SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2021
OR
For the transition period from to
Commission File Number: 001-35565
| (Exact name of registrant as specified in its charter) | ||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) | |||||||
Telephone: (847 ) 932-7900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated Filer | ☐ | |||||||||
| Non-Accelerated Filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
As of July 26, 2021, AbbVie Inc. had 1,767,175,532 shares of common stock at $0.01 par value outstanding.
AbbVie Inc. and Subsidiaries
Table of Contents
| Page | ||||||||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in millions, except per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of products sold | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Acquired in-process research and development | ||||||||||||||||||||||||||
| Other operating income | ( | ( | ||||||||||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||||||||||||
| Operating earnings | ||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Net foreign exchange loss | ||||||||||||||||||||||||||
| Other expense, net | ||||||||||||||||||||||||||
| Earnings (loss) before income tax expense | ( | |||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net earnings (loss) | ( | |||||||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interest | ( | ( | ||||||||||||||||||||||||
| Net earnings (loss) attributable to AbbVie Inc. | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Per share data | ||||||||||||||||||||||||||
| Basic earnings (loss) per share attributable to AbbVie Inc. | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Diluted earnings (loss) per share attributable to AbbVie Inc. | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Weighted-average basic shares outstanding | ||||||||||||||||||||||||||
| Weighted-average diluted shares outstanding | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2021 Form 10-Q |  | 1 | ||||
AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
Condensed Consolidated Statements of Comprehensive Income (unaudited)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net earnings (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
Foreign currency translation adjustments, net of tax expense (benefit) of $ | ( | ||||||||||||||||||||||
Net investment hedging activities, net of tax expense (benefit) of $( | ( | ( | ( | ||||||||||||||||||||
Pension and post-employment benefits, net of tax expense (benefit) of $ | |||||||||||||||||||||||
Cash flow hedging activities, net of tax expense (benefit) of $ | ( | ( | |||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
| Comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income (loss) attributable to noncontrolling interest | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) attributable to AbbVie Inc. | $ | $ | ( | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2021 Form 10-Q | | 2 | ||||
AbbVie Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Condensed Consolidated Balance Sheets
| (in millions, except share data) | June 30, 2021 | December 31, 2020 | |||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other | |||||||||||
| Total current assets | |||||||||||
| Investments | |||||||||||
| Property and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Equity | |||||||||||
| Current liabilities | |||||||||||
| Short-term borrowings | $ | $ | |||||||||
| Current portion of long-term debt and finance lease obligations | |||||||||||
| Accounts payable and accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt and finance lease obligations | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity | |||||||||||
Common stock, $ | |||||||||||
Common stock held in treasury, at cost, | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2021 Form 10-Q | | 3 | ||||
AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Equity (unaudited)
Condensed Consolidated Statements of Equity (unaudited)
| (in millions) | Common shares outstanding | Common stock | Treasury stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Net loss attributable to AbbVie Inc. | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Common shares and equity awards issued for acquisition of Allergan plc | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation plans and other | |||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation plans and other | |||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Common shares and equity awards issued for acquisition of Allergan plc | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation plans and other | |||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation plans and other | |||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2021 Form 10-Q | | 4 | ||||
AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
Condensed Consolidated Statements of Cash Flows (unaudited)
| Six months ended June 30, | |||||||||||
| (in millions) (brackets denote cash outflows) | 2021 | 2020 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net earnings (loss) | $ | $ | |||||||||
| Adjustments to reconcile net earnings to net cash from operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization of intangible assets | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Change in fair value of contingent consideration liabilities | |||||||||||
| Stock-based compensation | |||||||||||
| Upfront costs and milestones related to collaborations | |||||||||||
| Gain on divestitures | ( | ||||||||||
| Other, net | |||||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accounts payable and other liabilities | |||||||||||
| Income tax assets and liabilities, net | ( | ||||||||||
| Cash flows from operating activities | |||||||||||
| Cash flows from investing activities | |||||||||||
| Acquisition of businesses, net of cash acquired | ( | ||||||||||
| Other acquisitions and investments | ( | ( | |||||||||
| Acquisitions of property and equipment | ( | ( | |||||||||
| Purchases of investment securities | ( | ( | |||||||||
| Sales and maturities of investment securities | |||||||||||
| Other, net | |||||||||||
| Cash flows from investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Repayments of long-term debt and finance lease obligations | ( | ( | |||||||||
| Debt issuance costs | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Purchases of treasury stock | ( | ( | |||||||||
| Proceeds from the exercise of stock options | |||||||||||
| Payments of contingent consideration liabilities | ( | ( | |||||||||
| Other, net | |||||||||||
| Cash flows from financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash and equivalents | ( | ( | |||||||||
| Net change in cash and equivalents | ( | ||||||||||
| Cash and equivalents, beginning of period | |||||||||||
| Cash and equivalents, end of period | $ | $ | |||||||||
| Supplemental schedule of non-cash investing and financing activities | |||||||||||
| Issuance of common shares associated with acquisitions of businesses | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2021 Form 10-Q | | 5 | ||||
AbbVie Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 Basis of Presentation
Basis of Historical Presentation
The unaudited interim condensed consolidated financial statements of AbbVie Inc. (AbbVie or the company) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the company’s audited consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended December 31, 2020.
It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the company’s financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results. Certain reclassifications were made to conform the prior period interim condensed consolidated financial statements to the current period presentation.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
ASU No. 2019-12
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). The standard includes simplifications related to accounting for income taxes including removing certain exceptions related to the approach for intraperiod tax allocation and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. AbbVie adopted the standard in the first quarter of 2021. The adoption did not have a material impact on its consolidated financial statements.
Note 2 Supplemental Financial Information
Interest Expense, Net
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest income | ( | ( | ( | ( | ||||||||||||||||||||||
| Interest expense, net | $ | $ | $ | $ | ||||||||||||||||||||||
| (in millions) | June 30, 2021 | December 31, 2020 | |||||||||
| Finished goods | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Raw materials | |||||||||||
| Inventories | $ | $ | |||||||||
2021 Form 10-Q | | 6 | ||||
| (in millions) | June 30, 2021 | December 31, 2020 | |||||||||
| Property and equipment, gross | $ | $ | |||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
Depreciation expense was $201 million for the three months and $407 million for the six months ended June 30, 2021 and $149 million for the three months and $264 million for the six months ended June 30, 2020.
Note 3 Earnings Per Share
AbbVie grants certain restricted stock units (RSUs) that are considered to be participating securities. Due to the presence of participating securities, AbbVie calculates earnings per share (EPS) using the more dilutive of the treasury stock or the two-class method. For all periods presented, the two-class method was more dilutive.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in millions, except per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Basic EPS | ||||||||||||||||||||||||||
| Net earnings (loss) attributable to AbbVie Inc. | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Earnings allocated to participating securities | ||||||||||||||||||||||||||
| Earnings (loss) available to common shareholders | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Weighted-average basic shares outstanding | ||||||||||||||||||||||||||
| Basic earnings (loss) per share attributable to AbbVie Inc. | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Diluted EPS | ||||||||||||||||||||||||||
| Net earnings (loss) attributable to AbbVie Inc. | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Earnings allocated to participating securities | ||||||||||||||||||||||||||
| Earnings (loss) available to common shareholders | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Weighted-average shares of common stock outstanding | ||||||||||||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||||||||||||
| Weighted-average diluted shares outstanding | ||||||||||||||||||||||||||
| Diluted earnings (loss) per share attributable to AbbVie Inc. | $ | $ | ( | $ | $ | |||||||||||||||||||||
Certain shares issuable under stock-based compensation plans were excluded from the computation of EPS because the effect would have been antidilutive. The number of common shares excluded was insignificant for all periods presented.
Note 4 Licensing, Acquisitions and Other Arrangements
Acquisition of Allergan
2021 Form 10-Q | | 7 | ||||
The acquisition of Allergan was accounted for as a business combination using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The valuation of assets acquired and liabilities assumed was finalized during the three months ended June 30, 2021. Measurement period adjustments to the preliminary purchase price allocation during the six months ended June 30, 2021 included: (i) an increase to intangible assets of $710 million; (ii) an increase to deferred income tax liabilities of $148 million; (iii) other individually insignificant adjustments for a net increase to identifiable net assets of $2 million; and (iv) a corresponding decrease to goodwill of $564 million. The measurement period adjustments primarily resulted from the completion of the valuation of certain license agreement intangible assets based on facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date. These adjustments did not have a significant impact on AbbVie's results of operations for the three and six months ended June 30, 2021 and would not have had a significant impact on prior period results if these adjustments had been made as of the acquisition date.
Other Licensing & Acquisitions Activity
Cash outflows related to other acquisitions and investments totaled $345 million for the six months ended June 30, 2021 and $192 million for the six months ended June 30, 2020. AbbVie recorded acquired in-process research and development (IPR&D) charges of $97 million for the three months and $167 million for the six months ended June 30, 2021 and recorded acquired IPR&D charges of $853
TeneoOne and TNB-383B
In June 2021, AbbVie exercised its exclusive right to acquire TeneoOne, an affiliate of Teneobio, Inc., and TNB-383B, a BCMA-targeting immunotherapeutic for the potential treatment of relapsed or refractory multiple myeloma (R/R MM). In February 2019, AbbVie and TeneoOne entered a strategic transaction to develop and commercialize TNB-383B, a bispecific antibody that simultaneously targets BCMA and CD3 and is designed to direct the body's own immune system to target and kill BCMA-expressing tumor cells. AbbVie exercised its exclusive right to acquire TeneoOne and TNB-383B based on an interim analysis of an ongoing Phase 1 study. Under the terms of the agreement, AbbVie will make a $400 million warrant exercise payment subject to adjustments for certain expenses. Closing of the transaction is subject to regulatory approval. AbbVie could make additional payments of up to $250 million upon the achievement of certain development, regulatory and commercial milestones.
Soliton, Inc.
In May 2021, AbbVie announced that it entered into a definitive agreement with Soliton, Inc. (Soliton) to acquire Soliton and RESONIC, its Rapid Acoustic Pulse device which recently received U.S. Food and Drug Administration (FDA) 510(k) clearance and is a non-invasive treatment for the short-term improvement in the appearance of cellulite. Under the terms of the transaction agreement, AbbVie will pay $22.60 per share in cash for each outstanding share of Soliton for an enterprise value of approximately $550 million. Closing of the transaction is subject to regulatory approval.
Calico Life Sciences LLC
In July 2021, AbbVie and Calico Life Sciences LLC (Calico) announced an extension of their collaboration to discover, develop and bring to market new therapies for patients with age-related diseases, including neurodegeneration and cancer. This is the second collaboration extension and builds on the partnership established in 2014 and extended in 2018. The extension is for an additional three years, beginning in 2022, and AbbVie and Calico will each commit to contribute an additional $500
Genmab A/S
In June 2020, AbbVie and Genmab A/S (Genmab) entered into a collaboration agreement to jointly develop and commercialize three of Genmab's early-stage investigational bispecific antibody therapeutics and entered into a discovery research collaboration for future differentiated antibody therapeutics for the treatment of cancer. Under the terms of the agreement, Genmab granted to AbbVie an exclusive license to its epcoritamab (DuoBody-CD3xCD20), DuoHexaBody-CD37 and DuoBody-CD3x5T4 programs. For epcoritamab, the companies will share commercial responsibilities in the U.S. and Japan, with AbbVie responsible for further global commercialization. Genmab will record net revenues in the U.S. and Japan, and the parties will share equally in pre-tax profits from these sales. Genmab will receive tiered royalties on remaining global sales. For the discovery research partnership, Genmab will conduct Phase 1 studies for these programs and AbbVie retains the right to opt-in to program development. AbbVie made an upfront payment of $750 million, which was recorded to IPR&D in the condensed consolidated statement of earnings in the three
2021 Form 10-Q | | 8 | ||||
Note 5 Collaborations
The company has ongoing transactions with other entities through collaboration agreements. The following represent the significant collaboration agreements impacting the periods ended June 30, 2021 and 2020.
Collaboration with Janssen Biotech, Inc.
In December 2011, Pharmacyclics, a wholly-owned subsidiary of AbbVie, entered into a worldwide collaboration and license agreement with Janssen Biotech, Inc. and its affiliates (Janssen), one of the Janssen Pharmaceutical companies of Johnson & Johnson, for the joint development and commercialization of Imbruvica, a novel, orally active, selective covalent inhibitor of Bruton’s tyrosine kinase (BTK) and certain compounds structurally related to Imbruvica, for oncology and other indications, excluding all immune and inflammatory mediated diseases or conditions and all psychiatric or psychological diseases or conditions, in the United States and outside the United States.
The collaboration provides Janssen with an exclusive license to commercialize Imbruvica outside of the United States and co-exclusively with AbbVie in the United States. Both parties are responsible for the development, manufacturing and marketing of any products generated as a result of the collaboration. The collaboration has no set duration or specific expiration date and provides for potential future development, regulatory and approval milestone payments of up to $200 million to AbbVie. The collaboration also includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, Janssen is responsible for approximately 60 % of collaboration development costs and AbbVie is responsible for the remaining 40 % of collaboration development costs.
In the United States, both parties have co-exclusive rights to commercialize the products; however, AbbVie is the principal in the end-customer product sales. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. Sales of Imbruvica are included in AbbVie's net revenues. Janssen's share of profits is included in AbbVie's cost of products sold. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share.
Outside the United States, Janssen is responsible for and has exclusive rights to commercialize Imbruvica. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. AbbVie's share of profits is included in AbbVie's net revenues. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| United States - Janssen's share of profits (included in cost of products sold) | $ | $ | $ | $ | ||||||||||||||||||||||
| International - AbbVie's share of profits (included in net revenues) | ||||||||||||||||||||||||||
| Global - AbbVie's share of other costs (included in respective line items) | ||||||||||||||||||||||||||
AbbVie’s receivable from Janssen, included in accounts receivable, net, was $308 million at June 30, 2021 and $283 million at December 31, 2020. AbbVie’s payable to Janssen, included in accounts payable and accrued liabilities, was $498 million at June 30, 2021 and $562 million at December 31, 2020.
Collaboration with Genentech, Inc.
AbbVie and Genentech, Inc. (Genentech), a member of the Roche Group, are parties to a collaboration and license agreement executed in 2007 to jointly research, develop and commercialize human therapeutic products containing BCL-2 inhibitors and certain other compound inhibitors which includes Venclexta, a BCL-2 inhibitor used to treat certain hematological malignancies. AbbVie shares equally with Genentech all pre-tax profits and losses from the development and commercialization of Venclexta in the United States. AbbVie pays royalties on Venclexta net revenues outside the United States.
AbbVie manufactures and distributes Venclexta globally and is the principal in the end-customer product sales. Sales of Venclexta are included in AbbVie’s net revenues. Genentech’s share of United States profits is included in AbbVie’s cost of products sold. AbbVie records sales and marketing costs associated with the United States collaboration as part of selling, general and administrative (SG&A) expenses and global development costs as part of research and development (R&D) expenses, net of
2021 Form 10-Q | | 9 | ||||
Genentech’s share. Royalties paid for Venclexta revenues outside the United States are also included in AbbVie’s cost of products sold.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Genentech's share of profits, including royalties (included in cost of products sold) | $ | $ | $ | $ | ||||||||||||||||||||||
| AbbVie's share of sales and marketing costs from U.S. collaboration (included in SG&A) | ||||||||||||||||||||||||||
| AbbVie's share of development costs (included in R&D) | ||||||||||||||||||||||||||
Note 6 Goodwill and Intangible Assets
Goodwill
The following table summarizes the changes in the carrying amount of goodwill:
| (in millions) | |||||
| Balance as of December 31, 2020 | $ | ||||
Measurement period adjustments(a) | ( | ||||
| Foreign currency translation adjustments and other | ( | ||||
| Balance as of June 30, 2021 | $ | ||||
The company performs its annual goodwill impairment assessment in the third quarter, or earlier if impairment indicators exist. As of June 30, 2021, there were no accumulated goodwill impairment losses.
Intangible Assets, Net
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| (in millions) | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||||||||||||||||||
| Definite-lived intangible assets | |||||||||||||||||||||||||||||||||||
| Developed product rights | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| License agreements | ( | ( | |||||||||||||||||||||||||||||||||
| Total definite-lived intangible assets | ( | ( | |||||||||||||||||||||||||||||||||
| Indefinite-lived research and development | — | — | |||||||||||||||||||||||||||||||||
| Total intangible assets, net | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Definite-Lived Intangible Assets
The increase in definite-lived intangible assets during the six months ended June 30, 2021 was primarily due to the measurement period adjustments from the completion of the valuation of certain license agreements acquired in the Allergan acquisition. See Note 4 for additional information regarding these adjustments.
Amortization expense was $2.0 billion for the three months and $4.0 billion for the six months ended June 30, 2021 and $1.4 billion for the three months and $1.9 billion for the six months ended June 30, 2020. Amortization expense was included in cost of products sold in the condensed consolidated statements of earnings.
2021 Form 10-Q | | 10 | ||||
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets represents IPR&D associated with products that have not yet received regulatory approval. The company performs its annual impairment assessment of indefinite-lived intangible assets in the third quarter, or earlier if impairment indicators exist.
Note 7 Integration and Restructuring Plans
Allergan Integration Plan
Following the closing of the Allergan acquisition, AbbVie implemented an integration plan designed to reduce costs, integrate and optimize the combined organization. To achieve these integration objectives, AbbVie expects to incur total charges of approximately $2 billion through 2022. These costs will consist of severance and employee benefit costs (cash severance, non-cash severance including accelerated equity award compensation expense, retention and other termination benefits) and other integration expenses.
| Severance and employee benefits | Other integration | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||
| Cost of products sold | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||||||||||||||||||||||||||
| Total charges | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| (in millions) | Severance and employee benefits | Other integration | |||||||||
Accrued balance as of December 31, 2020 | $ | $ | |||||||||
| Charges | |||||||||||
| Payments and other adjustments | ( | ( | |||||||||
| Accrued balance as of June 30, 2021 | $ | $ | |||||||||
Other Restructuring
AbbVie recorded restructuring charges of $5 million for the three months and $43 million for the six months ended June 30, 2021 and $14 million for the three months and $31 million for the six months ended June 30, 2020.
| (in millions) | |||||
| Accrued balance as of December 31, 2020 | $ | ||||
| Restructuring charges | |||||
| Payments and other adjustments | ( | ||||
| Accrued balance as of June 30, 2021 | $ | ||||
2021 Form 10-Q | | 11 | ||||
Note 8 Financial Instruments and Fair Value Measures
Risk Management Policy
See Note 11 to the company’s Annual Report on Form 10-K for the year ended December 31, 2020 for a summary of AbbVie’s risk management policy and use of derivative instruments.
Financial Instruments
Various AbbVie foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany transactions denominated in a currency other than the functional currency of the local entity. These contracts, with notional amounts totaling $1.7 billion at June 30, 2021 and $1.5 billion at December 31, 2020, are designated as cash flow hedges and are recorded at fair value. The durations of these forward exchange contracts were generally less than 18 months. Accumulated gains and losses as of June 30, 2021 are reclassified from accumulated other comprehensive income (loss) (AOCI) and included in cost of products sold at the time the products are sold, generally not exceeding six months from the date of settlement.
In the third quarter of 2019, the company entered into treasury rate lock agreements with notional amounts totaling $10.0 billion to hedge exposure to variability in future cash flows resulting from changes in interest rates related to the issuance of long-term debt in connection with the acquisition of Allergan. The treasury rate lock agreements were designated as cash flow hedges and recorded at fair value. The agreements were net settled upon issuance of the senior notes in November 2019 and the resulting net gain was recognized in other comprehensive income. This gain is reclassified to interest expense, net over the term of the related debt.
The company is party to interest rate swap contracts designated as cash flow hedges with notional amounts totaling $1.5 billion at June 30, 2021 and $2.3 billion at December 31, 2020. The effect of the hedge contracts is to change a floating-rate interest obligation to a fixed rate for that portion of the floating-rate debt. Realized and unrealized gains or losses are included in AOCI and are reclassified to interest expense, net over the lives of the floating-rate debt.
The company also enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated trade payables and receivables and intercompany loans. These contracts are not designated as hedges and are recorded at fair value. Resulting gains or losses are reflected in net foreign exchange gain or loss in the condensed consolidated statements of earnings and are generally offset by losses or gains on the foreign currency exposure being managed. These contracts had notional amounts totaling $7.8 billion at June 30, 2021 and $8.6 billion at December 31, 2020.
The company also uses foreign currency forward exchange contracts or foreign currency denominated debt to hedge its net investments in certain foreign subsidiaries and affiliates. The company had foreign currency forward exchange contracts with notional amounts totaling €2.8 billion at June 30, 2021 and €971 million at December 31, 2020. The company also had an aggregate principal amount of senior Euro notes designated as net investment hedges of €5.9 billion at June 30, 2021 and €6.6 billion at December 31, 2020. The company uses the spot method of assessing hedge effectiveness for derivative instruments designated as net investment hedges. Realized and unrealized gains and losses from these hedges are included in AOCI and the initial fair value of hedge components excluded from the assessment of effectiveness is recognized in interest expense, net over the life of the hedging instrument.
The company is party to interest rate swap contracts designated as fair value hedges with notional amounts totaling $3.8 billion at June 30, 2021 and $4.8 billion December 31, 2020. The effect of the hedge contracts is to change a fixed-rate interest obligation to a floating rate for that portion of the debt. AbbVie records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount.
2021 Form 10-Q | | 12 | ||||
| Fair value – Derivatives in asset position | Fair value – Derivatives in liability position | ||||||||||||||||||||||
| (in millions) | Balance sheet caption | June 30, 2021 | December 31, 2020 | Balance sheet caption | June 30, 2021 | December 31, 2020 | |||||||||||||||||
| Foreign currency forward exchange contracts | |||||||||||||||||||||||
| Designated as cash flow hedges | Prepaid expenses and other | $ | $ | Accounts payable and accrued liabilities | $ | $ | |||||||||||||||||
| Designated as cash flow hedges | Other assets | Other long-term liabilities | |||||||||||||||||||||
| Designated as net investment hedges | Prepaid expenses and other | Accounts payable and accrued liabilities | |||||||||||||||||||||
| Not designated as hedges | Prepaid expenses and other | Accounts payable and accrued liabilities | |||||||||||||||||||||
| Interest rate swap contracts | |||||||||||||||||||||||
| Designated as cash flow hedges | Prepaid expenses and other | Accounts payable and accrued liabilities | |||||||||||||||||||||
| Designated as cash flow hedges | Other assets | Other long-term liabilities | |||||||||||||||||||||
| Designated as fair value hedges | Prepaid expenses and other | Accounts payable and accrued liabilities | |||||||||||||||||||||
| Designated as fair value hedges | Other assets | Other long-term liabilities | |||||||||||||||||||||
| Total derivatives | $ | $ | $ | $ | |||||||||||||||||||
While certain derivatives are subject to netting arrangements with the company’s counterparties, the company does not offset derivative assets and liabilities within the condensed consolidated balance sheets.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Foreign currency forward exchange contracts | ||||||||||||||||||||||||||
| Designated as cash flow hedges | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||
| Designated as net investment hedges | ( | ( | ||||||||||||||||||||||||
| Interest rate swap contracts designated as cash flow hedges | ( | ( | ||||||||||||||||||||||||
Assuming market rates remain constant through contract maturities, the company expects to reclassify pre-tax losses of $49 million into cost of products sold for foreign currency cash flow hedges, pre-tax losses of $15 million into interest expense, net for interest rate swap cash flow hedges and pre-tax gains of $24 million into interest expense, net for treasury rate lock agreement cash flow hedges during the next 12 months.
Related to AbbVie’s non-derivative, foreign currency denominated debt designated as net investment hedges, the company recognized in other comprehensive income pre-tax losses of $126 million for the three months and pre-tax gains of $256 million for the six months ended June 30, 2021 and pre-tax losses of $252 million for the three months and pre-tax losses of $192 million for the six months ended June 30, 2020.
2021 Form 10-Q | | 13 | ||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (in millions) | Statement of earnings caption | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||
| Foreign currency forward exchange contracts | |||||||||||||||||||||||||||||
| Designated as cash flow hedges | Cost of products sold | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||
| Designated as net investment hedges | Interest expense, net | ||||||||||||||||||||||||||||
| Not designated as hedges | Net foreign exchange loss | ( | ( | ||||||||||||||||||||||||||
| Treasury rate lock agreements designated as cash flow hedges | Interest expense, net | ||||||||||||||||||||||||||||
| Interest rate swap contracts | |||||||||||||||||||||||||||||
| Designated as cash flow hedges | Interest expense, net | ( | ( | ( | ( | ||||||||||||||||||||||||
| Designated as fair value hedges | Interest expense, net | ( | ( | ||||||||||||||||||||||||||
| Debt designated as hedged item in fair value hedges | Interest expense, net | ( | ( | ||||||||||||||||||||||||||
Fair Value Measures
The fair value hierarchy consists of the following three levels:
•Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets that the company has the ability to access;
•Level 2 – Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations in which all significant inputs are observable in the market; and
•Level 3 – Valuations using significant inputs that are unobservable in the market and include the use of judgment by the company’s management about the assumptions market participants would use in pricing the asset or liability.
| Basis of fair value measurement | |||||||||||||||||||||||
| (in millions) | Total | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash and equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Money market funds and time deposits | |||||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||
| Interest rate swap contracts | |||||||||||||||||||||||
| Foreign currency contracts | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate swap contracts | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency contracts | |||||||||||||||||||||||
| Contingent consideration | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
2021 Form 10-Q | | 14 | ||||
| Basis of fair value measurement | |||||||||||||||||||||||
| (in millions) | Total | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash and equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Money market funds and time deposits | |||||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||
| Interest rate swap contracts | |||||||||||||||||||||||
| Foreign currency contracts | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate swap contracts | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency contracts | |||||||||||||||||||||||
| Contingent consideration | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
Equity securities consist of investments for which the fair values were determined by using the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The derivatives entered into by the company were valued using observable market inputs including published interest rate curves and both forward and spot prices for foreign currencies.
The fair value measurements of the contingent consideration liabilities were determined based on significant unobservable inputs, including the discount rate, estimated probabilities and timing of achieving specified development, regulatory and commercial milestones and the estimated amount of future sales of the acquired products. The potential contingent consideration payments are estimated by applying a probability-weighted expected payment model for contingent milestone payments and a Monte Carlo simulation model for contingent royalty payments, which are then discounted to present value. Changes to the fair value of the contingent consideration liabilities can result from changes to one or a number of inputs, including discount rates, the probabilities of achieving the milestones, the time required to achieve the milestones and estimated future sales. Significant judgment is employed in determining the appropriateness of certain of these inputs. Changes to the inputs described above could have a material impact on the company's financial position and results of operations in any given period.
The fair value of the company's contingent consideration liabilities as of June 30, 2021 was calculated using the following significant unobservable inputs:
| Range | Weighted average(a) | |||||||
| Discount rate | % | |||||||
| Probability of payment for unachieved milestones | % | |||||||
Probability of payment for royalties by indication(b) | % | |||||||
| Projected year of payments | ||||||||
2021 Form 10-Q | | 15 | ||||
There have been no The following table presents the changes in fair value of total contingent consideration liabilities which are measured using Level 3 inputs:
| Six months ended June 30, | ||||||||||||||
| (in millions) | 2021 | 2020 | ||||||||||||
| Beginning balance | $ | $ | ||||||||||||
Additions(a) | ||||||||||||||
| Change in fair value recognized in net earnings | ||||||||||||||
| Payments | ( | ( | ||||||||||||
| Ending balance | $ | $ | ||||||||||||
The change in fair value recognized in net earnings is recorded in other expense, net in the condensed consolidated statements of earnings.
Certain financial instruments are carried at historical cost or some basis other than fair value. The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of June 30, 2021 are shown in the table below:
| Basis of fair value measurement | ||||||||||||||||||||||||||
| (in millions) | Book value | Approximate fair value | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Short-term borrowings | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current portion of long-term debt and finance lease obligations, excluding fair value hedges | ||||||||||||||||||||||||||
| Long-term debt and finance lease obligations, excluding fair value hedges | ||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | |||||||||||||||||||||
The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of December 31, 2020 are shown in the table below:
| Basis of fair value measurement | ||||||||||||||||||||||||||
| (in millions) | Book value | Approximate fair value | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Short-term borrowings | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current portion of long-term debt and finance lease obligations, excluding fair value hedges | ||||||||||||||||||||||||||
| Long-term debt and finance lease obligations, excluding fair value hedges | ||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | |||||||||||||||||||||
AbbVie also holds investments in equity securities that do not have readily determinable fair values. The company records these investments at cost and remeasures them to fair value based on certain observable price changes or impairment events as they occur. The carrying amount of these investments was $118 million as of June 30, 2021 and $102 million as of December 31, 2020. No significant cumulative upward or downward adjustments have been recorded for these investments as of June 30, 2021.
2021 Form 10-Q | | 16 | ||||
Concentrations of Risk
Of total net accounts receivable, three U.S. wholesalers accounted for 73 % as of June 30, 2021 and 72 % as of December 31, 2020, and substantially all of AbbVie’s net revenues in the United States were to these three wholesalers.
Humira (adalimumab) is AbbVie’s single largest product and accounted for approximately 37 % of AbbVie’s total net revenues for the six months ended June 30, 2021 and 50 % for the six months ended June 30, 2020.
Debt and Credit Facilities
In April 2021, the company repaid $1.8 billion aggregate principal amount of 2.3 % senior notes that were scheduled to mature in May 2021. In May 2021, the company repaid €750 million aggregate principal amount of 0.5 % senior euro notes that were scheduled to mature in June 2021. These repayments were made by exercising, under the terms of the notes, 30-day early redemptions at 100% of the principal amounts. The company also repaid $750 million aggregate principal amount of floating rate senior notes at maturity in May 2021.
In connection with the acquisition of Allergan, in May 2020, the company borrowed $3.0 billion under a $6.0 billion term loan credit agreement, consisting of a $1.0 billion floating rate three-year term loan tranche and a $2.0 billion floating rate five-year term loan tranche. Subsequent to these borrowings, AbbVie terminated the unused commitments of the lenders under the term loan.
In May 2020, AbbVie completed its previously announced offers to exchange any and all outstanding notes of certain series issued by Allergan for new notes to be issued by AbbVie and cash. Following the settlement of the exchange offers, AbbVie issued $14.0 billion and €3.1 billion of new notes in exchange for the Allergan notes tendered in the exchange offers. The aggregate principal amount of Allergan notes that remained outstanding following the settlement of the exchange offers was approximately $1.5 billion and €635 million. The exchange transaction was accounted for as a modification of the assumed debt instruments.
In May 2020, the company also repaid $3.8 billion aggregate principal amount of 2.5 % senior notes at maturity.
Short-Term Borrowings
There were no no commercial paper borrowings issued during the six months ended June 30, 2021. The weighted-average interest rate on commercial paper borrowings was 1.8 % for the six months ended June 30, 2020.
Note 9 Post-Employment Benefits
The following table summarizes net periodic benefit cost relating to the company’s defined benefit and other post-employment plans:
| Defined benefit plans | Other post- employment plans | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service cost (credit) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Amortization of actuarial loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
2021 Form 10-Q | | 17 | ||||
Note 10 Equity
Stock-Based Compensation
In May 2021, stockholders of the company approved the AbbVie Amended and Restated 2013 Incentive Stock Program (the Amended Plan), which amends and restates the AbbVie 2013 Incentive Stock Program, including an increase in the number of shares available for issuance of 44 million shares and an extension of the program to May 2031. Stock-based compensation expense is principally related to awards issued pursuant to the AbbVie 2013 Incentive Stock Program and the Amended Plan and is summarized as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Cost of products sold | $ | $ | $ | $ | ||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Pre-tax compensation expense | ||||||||||||||||||||||||||
| Tax benefit | ||||||||||||||||||||||||||
| After-tax compensation expense | $ | $ | $ | $ | ||||||||||||||||||||||
Stock Options
During the six months ended June 30, 2021, primarily in connection with the company's annual grant, AbbVie granted 1.1 million stock options with a weighted-average grant-date fair value of $16.28 . As of June 30, 2021, $15 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next two years .
RSUs and Performance Shares
During the six months ended June 30, 2021, primarily in connection with the company's annual grant, AbbVie granted 7.3 million RSUs and performance shares with a weighted-average grant-date fair value of $105.29 . As of June 30, 2021, $849 million of unrecognized compensation cost related to RSUs and performance shares is expected to be recognized as expense over approximately the next two years .
Cash Dividends
| 2021 | 2020 | |||||||||||||||||||||||||||||||
| Date Declared | Payment Date | Dividend Per Share | Date Declared | Payment Date | Dividend Per Share | |||||||||||||||||||||||||||
| 06/17/21 | 08/16/21 | $ | 10/30/20 | 02/16/21 | $ | |||||||||||||||||||||||||||
| 02/18/21 | 05/14/21 | $ | 09/11/20 | 11/16/20 | $ | |||||||||||||||||||||||||||
| 06/17/20 | 08/14/20 | $ | ||||||||||||||||||||||||||||||
| 02/20/20 | 05/15/20 | $ | ||||||||||||||||||||||||||||||
Stock Repurchase Program
The company's stock repurchase authorization permits purchases of AbbVie shares from time to time in open-market or private transactions at management's discretion. The program has no time limit and can be discontinued at any time. Shares repurchased under this program are recorded at acquisition cost, including related expenses, and are available for general corporate purposes.
AbbVie repurchased 5 million shares for $550 million during the six months ended June 30, 2021 and 6 million shares for $500 million during the six months ended June 30, 2020. AbbVie's remaining stock repurchase authorization was approximately $2.6 billion as of June 30, 2021.
2021 Form 10-Q | | 18 | ||||
Accumulated Other Comprehensive Loss
| (in millions) | Foreign currency translation adjustments | Net investment hedging activities | Pension and post-employment benefits | Cash flow hedging activities | Total | ||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Net losses (gains) reclassified from accumulated other comprehensive loss | ( | ||||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||
Other comprehensive income for the six months ended June 30, 2021 included foreign currency translation adjustments totaling a loss of $433 million, which was principally due to the impact of the weakening of the Euro on the translation of the company’s Euro-denominated assets.
| (in millions) | Foreign currency translation adjustments | Net investment hedging activities | Pension and post- employment benefits | Cash flow hedging activities | Total | ||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Net losses (gains) reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
Other comprehensive income for the six months ended June 30, 2020 included foreign currency translation adjustments totaling a gain of $214 million, which was principally due to the impact of the strengthening of the Euro on the translation of the company’s Euro-denominated assets.
2021 Form 10-Q | | 19 | ||||
The following table presents the impact on AbbVie’s condensed consolidated statements of earnings for significant amounts reclassified out of each component of accumulated other comprehensive loss:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (in millions) (brackets denote gains) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net investment hedging activities | |||||||||||||||||||||||
Gains on derivative amount excluded from effectiveness testing(a) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Tax expense | |||||||||||||||||||||||
| Total reclassifications, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Pension and post-employment benefits | |||||||||||||||||||||||
Amortization of actuarial losses and other(b) | $ | $ | $ | $ | |||||||||||||||||||
| Tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Total reclassifications, net of tax | $ | $ | $ | $ | |||||||||||||||||||
| Cash flow hedging activities | |||||||||||||||||||||||
Losses on foreign currency forward exchange contracts(c) | $ | $ | $ | $ | |||||||||||||||||||
Gains on treasury rate lock agreements(a) | ( | ( | ( | ( | |||||||||||||||||||
Losses on interest rate swap contracts(a) | |||||||||||||||||||||||
| Tax benefit | ( | ( | |||||||||||||||||||||
| Total reclassifications, net of tax | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Note 11 Income Taxes
The effective tax rate was 34 % for the three months and 14 % for the six months ended June 30, 2021 compared to 7 % income tax expense on pre-tax loss for the three months ended June 30, 2020 and 6 % income tax expense on pre-tax income for the six months ended June 30, 2020. The effective tax rate in each period differed from the U.S. statutory tax rate of 21
Note 12 Legal Proceedings and Contingencies
AbbVie is subject to contingencies, such as various claims, legal proceedings and investigations regarding product liability, intellectual property, commercial, securities and other matters that arise in the normal course of business. The most significant matters are described below. Loss contingency provisions are recorded for probable losses at management’s best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount within a probable range is recorded. Initiation of new legal proceedings or a change in the status of existing proceedings may result in a change in the estimated loss accrued by AbbVie. While it is not feasible to predict the outcome of all proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on AbbVie’s consolidated financial position, results of operations or cash flows.
2021 Form 10-Q | | 20 | ||||
distribution, as well as assumed or retained liabilities, and will indemnify Abbott for any liability arising out of or resulting from such assumed legal matters.
Antitrust Litigation
Lawsuits are pending against AbbVie and others generally alleging that the 2005 patent litigation settlement involving Niaspan entered into between Kos Pharmaceuticals, Inc. (a company acquired by Abbott in 2006 and presently a subsidiary of AbbVie) and a generic company violates federal and state antitrust laws and state unfair and deceptive trade practices and unjust enrichment laws. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys' fees. The lawsuits pending in federal court consist of four individual plaintiff lawsuits and two consolidated purported class actions: one brought by Niaspan direct purchasers and one brought by Niaspan end-payers. The cases are pending in the United States District Court for the Eastern District of Pennsylvania for coordinated or consolidated pre-trial proceedings under the MDL Rules as In re: Niaspan Antitrust Litigation, MDL No. 2460. In August 2019, the court certified a class of direct purchasers of Niaspan. In June 2020, the court denied the end-payers' motion to certify a class. In October 2016, the Orange County, California District Attorney’s Office filed a lawsuit on behalf of the State of California regarding the Niaspan patent litigation settlement in Orange County Superior Court, asserting a claim under the unfair competition provision of the California Business and Professions Code seeking injunctive relief, restitution, civil penalties and attorneys’ fees.
In September 2014, the Federal Trade Commission (FTC) filed a lawsuit, FTC v. AbbVie Inc., et al., against AbbVie and others in the United States District Court for the Eastern District of Pennsylvania, alleging that 2011 patent litigation with two generic companies regarding AndroGel was sham litigation and the settlements of that litigation violated federal antitrust law. In May 2015, the court dismissed the FTC’s settlement-related claim. In June 2018, following a bench trial, the court found for the FTC on its sham litigation claim and ordered a disgorgement remedy of $448 million, plus prejudgment interest. The court denied the FTC’s request for injunctive relief. In September 2020, the United States Court of Appeals for the Third Circuit reversed the district court’s finding of sham litigation with respect to one generic company and affirmed with respect to the other but held the FTC lacked authority to obtain a disgorgement remedy and vacated the district court’s award. The Third Circuit also affirmed the district court’s denial of the FTC’s injunction request and reinstated the FTC’s settlement-related claim for further proceedings in the district court.
In August 2019, direct purchasers of AndroGel filed a lawsuit, King Drug Co. of Florence, Inc., et al. v. AbbVie Inc., et al., against AbbVie and others in the United States District Court for the Eastern District of Pennsylvania, alleging that 2006 patent litigation settlements and related agreements by Solvay Pharmaceuticals, Inc. (a company Abbott acquired in February 2010 and now known as AbbVie Products LLC) with three generic companies violated federal antitrust law, and also making allegations similar to those in FTC v. AbbVie Inc. (above). In May 2020, Perrigo Company and related entities filed a lawsuit against AbbVie and others in the United States District Court for the Eastern District of Pennsylvania, making sham litigation allegations similar to those in FTC v. AbbVie Inc. (above). In October 2020, the Perrigo lawsuit was transferred to the United States District Court for New Jersey.
Between March and May 2019, 12 putative class action lawsuits were filed in the United States District Court for the Northern District of Illinois by indirect Humira purchasers, alleging that AbbVie’s settlements with biosimilar manufacturers and AbbVie’s Humira patent portfolio violated state and federal antitrust laws. The court consolidated these lawsuits as In re: Humira (Adalimumab) Antitrust Litigation. In June 2020, the court dismissed the consolidated litigation with prejudice. The plaintiffs have appealed the dismissal.
Lawsuits are pending against Forest Laboratories, LLC and others generally alleging that 2009 and 2010 patent litigation settlements involving Namenda entered into between Forest and generic companies and other conduct by Forest involving Namenda, violated state antitrust, unfair and deceptive trade practices, and unjust enrichment laws. Plaintiffs generally seek monetary damages, injunctive relief and attorneys’ fees. The lawsuits, purported class actions filed by indirect purchasers of Namenda, are consolidated as In re: Namenda Indirect Purchaser Antitrust Litigation in the United States District Court for the Southern District of New York.
Lawsuits are pending against Allergan Inc. generally alleging that Allergan’s petitioning to the U.S. Patent Office and Food and Drug Administration and other conduct by Allergan involving Restasis violated federal and state antitrust laws and state unfair and deceptive trade practices and unjust enrichment laws. Plaintiffs generally seek monetary damages, injunctive relief and attorneys’ fees. The lawsuits, certified as a class action filed on behalf of indirect purchasers of Restasis, are consolidated for pre-trial purposes in the United States District Court for the Eastern District of New York under the MDL Rules as In re: Restasis (Cyclosporine Ophthalmic Emulsion) Antitrust Litigation, MDL No. 2819. In May 2021, the parties reached an agreement in principle to settle this matter that, once finalized, will be subject to court approval.
Lawsuits are pending against Forest Laboratories, LLC and others generally alleging that 2012 and 2013 patent litigation settlements involving Bystolic with six generic manufacturers violated federal and state antitrust laws and state unfair and deceptive trade practices and unjust enrichment laws. Plaintiffs generally seek monetary damages, injunctive relief, and attorneys’ fees. The
2021 Form 10-Q | | 21 | ||||
lawsuits, purported class actions filed on behalf of direct and indirect purchasers of Bystolic, are consolidated as In re: Bystolic Antitrust Litigation in the United States District Court for the Southern District of New York.
Government Proceedings
Lawsuits are pending against Allergan and other defendants generally alleging that they improperly marketed and/or distributed prescription opioid products. Approximately 3,100 matters are pending against Allergan. The federal court cases are consolidated for pre-trial purposes in the United States District Court for the Northern District of Ohio under the MDL rules as In re: National Prescription Opiate Litigation, MDL No. 2804. Approximately 300 of the claims are pending in various state courts. The plaintiffs in these cases, which include states, counties, cities, school districts, hospitals, union trust funds and third-party payors, generally seek compensatory and punitive damages.
In July 2019, the New Mexico Attorney General filed a lawsuit, State of New Mexico ex rel. Balderas v. AbbVie Inc., et al., in New Mexico District Court for Santa Fe County against AbbVie and other companies alleging their marketing of AndroGel violated New Mexico’s Unfair Practices Act. In October 2020, the state added a claim under the New Mexico False Advertising Act.
Shareholder and Securities Litigation
In June 2016, a lawsuit, Elliott Associates, L.P., et al. v. AbbVie Inc., was filed by five investment funds against AbbVie in the Cook County, Illinois Circuit Court alleging that AbbVie made misrepresentations and omissions in connection with its proposed transaction with Shire. Similar lawsuits were filed between July 2017 and October 2019 against AbbVie and in some instances its chief executive officer in the same court by additional investment funds. The court granted motions dismissing the claims of three investment-fund plaintiffs, which they appealed. In March 2021, in the first of those appeals, the dismissal was affirmed. One of these plaintiffs refiled its lawsuit in New York state court in June 2020 while the appeal of its dismissal in Illinois is pending. In November 2020, the New York Supreme Court for the County of New York dismissed that lawsuit, which is being appealed. Plaintiffs seek compensatory and punitive damages.
In October 2018, a federal securities purported class action lawsuit, Holwill v. AbbVie Inc., et al., was filed in the United States District Court for the Northern District of Illinois against AbbVie, its chief executive officer and former chief financial officer, alleging that reasons stated for Humira sales growth in financial filings between 2013 and 2017 were misleading because they omitted alleged misconduct in connection with Humira patient and reimbursement support services and other services and items of value that allegedly induced Humira prescriptions.
Lawsuits are pending against Allergan and certain of its current and former officers alleging they made misrepresentations and omissions regarding Allergan's textured breast implants. The lawsuits, which were filed by Allergan shareholders, have been consolidated in the United States District Court for the Southern District of New York as In re: Allergan plc Securities Litigation. The plaintiffs generally seek compensatory damages and attorneys’ fees. In September 2019, the court partially granted Allergan's motion to dismiss. In September 2020, the court denied plaintiffs’ class certification motion because it found the lead plaintiff to be an inadequate representative of the proposed class but allowed another putative class member to propose itself as a new lead plaintiff. In December 2020, the court appointed a new lead plaintiff.
Lawsuits are pending against Allergan and certain of its current and former officers alleging they made misrepresentations and omissions regarding Allergan’s former Actavis generics unit and its alleged anticompetitive conduct with other generic drug companies. The lawsuits were filed by Allergan shareholders and consist of three purported class actions and one individual action seeking monetary damages and attorney’s fees that have been consolidated in the U.S. District Court for the District of New Jersey as In re: Allergan Generic Drug Pricing Securities Litigation. In July 2021, the parties reached an agreement to settle the class action lawsuits, which is pending court approval.
Product Liability and General Litigation
In 2018, a qui tam lawsuit, U.S. ex rel. Silbersher v. Allergan Inc., et al., was filed in the United States District Court for the Northern District of California against several Allergan entities and others, alleging that their conduct before the U.S. Patent Office resulted in false claims for payment being made to federal and state healthcare payors for Namenda XR and Namzaric. The plaintiff-relator seeks damages and attorneys' fees under the federal False Claims Act and state law analogues. The federal government and state governments declined to intervene in the lawsuit.
Intellectual Property Litigation
AbbVie Inc. and AbbVie Biotechnology Ltd are seeking to enforce their patent rights relating to adalimumab (a drug AbbVie sells under the trademark Humira). In April 2021 and May 2021, cases were filed in the United States District Court for the Northern District of Illinois against Alvotech hf. AbbVie alleges defendant’s proposed biosimilar adalimumab product infringes certain AbbVie
2021 Form 10-Q | | 22 | ||||
patents and seeks declaratory and injunctive relief. Defendant has filed a motion to dismiss the April 2021 case on jurisdictional grounds. In May 2021, Alvotech hf. and its U.S. subsidiary Alvotech USA, Inc. filed a declaratory judgment action in the United States Eastern District of Virginia seeking a declaration that the same patents at issue in AbbVie’s April 2021 Illinois case are invalid or not infringed. AbbVie has filed a motion to dismiss or transfer that case to the Northern District of Illinois.
Pharmacyclics LLC, a wholly owned subsidiary of AbbVie, is seeking to enforce its patent rights relating to ibrutinib tablets (a drug Pharmacyclics sells under the trademark Imbruvica). Cases were filed in the United States District Court for the District of Delaware in March 2019 and March 2020 against Alvogen Pine Brook LLC and Natco Pharma Ltd. Pharmacyclics alleges defendants’ proposed generic ibrutinib tablet product infringes certain Pharmacyclics patents and seeks declaratory and injunctive relief. Janssen Biotech, Inc. which is in a global collaboration with Pharmacyclics concerning the development and marketing of Imbruvica, is the co-plaintiff in these suits.
2021 Form 10-Q | | 23 | ||||
Note 13 Segment Information
AbbVie operates as a single global business segment dedicated to the research and development, manufacturing, commercialization and sale of innovative medicines and therapies. This operating structure enables the Chief Executive Officer, as chief operating decision maker (CODM), to allocate resources and assess business performance on a global basis in order to achieve established long-term strategic goals. Consistent with this structure, a global research and development and supply chain organization is responsible for the discovery, manufacturing and supply of products. Commercial efforts that coordinate the marketing, sales and distribution of these products are organized by geographic region or therapeutic area. All of these activities are supported by a global corporate administrative staff. The determination of a single business segment is consistent with the consolidated financial information regularly reviewed by the CODM for purposes of assessing performance, allocating resources and planning and forecasting future periods.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Immunology | ||||||||||||||||||||||||||
| Humira | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Skyrizi | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Rinvoq | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Hematologic Oncology | ||||||||||||||||||||||||||
| Imbruvica | United States | $ | $ | $ | $ | |||||||||||||||||||||
| Collaboration revenues | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Venclexta | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Aesthetics | ||||||||||||||||||||||||||
Botox Cosmetic (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Juvederm Collection (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Other Aesthetics (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Neuroscience | ||||||||||||||||||||||||||
Botox Therapeutic (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Vraylar (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| Duodopa | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Ubrelvy (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
Other Neuroscience (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
2021 Form 10-Q | | 24 | ||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Eye Care | ||||||||||||||||||||||||||
Lumigan/Ganfort (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Alphagan/Combigan(a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Restasis (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Other Eye Care (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Women's Health | ||||||||||||||||||||||||||
Lo Loestrin (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Orilissa/Oriahnn | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Other Women's Health (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Other Key Products | ||||||||||||||||||||||||||
| Mavyret | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Creon | United States | $ | $ | $ | $ | |||||||||||||||||||||
| Lupron | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Linzess/Constella (a) | United States | $ | $ | $ | $ | |||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Synthroid | United States | $ | $ | $ | $ | |||||||||||||||||||||
All other (a) | $ | $ | $ | $ | ||||||||||||||||||||||
| Total net revenues | $ | $ | $ | $ | ||||||||||||||||||||||
2021 Form 10-Q | | 25 | ||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the financial condition of AbbVie Inc. (AbbVie or the company) as of June 30, 2021 and December 31, 2020 and the results of operations for the three and six months ended June 30, 2021 and 2020. This commentary should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes appearing in Item 1, “Financial Statements and Supplementary Data.”
EXECUTIVE OVERVIEW
Company Overview
AbbVie is a global, research-based biopharmaceutical company. AbbVie uses its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases.
On May 8, 2020, AbbVie completed the acquisition of Allergan plc (Allergan). The acquisition of Allergan created a diversified biopharmaceutical company positioned for success with a comprehensive product portfolio that has leadership positions in key therapeutic areas of immunology, hematologic oncology, aesthetics, neuroscience, eye care and women's health. AbbVie's existing product portfolio and pipeline was enhanced with numerous Allergan assets and Allergan's product portfolio benefits from AbbVie's commercial strength, expertise and international infrastructure. See Note 4 to the Condensed Consolidated Financial Statements for additional information on the acquisition. Subsequent to the acquisition date, AbbVie's consolidated financial statements include the assets, liabilities, operating results and cash flows of Allergan.
AbbVie’s products are generally sold worldwide directly to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies and independent retailers from AbbVie-owned distribution centers and public warehouses. Certain aesthetic products and devices are also sold directly to physicians and other licensed healthcare providers. In the United States, AbbVie distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to pharmacies and patients. Outside the United States, AbbVie sells products primarily to customers or through distributors, depending on the market served. Certain products are co-marketed or co-promoted with other companies. AbbVie has approximately 48,000 employees. AbbVie operates as a single global business segment.
2021 Strategic Objectives
AbbVie's mission is to discover and develop innovative medicines and products that solve serious health issues today and address the medical challenges of tomorrow while achieving top-tier financial performance through outstanding execution. AbbVie intends to continue to advance its mission in a number of ways, including: (i) maximizing the benefits of the Allergan acquisition to create a more diversified revenue base with multiple long-term growth drivers; (ii) growing revenues by leveraging AbbVie's commercial strength and international infrastructure across Allergan's therapeutic areas and ensuring strong commercial execution of new product launches; (iii) continuing to invest in and expand its pipeline in support of opportunities in immunology, oncology, aesthetics, neuroscience, eye care and women's health as well as continued investment in key on-market products; (iv) expanding operating margins; and (v) returning cash to shareholders via a strong and growing dividend while also reducing debt. In addition, AbbVie anticipates several regulatory submissions and key data readouts from key clinical trials in the next 12 months.
Financial Results
The company's financial performance for the six months ended June 30, 2021 included delivering worldwide net revenues of $27.0 billion, operating earnings of $8.5 billion, diluted earnings per share of $2.41 and cash flows from operations of $9.8 billion. Worldwide net revenues grew by 42% on a reported basis and 40% on a constant currency basis, which included $8.6 billion of contributed revenues from the Allergan acquisition, growth in the immunology portfolio from Skyrizi, Rinvoq and the continued strength of Humira in the U.S. as well as revenue growth from Venclexta and Imbruvica.
Diluted earnings per share was $2.41 for the six months ended June 30, 2021 and included the following after-tax costs: (i) $3.3 billion related to the amortization of intangible assets; (ii) $2.3 billion for the change in fair value of contingent consideration liabilities; (iii) $295 million for milestones and other research and development (R&D) expenses; (iv) $261 million of Allergan acquisition and integration expenses; (v) $159 million for acquired in-process research and development (IPR&D); and (vi) $93 million for charges related to litigation matters. Additionally, financial results reflected continued funding to support all stages of AbbVie’s pipeline assets and continued investment in AbbVie’s on-market brands.
Following the closing of the Allergan acquisition, AbbVie implemented an integration plan designed to reduce costs, integrate and optimize the combined organization. The integration plan is expected to realize more than $2 billion of annual cost synergies over a
2021 Form 10-Q | | 26 | ||||
three-year period, with approximately 50% realized in R&D, 40% in selling, general and administrative (SG&A) and 10% in cost of products sold.
To achieve these integration objectives, AbbVie expects to incur total charges of approximately $2 billion through 2022. These costs will consist of severance and employee benefit costs (cash severance, non-cash severance, including accelerated equity award compensation expense, retention and other termination benefits) and other integration expenses.
Impact of the Coronavirus Disease 2019 (COVID-19)
In response to the ongoing public health crisis posed by COVID-19, AbbVie continues to partner with global authorities to support the experimental use of multiple AbbVie assets to determine their efficacy in the treatment of COVID-19. AbbVie has also committed to supporting vaccine efforts in local communities around its headquarters, including launching a temporary vaccination clinic for seniors over 65 years old and supporting employee volunteers at vaccination sites. AbbVie continues to closely manage manufacturing and supply chain resources around the world to help ensure that patients continue to receive an uninterrupted supply of their medicines. Clinical trial sites are being monitored locally to protect the safety of study participants, staff and employees. While the impact of COVID-19 on AbbVie's operations to date has not been material, AbbVie continues to experience lower new patient starts in certain products and markets. AbbVie expects this matter could continue to negatively impact its results of operations throughout the duration of the outbreak. The extent to which COVID-19 may impact AbbVie's financial condition and results of operations remains uncertain and is dependent on numerous evolving factors, including the measures being taken by authorities to mitigate against the spread of COVID-19, the emergence of new variants and the availability and successful administration of effective vaccines.
Research and Development
Research and innovation are the cornerstones of AbbVie’s business as a global biopharmaceutical company. AbbVie’s long-term success depends to a great extent on its ability to continue to discover and develop innovative products and acquire or collaborate on compounds currently in development by other biotechnology or pharmaceutical companies.
AbbVie’s pipeline currently includes more than 90 compounds, devices or indications in development individually or under collaboration or license agreements and is focused on such important specialties as immunology, oncology, aesthetics, neuroscience, eye care and women's health along with targeted investments in cystic fibrosis. Of these programs, more than 50 are in mid- and late-stage development.
The following sections summarize transitions of significant programs from mid-stage development to late-stage development as well as developments in significant late-stage and registration programs. AbbVie expects multiple mid-stage programs to transition into late-stage programs in the next 12 months.
Significant Programs and Developments
Immunology
Skyrizi
•In January 2021, AbbVie announced top-line results from its Phase 3 KEEPsAKE-1 and KEEPsAKE-2 clinical trials of Skyrizi in adults with active psoriatic arthritis (PsA) met the primary and ranked secondary endpoints.
•In January 2021, AbbVie announced top-line results from its Phase 3 ADVANCE and MOTIVATE induction studies of Skyrizi in patients with Crohn’s Disease met the primary and key secondary endpoints.
•In April 2021, AbbVie submitted a supplemental New Drug Application (sNDA) to the U.S. Food and Drug Administration (FDA) and a marketing authorization application (MAA) to the European Medicines Agency (EMA) for the treatment of adults with active PsA.
•In April 2021, AbbVie received FDA approval of Skyrizi in a single dose pre-filled syringe and pre-filled pen. This approval will reduce the number of injections administered per treatment.
•In June 2021, AbbVie announced top-line results from its Phase 3 FORTIFY study for Skyrizi in patients with moderate to severe Crohn’s Disease met the co-primary endpoints.
2021 Form 10-Q | | 27 | ||||
Rinvoq
•In January 2021, AbbVie announced that the European Commission (EC) approved Rinvoq for the treatment of adults with active PsA and ankylosing spondylitis (AS).
•In February 2021, AbbVie announced its Phase 3 U-ACCOMPLISH induction study of Rinvoq for the treatment of adult patients with moderate to severe ulcerative colitis (UC) met the primary and all ranked secondary endpoints.
•In March 2021, AbbVie announced the FDA extended the review period for the sNDA of Rinvoq for the treatment of adult patients with active PsA by three months to late second quarter 2021.
•In April 2021, AbbVie announced the FDA extended the review period for the sNDA of Rinvoq for the treatment of moderate to severe atopic dermatitis (AD) by three months to early third quarter 2021.
•In June and July 2021, AbbVie announced the FDA will not meet the Prescription Drug User Fee Act (PDUFA) action dates for the sNDAs of Rinvoq for the treatment of adults with active PsA and adults with active AS as well as adults and adolescents with moderate to severe AD. No formal regulatory action has been taken on the sNDAs for Rinvoq in PsA, AS or AD.
•In June 2021, AbbVie announced that the Committee for Medicinal Products for Human Use (CHMP) of the EMA granted a positive opinion for Rinvoq for the expanded use in patients 12 years and older with moderate to severe AD who are candidates for systemic therapy.
•In June 2021, AbbVie announced the results from its Phase 3 maintenance study of Rinvoq in patients with UC met the primary and all secondary endpoints.
Oncology
Venclexta
•In April 2021, AbbVie announced that the CHMP of the EMA granted a positive opinion for Venclyxto in combination with hypomethylating agents for patients with newly diagnosed acute myeloid leukemia (AML) who are ineligible for intensive chemotherapy.
•In May 2021, AbbVie received European Commission approval for Venclyxto in combination with a hypomethylating agent for patients with newly diagnosed AML who are ineligible for intensive chemotherapy.
•In July 2021, AbbVie announced that the FDA granted a Breakthrough Therapy Designation to Venclexta in combination with azacitidine for the potential treatment of adult patients with previously untreated intermediate-, high- and very high-risk myelodysplastic syndromes.
Imbruvica
•In June 2021, AbbVie announced results from its Phase 3 GLOW study comparing the efficacy and safety of Imbruvica in combination with Venclexta versus chlorambucil plus obinutuzumab for first-line treatment in patients with chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL) met its primary endpoint.
Neuroscience
Botox Therapeutic
•In February 2021, AbbVie received FDA approval of Botox for the treatment of detrusor overactivity associated with a neurological condition in certain pediatric patients 5 years of age and older.
Atogepant
•In March 2021, AbbVie announced that the FDA accepted the New Drug Application (NDA) for atogepant for the preventive treatment of migraine in adults who meet criteria for episodic migraine.
2021 Form 10-Q | | 28 | ||||
Eye Care
AGN-190584
•In February 2021, AbbVie submitted an NDA to the FDA for investigational AGN-190584 for the treatment of presbyopia.
For a more comprehensive discussion of AbbVie’s products and pipeline, see the company’s Annual Report on Form 10-K for the year ended December 31, 2020.
RESULTS OF OPERATIONS
Net Revenues
The comparisons presented at constant currency rates reflect comparative local currency net revenues at the prior year’s foreign exchange rates. This measure provides information on the change in net revenues assuming that foreign currency exchange rates had not changed between the prior and current periods. AbbVie believes that the non-GAAP measure of change in net revenues at constant currency rates, when used in conjunction with the GAAP measure of change in net revenues at actual currency rates, may provide a more complete understanding of the company’s operations and can facilitate analysis of the company’s results of operations, particularly in evaluating performance from one period to another.
| Three months ended June 30, | Percent change | Six months ended June 30, | Percent change | |||||||||||||||||||||||||||||||||||||||||||||||
| At actual currency rates | At constant currency rates | At actual currency rates | At constant currency rates | |||||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
United States | $ | 10,804 | $ | 8,147 | 32.6 | % | 32.6 | % | $ | 20,554 | $ | 14,305 | 43.7 | % | 43.7 | % | ||||||||||||||||||||||||||||||||||
International | 3,155 | 2,278 | 38.4 | % | 30.1 | % | 6,415 | 4,739 | 35.3 | % | 28.5 | % | ||||||||||||||||||||||||||||||||||||||
Net revenues | $ | 13,959 | $ | 10,425 | 33.9 | % | 32.1 | % | $ | 26,969 | $ | 19,044 | 41.6 | % | 39.9 | % | ||||||||||||||||||||||||||||||||||
2021 Form 10-Q | | 29 | ||||
The following table details AbbVie’s worldwide net revenues:
| Three months ended June 30, | Percent change | Six months ended June 30, | Percent change | ||||||||||||||||||||||||||||||||||||||||||||||||||
| At actual currency rates | At constant currency rates | At actual currency rates | At constant currency rates | ||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Immunology | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Humira | United States | $ | 4,257 | $ | 3,974 | 7.1 | % | 7.1 | % | $ | 8,164 | $ | 7,630 | 7.0 | % | 7.0 | % | ||||||||||||||||||||||||||||||||||||
| International | 811 | 863 | (6.0) | % | (12.6) | % | 1,771 | 1,910 | (7.3) | % | (12.6) | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 5,068 | $ | 4,837 | 4.8 | % | 3.6 | % | $ | 9,935 | $ | 9,540 | 4.1 | % | 3.0 | % | |||||||||||||||||||||||||||||||||||||
| Skyrizi | United States | $ | 565 | $ | 289 | 95.7 | % | 95.7 | % | $ | 1,046 | $ | 555 | 88.5 | % | 88.5 | % | ||||||||||||||||||||||||||||||||||||
| International | 109 | 41 | >100.0 % | >100.0 % | 202 | 75 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 674 | $ | 330 | >100.0 % | >100.0 % | $ | 1,248 | $ | 630 | 98.0 | % | 95.7 | % | |||||||||||||||||||||||||||||||||||||||
| Rinvoq | United States | $ | 296 | $ | 136 | >100.0 % | >100.0 % | $ | 541 | $ | 218 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 82 | 13 | >100.0 % | >100.0 % | 140 | 17 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 378 | $ | 149 | >100.0 % | >100.0 % | $ | 681 | $ | 235 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||
| Hematologic Oncology | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Imbruvica | United States | $ | 1,099 | $ | 1,055 | 4.3 | % | 4.3 | % | $ | 2,098 | $ | 2,021 | 3.8 | % | 3.8 | % | ||||||||||||||||||||||||||||||||||||
| Collaboration revenues | 282 | 233 | 20.6 | % | 20.6 | % | 551 | 499 | 10.4 | % | 10.4 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,381 | $ | 1,288 | 7.2 | % | 7.2 | % | $ | 2,649 | $ | 2,520 | 5.1 | % | 5.1 | % | |||||||||||||||||||||||||||||||||||||
| Venclexta | United States | $ | 223 | $ | 191 | 16.3 | % | 16.3 | % | $ | 448 | $ | 392 | 14.2 | % | 14.2 | % | ||||||||||||||||||||||||||||||||||||
| International | 212 | 112 | 89.3 | % | 75.9 | % | 392 | 228 | 71.8 | % | 60.5 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 435 | $ | 303 | 43.2 | % | 38.3 | % | $ | 840 | $ | 620 | 35.4 | % | 31.2 | % | |||||||||||||||||||||||||||||||||||||
| Aesthetics | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Botox Cosmetic (a) | United States | $ | 366 | $ | 147 | >100.0 % | >100.0 % | $ | 671 | $ | 147 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 218 | 79 | >100.0 % | >100.0 % | 390 | 79 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 584 | $ | 226 | >100.0 % | >100.0 % | $ | 1,061 | $ | 226 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||
Juvederm Collection (a) | United States | $ | 196 | $ | 56 | >100.0 % | >100.0 % | $ | 319 | $ | 56 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 232 | 57 | >100.0 % | >100.0 % | 430 | 57 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 428 | $ | 113 | >100.0 % | >100.0 % | $ | 749 | $ | 113 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||
Other Aesthetics (a) | United States | $ | 363 | $ | 127 | >100.0 % | >100.0 % | $ | 663 | $ | 127 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 59 | 15 | >100.0 % | >100.0 % | 102 | 15 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 422 | $ | 142 | >100.0 % | >100.0 % | $ | 765 | $ | 142 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||
| Neuroscience | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Botox Therapeutic (a) | United States | $ | 488 | $ | 254 | 92.4 | % | 92.4 | % | $ | 917 | $ | 254 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||
| International | 115 | 43 | >100.0 % | >100.0 % | 218 | 43 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 603 | $ | 297 | >100.0 % | 99.4 | % | $ | 1,135 | $ | 297 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
Vraylar (a) | United States | $ | 432 | $ | 192 | >100.0 % | >100.0 % | $ | 778 | $ | 192 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| Duodopa | United States | $ | 25 | $ | 25 | (1.3) | % | (1.3) | % | $ | 50 | $ | 50 | (0.3) | % | (0.3) | % | ||||||||||||||||||||||||||||||||||||
| International | 102 | 93 | 10.3 | % | 1.1 | % | 206 | 192 | 7.4 | % | (1.8) | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 127 | $ | 118 | 7.8 | % | 0.5 | % | $ | 256 | $ | 242 | 5.8 | % | (1.5) | % | |||||||||||||||||||||||||||||||||||||
Ubrelvy (a) | United States | $ | 126 | $ | 22 | >100.0 % | >100.0 % | $ | 207 | $ | 22 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
Other Neuroscience (a) | United States | $ | 167 | $ | 103 | 61.0 | % | 61.0 | % | $ | 323 | $ | 103 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||
| International | 4 | 2 | >100.0 % | >100.0 % | 8 | 2 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 171 | $ | 105 | 62.9 | % | 62.4 | % | $ | 331 | $ | 105 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||
2021 Form 10-Q | | 30 | ||||
| Three months ended June 30, | Percent change | Six months ended June 30, | Percent change | ||||||||||||||||||||||||||||||||||||||||||||||||||
| At actual currency rates | At constant currency rates | At actual currency rates | At constant currency rates | ||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Eye Care | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Lumigan/Ganfort (a) | United States | $ | 72 | $ | 35 | >100.0 % | >100.0 % | $ | 138 | $ | 35 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 77 | 41 | 86.2 | % | 70.9 | % | 154 | 41 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 149 | $ | 76 | 94.6 | % | 86.3 | % | $ | 292 | $ | 76 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||
Alphagan/Combigan(a) | United States | $ | 102 | $ | 47 | >100.0 % | >100.0 % | $ | 182 | $ | 47 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 40 | 22 | 76.0 | % | 68.8 | % | 78 | 22 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 142 | $ | 69 | >100.0 % | >100.0 % | $ | 260 | $ | 69 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||
Restasis (a) | United States | $ | 312 | $ | 138 | >100.0 % | >100.0 % | $ | 579 | $ | 138 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 15 | 6 | >100.0 % | >100.0 % | 28 | 6 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 327 | $ | 144 | >100.0 % | >100.0 % | $ | 607 | $ | 144 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||
Other Eye Care (a) | United States | $ | 130 | $ | 54 | >100.0 % | >100.0 % | $ | 247 | $ | 54 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 171 | 74 | >100.0 % | >100.0 % | 330 | 74 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 301 | $ | 128 | >100.0 % | >100.0 % | $ | 577 | $ | 128 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||
| Women's Health | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Lo Loestrin (a) | United States | $ | 93 | $ | 78 | 19.8 | % | 19.8 | % | $ | 195 | $ | 78 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||
| International | 5 | 2 | >100.0 % | 94.1 | % | 7 | 2 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 98 | $ | 80 | 21.9 | % | 21.4 | % | $ | 202 | $ | 80 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||
| Orilissa/Oriahnn | United States | $ | 36 | $ | 30 | 21.3 | % | 21.3 | % | $ | 65 | $ | 60 | 8.2 | % | 8.2 | % | ||||||||||||||||||||||||||||||||||||
| International | 2 | 1 | 87.4 | % | 67.6 | % | 3 | 2 | 72.9 | % | 60.2 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 38 | $ | 31 | 23.0 | % | 22.5 | % | $ | 68 | $ | 62 | 10.0 | % | 9.7 | % | |||||||||||||||||||||||||||||||||||||
Other Women's Health (a) | United States | $ | 50 | $ | 34 | 47.8 | % | 47.8 | % | $ | 96 | $ | 34 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||
| International | 5 | 2 | >100.0 % | >100.0 % | 5 | 2 | >100.0 % | 90.7 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 55 | $ | 36 | 53.7 | % | 52.7 | % | $ | 101 | $ | 36 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||
| Other Key Products | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mavyret | United States | $ | 204 | $ | 146 | 37.6 | % | 37.6 | % | $ | 374 | $ | 380 | (1.9) | % | (1.9) | % | ||||||||||||||||||||||||||||||||||||
| International | 238 | 230 | 4.1 | % | (1.4) | % | 483 | 555 | (12.9) | % | (17.9) | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 442 | $ | 376 | 17.2 | % | 13.9 | % | $ | 857 | $ | 935 | (8.4) | % | (11.4) | % | |||||||||||||||||||||||||||||||||||||
| Creon | United States | $ | 280 | $ | 252 | 11.0 | % | 11.0 | % | $ | 554 | $ | 528 | 4.8 | % | 4.8 | % | ||||||||||||||||||||||||||||||||||||
| Lupron | United States | $ | 151 | $ | 167 | (10.2) | % | (10.2) | % | $ | 322 | $ | 362 | (11.2) | % | (11.2) | % | ||||||||||||||||||||||||||||||||||||
| International | 47 | 38 | 23.9 | % | 16.6 | % | 89 | 76 | 17.3 | % | 12.8 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 198 | $ | 205 | (4.0) | % | (5.3) | % | $ | 411 | $ | 438 | (6.3) | % | (7.1) | % | |||||||||||||||||||||||||||||||||||||
Linzess/Constella (a) | United States | $ | 260 | $ | 130 | >100.0 % | >100.0 % | $ | 475 | $ | 130 | >100.0 % | >100.0 % | ||||||||||||||||||||||||||||||||||||||||
| International | 8 | 3 | >100.0 % | >100.0 % | 15 | 3 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 268 | $ | 133 | >100.0 % | >100.0 % | $ | 490 | $ | 133 | >100.0 % | >100.0 % | |||||||||||||||||||||||||||||||||||||||||
| Synthroid | United States | $ | 192 | $ | 183 | 5.0 | % | 5.0 | % | $ | 383 | $ | 388 | (1.2) | % | (1.2) | % | ||||||||||||||||||||||||||||||||||||
All other (a) | $ | 640 | $ | 590 | 9.1 | % | 6.9 | % | $ | 1,532 | $ | 1,143 | 34.4 | % | 31.9 | % | |||||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 13,959 | $ | 10,425 | 33.9 | % | 32.1 | % | $ | 26,969 | $ | 19,044 | 41.6 | % | 39.9 | % | |||||||||||||||||||||||||||||||||||||
(a) Net revenues include Allergan product revenues after the acquisition closing date of May 8, 2020.
The following discussion and analysis of AbbVie’s net revenues by product is presented on a constant currency basis.
Global Humira sales increased by 4% for the three months and 3% for the six months ended June 30, 2021 primarily driven by market growth across therapeutic categories, partially offset by direct biosimilar competition in certain international markets. In the United States, Humira sales increased by 7% for the three and six months ended June 30, 2021 primarily driven by market growth across all indications. This increase was partially offset by slightly lower market share following corresponding market share gains of Skyrizi and Rinvoq. Internationally, Humira revenues decreased by 13% for the three and six months ended June 30, 2021 primarily driven by direct biosimilar competition in certain international markets.
Net revenues for Skyrizi increased more than 100% for the three months and 96% for the six months ended June 30, 2021 primarily driven by continued strong volume and market share uptake since launch in 2019 as a treatment for plaque psoriasis as well as market growth over the prior year.
2021 Form 10-Q | | 31 | ||||
Net revenues for Rinvoq increased more than 100% for the three and six months ended June 30, 2021 primarily driven by continued strong volume and market share uptake since launch in 2019 for the treatment of moderate to severe rheumatoid arthritis as well as market growth over the prior year.
Net revenues for Imbruvica represent product revenues in the United States and collaboration revenues outside of the United States related to AbbVie’s 50% share of Imbruvica profit. AbbVie's global Imbruvica revenues increased by 7% for the three months and 5% for the six months ended June 30, 2021 primarily due to volume gains driven by market leadership, partially offset by lower new patient starts due to the COVID-19 pandemic and modest share loss in the United States.
Net revenues for Venclexta increased by 38% for the three months and 31% for the six months ended June 30, 2021 primarily due to continued expansion of Venclexta for the treatment of patients with first-line CLL, relapsed/refractory CLL and first-line AML.
Net revenues for Botox Cosmetic used in facial aesthetics increased more than 100% for the three and six months ended June 30, 2021 due to increased brand investment, strong recovery from the COVID-19 pandemic as well as a full period of Allergan results in 2021.
Net revenues for Juvederm Collection (including Juvederm Ultra XC, Juvederm Voluma XC and other Juvederm products) used in facial aesthetics increased more than 100% for the three and six months ended June 30, 2021 due to increased brand investment, strong recovery from the COVID-19 pandemic as well as a full period of Allergan results in 2021.
Net revenues for Botox Therapeutic used primarily in neuroscience and urology therapeutic areas increased by 99% for the three months and more than 100% for the six months ended June 30, 2021 due to a full period of Allergan results in 2021 as well as strong recovery from the COVID-19 pandemic.
Net revenues for Vraylar for the treatment of schizophrenia, bipolar I disorder and bipolar depression increased over 100% for the three and six months ended June 30, 2021 due to a full period of Allergan results in 2021 as well as higher market share and market growth.
Net revenues for Ubrelvy for the acute treatment of migraine with or without aura in adults increased more than 100% for the three and six months ended June 30, 2021 primarily due to increased market share uptake since launch in 2020.
Global Mavyret sales increased by 14% for the three months ended June 30, 2021, primarily driven by partial recovery of global hepatitis C virus (HCV) markets while sales decreased by 11% for the six months ended June 30, 2021 driven by disruption of global HCV markets due to the COVID-19 pandemic through the first quarter of 2021.
Net revenues for Lupron decreased by 5% for the three months and 7% for the six months ended June 30, 2021 as the company works to resolve a near-term supply issue which has impacted product availability of certain formulations.
Gross Margin
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | % change | 2021 | 2020 | % change | ||||||||||||||||||||||||||||||||
| Gross margin | $ | 9,436 | $ | 6,714 | 41 | % | $ | 18,233 | $ | 13,391 | 36 | % | ||||||||||||||||||||||||||
| as a % of net revenues | 68 | % | 64 | % | 68 | % | 70 | % | ||||||||||||||||||||||||||||||
Gross margin as a percentage of net revenues increased for the three months and decreased for the six months ended June 30, 2021 compared to the prior year. Gross margin percentage for the three months ended June 30, 2021 was favorably impacted by lower amortization of inventory fair value step-up adjustment associated with the Allergan acquisition, partially offset by higher amortization of intangible assets associated with the Allergan acquisition. Gross margin percentage for the six months ended June 30, 2021 was unfavorably impacted by higher amortization of intangible assets associated with the Allergan acquisition, partially offset by lower inventory fair value step-up adjustment associated with the Allergan acquisition.
2021 Form 10-Q | | 32 | ||||
Selling, General and Administrative
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | % change | 2021 | 2020 | % change | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 3,164 | $ | 3,527 | (10) | % | $ | 6,006 | $ | 5,222 | 15 | % | ||||||||||||||||||||||||||
| as a % of net revenues | 23 | % | 34 | % | 22 | % | 27 | % | ||||||||||||||||||||||||||||||
SG&A expenses as a percentage of net revenues decreased for the three and six months ended June 30, 2021 compared to the prior year. SG&A expense percentage for the three and six months ended June 30, 2021 was favorably impacted by lower transaction and integration costs related to the acquisition of Allergan.
Research and Development and Acquired In-Process Research and Development
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | % change | 2021 | 2020 | % change | ||||||||||||||||||||||||||||||||
| Research and development | $ | 1,802 | $ | 1,582 | 14 | % | $ | 3,584 | $ | 2,961 | 21 | % | ||||||||||||||||||||||||||
| as a % of net revenues | 13 | % | 15 | % | 13 | % | 16 | % | ||||||||||||||||||||||||||||||
| Acquired in-process research and development | $ | 97 | $ | 853 | (89) | % | $ | 167 | $ | 853 | (80) | % | ||||||||||||||||||||||||||
R&D expenses as a percentage of net revenues decreased for the three and six months ended June 30, 2021 compared to the prior year. R&D expense percentage was favorably impacted by the increased scale of the combined company for the period subsequent to the completion of the Allergan acquisition.
Acquired IPR&D expenses reflect upfront payments related to various collaborations. There were no individually significant transactions during the three and six months ended June 30, 2021. Acquired IPR&D expense in the three and six months ended June 30, 2020 included a charge of $750 million as a result of entering a collaboration agreement with Genmab A/S to research, develop and commercialize investigational bispecific antibody therapeutics for the treatment of cancer.
Other Non-Operating Expenses
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Interest expense | $ | 615 | $ | 632 | $ | 1,247 | $ | 1,195 | ||||||||||||||||||
| Interest income | (9) | (18) | (19) | (153) | ||||||||||||||||||||||
| Interest expense, net | $ | 606 | $ | 614 | $ | 1,228 | $ | 1,042 | ||||||||||||||||||
| Net foreign exchange loss | $ | 14 | $ | 29 | $ | 23 | $ | 34 | ||||||||||||||||||
| Other expense, net | 2,658 | 802 | 2,263 | 874 | ||||||||||||||||||||||
Interest expense decreased for the three months ended June 30, 2021 compared to the prior year primarily due to lower debt issuance costs and the favorable impact of lower interest rates on the company’s debt obligations, partially offset by a higher average debt balance associated with the incremental Allergan debt acquired. Interest expense increased for the six months ended June 30, 2021 primarily due to a higher average debt balance associated with the incremental Allergan debt acquired partially offset by lower debt issuance costs and the favorable impact of lower interest rates on the company’s floating rate debt obligations.
Interest income decreased for the three and six months ended June 30, 2021 compared to the prior year primarily due to a lower average cash and cash equivalents balance as a result of the cash paid for the Allergan acquisition and the unfavorable impact of lower interest rates.
Other expense, net included charges related to changes in fair value of contingent consideration liabilities of $2.7 billion for the three months and $2.3 billion for the six months ended June 30, 2021 and $809 million for the three months and $881 million for the six months ended June 30, 2020. The fair value of contingent consideration liabilities is impacted by the passage of time and multiple other inputs, including the probability of success of achieving regulatory/commercial milestones, discount rates, the estimated amount of future sales of the acquired products and other market-based factors. For the three and six months ended June 30, 2021, the change in fair value represented higher estimated Skyrizi sales driven by stronger market share uptake, favorable Skyrizi clinical
2021 Form 10-Q | | 33 | ||||
trial results and lower discount rates. For the three and six months ended June 30, 2020, the change in fair value represented lower discount rates and passage of time.
Income Tax Expense
The effective tax rate was 34% on for the three months and 14% for the six months ended June 30, 2021 compared to 7% for the three months ended June 30, 2020 and 6% for the six months ended June 30, 2020. The effective tax rate in each period differed from the U.S. statutory tax rate of 21% principally due to the benefit from foreign operations which reflects the impact of lower income tax rates in locations outside the United States, tax incentives in Puerto Rico and other foreign tax jurisdictions and business development activities. The increase in the effective tax rate for the three and six months ended June 30, 2021 over the prior year was primarily due to accretion on contingent consideration in 2021 as well as non-deductible Allergan acquisition related expenses and a change in tax rate in a foreign jurisdiction in 2020.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
| Six months ended June 30, | |||||||||||
| (in millions) | 2021 | 2020 | |||||||||
| Cash flows provided by (used in): | |||||||||||
| Operating activities | $ | 9,767 | $ | 6,904 | |||||||
| Investing activities | (584) | (35,781) | |||||||||
| Financing activities | (9,058) | (4,992) | |||||||||
Operating cash flows for the six months ended June 30, 2021 increased compared to the prior year. Operating cash flows for the six months ended June 30, 2021 were favorably impacted by higher net revenues of the combined company and lower acquisition-related cash expenses, partially offset by the timing of working capital cash flows, higher payments for income taxes and higher integration-related cash expenses.
Investing cash flows for the six months ended June 30, 2021 included capital expenditures of $383 million, payments made for other acquisitions and investments of $345 million, and net sales and maturities of investment securities totaling $9 million. Investing cash flows for the six months ended June 30, 2020 primarily included $39.7 billion cash consideration paid to acquire Allergan offset by cash acquired of $1.5 billion, capital expenditures of $302 million, net sales and maturities of investment securities totaling $1.4 billion and payments made for other acquisitions and investments of $192 million.
Financing cash flows for the six months ended June 30, 2021 included repayment of $1.8 billion aggregate principal amount of the company’s 2.3% senior notes and €750 million aggregate principal amount of the company’s 0.5% senior euro notes that were scheduled to mature during the second quarter of 2021 by exercising, under the terms of the notes, 30-day early redemptions at 100% of the principal amounts. It also included repayment of $750 million aggregate principal amount of floating rate senior notes at maturity in May 2021. Financing cash flows for the six months ended June 30, 2020 included the issuance of term loans totaling $3.0 billion under the existing $6.0 billion term loan credit agreement which were used to finance the acquisition of Allergan. Subsequent to these borrowings, AbbVie terminated the unused commitments of the lenders under the term loan. Additionally, financing cash flows included the May 2020 repayment of $3.8 billion aggregate principal amount of the company's 2.50% senior notes at maturity.
Cash dividend payments totaled $4.6 billion for the six months ended June 30, 2021 and $3.5 billion for the six months ended June 30, 2020. The increase in cash dividend payments was primarily driven by higher outstanding shares following the 286 million shares of AbbVie common stock issued to Allergan shareholders in May 2020 as well as an increase in the quarterly dividend rate. On June 17, 2021, the board of directors declared a quarterly cash dividend of $1.30 per share for stockholders of record at the close of business on July 15, 2021, payable on August 16, 2021. The timing, declaration, amount of and payment of any dividends by AbbVie in the future is within the discretion of its board of directors and will depend upon many factors, including AbbVie’s financial condition, earnings, capital requirements of its operating subsidiaries, covenants associated with certain of AbbVie’s debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets and other factors deemed relevant by its board of directors.
The company's stock repurchase authorization permits purchases of AbbVie shares from time to time in open-market or private transactions at management's discretion. The program has no time limit and can be discontinued at any time. AbbVie repurchased 5 million shares for $550 million during the six months ended June 30, 2021 and 6 million shares for $500 million during the six months ended June 30, 2020.
2021 Form 10-Q | | 34 | ||||
Credit Risk
AbbVie monitors economic conditions, the creditworthiness of customers and government regulations and funding, both domestically and abroad. AbbVie regularly communicates with its customers regarding the status of receivable balances, including their payment plans and obtains positive confirmation of the validity of the receivables. AbbVie establishes an allowance for credit losses equal to the estimate of future losses over the contractual life of outstanding accounts receivable. AbbVie may also utilize factoring arrangements to mitigate credit risk, although the receivables included in such arrangements have historically not been a significant amount of total outstanding receivables.
Credit Facility, Access to Capital and Credit Ratings
Credit Facility
AbbVie currently has a $4.0 billion five-year revolving credit facility that matures in August 2024. This credit facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants. At June 30, 2021, the company was in compliance with all covenants, and commitment fees under the credit facility were insignificant. No amounts were outstanding under the company's credit facility as of June 30, 2021 and December 31, 2020.
Access to Capital
The company intends to fund short-term and long-term financial obligations as they mature through cash on hand, future cash flows from operations or has the ability to issue additional debt. The company’s ability to generate cash flows from operations, issue debt or enter into financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for the company’s products or in the solvency of its customers or suppliers, deterioration in the company’s key financial ratios or credit ratings or other material unfavorable changes in business conditions. At the current time, the company believes it has sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support the company’s growth objectives.
Credit Ratings
There were no changes in the company’s credit ratings during six months ended June 30, 2021. Unfavorable changes to the ratings may have an adverse impact on future financing arrangements; however, they would not affect the company’s ability to draw on its credit facility and would not result in an acceleration of scheduled maturities of any of the company’s outstanding debt.
CRITICAL ACCOUNTING POLICIES
A summary of the company’s significant accounting policies is included in Note 2, “Summary of Significant Accounting Policies” in AbbVie's Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in the company’s application of its critical accounting policies during the six months ended June 30, 2021.
FORWARD-LOOKING STATEMENTS
Some statements in this quarterly report on Form 10-Q may be forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “project,” and similar expressions, among others, generally identify forward-looking statements. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to, failure to realize the expected benefits from AbbVie's acquisition of Allergan, failure to promptly and effectively integrate Allergan's businesses, challenges to intellectual property, competition from other products, difficulties inherent in the research and development process, adverse litigation or government action, changes to laws and regulations applicable to our industry and the impact of public health outbreaks, epidemics or pandemics, such as COVID-19. Additional information about the economic, competitive, governmental, technological and other factors that may affect AbbVie’s operations is set forth in Item 1A, “Risk Factors,” in AbbVie’s Annual Report on Form 10-K for the year ended December 31, 2020, which has been filed with the Securities and Exchange Commission. AbbVie notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. AbbVie undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the company's market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" in AbbVie's Annual Report on Form 10-K for the year ended December 31, 2020.
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ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. The Chief Executive Officer, Richard A. Gonzalez, and the Chief Financial Officer, Robert A. Michael, evaluated the effectiveness of AbbVie’s disclosure controls and procedures as of the end of the period covered by this report, and concluded that AbbVie’s disclosure controls and procedures were effective to ensure that information AbbVie is required to disclose in the reports that it files or submits with the Securities and Exchange Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by AbbVie in the reports that it files or submits under the Exchange Act is accumulated and communicated to AbbVie’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Changes in internal control over financial reporting. There were no changes in AbbVie’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, AbbVie’s internal control over financial reporting during the quarter ended June 30, 2021.
Inherent Limitations on Effectiveness of Controls. AbbVie’s management, including its Chief Executive Officer and its Chief Financial Officer, do not expect that AbbVie’s disclosure controls or internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.
The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
2021 Form 10-Q | | 36 | ||||
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information pertaining to legal proceedings is provided in Note 12 to the Condensed Consolidated Financial Statements and is incorporated by reference herein.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
| Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| April 1, 2021 – April 30, 2021 | 1,007 | (1) | $105.97 | (1) | — | $2,643,316,927 | ||||||||||||||||||||
| May 1, 2021 – May 31, 2021 | 873 | (1) | $114.44 | (1) | — | $2,643,316,927 | ||||||||||||||||||||
| June 1, 2021 – June 30, 2021 | 961 | (1) | $112.12 | (1) | — | $2,643,316,927 | ||||||||||||||||||||
| Total | 2,841 | (1) | $110.65 | (1) | — | $2,643,316,927 | ||||||||||||||||||||
1.In addition to AbbVie shares repurchased on the open market under a publicly announced program, if any, these shares also included the shares purchased on the open market for the benefit of participants in the AbbVie Employee Stock Purchase Plan – 1,007 in April; 873 in May; and 961 in June.
These shares do not include the shares surrendered to AbbVie to satisfy minimum tax withholding obligations in connection with the vesting or exercise of stock-based awards.
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ITEM 6. EXHIBITS
Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be “filed” under the Securities Exchange Act of 1934.
| Exhibit No. | Exhibit Description | |||||||
| 101 | The following financial statements and notes from the AbbVie Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, filed on August 2, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Earnings; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (the cover page from the AbbVie Inc. Quarterly Report on Form 10-Q formatted as Inline XBRL and contained in Exhibit 101). | |||||||
_______________________________________________________________________________
* Incorporated herein by reference. Commission file number 001-35565.
** Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.
2021 Form 10-Q | | 38 | ||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ABBVIE INC. | ||||||||
By: | /s/ Robert A. Michael | |||||||
Robert A. Michael | ||||||||
Executive Vice President, | ||||||||
Chief Financial Officer | ||||||||
Date: August 2, 2021
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