AbbVie Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; compared with the corresponding 2020 periods. Amounts are in U.S. dollars unless stated otherwise. The 2020 comparison includes Allergan only from its May 8, 2020 acquisition date, making year-over-year growth partly acquisition-driven.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenues | $14.342bn | $12.902bn | $41.311bn | $31.946bn |
| Operating earnings | $4.306bn | $3.255bn | $12.850bn | $7.610bn |
| Net earnings attributable to AbbVie | $3.179bn | $2.308bn | $7.498bn | $4.580bn |
| Diluted EPS | $1.78 | $1.29 | $4.19 | $2.77 |
| Gross margin as % of revenue | 69% | 61% | 68% | 66% |
- Q3 revenue rose 11.2% reported (10.7% at constant currency); nine-month revenue rose 29.3% reported (28.1% at constant currency). Nine-month operating cash flow was $17.702bn versus $12.734bn.
- Q3 operating margin was approximately 30.0%, versus 25.2%; nine-month operating margin was approximately 31.1%, versus 23.8%. Revenue growth and lower acquisition-related amortization and integration costs supported margins.
- Cash and equivalents were $12.182bn at September 30, 2021, versus $8.449bn at year-end 2020. Total debt and finance lease obligations were approximately $80.7bn, down from approximately $86.0bn. Nine-month capital expenditures were $600m; operating cash flow less capital expenditures was approximately $17.1bn.
- Current assets were $28.957bn and current liabilities $28.533bn. No borrowings were outstanding under the $4bn revolving credit facility; AbbVie reported compliance with its covenants.
Material changes and business drivers
- Growth was supported by Skyrizi, Rinvoq, Venclexta and Allergan-derived products, including aesthetics and neuroscience brands. Nine-month revenue included $13.0bn from Allergan, and the prior-year comparison included only a partial period of Allergan results.
- Humira revenue increased 4% globally for the nine months: U.S. growth was offset in part by international biosimilar competition. Humira represented approximately 37% of nine-month revenue, down from 46% in 2020.
- Skyrizi and Rinvoq continued to grow rapidly. Imbruvica was broadly flat in Q3; management cited lower U.S. new-patient starts during COVID-19 and modest U.S. share loss. Mavyret’s nine-month sales declined amid continued COVID-related disruption to hepatitis C markets.
- Gross margin percentage improved year over year, particularly in Q3, partly because of lower amortization of Allergan acquisition-related inventory fair-value adjustments and intangible assets. SG&A and R&D were lower as a share of revenue, reflecting scale, revenue leverage and synergies.
- AbbVie repaid or refinanced several debt maturities during the period. It paid $6.947bn in dividends and repurchased $550m of shares in the first nine months.
Outlook, commentary, risks and unusual items
- The filing provides no clear numerical full-year earnings or revenue guidance. Management said multiple regulatory submissions and clinical readouts were expected over the next 12 months and anticipated several mid-stage programs moving into late-stage development.
- The Allergan integration plan targets more than $2bn of annual cost synergies over three years; AbbVie expects approximately $2bn of cumulative integration charges through 2022. The company reported $500m of Q3 expense for extending its Calico collaboration and $400m of Q3 acquired in-process R&D expense for TNB-383B.
- Nine-month results included a $2.447bn increase in the fair value of contingent consideration liabilities, recorded as expense; management attributed the 2021 increase principally to higher estimated Skyrizi sales, favorable clinical results and passage of time. The liability was $14.919bn at quarter-end, measured using significant unobservable inputs.
- COVID-19 had not materially affected operations to date, but lower new-patient starts in certain products and markets continued; the duration and financial impact remained uncertain. Risks also include clinical and regulatory outcomes, competition and intellectual-property challenges.
- The FDA announced its intention to require stronger boxed-warning language for JAK inhibitors, including Rinvoq, concerning serious heart-related events, cancer, blood clots and death, and to limit use for certain patients. AbbVie also reported delayed FDA action dates for several Rinvoq applications.
- Legal matters include opioid-related claims against Allergan and ongoing antitrust, securities, product-liability and intellectual-property litigation. A Restasis antitrust settlement was subject to court approval. Management stated it did not expect the ultimate disposition of proceedings to materially adversely affect consolidated results, position or cash flows.
- AbbVie declared a quarterly dividend increase from $1.30 to $1.41 per share beginning with the February 2022 payment, an increase of approximately 8.5%.
Important facts for investors to verify
- How much reported growth reflects Allergan’s full-period contribution versus underlying organic growth, and whether synergies are being realized as planned.
- U.S. Humira performance and the pace of international biosimilar erosion; growth and regulatory progress for Skyrizi and Rinvoq, including the implications of the FDA’s JAK-inhibitor safety communication.
- Future changes in the $14.919bn contingent consideration liability and the resulting earnings volatility.
- Debt repayment, cash generation and dividend sustainability, alongside the substantial debt and ongoing integration and R&D spending.
- Developments in opioid, antitrust, securities and patent litigation, and the potential effects of COVID-19 on demand and clinical activity.