AbbVie Inc. 10-Q Summary
Business context and reporting period
AbbVie is a global biopharmaceutical company operating as one reportable business segment. This unaudited filing covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Dollar amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenues | $13.927 billion | $14.812 billion | $40.017 billion | $42.933 billion |
| Operating earnings | $2.281 billion | $4.603 billion | $9.562 billion | $12.615 billion |
| Net earnings attributable to AbbVie | $1.778 billion | $3.949 billion | $4.041 billion | $9.363 billion |
| Diluted EPS | $1.00 | $2.21 | $2.26 | $5.24 |
| Gross margin as a share of revenue | 53% | 66% | 63% | 69% |
- Revenue declined 6.0% in Q3 and 6.8% over nine months on a reported basis; constant-currency declines were 5.8% and 6.0%, respectively.
- Operating cash flow was $18.086 billion for the nine months, compared with $17.515 billion. Investing cash flow was an outflow of $1.209 billion and financing cash flow an outflow of $12.773 billion. Management attributed higher operating cash flow mainly to working-capital timing, partly offset by lower operating results and higher tax payments.
- At September 30, cash and equivalents were $13.287 billion. Current assets were $33.224 billion and current liabilities $34.773 billion. Balance-sheet long-term debt and finance lease obligations were $55.631 billion, with a further $5.113 billion current portion. AbbVie had no borrowings under its revolving credit facility and reported compliance with its covenants.
- For the nine months, AbbVie paid $7.913 billion in dividends and repurchased $1.6 billion of shares. The board raised the quarterly dividend to $1.55 per share beginning with the February 2024 payment. Approximately $4.8 billion remained under the repurchase authorization.
Material changes versus the prior comparable period
- Humira revenue fell 36% in Q3 and 29% for the nine months on a constant-currency basis, principally reflecting U.S. biosimilar competition after U.S. loss of exclusivity in January 2023. Humira represented about 28% of nine-month revenue, down from 36% a year earlier.
- Growth in newer immunology products partly offset the decline: Skyrizi revenue rose 52% in Q3 and 50% for the nine months; Rinvoq rose 60% and 56%, respectively, on a constant-currency basis.
- Imbruvica revenue declined 20% in Q3 and 22% for the nine months. Venclexta revenue increased 14% and 15%, respectively.
- Reported gross margin fell to 53% in Q3 and 63% for the nine months. The company cited a $2.1 billion Imbruvica intangible-asset impairment, higher intangible amortization and product mix, partly offset by Puerto Rico tax-law changes.
- Nine-month results included a $3.432 billion expense from changes in the fair value of contingent consideration liabilities, compared with $647 million in the prior year. The company said the 2023 change mainly reflected stronger Skyrizi sales expectations and passage of time, partly offset by higher discount rates.
Outlook, commentary, risks and unusual items
- The filing provides no specific consolidated revenue or earnings guidance. Management described a pipeline of approximately 90 compounds, devices or indications, with more than 50 in mid- or late-stage development, and anticipated multiple regulatory submissions and clinical data readouts over the next 12 months.
- In August, U.S. Imbruvica was selected for Medicare price negotiation under the Inflation Reduction Act. AbbVie said the selection reduced estimated future cash flows and recorded a $2.1 billion impairment; the remaining U.S. Imbruvica intangible-asset carrying value was $1.8 billion.
- A separate $630 million impairment of an acquired in-process R&D asset was recorded in Q1 after AbbVie revised the development plan and expected approval timing for AGN-151607.
- Pipeline events included FDA approval of Epkinly for certain relapsed or refractory diffuse large B-cell lymphoma patients and approvals of Rinvoq for Crohn’s disease. AbbVie also reported that a Venclexta multiple-myeloma trial did not meet its primary endpoint; a navitoclax trial met its primary endpoint but missed its first-ranked secondary endpoint. The FDA issued a Complete Response Letter for ABBV-951, requesting additional device information, not additional efficacy or safety trials.
- Risks include Humira biosimilar erosion, competition and intellectual-property challenges, clinical and regulatory uncertainty, litigation and government action, and sensitivity of contingent-consideration valuations to assumptions. Three U.S. wholesalers accounted for 81% of net receivables. AbbVie reported approximately 610 pending opioid-related lawsuits involving Allergan; the filing also describes antitrust, securities, product and intellectual-property matters. Management believes ultimate dispositions should not materially adversely affect the company, but says it cannot estimate possible losses beyond amounts accrued for certain matters.
- Other notable items: the company recorded a $2.1 billion opioid-settlement charge in Q2 2022; the filing reports a pending tax dispute over a $572 million tax benefit recorded in 2014. Moody’s upgraded AbbVie’s senior unsecured long-term rating to A3 with a stable outlook in August 2023.
Important facts for investors to verify
- Track the pace and financial impact of Humira biosimilar erosion and whether Skyrizi and Rinvoq growth can offset it.
- Review the Medicare negotiation process and its potential effect on Imbruvica revenues, cash flows and asset values.
- Assess the assumptions behind the $18.674 billion contingent-consideration liability and the resulting period-to-period earnings volatility.
- Monitor operating cash flow, working-capital timing, debt repayment and the capacity to sustain dividends and repurchases.
- Follow key clinical and regulatory milestones, including the ABBV-951 device review and the outcomes of Venclexta and navitoclax programs, as well as material developments in litigation and the tax dispute.