AbbVie Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. AbbVie is a global biopharmaceutical company reporting as one business segment. Results include Allergan from its May 8, 2020 acquisition date; therefore, year-over-year comparisons include a longer period of Allergan results in 2021.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenues | $13.959B | $10.425B | $26.969B | $19.044B |
| Operating earnings | $4.441B | $0.752B | $8.544B | $4.355B |
| Net earnings (loss) attributable to AbbVie | $0.766B | $(0.738)B | $4.319B | $2.272B |
| Diluted EPS | $0.42 | $(0.46) | $2.41 | $1.43 |
| Gross margin as % of revenues | 68% | 64% | 68% | 70% |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $9.767B | $6.904B |
- Reported revenue rose 33.9% in Q2 and 41.6% for the first half; growth at constant currency was 32.1% and 39.9%, respectively. Management attributed first-half growth to $8.6B of Allergan revenues, newer immunology products, U.S. Humira performance, and growth in Venclexta and Imbruvica.
- Q2 net earnings improved from a prior-year loss, but included $2.658B of other expense, principally a $2.7B charge from remeasurement of contingent consideration liabilities. First-half other expense was $2.263B, including a $2.349B fair-value charge. These charges materially affect comparability.
- Gross margin percentage rose in Q2, primarily reflecting lower Allergan inventory fair-value step-up amortization, partly offset by higher intangible amortization. First-half gross margin percentage declined, as higher intangible amortization outweighed the benefit of lower inventory step-up amortization.
- For the first half, R&D expense was $3.584B, up 21%; SG&A was $6.006B, up 15%; and acquired in-process R&D was $167M, versus $853M in 2020. The prior-year acquired R&D included a $750M Genmab collaboration payment.
Financial position and liquidity
- At June 30, 2021, cash and equivalents were $8.546B; current assets were $25.999B and current liabilities were $28.684B.
- Debt and finance lease obligations totaled approximately $82.1B, down from approximately $86.0B at December 31, 2020. The company repaid $1.8B of senior notes, €750M of senior euro notes, and $750M of floating-rate notes during the first half.
- First-half investing cash outflow was $584M and financing cash outflow was $9.058B. Financing included $4.632B of dividends and $797M of treasury-share purchases. The quarterly dividend declared was $1.30 per share.
- AbbVie reported no outstanding borrowings under its $4.0B revolving credit facility and stated it was in compliance with facility covenants. Credit ratings were unchanged during the first half.
Outlook, developments, and risks
- The filing provides no specific full-year revenue or earnings guidance. Management described strategic priorities including integration of Allergan, pipeline investment, margin expansion, dividends, and debt reduction. The Allergan integration plan targets more than $2B in annual cost synergies over three years and anticipates approximately $2B in total charges through 2022.
- Management said COVID-19 had not materially affected operations to date, but lower new-patient starts in certain products and markets continued and could weigh on results. The extent of future effects remained uncertain.
- Pipeline developments included positive Phase 3 results and regulatory submissions for Skyrizi and Rinvoq. The FDA did not meet stated action dates for certain Rinvoq supplemental applications; the filing reported no formal regulatory action on those applications at the time described.
- Key commercial exposures include Humira, which represented approximately 37% of first-half 2021 revenues, and customer concentration: three U.S. wholesalers accounted for 73% of net accounts receivable. Humira faced biosimilar competition internationally; its international sales declined while U.S. sales grew.
- Legal matters include opioid-related claims against Allergan (approximately 3,100 matters), antitrust and product-related proceedings, and patent disputes. The company said it believed the ultimate disposition of proceedings would not materially adversely affect its financial position, results, or cash flows, but outcomes remain uncertain. A Restasis antitrust settlement was agreed in principle subject to court approval.
- In July 2021, after quarter-end, AbbVie and Calico extended their collaboration for three years beginning in 2022, with each committing an additional $500M; AbbVie expected to record its commitment as expense in Q3 2021. The filing also disclosed proposed acquisitions of TeneoOne/TNB-383B and Soliton, subject to regulatory approval.
Important facts for investors to verify
- How much reported growth reflects underlying product demand versus Allergan’s inclusion for a fuller period in 2021.
- Whether growth in Skyrizi, Rinvoq, aesthetics, and oncology products can offset Humira’s international biosimilar declines and other product pressures.
- The assumptions behind the $14.989B contingent consideration liability and its potential effect on reported earnings; valuation uses significant unobservable inputs.
- Progress toward Allergan integration synergies and the remaining integration charges expected through 2022.
- Developments in COVID-19-related demand, Rinvoq regulatory reviews, major litigation, and the company’s substantial debt obligations.