AbbVie Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; filed February 19, 2021. The filing also provides unaudited fourth-quarter results. AbbVie completed its acquisition of Allergan on May 8, 2020, so 2020 results include Allergan only from that date.
Business context
AbbVie is a global biopharmaceutical company operating as one reportable segment. The Allergan acquisition broadened its portfolio across immunology, hematologic oncology, aesthetics, neuroscience, eye care and women’s health. Humira remained its largest product and represented approximately 43% of 2020 net revenue.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net revenue | $45.8 billion | $33.3 billion |
| Operating earnings | $11.4 billion | $13.0 billion |
| Net earnings attributable to AbbVie | $4.6 billion | $7.9 billion |
| Diluted EPS | $2.72 | $5.28 |
| Cash from operations | $17.6 billion | $13.3 billion |
| Gross margin | 66% | 78% |
Reported revenue increased 37.7% (38.0% at constant currency), including $10.3 billion of Allergan revenue. Unaudited pro forma revenue, assuming Allergan had been included from January 1, was $50.5 billion in 2020 versus $49.0 billion in 2019; the company cautions this measure is not necessarily indicative of actual combined results.
Operating cash flow rose year over year, partly reflecting the combined business and working-capital timing. Investing cash outflow was $37.6 billion, primarily reflecting $39.7 billion of cash consideration for Allergan, offset in part by $1.5 billion cash acquired. Financing cash outflow was $11.5 billion; dividends paid were $7.7 billion.
At year-end, cash and equivalents were $8.4 billion, current assets $24.2 billion and current liabilities $28.7 billion. Long-term debt and finance lease obligations totaled $86.0 billion, including $8.5 billion current; contractual long-term debt principal was $84.9 billion. The $4.0 billion revolving credit facility was undrawn, and the company reported compliance with covenants. S&P lowered its issuer rating one notch to BBB+ after the acquisition; Moody’s affirmed Baa2, both with stable outlooks.
Changes versus the prior period and unusual items
- Net revenue growth reflected Allergan, growth in Skyrizi, Rinvoq, Imbruvica and Venclexta, and U.S. Humira growth. International Humira revenue declined 12% on a constant-currency basis amid biosimilar competition; U.S. biosimilar competition was not expected before 2023.
- Revenue from Mavyret declined 37%, principally due to fewer new patient starts during COVID-19 and U.S. competition. Lupron revenue fell 14% amid a near-term supply issue.
- Gross margin fell to 66%, primarily due to acquired-intangible amortization, inventory fair-value step-up amortization and collaboration profit-sharing. Intangible amortization was $5.8 billion, versus $1.6 billion in 2019.
- GAAP diluted EPS included substantial items: $5.7 billion after tax from the change in fair value of contingent consideration, $4.8 billion of intangible amortization, $3.0 billion of Allergan acquisition and integration expenses and $1.2 billion of acquired IPR&D, partly offset by $1.7 billion of tax benefits. These items make reported year-over-year earnings less comparable.
- Fourth-quarter net earnings attributable to AbbVie were $36 million and diluted EPS was $0.01. The quarter included $4.7 billion of after-tax contingent-consideration charges, partly offset by a $1.5 billion tax benefit.
- Interest expense, net increased to $2.3 billion from $1.5 billion, primarily due to higher average debt and Allergan debt assumed. The effective tax rate was negative 36%, including the $1.7 billion benefit from tax-law changes and restructuring.
Outlook, commentary and risks
Management’s 2021 priorities include capturing Allergan synergies, growing Skyrizi, Rinvoq, Imbruvica and Venclexta, managing international Humira biosimilar erosion, expanding margins, returning cash to shareholders and reducing debt. AbbVie expects more than $2 billion of annual cost synergies over three years and approximately $2 billion of integration charges through 2022. The filing does not provide a clear numerical 2021 earnings or revenue guidance figure.
Management said COVID-19 had not materially affected operations to date, but lower new-patient starts had occurred and further effects on results remained uncertain. Key risks include Humira concentration and biosimilar competition, pricing and reimbursement pressure, clinical and regulatory uncertainty, manufacturing and supply risks, increased debt and potential impairment of acquired assets. Allergan faces approximately 3,100 opioid-related matters; the filing also describes breast-implant litigation and other legal proceedings. Management stated it could not predict all outcomes, while believing ultimate disposition of proceedings would not materially adversely affect consolidated results, financial position or cash flows.
The board increased the quarterly dividend from $1.18 to $1.30 per share, payable in February 2021. Future dividends remain subject to board discretion and financial and debt-related considerations.
Investor verification checklist
- Separate reported growth from comparable growth: assess the Allergan contribution and the unaudited pro forma revenue comparison.
- Review Humira’s 43% revenue concentration, international biosimilar declines and the expected timing of U.S. biosimilar entry.
- Assess debt repayment capacity, maturities, interest burden, credit ratings and the company’s stated debt-reduction plans.
- Examine assumptions behind the $13.0 billion contingent-consideration liability and the unusually large fair-value expense, as well as acquisition intangible valuations and amortization.
- Track integration costs and delivery of the anticipated $2 billion-plus annual synergies, alongside COVID-19 effects and Lupron supply availability.
- Monitor material litigation, including Allergan opioid and textured breast-implant cases, and confirm subsequent developments in the company’s filings.