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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35565
AbbVie Inc. | | | | | | | | |
(Exact name of registrant as specified in its charter) |
Delaware | | 32-0375147 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. employer identification number) |
1 North Waukegan Road
North Chicago, Illinois 60064-6400
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.
| | | | | | | | | | | |
Large Accelerated Filer | ☒ | 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 |
Common Stock, par value $0.01 per share | | ABBV | | New York Stock Exchange |
| | | | Chicago Stock Exchange |
1.500% Senior Notes due 2023 | | ABBV23B | | New York Stock Exchange |
1.375% Senior Notes due 2024 | | ABBV24 | | New York Stock Exchange |
1.250% Senior Notes due 2024 | | ABBV24B | | New York Stock Exchange |
0.750% Senior Notes due 2027 | | ABBV27 | | New York Stock Exchange |
2.125% Senior Notes due 2028 | | ABBV28 | | New York Stock Exchange |
2.625% Senior Notes due 2028 | | ABBV28B | | New York Stock Exchange |
2.125% Senior Notes due 2029 | | ABBV29 | | New York Stock Exchange |
1.250% Senior Notes due 2031 | | ABBV31 | | New York Stock Exchange |
As of July 31, 2023, AbbVie Inc. had 1,765,046,680 shares of common stock at $0.01 par value outstanding.
AbbVie Inc. and Subsidiaries
Table of Contents
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) | | 2023 | | 2022 | | 2023 | | 2022 |
Net revenues | | $ | 13,865 | | | $ | 14,583 | | | $ | 26,090 | | | $ | 28,121 | |
| | | | | | | | |
Cost of products sold | | 4,240 | | | 4,170 | | | 8,226 | | | 8,222 | |
Selling, general and administrative | | 3,268 | | | 5,412 | | | 6,307 | | | 8,539 | |
Research and development | | 1,733 | | | 1,609 | | | 4,025 | | | 3,106 | |
Acquired IPR&D and milestones | | 280 | | | 269 | | | 430 | | | 414 | |
Other operating income | | (169) | | | (172) | | | (179) | | | (172) | |
Total operating costs and expenses | | 9,352 | | | 11,288 | | | 18,809 | | | 20,109 | |
Operating earnings | | 4,513 | | | 3,295 | | | 7,281 | | | 8,012 | |
| | | | | | | | |
Interest expense, net | | 454 | | | 532 | | | 908 | | | 1,071 | |
Net foreign exchange loss | | 37 | | | 47 | | | 72 | | | 72 | |
Other expense, net | | 1,412 | | | 1,533 | | | 3,216 | | | 757 | |
Earnings before income tax expense | | 2,610 | | | 1,183 | | | 3,085 | | | 6,112 | |
Income tax expense | | 583 | | | 255 | | | 817 | | | 691 | |
Net earnings | | 2,027 | | | 928 | | | 2,268 | | | 5,421 | |
Net earnings attributable to noncontrolling interest | | 3 | | | 4 | | | 5 | | | 7 | |
Net earnings attributable to AbbVie Inc. | | $ | 2,024 | | | $ | 924 | | | $ | 2,263 | | | $ | 5,414 | |
| | | | | | | | |
Per share data | | | | | | | | |
Basic earnings per share attributable to AbbVie Inc. | | $ | 1.14 | | | $ | 0.52 | | | $ | 1.27 | | | $ | 3.04 | |
Diluted earnings per share attributable to AbbVie Inc. | | $ | 1.14 | | | $ | 0.51 | | | $ | 1.26 | | | $ | 3.03 | |
| | | | | | | | |
Weighted-average basic shares outstanding | | 1,767 | | | 1,770 | | | 1,768 | | | 1,770 | |
Weighted-average diluted shares outstanding | | 1,771 | | | 1,776 | | | 1,773 | | | 1,777 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | | | | |
2023 Form 10-Q | | 1 |
AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Net earnings | $ | 2,027 | | | $ | 928 | | | $ | 2,268 | | | $ | 5,421 | |
| | | | | | | |
Foreign currency translation adjustments, net of tax expense (benefit) of $(6) for the three months and $6 for the six months ended June 30, 2023 and $(12) for the three months and $(19) for the six months ended June 30, 2022 | (16) | | | (823) | | | 178 | | | (1,054) | |
Net investment hedging activities, net of tax expense (benefit) of $2 for the three months and $(58) for the six months ended June 30, 2023 and $146 for the three months and $183 for the six months ended June 30, 2022 | 11 | | | 536 | | | (213) | | | 666 | |
Pension and post-employment benefits, net of tax expense (benefit) of $(4) for the three months and $10 for the six months ended June 30, 2023 and $11 for the three months and $21 for the six months ended June 30, 2022 | (2) | | | 48 | | | 36 | | | 76 | |
Cash flow hedging activities, net of tax expense (benefit) of $(4) for the three months and $(8) for the six months ended June 30, 2023 and $5 for the three months and $3 for the six months ended June 30, 2022 | (13) | | | 27 | | | (54) | | | 15 | |
Other comprehensive loss | (20) | | | (212) | | | (53) | | | (297) | |
Comprehensive income | 2,007 | | | 716 | | | 2,215 | | | 5,124 | |
Comprehensive income attributable to noncontrolling interest | 3 | | | 4 | | | 5 | | | 7 | |
Comprehensive income attributable to AbbVie Inc. | $ | 2,004 | | | $ | 712 | | | $ | 2,210 | | | $ | 5,117 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | | | | |
2023 Form 10-Q | | 2 |
AbbVie Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| | | | | | | | | | | |
(in millions, except share data) | June 30, 2023 | | December 31, 2022 |
| (unaudited) | | |
Assets | | | |
Current assets | | | |
Cash and equivalents | $ | 8,759 | | | $ | 9,201 | |
Short-term investments | 7 | | | 28 | |
Accounts receivable, net | 11,491 | | | 11,254 | |
Inventories | 4,055 | | | 3,579 | |
Prepaid expenses and other | 4,540 | | | 4,401 | |
Total current assets | 28,852 | | | 28,463 | |
| | | |
Investments | 288 | | | 241 | |
Property and equipment, net | 4,943 | | | 4,935 | |
Intangible assets, net | 62,862 | | | 67,439 | |
Goodwill | 32,224 | | | 32,156 | |
Other assets | 6,198 | | | 5,571 | |
Total assets | $ | 135,367 | | | $ | 138,805 | |
| | | |
Liabilities and Equity | | | |
Current liabilities | | | |
Short-term borrowings | $ | — | | | $ | 1 | |
Current portion of long-term debt and finance lease obligations | 5,203 | | | 4,135 | |
Accounts payable and accrued liabilities | 27,036 | | | 25,402 | |
Total current liabilities | 32,239 | | | 29,538 | |
| | | |
Long-term debt and finance lease obligations | 55,812 | | | 59,135 | |
Deferred income taxes | 2,124 | | | 2,190 | |
Other long-term liabilities | 32,294 | | | 30,655 | |
| | | |
Commitments and contingencies | | | |
| | | |
Stockholders' equity | | | |
Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,821,926,709 shares issued as of June 30, 2023 and 1,813,770,294 as of December 31, 2022 | 18 | | | 18 | |
Common stock held in treasury, at cost, 57,127,750 shares as of June 30, 2023 and 44,589,000 as of December 31, 2022 | (6,528) | | | (4,594) | |
Additional paid-in capital | 19,839 | | | 19,245 | |
Retained earnings | 1,789 | | | 4,784 | |
Accumulated other comprehensive loss | (2,252) | | | (2,199) | |
Total stockholders' equity | 12,866 | | | 17,254 | |
Noncontrolling interest | 32 | | | 33 | |
Total equity | 12,898 | | | 17,287 | |
| | | |
Total liabilities and equity | $ | 135,367 | | | $ | 138,805 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | | | | |
2023 Form 10-Q | | 3 |
AbbVie Inc. and Subsidiaries
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, 2022 | 1,767 | | | $ | 18 | | | $ | (4,585) | | | $ | 18,731 | | | $ | 5,103 | | | $ | (2,984) | | | $ | 31 | | | $ | 16,314 | |
Net earnings attributable to AbbVie Inc. | — | | | — | | | — | | | — | | | 924 | | | — | | | — | | | 924 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (212) | | | — | | | (212) | |
Dividends declared | — | | | — | | | — | | | — | | | (2,511) | | | — | | | — | | | (2,511) | |
Purchases of treasury stock | — | | | — | | | (9) | | | — | | | — | | | — | | | — | | | (9) | |
Stock-based compensation plans and other | 1 | | | — | | | 3 | | | 175 | | | — | | | — | | | — | | | 178 | |
Change in noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | 4 | |
Balance at June 30, 2022 | 1,768 | | | $ | 18 | | | $ | (4,591) | | | $ | 18,906 | | | $ | 3,516 | | | $ | (3,196) | | | $ | 35 | | | $ | 14,688 | |
| | | | | | | | | | | | | | | |
Balance at March 31, 2023 | 1,764 | | | $ | 18 | | | $ | (6,524) | | | $ | 19,619 | | | $ | 2,393 | | | $ | (2,232) | | | $ | 29 | | | $ | 13,303 | |
Net earnings attributable to AbbVie Inc. | — | | | — | | | — | | | — | | | 2,024 | | | — | | | — | | | 2,024 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (20) | | | — | | | (20) | |
Dividends declared | — | | | — | | | — | | | — | | | (2,628) | | | — | | | — | | | (2,628) | |
Purchases of treasury stock | — | | | — | | | (10) | | | — | | | — | | | — | | | — | | | (10) | |
Stock-based compensation plans and other | 1 | | | — | | | 6 | | | 220 | | | — | | | — | | | — | | | 226 | |
Change in noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Balance at June 30, 2023 | 1,765 | | | $ | 18 | | | $ | (6,528) | | | $ | 19,839 | | | $ | 1,789 | | | $ | (2,252) | | | $ | 32 | | | $ | 12,898 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 1,768 | | | $ | 18 | | | $ | (3,143) | | | $ | 18,305 | | | $ | 3,127 | | | $ | (2,899) | | | $ | 28 | | | $ | 15,436 | |
Net earnings attributable to AbbVie Inc. | — | | | — | | | — | | | — | | | 5,414 | | | — | | | — | | | 5,414 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (297) | | | — | | | (297) | |
Dividends declared | — | | | — | | | — | | | — | | | (5,025) | | | — | | | — | | | (5,025) | |
Purchases of treasury stock | (10) | | | — | | | (1,479) | | | — | | | — | | | — | | | — | | | (1,479) | |
Stock-based compensation plans and other | 10 | | | — | | | 31 | | | 601 | | | — | | | — | | | — | | | 632 | |
Change in noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 7 | | | 7 | |
Balance at June 30, 2022 | 1,768 | | | $ | 18 | | | $ | (4,591) | | | $ | 18,906 | | | $ | 3,516 | | | $ | (3,196) | | | $ | 35 | | | $ | 14,688 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2022 | 1,769 | | | $ | 18 | | | $ | (4,594) | | | $ | 19,245 | | | $ | 4,784 | | | $ | (2,199) | | | $ | 33 | | | $ | 17,287 | |
Net earnings attributable to AbbVie Inc. | — | | | — | | | — | | | — | | | 2,263 | | | — | | | — | | | 2,263 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (53) | | | — | | | (53) | |
Dividends declared | — | | | — | | | — | | | — | | | (5,258) | | | — | | | — | | | (5,258) | |
Purchases of treasury stock | (12) | | | — | | | (1,965) | | | — | | | — | | | — | | | — | | | (1,965) | |
Stock-based compensation plans and other | 8 | | | — | | | 31 | | | 594 | | | — | | | — | | | — | | | 625 | |
Change in noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Balance at June 30, 2023 | 1,765 | | | $ | 18 | | | $ | (6,528) | | | $ | 19,839 | | | $ | 1,789 | | | $ | (2,252) | | | $ | 32 | | | $ | 12,898 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | | | | |
2023 Form 10-Q | | 4 |
AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
| | | | | | | | | | | |
| Six months ended June 30, |
(in millions) (brackets denote cash outflows) | 2023 | | 2022 |
Cash flows from operating activities | | | |
Net earnings | $ | 2,268 | | | $ | 5,421 | |
Adjustments to reconcile net earnings to net cash from operating activities: | | | |
Depreciation | 369 | | | 401 | |
Amortization of intangible assets | 4,018 | | | 3,704 | |
Deferred income taxes | (635) | | | (794) | |
Change in fair value of contingent consideration liabilities | 3,424 | | | 861 | |
Stock-based compensation | 492 | | | 413 | |
Acquired IPR&D and milestones | 430 | | | 414 | |
Gain on divestitures | — | | | (172) | |
Non-cash litigation reserve adjustments, net of cash payments | (118) | | | 2,190 | |
Impairment of intangible assets | 710 | | | — | |
Other, net | (173) | | | (86) | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
Accounts receivable | (275) | | | (1,396) | |
Inventories | (458) | | | (499) | |
Prepaid expenses and other assets | 285 | | | 14 | |
Accounts payable and other liabilities | 1,107 | | | (448) | |
Income tax assets and liabilities, net | (932) | | | (110) | |
Cash flows from operating activities | 10,512 | | | 9,913 | |
| | | |
Cash flows from investing activities | | | |
Acquisitions and investments | (513) | | | (394) | |
Acquisitions of property and equipment | (353) | | | (305) | |
Purchases of investment securities | (35) | | | (1,411) | |
Sales and maturities of investment securities | 36 | | | 50 | |
Other, net | 25 | | | 599 | |
Cash flows from investing activities | (840) | | | (1,461) | |
| | | |
Cash flows from financing activities | | | |
Proceeds from issuance of long-term debt | — | | | 2,000 | |
Repayments of long-term debt and finance lease obligations | (2,353) | | | (4,881) | |
Dividends paid | (5,286) | | | (5,033) | |
Purchases of treasury stock | (1,965) | | | (1,479) | |
Proceeds from the exercise of stock options | 113 | | | 198 | |
Payments of contingent consideration liabilities | (641) | | | (482) | |
Other, net | 20 | | | 26 | |
Cash flows from financing activities | (10,112) | | | (9,651) | |
Effect of exchange rate changes on cash and equivalents | (2) | | | (26) | |
Net change in cash and equivalents | (442) | | | (1,225) | |
Cash and equivalents, beginning of period | 9,201 | | | 9,746 | |
| | | |
Cash and equivalents, end of period | $ | 8,759 | | | $ | 8,521 | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | | | | |
2023 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, 2022.
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 other reclassifications were made to conform the prior period interim condensed consolidated financial statements to the current period presentation.
Note 2 Supplemental Financial InformationInterest Expense, Net | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
(in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
Interest expense | | $ | 552 | | | $ | 556 | | | $ | 1,105 | | | $ | 1,104 | |
Interest income | | (98) | | | (24) | | | (197) | | | (33) | |
Interest expense, net | | $ | 454 | | | $ | 532 | | | $ | 908 | | | $ | 1,071 | |
Inventories | | | | | | | | | | | |
(in millions) | June 30, 2023 | | December 31, 2022 |
Finished goods | $ | 1,177 | | | $ | 1,162 | |
Work-in-process | 1,606 | | | 1,417 | |
Raw materials | 1,272 | | | 1,000 | |
Inventories | $ | 4,055 | | | $ | 3,579 | |
Property and Equipment, Net | | | | | | | | | | | |
(in millions) | June 30, 2023 | | December 31, 2022 |
Property and equipment, gross | $ | 11,318 | | | $ | 10,986 | |
Accumulated depreciation | (6,375) | | | (6,051) | |
Property and equipment, net | $ | 4,943 | | | $ | 4,935 | |
Depreciation expense was $190 million for the three months and $369 million for the six months ended June 30, 2023 and $203 million for the three months and $401 million for the six months ended June 30, 2022.
| | | | | |
2023 Form 10-Q | | 6 |
Note 3 Earnings Per ShareAbbVie 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. The following table summarizes the impact of the two-class method: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
(in millions, except per share data) | | 2023 | | 2022 | | 2023 | | 2022 |
Basic EPS | | | | | | | | |
Net earnings attributable to AbbVie Inc. | | $ | 2,024 | | | $ | 924 | | | $ | 2,263 | | | $ | 5,414 | |
Earnings allocated to participating securities | | 11 | | | 11 | | | 22 | | | 26 | |
Earnings available to common shareholders | | $ | 2,013 | | | $ | 913 | | | $ | 2,241 | | | $ | 5,388 | |
Weighted-average basic shares outstanding | | 1,767 | | | 1,770 | | | 1,768 | | | 1,770 | |
Basic earnings per share attributable to AbbVie Inc. | | $ | 1.14 | | | $ | 0.52 | | | $ | 1.27 | | | $ | 3.04 | |
| | | | | | | | |
Diluted EPS | | | | | | | | |
Net earnings attributable to AbbVie Inc. | | $ | 2,024 | | | $ | 924 | | | $ | 2,263 | | | $ | 5,414 | |
Earnings allocated to participating securities | | 11 | | | 11 | | | 22 | | | 26 | |
Earnings available to common shareholders | | $ | 2,013 | | | $ | 913 | | | $ | 2,241 | | | $ | 5,388 | |
Weighted-average shares of common stock outstanding | | 1,767 | | | 1,770 | | | 1,768 | | | 1,770 | |
Effect of dilutive securities | | 4 | | | 6 | | | 5 | | | 7 | |
Weighted-average diluted shares outstanding | | 1,771 | | | 1,776 | | | 1,773 | | | 1,777 | |
Diluted earnings per share attributable to AbbVie Inc. | | $ | 1.14 | | | $ | 0.51 | | | $ | 1.26 | | | $ | 3.03 | |
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 Other Licensing & Acquisitions Activity
Cash outflows related to acquisitions and investments totaled $513 million for the six months ended June 30, 2023 and $394 million for the six months ended June 30, 2022. AbbVie recorded acquired IPR&D and milestones expense of $280 million for the three months and $430 million for the six months ended June 30, 2023 and $269 million for the three months and $414 million for the six months ended June 30, 2022.
Syndesi Therapeutics SA
In February 2022, AbbVie acquired Syndesi Therapeutics SA and its portfolio of novel modulators of the synaptic vesicle protein 2A, including its lead molecule ABBV-552, previously named SDI-118, and accounted for the transaction as an asset acquisition. ABBV-552 is a small molecule, which is being evaluated to target nerve terminals to enhance synaptic efficiency. Under the terms of the agreement, AbbVie made an upfront payment of $130 million which was recorded to acquired IPR&D and milestones expense in the condensed consolidated statement of earnings in the first quarter of 2022. The agreement also includes additional future payments of up to $870 million upon the achievement of certain development, regulatory and commercial milestones.
Juvise Pharmaceuticals
In June 2022, AbbVie and Laboratories Juvise Pharmaceuticals (Juvise) entered into an asset purchase agreement where Juvise acquired worldwide commercial rights of a mature brand Pylera, which is used for the treatment of peptic ulcers with an infection by the bacterium Helicobacter pylori. The transaction was accounted for as the sale of an asset. Upon completion of the transaction,
| | | | | |
2023 Form 10-Q | | 7 |
AbbVie received net cash proceeds of $215 million and recognized a pre-tax gain of $172 million which was recorded in other operating income in the condensed consolidated statement of earnings in the second quarter of 2022.
Other Arrangements
AbbVie entered into several other arrangements resulting in charges related to upfront payments of $220 million for the three months and $352 million for the six months ended June 30, 2023 and $222 million for the three and six months ended June 30, 2022. Acquired IPR&D and milestones expense also included development milestones of $60 million for the three months and $78 million for the six months ended June 30, 2023 and $47 million for the three months and $62 million for the six months ended June 30, 2022.
Note 5 CollaborationsThe company has ongoing transactions with other entities through collaboration agreements. The following represent the significant collaboration agreements impacting the periods ended June 30, 2023 and 2022. 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 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.
The following table shows the profit and cost sharing relationship between Janssen and AbbVie: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
(in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
United States - Janssen's share of profits (included in cost of products sold) | | $ | 312 | | | $ | 404 | | | $ | 609 | | | $ | 812 | |
International - AbbVie's share of profits (included in net revenues) | | 241 | | | 283 | | | 481 | | | 582 | |
Global - AbbVie's share of other costs (included in respective line items) | | 57 | | | 69 | | | 112 | | | 133 | |
AbbVie’s receivable from Janssen, included in accounts receivable, net, was $268 million at June 30, 2023 and $295 million at December 31, 2022. AbbVie’s payable to Janssen, included in accounts payable and accrued liabilities, was $295 million at June 30, 2023 and $379 million at December 31, 2022.
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
| | | | | |
2023 Form 10-Q | | 8 |
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 Genentech’s share. Royalties paid for Venclexta revenues outside the United States are also included in AbbVie’s cost of products sold.
The following table shows the profit and cost sharing relationship between Genentech and AbbVie: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
(in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
Genentech's share of profits, including royalties (included in cost of products sold) | | $ | 214 | | | $ | 196 | | | $ | 416 | | | $ | 374 | |
AbbVie's share of sales and marketing costs from U.S. collaboration (included in SG&A) | | 8 | | | 5 | | | 19 | | | 17 | |
AbbVie's share of development costs (included in R&D) | | 30 | | | 31 | | | 58 | | | 58 | |
Note 6 Goodwill and Intangible AssetsGoodwill The following table summarizes the changes in the carrying amount of goodwill: | | | | | |
(in millions) | |
Balance as of December 31, 2022 | $ | 32,156 | |
Foreign currency translation adjustments | 68 | |
Balance as of June 30, 2023 | $ | 32,224 | |
The company performs its annual goodwill impairment assessment in the third quarter, or earlier if impairment indicators exist. As of June 30, 2023, there were no accumulated goodwill impairment losses.
Intangible Assets, Net
The following table summarizes intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
(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 | $ | 87,702 | | | $ | (28,400) | | | $ | 59,302 | | | $ | 87,698 | | | $ | (25,003) | | | $ | 62,695 | |
License agreements | 8,474 | | | (5,207) | | | 3,267 | | | 8,474 | | | (4,642) | | | 3,832 | |
Total definite-lived intangible assets | 96,176 | | | (33,607) | | | 62,569 | | | 96,172 | | | (29,645) | | | 66,527 | |
Indefinite-lived intangible assets | 293 | | | — | | | 293 | | | 912 | | | — | | | 912 | |
Total intangible assets, net | $ | 96,469 | | | $ | (33,607) | | | $ | 62,862 | | | $ | 97,084 | | | $ | (29,645) | | | $ | 67,439 | |
Definite-Lived Intangible Assets
Amortization expense was $2.1 billion for the three months and $4.0 billion for the six months ended June 30, 2023 and $1.8 billion for the three months and $3.7 billion for the six months ended June 30, 2022. Amortization expense was included in cost of products sold in the condensed consolidated statements of earnings.
The company monitors intangible assets for impairment on a quarterly basis. The definite-lived intangible asset related to Imbruvica in the United States has a carrying value of $4.3 billion as of June 30, 2023. Estimated future cash flows are not significantly higher than the intangible asset’s carrying value, reflecting the company’s current expectations of the impact of the Inflation Reduction Act
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2023 Form 10-Q | | 9 |
of 2022. Future changes to the company’s estimates of the impact of the Inflation Reduction Act and the potential of government selection for price negotiations as well as regulatory, market and competitive developments could unfavorably impact the company’s ability to recover the carrying value of the related intangible asset. It is reasonably possible that an intangible asset impairment may occur in future periods, which may have a material effect on AbbVie’s results of operations.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets represent acquired 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.
During the first quarter of 2023, the company made a decision to revise the research and development plan for AGN-151607, a novel investigational neurotoxin for the prevention of postoperative atrial fibrillation in cardiac surgery patients. This decision contributed to a delay in the estimated timing of regulatory approval as well as a significant decrease in estimated future cash flows of the product and represented a triggering event which required the company to evaluate the underlying indefinite-lived intangible asset for impairment. The company utilized a discounted cash flow analysis to estimate the fair value which was below the carrying value of the intangible asset. Based on the revised cash flows, the company recorded a pre-tax impairment charge of $630 million to research and development expense in the condensed consolidated statement of earnings for the first quarter of 2023.
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 and incurred total cumulative charges of $2.4 billion through June 30, 2023. These costs 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.
The following table summarizes the charges (benefits) associated with the Allergan acquisition integration plan: | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
(in millions) | | 2023 | 2022 | | 2023 | | 2022 |
Cost of products sold | | $ | 32 | | $ | 26 | | | $ | 46 | | | $ | 57 | |
Research and development | | 1 | | 1 | | | 1 | | | 10 | |
Selling, general and administrative | | 51 | | 76 | | | 95 | | | 146 | |
Total charges | | $ | 84 | | $ | 103 | | | $ | 142 | | | $ | 213 | |
The following table summarizes the cash activity in the recorded liability associated with the Allergan integration plan for the six months ended June 30, 2023: | | | | | |
(in millions) | |
Accrued balance as of December 31, 2022 | $ | 107 | |
Charges | 135 | |
Payments and other adjustments | (195) | |
Accrued balance as of June 30, 2023 | $ | 47 | |
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2023 Form 10-Q | | 10 |
Other Restructuring
AbbVie recorded restructuring charges of $18 million for the three months and $45 million for the six months ended June 30, 2023 and $36 million for the three months and $93 million for the six months ended June 30, 2022.
The following table summarizes the cash activity in the restructuring reserve for the six months ended June 30, 2023: | | | | | |
(in millions) | |
Accrued balance as of December 31, 2022 | $ | 176 | |
Restructuring charges | 24 | |
Payments and other adjustments | (51) | |
Accrued balance as of June 30, 2023 | $ | 149 | |
Note 8 Financial Instruments and Fair Value MeasuresRisk Management Policy See Note 11 to the company’s Annual Report on Form 10-K for the year ended December 31, 2022 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 $2.2 billion at June 30, 2023 and $1.7 billion at December 31, 2022, 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, 2023 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 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 2019 and the resulting net gain was included in AOCI. This gain is reclassified to interest expense, net over the term of the related debt.
The company was a party to interest rate swap contracts designated as cash flow hedges that matured in November 2022. The effect of the hedge contracts was 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 were included in AOCI and reclassified to interest expense, net over the lives of the floating-rate debt.
In June 2023, the company entered into a cross-currency swap contract with a notional amount totaling €433 million to hedge the company’s exposure to changes in future cash flows of foreign currency denominated debt related to changes in foreign exchange rates. The cross-currency swap contract was designated as a cash flow hedge and effectively converted the interest and principal payments of the related foreign currency denominated debt to U.S. dollars. The unrealized gains and losses on the contract are included in AOCI and are reclassified to net foreign exchange loss over the term of the related 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 $10.7 billion at June 30, 2023 and $6.5 billion at December 31, 2022.
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 an aggregate principal amount of senior Euro notes designated as net investment hedges of €5.4 billion at June 30, 2023 and €5.9 billion at December 31, 2022. In addition, the company had foreign currency forward exchange contracts designated as net investment hedges with notional amounts totaling €4.2 billion, SEK1.4 billion, CAD750 million and CHF50 million at June 30, 2023 and €4.3 billion, SEK2.0 billion, CAD750 million and CHF90 million at December 31, 2022. 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
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2023 Form 10-Q | | 11 |
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 a party to interest rate swap contracts designated as fair value hedges with notional amounts totaling $5.0 billion at June 30, 2023 and $4.5 billion at December 31, 2022. 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.
No amounts are excluded from the assessment of effectiveness for cash flow hedges or fair value hedges.
The following table summarizes the amounts and location of AbbVie’s derivative instruments on the condensed consolidated balance sheets: | | | | | | | | | | | | | | | | | | | | | | | |
| Fair value – Derivatives in asset position | | Fair value – Derivatives in liability position |
(in millions) | Balance sheet caption | June 30, 2023 | December 31, 2022 | | Balance sheet caption | June 30, 2023 | December 31, 2022 |
Foreign currency forward exchange contracts | | | | | | | |
Designated as cash flow hedges | Prepaid expenses and other | $ | 32 | | $ | 49 | | | Accounts payable and accrued liabilities | $ | 9 | | $ | 8 | |
Designated as cash flow hedges | Other assets | 1 | | 1 | | | Other long-term liabilities | 1 | | — | |
Designated as net investment hedges | Prepaid expenses and other | 3 | | 6 | | |