027 setup, not a Q3/Q4 2025 catalyst. We model aesthetics flat-to-down through 2026 with TrenibotE the principal upside option.

Tariffs: Limited Direct Exposure, Outcome-Dependent

On the EU/Sectoral 232 tariff investigation, Michael's framing:

"We are fairly insulated from any impact this year given inventory management actions. ... We do not expect our exposure to be outsized relative to peers. ... We have a broad U.S. network. It includes 11 sites that manufacture API, biologics, toxins and small molecules. As a reminder, again, our largest product, Skyrizi, is made in the U.S. for the domestic market. And longer term, we will add more U.S. manufacturing capacity, which is part of the planned $10 billion in capital investment that we announced during the first quarter call."
— Robert Michael, CEO

SKYRIZI being U.S.-manufactured for the U.S. market is a meaningful insulation point for the largest single-product exposure. Tariff outcome remains a binary; we don't price it as a base-case headwind.

Analyst Q&A — Notable Exchanges

• Mohit Bansal (Wells Fargo) opened on STELARA biosimilar dynamics — whether STELARA loss creates a Skyrizi/Rinvoq tailwind via the HUMIRA-biosimilar analog. Stewart's response was nuanced: STELARA is a smaller, more GI-concentrated drug than HUMIRA; some movement to higher-end biologics is happening, but Skyrizi growth is "fundamentally, the core momentum around Skyrizi and Rinvoq are simply related to just the outstanding data" rather than the STELARA dynamic. Useful for tempering the tailwind expectation.
• Terence Flynn (Morgan Stanley) probed the SKYRIZI 2027 long-term guidance and tariff exposure. Got the "tracking very well against the last long-term guidance we issued" answer that signals an upward revision is likely at Q4. Tariff response was the U.S.-manufacturing insulation framing.
• Chris Schott (JPMorgan) asked the SKYRIZI raise composition question that pulled out the cleanest data point of the call: $400M IBD / $200M psoriatic of the $600M raise. His follow-up on BD got Michael's "without any significant LOEs this decade, we have the flexibility to invest more in R&D to continue to acquire external innovation" framing — meaningful for setting expectations on continued IPR&D drag and BD pace.
• Dave Risinger (Leerink Partners) probed the obesity-aesthetics commercial channel synergy. Stewart confirmed cash-pay obesity became the #2 revenue driver in aesthetics clinics behind toxins (now moderating post-compounding wind-down). The Gubra rationale is an emergent optionality lever, not a near-term revenue line.
• Carter Gould (Cantor) got the VYALEV launch detail — raise predominantly international demand; Medicare ramp in U.S. starting H2 2025.
• Tim Anderson (BofA) asked the IRA negotiation question and the GLP-1 / aesthetics interaction question. Michael deflected on Vraylar specifics; Stewart said GLP-1 / aesthetics is "net neutral" with potential filler tailwind from facial volume loss, currently obscured by macro pressure.
• Vamil Divan (Guggenheim) drew the alopecia areata commercial sizing — collection of next-wave Rinvoq indications "approximately $2 billion to peak year sales" with possible upside given the magnitude of the SALT scores vs. competing JAKs.
• Steve Scala (TD Cowen) pressed on aesthetics being more chronic than prior cycles — got Stewart's "more chronic than we've seen before" framing and Roopal's update on the Aliada-acquired Alzheimer's antibody (subcu delivery, monoclonal binding pyroglutamated amyloid with blood-brain barrier transferrin shuttle, dosing in patients next year, designed for cognition + imaging endpoint — not just imaging).
• Chang [analyst, UBS] drew the SKYRIZI pricing color: H1 2025 pricing favorable; H2 will see some negative price; FY25 net flat with longer-term low-single-digit erosion. Reents was specific that "this year had some anomalies."
• Gary Nachman (Raymond James) got the IL-23 competitive framing — TREMFYA is gaining IBD share but the IL-23 category is expanding rapidly so it's not zero-sum.
• Asad Haider (Goldman Sachs) closed on PD-1 VEGF interest — AbbVie monitoring the class as a partner for the internal ADC platform; ADC strategy emphasizes biomarker-selectable, low-spillover linker chemistry.

What They're NOT Saying

• No specific Vraylar IRA price guidance. Michael's "the price will be public in November, and we'll comment as appropriate at that time" is the right answer regulatorily but leaves the 2027 Vraylar price step-down as an unmodeled binary. We carry a 50–60% reduction as a base case with downside to 70%.
• No update on SKYRIZI + RINVOQ 2027 long-term guidance. Tracking ahead but the company is preserving the right to refresh at Q4. The conservatism of the prior guide is now an expectations-management asset rather than a constraint.
• No emraclidine commercial sizing. The schizophrenia M4 agonist had a Q4 2024 dose-escalation issue; the current state of the asset on the call was minimal commentary. We treat this as a writedown-risk option rather than a positive embedded asset until the next dose-finding update.
• No Cerevel acquisition synergy detail. The mid-2024 acquisition value is now embedded in the franchise without specific milestone reporting. Tavapadon is positioned as the principal payoff asset; emraclidine is essentially in option mode.
• No detailed HUMIRA 2026 floor. Michael said the absolute step-down "will diminish next year as well" but no specific FY26 HUMIRA floor was disclosed. Important for the compounding math through Y3 of the LOE.
• No 2026 EPS framework. Standard disclosure timing — will be set at the Q4 2025 call. The setup is supportive: SKYRIZI + RINVOQ ramp, neuroscience momentum, HUMIRA tail diminishing, IPR&D potentially elevated again on continued BD.

Market Reaction

The print landed pre-open on July 31. Initial reaction was constructively positive on the headline beat-and-raise; the stock outperformed the diversified-pharma peer set on the trading session. Volume was elevated. The market focus pivoted quickly to the SKYRIZI raise composition (IBD-driven), the long-term-guidance signal in Michael's prepared remarks, and the aesthetics chronic-headwind framing — with the consensus take across the buyside that the print substantively de-risks the FY25 EPS framework and tilts the 2026 setup constructively. The stock closing strong on a heavy-volume day in a soft tape is the right reaction for the right reason: the franchise reconstruction is over-delivering, and the bear-case items are appropriately scoped.

Street Perspective

The bull case being made on the Street post-print converges on three planks: (1) SKYRIZI + RINVOQ are tracking ahead of the prior 2027 long-term guide and the Q4 update is likely to reset expectations meaningfully higher; (2) neuroscience is the underappreciated second compounding engine, with VYALEV launching internationally above plan and tavapadon coming next; (3) the HUMIRA replacement math is now demonstrably working at the consolidated revenue level — not just at the segment level — with ex-HUMIRA platform growth of 22% in Q2 absorbing the LOE drag without breaking the topline.

The bear case being articulated centers on: (1) aesthetics weakness is now multi-quarter and Stewart's "more chronic" framing extends the recovery window; (2) IRA price step-downs on Imbruvica (2026) and Vraylar (2027) compress out-year base rates; (3) the IPR&D charges from the BD pace compress reported margins and obscure the underlying operating trajectory; (4) Cerevel synergy economics have been re-baselined post-emraclidine Q4 2024 setback — the M&A thesis is now tavapadon-dependent.

Our read sides with the bull framing on (1) and (2). On (3), we treat IRA as fully priced. On (4), aesthetics is a 2026–2027 recovery setup with TrenibotE the principal lever; we model it flat-to-down through 2026.

Model Implications

• FY25 revenue: We mark to the company's $60.5B guide with bias to the upside (the FY25 raise has been a trailing pattern and Q3/Q4 momentum carries upside on SKYRIZI + RINVOQ + Neuroscience).
• FY25 adj EPS: We mark to $11.95 (midpoint of the $11.88–$12.08 guide) with bias to the upper half. The H2 IPR&D pace is the principal swing variable.
• FY26 revenue: We model $63–65B with SKYRIZI + RINVOQ contributing ~$30B+ combined, neuroscience >$11B, oncology flattish, aesthetics flat-to-down on continued macro, HUMIRA decelerating to ~$2B.
• FY26 adj EPS: We model $16–17 on operating leverage as IPR&D normalizes from elevated FY25 base, gross margin steady, modest interest tailwind from leverage paydown to 2x net leverage targeted by end-2026.
• SKYRIZI peak (pre-LOE): $26–28B by 2029–2030. Composition: ~$15B psoriatic, $11B IBD, $1–2B from indication expansion.
• RINVOQ peak (pre-LOE): $14–16B by 2029–2030. Includes the next-wave indications (alopecia areata, vitiligo, HS, lupus) collectively contributing ~$2B+ at peak.
• HUMIRA tail: ~$2B floor by 2027 with low-single-digit decline thereafter. Y3 deceleration is the variable to watch.
• Capital allocation: Dividend continuing to grow (mid-single-digits), bolt-on M&A maintained at the recent ~$5B/year pace, deleveraging to 2x net by end-2026 then BD capacity refreshed.

Thesis Scorecard

Overall: Three of four bull pillars are confirmed at initiation; the fourth (BD-driven pipeline depth) is in active execution with results that will compound into 2027–2030. Bear case is intact but appropriately scoped — HUMIRA Y3 is the principal unmodeled variable; aesthetics is a 2026–2027 setup; IRA is priced; Cerevel is now tavapadon-anchored. The post-HUMIRA reconstruction is over-delivering against management's own milestones, not just consensus.

Action: Initiating coverage at Outperform; fair value $215–245 (~13–14x our FY26 EPS framework of $16–17). The replacement engine is working faster than priced. We underwrite a 12-month total return above the S&P 500. Holders should reassess sizing if (a) the Vraylar IRA price (public November) lands meaningfully worse than a 60% reduction, (b) HUMIRA Y3 erosion accelerates rather than diminishes, or (c) the aesthetics segment compresses below current run-rate without a clear consumer-recovery catalyst.