AbbVie Inc. — 2014 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014; comparisons are primarily with 2013. AbbVie is a global biopharmaceutical company operating in one segment, pharmaceutical products. It became independent from Abbott in January 2013.
Financial performance
| Metric | 2014 | 2013 |
|---|---|---|
| Net sales | $19.96 billion | $18.79 billion |
| Operating earnings | $3.41 billion | $5.66 billion |
| Net earnings | $1.77 billion | $4.13 billion |
| Diluted EPS | $1.10 | $2.56 |
| Gross margin | 78% | 76% |
| Cash flow from operations | $3.55 billion | $6.27 billion |
- Sales rose 6% at reported exchange rates, or 8% at constant currency. U.S. sales increased 7%; international sales increased 6% reported and 9% constant currency.
- HUMIRA sales grew 18% to $12.54 billion and accounted for 63% of net sales. Creon and Synthroid sales grew 25% and 14%, respectively. The lipid franchise fell 70% to $328 million amid generic competition.
- Operating earnings and EPS declined substantially despite higher sales. SG&A rose 44% to $7.72 billion, principally reflecting the terminated Shire transaction costs.
- Cash and equivalents were $8.35 billion at year-end, down from $9.60 billion. Total debt and lease obligations were $14.59 billion, including $4.02 billion classified as current; short-term borrowings were $425 million. Current assets were $16.09 billion and current liabilities $11.40 billion. The company reported compliance with debt covenants and no borrowings under its $3 billion revolving facility.
- AbbVie paid $2.66 billion in dividends and repurchased about 9 million shares for $550 million during 2014. The board authorized a new $5 billion repurchase program and raised the quarterly dividend to $0.49, payable in February 2015.
Quarter and material changes
Fourth-quarter sales were $5.45 billion versus $5.11 billion a year earlier; gross margin was $4.33 billion versus $3.83 billion. AbbVie reported a fourth-quarter net loss of $810 million, or $0.51 per diluted share, compared with net earnings of $1.13 billion, or $0.70 per diluted share, in Q4 2013. The 2014 loss reflected Shire-related costs and foreign-exchange losses, plus collaboration charges.
- AbbVie terminated its proposed combination with Shire in October 2014. It recorded $1.8 billion of transaction and financing-related costs, including a $1.6 billion break fee, and $678 million of net foreign-exchange losses for the year. The filing said it expected a further $170 million foreign-exchange loss in Q1 2015 from liquidation of remaining currency positions.
- Other notable charges included $750 million related to the Calico research collaboration and a $275 million upfront payment to Infinity recorded as acquired in-process R&D. The filing identifies after-tax impacts of $750 million for Calico and $173 million for Infinity.
- Cash from operations fell by $2.72 billion year over year, reflecting Shire-related cash costs, timing of U.S. wholesaler collections, inventory investment ahead of the HCV launch, and a higher pension contribution. Currency movements reduced cash by $577 million.
- Gross margin improvement reflected favorable product mix and operational efficiencies, partly offset by foreign exchange and generic erosion in the lipid franchise. 2014 gross margin also included $81 million of royalty income relating to prior periods and a $37 million intangible impairment.
Outlook, commentary and principal risks
- For 2015, management expected continued strong HUMIRA growth and contribution from the VIEKIRA PAK launch, with growth in products such as Creon and Duodopa. It anticipated offsets from generic competition, including AndroGel 1% and remaining lipid products, and expected operating-margin improvement and operating-cash-flow growth. No numerical 2015 financial guidance is provided in the filing text.
- VIEKIRA PAK received U.S. FDA approval in December 2014; European authorization followed in January 2015. Duopa was approved in the United States in January 2015. The company reported more than 40 compounds or indications in clinical development, about 13 in Phase 3 or registration.
- HUMIRA concentration is a key exposure: it generated 63% of 2014 net sales. Its U.S. composition-of-matter patent was expected to expire in December 2016 and the corresponding patent in most EU countries in April 2018. The effects and timing of biosimilar competition remain uncertain.
- Other key risks include clinical-development and approval failures, product safety issues, pricing and reimbursement pressure, generic and biosimilar competition, foreign-exchange volatility, manufacturing or supplier disruption, and dependence on three U.S. wholesalers for substantially all U.S. sales.
- AbbVie remains subject to obligations transferred from Abbott, including a Corporate Integrity Agreement and Depakote-related probation and compliance requirements. The filing describes ongoing antitrust, product and other litigation; management said litigation accruals were not significant at year-end and believed the matters would not materially affect the consolidated financial statements.
- 2014 net earnings include unusual charges, making year-over-year profit comparisons less indicative of underlying operating trends. The filing reports unqualified audit opinions on the financial statements and internal control over financial reporting.
Investor facts to verify
- HUMIRA’s sales trajectory, patent challenges, biosimilar approval and launch timing, and the pace of sales erosion after exclusivity expires.
- VIEKIRA PAK launch performance, access and reimbursement, and whether its contribution offsets expected generic-related declines.
- The final cash and earnings impact of the terminated Shire transaction, including the expected Q1 2015 foreign-exchange loss.
- 2015 cash generation and capital allocation against the 2015 debt maturities, dividends, repurchases and collaboration commitments.
- Clinical and regulatory progress of the late-stage pipeline, including programs described as expected to advance or file during 2015.
- Developments in litigation, compliance obligations, government pricing and rebate requirements, and collection of government receivables in Southern Europe.