AbbVie Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. AbbVie is a global biopharmaceutical company operating as one business segment across immunology, oncology, aesthetics, neuroscience, eye care and other areas. Financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenues | $13.865B | $14.583B | $26.090B | $28.121B |
| Operating earnings | $4.513B | $3.295B | $7.281B | $8.012B |
| Net earnings attributable to AbbVie | $2.024B | $0.924B | $2.263B | $5.414B |
| Diluted EPS | $1.14 | $0.51 | $1.26 | $3.03 |
| Gross margin as % of revenue | 69% | 71% | 68% | 71% |
- Q2 revenue declined 4.9% reported and 4.2% at constant currency; six-month revenue declined 7.2% reported and 6.1% at constant currency.
- Q2 operating earnings improved despite lower sales, in part because Q2 2022 included substantial litigation charges. Six-month operating earnings declined year over year.
- Cash from operations for the first six months was $10.512B, versus $9.913B a year earlier. Investing cash outflow was $0.840B and financing cash outflow was $10.112B. Cash and equivalents ended June at $8.759B, down from $9.201B at year-end 2022.
- At June 30, total debt and finance lease obligations were $61.015B, comprising $5.203B current and $55.812B long term, down from $63.270B at December 31, 2022. The company had no borrowings under its revolving credit facility and reported compliance with its covenants. Its unsecured revolver was expanded to $5B and extended to March 2028.
- Current assets were $28.852B and current liabilities $32.239B. Dividends paid in the first half were $5.286B; AbbVie repurchased $1.6B of shares and had approximately $4.8B of authorization remaining.
Material changes and business drivers
- Humira: Q2 global revenue fell 25% at constant currency, including a 26% U.S. decline, primarily due to U.S. biosimilar competition following loss of exclusivity in January 2023. Humira represented about 29% of first-half revenue, versus 36% in the prior-year period.
- Growth products: Q2 Skyrizi revenue rose 51% and Rinvoq 57% at constant currency; Venclexta rose 15%. These gains reflect uptake and market growth, partly offset by pricing in Skyrizi and Rinvoq.
- Other declines: Imbruvica revenue declined 21% in Q2, driven by lower U.S. demand and market share and lower collaboration revenue. Certain eye-care products, including Restasis, also posted marked declines.
- Gross margin percentage decreased, reflecting higher intangible amortization and product mix, partly offset by Puerto Rico tax-law changes. R&D expense rose 8% in Q2 and 30% for the first half, reflecting pipeline investment and, for the first half, a $630M impairment charge.
Outlook, commentary, risks and unusual items
- The filing provides no numerical full-year revenue or earnings guidance. Management cited continued investment in the pipeline and on-market brands, approximately 90 programs in development (more than 50 mid- or late-stage), and anticipated regulatory submissions and clinical readouts over the next 12 months.
- First-half results included substantial noncash and other charges: $3.424B from the change in fair value of contingent consideration liabilities, $4.018B of intangible-asset amortization, and a $630M impairment of the AGN-151607 asset. The contingent-consideration revaluation primarily reflected higher estimated Skyrizi sales and the passage of time. AbbVie cautions that future changes in assumptions may materially affect results.
- The company said the U.S. Imbruvica intangible asset’s estimated future cash flows are not significantly above carrying value, partly reflecting expected Inflation Reduction Act effects; future impairment is reasonably possible and could materially affect results.
- Product and regulatory developments included U.S. approvals for Rinvoq in Crohn’s disease, Epkinly for relapsed or refractory diffuse large B-cell lymphoma, and Qulipta for chronic migraine prevention. The FDA issued a Complete Response Letter for ABBV-951 seeking additional pump-device information. AbbVie voluntarily withdrew U.S. accelerated Imbruvica approvals for mantle cell and marginal zone lymphoma; other U.S. indications were unaffected.
- Legal matters include opioid litigation, antitrust and securities cases, product-liability matters and a tax dispute concerning a $572M benefit recorded in 2014. Management believes the ultimate disposition of proceedings should not materially adversely affect consolidated results, but states it cannot estimate possible losses beyond accrued amounts for certain matters.
- Key risks identified include Humira biosimilar erosion, competition, intellectual-property challenges, clinical and regulatory uncertainty, litigation or government action, and changes in laws and regulations. Three U.S. wholesalers accounted for 75% of net receivables at June 30, 2023.
Important facts for investors to verify
- Track Humira erosion against growth and market-share gains in Skyrizi and Rinvoq, including the pace and profitability of that transition.
- Review the assumptions behind the $19.151B contingent-consideration liability and its sensitivity to sales, milestone probabilities, timing and discount rates.
- Monitor the Imbruvica intangible asset for impairment indicators and assess the effect of U.S. pricing policy and competition.
- Assess cash generation, debt repayment, dividend and buyback commitments alongside ongoing R&D and acquisition spending.
- Follow material legal and tax proceedings and regulatory updates for the pipeline products discussed in the filing.