3 reasons why this healthcare stock is a long-term buy


If you think about it, discovering new treatments in healthcare can be similar to building a strong investment portfolio. A lot of time is spent researching and tracking, finding the right mix, and then waiting for that magical day. For pharmaceutical companies, that day can come when a product is approved or hits the market for commercial sales. For investors, that day may come when you will enjoy the gains in your portfolio that are the result of your hard work and due diligence.

Research pharmaceutical company AbbVie (NYSE: ABBV) is enjoying the enthusiasm of U.S. Food and Drug Administration (FDA) approvals while holding the honor of dividend aristocrat, giving investors three good reasons to consider this part of their strategy to long term investment.

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1. FDA approved eye drops are the first of their kind

On December 9, AbbVie celebrated the announcement of its Vuity 1.25% prescription eye drops, the first and only eye drops approved by the FDA to treat age-related blurred vision (presbyopia). An inability to focus clearly on nearby objects typically affects adults over the age of 40, representing nearly half of the US population, or 128 million people. Age-related blurry vision is usually corrected through the use of reading glasses or zooming in on content on the mobile device while holding it further away from the face, which can be quite annoying – trust me on this one.

AbbVie’s Vuity offers a treatment that may offer an alternative to surgery, reading glasses, or the minor inconvenience experienced by those who use the zoom and hold method. It offers a once-a-day prescription for 6 to 10 hours, aimed at improving near and intermediate vision without altering distance vision.

Many of us have seen an ophthalmologist. Sometimes a routine exam involves receiving eye drops. Then they tell you that while your eyes are dilated you may be sensitive to light and maybe have blurry vision for a short time. Vuity basically does the opposite, relying on the eye’s own ability to reduce pupil size, which improves vision.

According to the World Health Organization, the number of people worldwide with age-related blurred vision is 1.8 billion. That number is expected to grow to 2.1 billion by 2030. At an average cost of $ 79 per patient for a 30-day supply, even for a fraction of the 2 billion people with age-related blurred vision, the potential for strong income growth is clear. .

2. Increased use of Rinvoq could increase annual sales eightfold

Vuity’s announcement follows another announcement by the company in the same week. AbbVie proudly announced that Phase 3 clinical studies were working well for the safety and efficacy of Rinvoq, as a treatment for moderate to severe Crohn’s disease in adults who previously had an inadequate response to biologic therapy.

The results of the studies showed that the oral therapy met its primary endpoints of clinical remission and endoscopic response. Compared with placebo treatment, clinical remission increased from 21% to 39% at week 12, while endoscopic response increased from 4% to 35% during the same time period, meaning patients reported that the frequency of bowel movements and abdominal pain were significantly reduced.

The success of the studies will greatly contribute to the ultimate goals of obtaining FDA approval for Rinvoq as a treatment for Crohn’s disease. This will not be the first approval for Rinvoq, which is currently approved by the FDA for the treatment of rheumatoid arthritis. But with the success of Rinvoq sales, there is lingering concern about side effects caused by JAK inhibitors such as Rinvoq, which has led the FDA to require mandatory label updates on the product warning. regarding the potential for serious heart risks or cancer risk.

For now, the product continues to sell and is expected to see increased sales over the next three to four years. Rinvoq grossed $ 425 million in the third quarter and $ 1.1 billion in the first nine months of the year. The company expects that figure to rise to $ 8 billion by 2025.

3. This aristocrat’s performance crushes other S&P 500 healthcare companies

In addition to FDA approvals and positive clinical studies, AbbVie is offering investors a little extra bonus, paying quarterly dividends at a yield of 4.3%. This is nearly double the average return of healthcare companies of 2.28% and higher than that of healthcare companies in the S&P 500, which are on average 1.75%. The S&P 500’s overall dividend yield was 2% for November, which is also paltry compared to AbbVie.

With these dividend payments, investors could choose to receive the funds in cash in their brokerage account or to reinvest the dividends in purchasing additional shares of the shares of the company. To give you an idea of ​​what that might be, the quarterly dividend in 2021 was $ 1.30, which works out to an annualized payout of $ 5.20 per share. For 2022, the dividend has been increased to $ 1.41, which should equal $ 5.64 per year if the rest of the year remains constant. This represents an 8.5% dividend increase for investors and will start paying in February.

If you invested $ 5,000 in AbbVie shares at the current price of $ 126, that would earn you 40 shares. Those 40 stocks would earn you an additional $ 225 in annual dividends. That’s $ 225 more in your pocket before taxes, or 1.8 more shares if reinvested. And it’s worth pointing out that if the stock price appreciates, 1.8 more shares can lead to even more gains down the road.

Due to the increase in dividends from year to year, AbbVie has the honor of being a dividend aristocrat, which means that they have increased their annual dividends for 25 consecutive years. He obtained this distinction thanks to his spin-off of Abbott Laboratories in 2013.

It’s also worth noting that Abbott is one year away from becoming a Dividend King, which means he’s been increasing his dividends for 49 straight years – next year being the magic 50. This should bode well for investors considering AbbVie, as it provides support and confidence that AbbVie will continue its streak of back-to-back dividend increases into the future.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Warren Dockery

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