When will healthcare stocks get over their post-Covid slump?

The healthcare sector has been in the doldrums post-pandemic, but AbbVie’s recent earnings beat is a positive signal. Despite the current dip in Covid-related demand, new medicines are tipped to help the sector recover, with AbbVie’s flagship anti-inflammatory treatment expected to see increased competition from rivals.

- AbbVie announces an earnings beat for Q4, as well as a sales miss.

- Healthcare sector is reliant on new drug developments as Covid-linked demand slumps.

- Pharma firms shift focus to heart disease, obesity and other conditions to grow revenues. 

The share prices of companies including Pfizer [PFE], Amgen [AMGN] and AbbVie [ABBV] prospered at the pandemic’s height, growing considerably during the last three years.

But a slump in Covid-related demand, alongside a difficult macroeconomic climate, has compounded challenges for the sector.

At the end of January, drugmaker Amgen announced plans to lay off 300 of its US staff as part of the reorganisation of its commercial team.

Pfizer, meanwhile, has registered a decline in product uptake. Last week, the vaccine maker said it expected sales for 2023 to fall by up to a third compared to 2022.

However, on 9 February, pharmaceutical giant AbbVie posted its Q4 2022 earnings before the bell, revealing it beat analyst estimates for earnings.

Earnings of $3.60 per share were up from $3.08 a year ago, while revenues came in at $15.1bn. A consensus of analysts surveyed by FactSet had forecast an EPS of $3.56 but higher revenues of $15.3bn. However, sales for many AbbVie drugs fell relative to the year-ago quarter. 

Competition drives growth

In its earnings, AbbVie said that sales of its flagship anti-inflammatory treatment Humira rose almost 4.6% to $5.6bn.

However, its monopoly on the drug is now ending, and a host of biosimilar competitors will soon hit the market, among them Amgen’s Amjevita. As a result, AbbVie forecasts that sales of the drug will drop 37% this year but stabilise by 2024.

On 1 February, Amgen announced Q4 revenues of $6.84bn, slightly down from $6.85bn in the same period in 2021. Lower revenues from its deal to make Covid-19 antibody treatments for Eli Lilly [LLY] were a contributing factor. However, revenues beat analyst forecasts of $6.77bn, according to Refinitiv data.

In December, Amgen agreed to buy Dublin-based biotech firm Horizon [HZNP] for nearly $27.8bn – 2022’s biggest pharmaceutical deal – a move that will drive its treatments of autoimmune diseases.

Pfizer is facing shrinking demand for its Covid-19 jabs and drugs. At the end of January, it announced record revenue of £100.3bn for 2022, but the $67–$71bn forecast for 2023 would be a significant fall.

The company expects 2023 revenues for its Comirnaty vaccine and antiviral Paxlovid drugs to tumble 64% down to $13.5bn and 58% down to $8bn, respectively.

New drugs are key

In light of this drop-off in sales, analysts at Wells Fargo downgraded Pfizer stock last month, calling for a “Covid reset”.

However, commercial opportunities as a result of the pandemic aren’t over. Pfizer expects demand for Covid products to recover in 2024.

There are other openings for growth as well. The US Food and Drug Administration is deciding whether to approve vaccines from Pfizer and GSK [GSK] for the respiratory syncytial virus on top of Pfizer’s proposed pneumonia vaccine.

Elsewhere, Amgen is working on a new anti-obesity drug, AMG 133, with positive trials helping lift its stock by 5% last November, while AbbVie’s revenue is still growing on the back of its immunology drugs Skyrizi and Rinvoq.

Funds in focus: Invesco Dynamic Pharmaceuticals ETF 

The Invesco Dynamic Pharmaceuticals ETF [PJP] offers exposure to AbbVie stock, which accounts for 6.03% of the portfolio and is the fifth-largest holding as of 8 February.

The fund also holds Pfizer stock, which is the seventh-biggest holding and has a 5.89% weighting.

Amgen is just behind, in eighth place, with a 5.40% weighting. Other big healthcare names in the fund include Abbott Laboratories [ABT] as the top holding and Johnson & Johnson [JNJ] as the seventh. Year to date, the ETF is down by 2%.

AbbVie and Pfizer shares are also among the top 10 holdings in the Health Care Select Sector SPDR Fund [XLV].  As of 8 February, AbbVie is the fifth-largest holding in the portfolio at 5.14%, with Pfizer the sixth-largest holding at 4.97%. The largest holdings are United HealthGroup [UNH] and Johnson & Johnson. The fund has fallen by 3.4% in the year so far.