AbbVie Inc. — 2019 Form 10-K Summary
Business context and reporting period
AbbVie is a global research-based biopharmaceutical company operating in one segment: pharmaceutical products. This 10-K reports the fiscal year ended December 31, 2019; quarterly figures below are unaudited. HUMIRA remained the largest product, while oncology medicines and newly launched immunology products contributed to growth.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenues | $33.266 billion | $32.753 billion |
| Operating earnings | $12.983 billion | $6.383 billion |
| Net earnings | $7.882 billion | $5.687 billion |
| Diluted EPS | $5.28 | $3.66 |
| Operating cash flow | $13.324 billion | $13.427 billion |
| Gross margin | 78% | 76% |
| Cash and equivalents, year-end | $39.924 billion | $7.289 billion |
| Long-term debt and finance lease obligations, including current portion | $66.728 billion | $36.611 billion |
| Total assets | $89.115 billion | $59.352 billion |
Revenue increased 1.6% at reported exchange rates and 2.6% at constant currency. Operating margin was approximately 39% (calculated from reported figures). Year-end current assets were $49.519 billion and current liabilities were $15.585 billion. Shareholders’ equity was a deficit of $8.172 billion.
In the fourth quarter, revenue was $8.704 billion versus $8.305 billion in 2018; net earnings were $2.801 billion versus a $1.826 billion net loss. The prior-year quarter included a substantial intangible-asset impairment charge.
Material changes versus prior period
- U.S. HUMIRA revenue rose 8.6% to $14.864 billion, while international HUMIRA revenue fell 31.1% to $4.305 billion, largely due to biosimilar competition. Total HUMIRA revenue declined 3.9% to $19.169 billion and represented approximately 58% of company revenue.
- IMBRUVICA revenue increased 30.2% to $4.674 billion; VENCLEXTA more than doubled to $792 million. SKYRIZI generated $355 million following its 2019 launch, and RINVOQ generated $47 million after U.S. approval.
- MAVYRET revenue declined 15.9% to $2.893 billion amid lower patient volumes and competition. VIEKIRA revenue fell 79.6% to $36 million.
- Operating earnings benefited from lower reported R&D expense, following the $5.1 billion Rova-T-related impairment in 2018. However, 2019 included a further $1.0 billion impairment after AbbVie discontinued the Rova-T program.
- Cash from operations was broadly stable. Financing cash flow was $18.708 billion, primarily reflecting the $30 billion senior-note issuance to finance the proposed Allergan acquisition. Year-end cash also rose substantially; the filing says the bond proceeds were held pending the transaction.
Outlook, commentary, risks and unusual items
- AbbVie’s 2020 priorities included growing and diversifying revenue, executing SKYRIZI and RINVOQ launches, expanding margins, investing in its pipeline, paying a growing dividend, and reducing incremental debt. Management expected regulatory submissions and key clinical readouts in the following 12 months. The filing does not provide a clear numerical 2020 earnings or revenue forecast in the provided text.
- The proposed Allergan acquisition had an announced transaction equity value of approximately $63 billion. Allergan shareholders were to receive $120.30 cash and 0.8660 AbbVie shares per share. AbbVie expected approximately $41 billion of cash consideration and had issued $30 billion of notes; completion remained subject to closing conditions and regulatory approvals. The European Commission’s January 2020 approval was conditional on divestiture of Allergan’s brazikumab program.
- AbbVie reported $3.1 billion of 2019 expense from changes in fair value of contingent consideration liabilities, principally reflecting higher expected probabilities of success and sales for acquired assets, including SKYRIZI. The year also included $1.0 billion of Rova-T-related impairment, $385 million of acquired in-process R&D, and $338 million of after-tax Allergan transaction expenses. Offsetting items included a $550 million legal-settlement gain and $330 million of income under the amended Reata agreement.
- Debt rose materially in preparation for the Allergan deal. Contractual debt obligations were $67.233 billion, with $3.750 billion due in 2020. Management said it believed financial flexibility and access to capital were adequate. Moody’s affirmed its Baa2 rating with stable outlook; S&P revised its outlook to negative and anticipated a one-notch downgrade upon deal completion.
- Key risks include HUMIRA concentration and expected U.S. biosimilar entry in 2023; ongoing international biosimilar erosion; pricing and reimbursement pressures; clinical-trial and product-safety uncertainty; patent disputes; and the ability to complete, finance, and integrate Allergan while managing higher leverage. AbbVie noted that approximately 28% of 2019 revenue came from outside the U.S.
- Other significant items: the effective tax rate was 6.5% in 2019 versus negative 9.4% in 2018, with year-to-year rates affected by jurisdictional earnings and discrete tax items. The quarterly dividend was increased from $1.07 to $1.18 per share beginning with the February 2020 payment.
Most important facts for investors to verify
- How quickly HUMIRA biosimilar competition erodes international sales and whether the U.S. business remains resilient ahead of 2023 entry.
- Whether SKYRIZI, RINVOQ, IMBRUVICA, and VENCLEXTA can offset HUMIRA declines and support the company’s growth and margin objectives.
- Allergan transaction completion, final financing and assumed liabilities, post-close leverage, credit-rating impact, and realization of expected integration benefits.
- The assumptions behind the $7.340 billion contingent-consideration liability and the sensitivity of reported earnings to its remeasurement.
- Cash availability after the acquisition, debt repayment capacity, dividend sustainability, and the impact of ongoing litigation and pricing pressures.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.