AbbVie Inc. — 2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017; filed February 16, 2018. The filing also reports fourth-quarter results. AbbVie is a global biopharmaceutical company operating in one segment: pharmaceutical products.
Financial performance and position
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Net revenue | $28.216 billion | $25.638 billion | +10.1% reported; +9.8% constant currency |
| Operating earnings | $9.592 billion | $9.384 billion | +2.2% |
| Gross margin | $21.176 billion; 75% of revenue | $19.805 billion; 77% | Margin down 2 percentage points |
| Net earnings | $5.309 billion | $5.953 billion | -10.8% |
| Diluted EPS | $3.30 | $3.63 | -9.1% |
| Operating cash flow | $9.960 billion | $7.041 billion | +41.5% |
- Revenue growth was led by HUMIRA and IMBRUVICA and the launch of MAVYRET; declining VIEKIRA sales partly offset those gains. HUMIRA generated $18.427 billion, approximately 65% of total revenue. IMBRUVICA revenue was $2.573 billion, up 40.5%; HCV revenue was $1.274 billion, down 16.3%.
- Reported gross margin fell principally due to a $354 million intangible-asset impairment, higher intangible amortization and IMBRUVICA profit sharing, partly offset by product mix and operating efficiencies. R&D expense rose 14% to $4.982 billion, or 18% of revenue.
- Cash and equivalents were $9.303 billion at year-end, with $486 million of short-term investments. Current assets were $21.223 billion versus current liabilities of $16.641 billion. Total assets were $70.786 billion and stockholders’ equity was $5.097 billion.
- Debt and lease obligations were $36.968 billion on the balance sheet, plus $400 million of short-term borrowings. Contractual debt and capital-lease obligations totaled $37.612 billion. AbbVie had a $3.0 billion revolving facility with no borrowings outstanding and reported compliance with its covenants.
- Cash dividends paid were $4.107 billion. The quarterly dividend rose from $0.64 to $0.71 per share, effective with the February 2018 payment. The company repurchased approximately 13 million shares for $1.0 billion on the open market during 2017.
Fourth-quarter results
Fourth-quarter revenue was $7.739 billion, compared with $6.796 billion a year earlier. Net earnings were $52 million, or $0.03 per diluted share, versus $1.391 billion, or $0.85 per diluted share, in fourth-quarter 2016. The sharp decline primarily reflected the December 2017 U.S. tax-law enactment and other specified charges; it should not be read as a comparable measure of underlying operating performance without examining those items.
Material changes, outlook and commentary
- Management’s 2018 priorities were revenue diversification, advancing late-stage pipeline programs, new-product execution, operating-margin expansion, and shareholder returns. The filing does not provide a clear quantified 2018 revenue or earnings guidance figure.
- Management anticipated multiple regulatory submissions and clinical readouts over the following 12 months. It expected continued HUMIRA growth while managing biosimilar erosion, IMBRUVICA growth, and contribution from MAVYRET and other launches. It also cited lower HUMIRA royalty expense, productivity and efficiency measures as margin drivers.
- HUMIRA’s U.S. composition-of-matter patent expired in December 2016; other U.S. patents covering adalimumab expire no earlier than 2022. The corresponding EU patent was expected to expire in most EU countries in October 2018. AbbVie highlighted biosimilar competition and patent litigation as material uncertainties.
- The Tax Cuts and Jobs Act produced a provisional $4.5 billion transition-tax expense on previously untaxed foreign earnings, generally payable over eight years, partly offset by a $3.6 billion deferred-tax remeasurement benefit. The company stated its tax accounting remained preliminary and could be adjusted in 2018.
- Other 2017 items included a $626 million expense from increased fair value of contingent consideration liabilities; $327 million of acquired in-process R&D; $370 million in litigation reserve charges; and the $354 million intangible impairment related to ZINBRYTA. The filing also reports a $91 million tax-audit-settlement benefit.
- Pipeline setbacks included Phase 3 studies of veliparib that missed primary endpoints and a decision not to seek approval for ABT-414 in recurrent glioblastoma after a study missed its primary endpoint. AbbVie also closed the SONAR study early because fewer renal endpoints occurred than expected; it said the decision was not safety-related.
- Risks include HUMIRA concentration and biosimilar entry, pricing and reimbursement pressure, clinical-development failures, product safety, patent challenges, manufacturing or single-source supply interruptions, litigation, foreign-exchange exposure, and substantial debt obligations. The filing reported approximately 4,300 consolidated testosterone-replacement product-liability claims and approximately 635 Depakote birth-defect claims. Management said the ultimate disposition of legal matters was not expected to materially adversely affect consolidated financial position, results or cash flows, while acknowledging uncertainty.
Most important facts for investors to verify
- HUMIRA’s share of revenue and the pace, timing and market impact of U.S. and European biosimilar launches.
- Whether revenue growth can broaden beyond HUMIRA, particularly through IMBRUVICA, MAVYRET and pipeline launches, as HCV and certain older products decline.
- The final tax-reform accounting, installment schedule and resulting cash-tax effects; the reported transition-tax estimate was provisional.
- Debt maturities, interest costs and cash available after dividends, pension contributions, research investment and repurchases.
- Changes in litigation reserves and outcomes of key product-liability, antitrust and patent cases, along with milestone-related contingent consideration estimates.
- Clinical, regulatory and commercial progress for late-stage programs, including the implications of disclosed trial failures and study closures.