AbbVie Inc. — 2015 Form 10-K Summary
Business context and reporting period. AbbVie is a global biopharmaceutical company reporting one segment. This annual report covers the fiscal year ended December 31, 2015; it is not a standalone fourth-quarter filing. In May 2015, AbbVie acquired Pharmacyclics for approximately $20.8 billion, adding IMBRUVICA to its portfolio.
Key financial results
| Metric | 2015 | 2014 |
|---|---|---|
| Net revenue | $22.859 billion | $19.960 billion |
| Operating earnings | $7.537 billion | $3.411 billion |
| Net earnings | $5.144 billion | $1.774 billion |
| Diluted EPS | $3.13 | $1.10 |
| Gross margin | 80% | 78% |
| Cash from operations | $7.535 billion | $3.549 billion |
- Revenue rose 15% at reported exchange rates and 22% at constant currency. U.S. revenue increased 25%; international revenue rose 2% reported, or 18% at constant currency.
- HUMIRA revenue was $14.012 billion, up 12% reported and 19% at constant currency; it represented approximately 61% of total revenue.
- Other notable product results: VIEKIRA revenue was $1.639 billion; IMBRUVICA revenue was $754 million after the acquisition. AndroGel declined 26%, Kaletra 20%, and the lipid franchise 45%.
- R&D expense rose 30% to $4.285 billion, or 19% of revenue. SG&A declined 17% to $6.387 billion, principally reflecting the absence of major Shire termination costs recorded in 2014.
- Fourth-quarter 2015 revenue was $6.400 billion and net earnings were $1.517 billion, compared with $5.452 billion revenue and an $810 million net loss in fourth-quarter 2014.
Liquidity, debt and capital returns
- Cash and equivalents were $8.399 billion at year-end; current assets were $16.314 billion and current liabilities $10.894 billion.
- Long-term debt and lease obligations totaled $31.265 billion, including $2.025 billion current; short-term borrowings were $406 million. Debt increased substantially following the Pharmacyclics acquisition and related share repurchase financing.
- Operating cash flow was $7.535 billion; investing cash flow was negative $12.936 billion, including $11.488 billion paid for Pharmacyclics, net of acquired cash. Financing cash flow was positive $5.752 billion.
- Cash dividends paid were $3.294 billion. AbbVie also completed a $5 billion accelerated share repurchase and repurchased approximately $2.8 billion of shares in the open market. The board raised the quarterly dividend to $0.57 beginning in February 2016.
- AbbVie reported compliance with credit-facility covenants and no borrowings under its $3 billion revolving credit facility at year-end. Rating outlooks from Moody’s and S&P had been revised to negative during 2015; ratings were otherwise unchanged.
Material changes and unusual items
- The Pharmacyclics acquisition added significant assets and debt: year-end goodwill was $13.168 billion and net intangible assets were $19.709 billion. The purchase price allocation was preliminary. Acquired operations contributed $774 million revenue and a $519 million pretax operating loss from acquisition through year-end; reported costs included acquisition-related compensation, inventory step-up, amortization and integration costs.
- 2015 diluted EPS included various after-tax items, including $410 million of Pharmacyclics acquisition and integration costs, a $350 million priority review voucher charge, a $100 million C2N license charge, $170 million of Shire-related foreign-exchange losses, $129 million of litigation-reserve charges and an $83 million Infinity milestone charge.
- The sharp increase in 2015 earnings versus 2014 should be read alongside the 2014 Shire termination costs, including a $1.6 billion break fee, and the $750 million Calico collaboration charge. These items make year-over-year comparisons less representative of underlying operating trends.
- Rebates and chargebacks totaled $8.6 billion in 2015, up from $5.9 billion in 2014. The filing identifies rebate estimates and litigation, pension, tax and acquired-intangible valuations as significant areas of management judgment.
Outlook, commentary and risks
- Management’s 2016 priorities were revenue growth from HUMIRA, IMBRUVICA, VIEKIRA and pipeline launches; margin expansion; continued R&D investment; and shareholder returns. The filing provides no specific 2016 revenue or earnings guidance. Management expected Pharmacyclics to be earnings-accretive beginning in 2017.
- Management anticipated regulatory submissions and clinical readouts in 2016, including HUMIRA uveitis and IMBRUVICA first-line CLL applications, and expected a full year of IMBRUVICA revenue. These were expectations, not guaranteed outcomes.
- HUMIRA concentration and patent exposure are central risks: the U.S. composition-of-matter patent was expected to expire in December 2016, while the corresponding patent in most EU countries was expected to expire in October 2018. U.S. non-composition patents were expected to run no earlier than 2022. Biosimilar applications were under review, creating uncertainty around future sales erosion.
- Other risks include pricing and reimbursement pressure, product safety or efficacy developments, clinical and regulatory setbacks, manufacturing or single-source supply interruptions, foreign exchange and Venezuelan currency exposure, litigation, and the increased debt burden. AbbVie estimated a $117 million 2015 devaluation loss under a hypothetical conversion of Venezuelan bolivar assets at the announced 10-per-dollar rate.
- AbbVie recorded a $166 million litigation accrual at year-end and disclosed several pending antitrust, product-liability and other cases. Management stated it did not expect the ultimate disposition of proceedings to materially harm consolidated results, but outcomes remain uncertain.
Most important facts for investors to verify
- HUMIRA’s dependence on the portfolio and the timing, legal scope and commercial impact of patent expiry and biosimilar competition.
- IMBRUVICA’s sales growth, collaboration economics, manufacturing capacity and ability to deliver the expected acquisition benefits.
- Reported versus underlying earnings, especially the nonrecurring Shire, acquisition, voucher, collaboration and litigation items.
- Debt repayment capacity, interest expense, credit-rating outlook and the sustainability of dividends and buybacks.
- Revenue deductions and estimates, including the growth in rebates and chargebacks, and developments in material litigation and Venezuelan currency exposure.