AbbVie Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; year-over-year comparisons are against Q1 2019. AbbVie is a research-based biopharmaceutical company operating in one segment: pharmaceutical products.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Net revenues | $8.619 billion | $7.828 billion | Up 10.1% reported; 10.7% at constant currency |
| Gross margin | $6.677 billion; 77% of revenue | $6.134 billion; 78% | Margin declined, partly from collaboration profit sharing and higher intangible amortization |
| Operating earnings | $3.603 billion | $3.010 billion | Up approximately 20% |
| Net earnings | $3.010 billion | $2.456 billion | Up approximately 23% |
| Diluted EPS | $2.02 | $1.65 | Up approximately 22% |
| Operating cash flow | $3.815 billion | $3.017 billion | Higher on earnings growth and working-capital timing |
| Cash and equivalents | $41.142 billion | $39.924 billion at Dec. 31, 2019 | Quarter-end balance |
| Debt and finance lease obligations | $67.040 billion | $66.728 billion at Dec. 31, 2019 | Includes current and long-term balance-sheet amounts |
Current assets were $51.758 billion and current liabilities were $16.471 billion at March 31, 2020. Net cash from operations exceeded investing outflows of $129 million; financing outflows were $2.422 billion, including $1.763 billion of dividends paid and $643 million of treasury-stock purchases. Interest expense, net, rose to $428 million from $325 million, primarily reflecting Allergan-related financing costs, partly offset by lower rates. The effective tax rate was 3% in both periods.
Revenue drivers and material changes
- U.S. revenue rose 16.8%; international revenue declined 3.8% reported, or 2.0% at constant currency.
- HUMIRA generated $4.703 billion, about 55% of total revenue, versus $4.446 billion. U.S. growth was partly offset by international biosimilar competition.
- Newer immunology products SKYRIZI and RINVOQ generated $300 million and $86 million, respectively. IMBRUVICA revenue was $1.232 billion, up 20.6%; VENCLEXTA revenue rose to $317 million from $151 million.
- MAVYRET revenue declined 29.2% to $559 million, reflecting U.S. competition and lower patient volumes in some international markets. AndroGel revenue fell to $8 million from $74 million.
- COVID-19-related inventory stocking supported reported sales, including approximately $65 million for U.S. HUMIRA, $35 million for international HUMIRA, and $45 million for IMBRUVICA. Management expected the stocking benefit to reverse in Q2 2020.
Outlook, risks and unusual items
- COVID-19: Management said the impact on operations had not been material to date, but expected potential negative effects during the outbreak and stated the eventual impact was uncertain. The filing added pandemic-related risks to the risk-factor disclosure, including possible effects on manufacturing, supply chains, sales, clinical trials and financial condition.
- Allergan acquisition: The proposed cash-and-stock transaction had received European Commission approval subject to divestitures; AbbVie and Allergan also agreed to FTC-required divestitures. The filing said final FTC and Irish High Court approvals were received in May and the deal was expected to close that month. AbbVie had issued $30 billion of notes to help fund the transaction; related financing and transaction costs affected results. Failure to complete the deal by the notes’ specified deadline could trigger mandatory redemption.
- Pipeline: Management reported approximately 60 compounds or indications in clinical development, about 30 in mid- or late-stage development, and anticipated multiple Phase 2 programs moving to Phase 3 in the next 12 months. VENCLEXTA’s Phase 3 VIALE-C trial did not meet its primary endpoint; VIALE-A met its primary endpoints.
- Legal matters: Litigation accruals were approximately $300 million. AbbVie disclosed multiple product, antitrust, intellectual-property and other proceedings. It had not accrued a liability for the FTC AndroGel matter, which it was appealing after a $448 million disgorgement order plus prejudgment interest.
- Debt and liquidity: AbbVie reported no outstanding borrowings under its $4 billion revolving facility and compliance with its covenants. S&P had revised its outlook to negative and expected a one-notch downgrade upon completion of the Allergan acquisition; Moody’s affirmed its ratings with a stable outlook.
- Concentration and contingencies: Three U.S. wholesalers represented 70% of net accounts receivable. Contingent consideration liabilities were $7.359 billion and rely on significant estimates; litigation and foreign-government reimbursement or funding risks could affect results or collections.
No specific financial guidance for the year is stated in the provided filing text.
Important facts for investors to verify
- Whether the Allergan transaction closed as expected, and the resulting debt, divestitures and integration effects.
- How much Q1 revenue reflected temporary COVID-19 inventory stocking and whether the expected Q2 reversal occurred.
- HUMIRA’s exposure to international biosimilar competition and its share of AbbVie revenue.
- COVID-19 effects on product demand, supply, clinical programs and customer collections.
- Developments in major litigation, the AndroGel appeal, and assumptions underlying contingent consideration.
- Post-acquisition credit ratings, debt reduction and cash available after dividends and repurchases.