AbbVie Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022 unless otherwise noted. AbbVie is a global biopharmaceutical company reporting as one business segment.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $12.225 billion | $13.538 billion | Down 9.7% reported; down 8.3% at constant currency |
| Gross margin | $8.239 billion; 67% of revenue | $9.486 billion; 70% of revenue | Down 13%; margin fell 3 percentage points |
| Operating earnings | $2.768 billion | $4.717 billion | Down 41% |
| Net earnings attributable to AbbVie | $239 million | $4.490 billion | Down substantially |
| Diluted EPS | $0.13 | $2.51 | Down substantially |
| Operating cash flow | $4.193 billion | $4.908 billion | Down 15% |
Q1 2023 earnings included a $1.872 billion expense from the fair-value change in contingent consideration liabilities and a $630 million pre-tax impairment of an acquired in-process R&D asset. The company also reported $1.948 billion of intangible amortization. These items materially affected reported earnings; the filing does not provide a reconciled adjusted earnings figure in the supplied text.
Revenue trends and operating performance
- Humira: Revenue fell 25% to $3.541 billion, primarily due to U.S. biosimilar competition following loss of exclusivity on January 31, 2023. Humira represented approximately 29% of total revenue, versus 35% a year earlier.
- Growth products: Skyrizi revenue rose 45% to $1.360 billion and Rinvoq rose 48% to $686 million. Venclexta increased 14% to $538 million. Growth was attributed principally to volume, market-share gains and market growth, partly offset by pricing and inventory timing for Skyrizi and Rinvoq.
- Other declines: Imbruvica fell 25% to $878 million, reflecting lower U.S. demand and market share and lower collaboration revenue. Restasis fell 63% to $92 million; the Juvederm Collection fell 13% to $355 million.
- Gross margin percentage declined, which management attributed to higher intangible amortization and product mix. R&D expense increased 53% to $2.292 billion, including the $630 million impairment; SG&A expense decreased 3% to $3.039 billion, primarily due to lower litigation reserve charges.
Cash, debt and liquidity
- Cash and equivalents were $6.711 billion at March 31, 2023, down from $9.201 billion at year-end 2022. Net cash decreased $2.490 billion during the quarter.
- Cash used in investing activities was $499 million, including $353 million for acquisitions and investments and $175 million in capital expenditures. Cash used in financing was $6.192 billion, including $1.351 billion of debt repayments, $2.661 billion of dividends paid and $1.955 billion of share repurchases.
- Current and long-term debt and finance lease obligations totaled approximately $62.1 billion at quarter-end, versus approximately $63.3 billion at December 31, 2022. The company repaid a $1.0 billion floating-rate term loan and $350 million of notes during Q1.
- AbbVie amended its revolving credit facility, increasing commitments from $4.0 billion to $5.0 billion and extending maturity to March 2028. No amounts were drawn at quarter-end; the company reported compliance with covenants. Management said it believes it has sufficient financial flexibility to meet obligations and support growth.
Outlook, risks and notable items
- The filing gives no numerical revenue or earnings guidance. Management said it anticipated multiple regulatory submissions and clinical data readouts over the next 12 months and expected several mid-stage programs to advance to late-stage development.
- Management identified continued investment in the pipeline and on-market brands, commercial execution, cash generation, dividends and debt reduction as strategic priorities. It noted the Humira biosimilar impact and described efforts to maintain formulary access and manage erosion.
- Regulatory and pipeline developments included European approval of Rinvoq for Crohn’s disease in April 2023; a U.S. FDA Complete Response Letter for ABBV-951 requesting additional pump-device information; and positive top-line Phase 3 ulcerative colitis results for Skyrizi. In April, AbbVie announced plans to voluntarily withdraw certain accelerated U.S. Imbruvica approvals.
- The $630 million impairment followed a revised development plan and lower estimated future cash flows for investigational AGN-151607. AbbVie also warned that future changes in estimates and regulatory, market or competitive developments could result in impairment of the U.S. Imbruvica intangible asset, whose carrying value was $4.8 billion.
- Contingent consideration liabilities, measured using significant unobservable inputs, were $17.931 billion at quarter-end. Changes in milestone probabilities, timing, discount rates and sales estimates could materially affect results and financial position.
- Legal matters include opioid litigation involving Allergan and other product, antitrust, securities and intellectual-property proceedings. The company stated that it could not estimate possible losses beyond amounts accrued for certain matters. AbbVie also filed a Tax Court petition disputing the IRS’s determination concerning a $572 million tax benefit recorded in 2014.
- Other risks highlighted include competition and patent challenges, R&D uncertainty, adverse litigation or government action, regulatory changes, customer and supplier solvency, and access to capital. Three U.S. wholesalers accounted for 77% of net receivables at March 31, 2023.
Important facts for investors to verify
- How quickly Humira biosimilar erosion progresses and whether Skyrizi and Rinvoq growth can offset it.
- The nature and potential recurrence of the contingent-consideration fair-value expense and the AGN-151607 impairment; assess earnings excluding these items alongside GAAP results.
- Whether operating cash flow remains sufficient to fund dividends, R&D, repurchases and debt service as cash balances decline.
- Developments affecting the $4.8 billion Imbruvica intangible asset and the $17.9 billion contingent-consideration liability.
- Outcomes and potential financial exposure from opioid, antitrust, tax and other legal proceedings, for which the filing does not provide a clear possible-loss range in certain cases.