AbbVie Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. AbbVie is a global biopharmaceutical company operating as one business segment across immunology, oncology, aesthetics, neuroscience and eye care. Dollar amounts are U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenues | $13.538 billion | $13.010 billion |
| Gross margin | $9.486 billion; 70% of revenue | $8.797 billion; 68% of revenue |
| Operating earnings | $4.717 billion | $4.103 billion |
| Net earnings attributable to AbbVie | $4.490 billion | $3.553 billion |
| Diluted EPS | $2.51 | $1.99 |
| Cash from operating activities | $4.908 billion | $4.877 billion |
- Revenue rose 4.1% at reported exchange rates and 5.4% at constant currency. U.S. revenue increased 6.1%; international revenue fell 2.1% reported but grew 3.2% at constant currency.
- Operating costs and expenses were $8.821 billion versus $8.907 billion. SG&A rose 10% to $3.127 billion; R&D declined 10% to $1.497 billion. The effective tax rate was 9%, versus 8%.
- Operating cash flow was nearly flat year over year. Capital expenditures were $162 million; operating cash flow less capital expenditures was approximately $4.746 billion. Investing cash outflow was $1.591 billion and financing cash outflow was $6.972 billion.
- Cash and equivalents were $6.098 billion at quarter-end, with $1.474 billion of short-term investments. Total current liabilities were $32.521 billion and current assets were $26.509 billion.
- Current and long-term debt and finance lease obligations totaled $73.462 billion at March 31, 2022, down from $76.670 billion at year-end 2021. The company repaid $2.9 billion of senior notes and refinanced a $2.0 billion floating-rate term loan. No amounts were drawn on its $4.0 billion revolving credit facility.
Material changes and drivers
- Growth in Skyrizi (+66% constant currency), Rinvoq (+57%), Botox Cosmetic (+37%), Juvederm (+31%), Venclexta (+21%) and Botox Therapeutic (+17%) supported results. Humira declined 2% globally, including an 18% international decline, primarily from biosimilar competition. Imbruvica fell 7%, reflecting lower U.S. new-patient starts and share loss; Mavyret declined 5% amid continued COVID-related disruption in hepatitis C markets.
- Gross margin improved to 70% from 68%, helped by product mix and lower amortization of Allergan-related intangible assets. SG&A increased to 23% of revenue from 22%, reflecting litigation reserves, brand investment and product-launch expenses, partly offset by revenue leverage and synergies.
- Net earnings included a $748 million pre-tax benefit from a decline in the fair value of contingent consideration liabilities, compared with a $343 million benefit in Q1 2021. These liabilities were $13.818 billion at quarter-end and are valued using significant unobservable inputs.
- The company recorded $145 million of acquired IPR&D and milestone expense, including a $130 million upfront payment for Syndesi Therapeutics; the agreement includes up to $870 million in additional milestone payments.
- Cash declined by $3.648 billion during the quarter, largely reflecting debt repayments, dividends, share repurchases and investment-security purchases. Dividends paid were $2.526 billion; share repurchases were approximately $1.1 billion.
Outlook, commentary and risks
- The filing provides no numerical full-year revenue or EPS guidance. Management’s stated priorities include growing and diversifying revenue, investing in the pipeline and marketed products, expanding margins, paying a growing dividend and reducing debt. AbbVie expected approximately $2.5 billion of annual Allergan cost synergies in 2022 and cumulative integration charges of approximately $2 billion through 2022.
- Management reported a pipeline of approximately 90 compounds, devices or indications, with more than 50 in mid- or late-stage development, and anticipated multiple clinical readouts and regulatory submissions over the following 12 months.
- COVID-19 continued to depress new-patient starts in certain products and markets; management said the impact could persist, with its extent uncertain. The Russia-Ukraine conflict prompted suspension of aesthetics operations in Russia and restrictions affecting Botox exports to Russia and Belarus; the company said regional operations were not significant but broader escalation could adversely affect business.
- Key exposures include Humira, approximately 35% of Q1 revenue, and customer concentration: three U.S. wholesalers represented 74% of accounts receivable. Competition, intellectual-property challenges, R&D uncertainty, integration execution and legal or government actions are identified risks.
- Numerous legal matters remain pending, including antitrust, opioid-related, securities and product matters. Management said it could not estimate possible losses beyond amounts accrued for certain matters, while believing ultimate disposition should not materially adversely affect consolidated results or cash flows. Moody’s affirmed its Baa2 long-term rating and revised its outlook to positive.
Important facts for investors to verify
- Whether Skyrizi and Rinvoq growth can offset Humira’s international biosimilar erosion and eventual U.S. competitive pressure.
- How much reported earnings growth depends on the non-cash contingent-consideration fair-value benefit, and how sensitive that valuation is to assumptions.
- Progress on Allergan synergies, integration costs, debt reduction and cash generation relative to dividends and repurchases.
- Developments in major litigation and regulatory reviews, including the JAK-inhibitor safety assessment and potential effects on Rinvoq.
- Changes in COVID-19-related demand, Russia-Ukraine impacts, and reliance on major U.S. wholesalers.