AbbVie Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts below are in U.S. dollars; financial-statement amounts are converted to billions where noted. AbbVie reports as one global business segment.
Financial performance
- Revenue: Q3 net revenues were $14.812 billion, up 3.3% reported and 5.4% at constant currency from Q3 2021. Nine-month revenue was $42.933 billion, up 3.9% reported and 5.6% at constant currency.
- Profit and EPS: Q3 operating earnings were $4.603 billion, versus $4.306 billion; net earnings attributable to AbbVie were $3.949 billion, versus $3.179 billion. Diluted EPS was $2.21, versus $1.78. For nine months, operating earnings were $12.615 billion, versus $12.850 billion; attributable net earnings were $9.363 billion, versus $7.498 billion; diluted EPS was $5.24, versus $4.19.
- Margins and costs: Q3 gross margin was 66% of revenue, compared with 69% a year earlier; the company attributed the decline primarily to a $770 million intangible-asset impairment and higher amortization, partly offset by product mix. Nine-month gross margin was 69%, compared with 68%. SG&A was $3.304 billion in Q3 and $11.843 billion for nine months; the nine-month comparison reflects significant litigation charges. R&D was $1.614 billion in Q3 and $4.720 billion for nine months.
- Cash flow: Nine-month operating cash flow was $17.515 billion, compared with $17.702 billion. Investing cash outflow was $175 million and financing cash outflow was $15.169 billion. Financing included $7.537 billion of dividends, $1.483 billion of share repurchases, and substantial debt repayments.
- Liquidity and debt: At September 30, cash and equivalents were $11.832 billion, current assets $30.364 billion, and current liabilities $32.712 billion. Current and long-term debt and finance lease obligations totaled $69.596 billion, compared with $76.670 billion at year-end 2021. No borrowings were outstanding under the $4 billion revolving credit facility; AbbVie reported compliance with its covenants.
Material changes and business drivers
- Growth in Skyrizi and Rinvoq was strong: Q3 revenue increased 78% and 59%, respectively, at constant currency. Botox Cosmetic, Botox Therapeutic, Vraylar and Venclexta also grew.
- Humira revenue increased 4% globally at constant currency in Q3, with U.S. growth partly offset by continuing international biosimilar competition. Humira represented approximately 36% of nine-month company revenue.
- Imbruvica revenue declined 17% at constant currency in Q3, primarily due to lower U.S. demand and market share. Restasis revenue fell 56%, and Juvederm U.S. revenue weakened amid economic pressures and promotions.
- International revenue was nearly flat as reported in Q3 but rose 9.6% at constant currency; currency movements were a significant headwind to reported international and total revenue.
- AbbVie recorded a $770 million Q3 impairment of the Vuity intangible asset after deciding to reduce sales and marketing investment. It also recognized a $172 million pre-tax gain on the Pylera rights sale during the first half of the year.
Outlook, management commentary and risks
- Management’s stated priorities include growing newer and diversified products, advancing the pipeline, expanding margins, returning cash to shareholders and reducing debt. It expected approximately $2.5 billion of annual Allergan cost synergies in 2022 and approximately $2 billion of cumulative integration charges through 2022. The filing text does not provide a clear numeric full-year revenue or EPS guidance value.
- The company reported approximately 80 compounds, devices or indications in development, with more than 40 in mid- or late-stage development, and anticipated multiple regulatory submissions and clinical readouts over the following 12 months.
- Key risks include product competition and intellectual-property challenges, clinical and regulatory uncertainty, litigation and government actions, and COVID-19-related impacts. AbbVie said COVID-19 had contributed to lower new-patient starts in certain products and markets; the ultimate financial impact remained uncertain. It also warned that escalation of the Russia-Ukraine conflict could affect the business, though operations in the region were not significant.
- Litigation is a material uncertainty. AbbVie recorded a $2.1 billion charge in Q2 related to a potential opioid settlement framework; negotiations were ongoing and definitive terms had not been reached. The MD&A also cites $2.5 billion of litigation reserve charges for the nine-month period. The filing says it cannot estimate possible losses beyond recorded accruals for certain matters.
- Contingent consideration liabilities were $14.556 billion and measured using significant unobservable inputs; changes in estimates can materially affect earnings. Three U.S. wholesalers accounted for 79% of net receivables at September 30, 2022.
- The board declared a quarterly dividend of $1.41 per share in September and announced an increase to $1.48 beginning with the February 2023 payment. Moody’s affirmed AbbVie’s Baa2 senior unsecured rating and revised its outlook to positive in March 2022.
Important facts for investors to verify
- How quickly Skyrizi and Rinvoq growth can offset Humira biosimilar pressure and declines in products such as Imbruvica and Restasis.
- The status, final terms, payment timing and total financial exposure associated with opioid and other litigation matters; reconcile the filing’s litigation charge disclosures.
- Whether expected 2022 Allergan synergies and integration-charge targets were achieved, and the resulting effect on margins.
- The assumptions behind the $770 million Vuity impairment and the $14.556 billion contingent consideration valuation.
- Debt maturities, cash generation and dividend capacity, including the effect of foreign-exchange movements and continued litigation or product-related costs.