filings.toolsItem 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions, except per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Net revenues | $ | 14,812 | $ | 14,342 | $ | 42,933 | $ | 41,311 | ||||||||||||||||||
| Cost of products sold | 5,022 | 4,390 | 13,244 | 13,126 | ||||||||||||||||||||||
| Selling, general and administrative | 3,304 | 3,083 | 11,843 | 9,089 | ||||||||||||||||||||||
| Research and development | 1,614 | 1,661 | 4,720 | 5,095 | ||||||||||||||||||||||
| Acquired IPR&D and milestones | 40 | 402 | 454 | 719 | ||||||||||||||||||||||
| Other operating expense, net | 229 | 500 | 57 | 432 | ||||||||||||||||||||||
| Total operating costs and expenses | 10,209 | 10,036 | 30,318 | 28,461 | ||||||||||||||||||||||
| Operating earnings | 4,603 | 4,306 | 12,615 | 12,850 | ||||||||||||||||||||||
| Interest expense, net | 497 | 585 | 1,568 | 1,813 | ||||||||||||||||||||||
| Net foreign exchange loss | 36 | 12 | 108 | 35 | ||||||||||||||||||||||
| Other expense (income), net | (330) | 21 | 427 | 2,284 | ||||||||||||||||||||||
| Earnings before income tax expense | 4,400 | 3,688 | 10,512 | 8,718 | ||||||||||||||||||||||
| Income tax expense | 448 | 508 | 1,139 | 1,214 | ||||||||||||||||||||||
| Net earnings | 3,952 | 3,180 | 9,373 | 7,504 | ||||||||||||||||||||||
| Net earnings attributable to noncontrolling interest | 3 | 1 | 10 | 6 | ||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | $ | 3,949 | $ | 3,179 | $ | 9,363 | $ | 7,498 | ||||||||||||||||||
| Per share data | ||||||||||||||||||||||||||
| Basic earnings per share attributable to AbbVie Inc. | $ | 2.22 | $ | 1.78 | $ | 5.26 | $ | 4.21 | ||||||||||||||||||
| Diluted earnings per share attributable to AbbVie Inc. | $ | 2.21 | $ | 1.78 | $ | 5.24 | $ | 4.19 | ||||||||||||||||||
| Weighted-average basic shares outstanding | 1,771 | 1,770 | 1,771 | 1,769 | ||||||||||||||||||||||
| Weighted-average diluted shares outstanding | 1,776 | 1,777 | 1,777 | 1,776 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2022 Form 10-Q |  | 1 |
AbbVie Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (unaudited)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net earnings | $ | 3,952 | $ | 3,180 | $ | 9,373 | $ | 7,504 | |||||||||||||||
| Foreign currency translation adjustments, net of tax expense (benefit) of $(11) for the three months and $(30) for the nine months ended September 30, 2022 and $(8) for the three months and $(32) for the nine months ended September 30, 2021 | (989) | (361) | (2,043) | (794) | |||||||||||||||||||
| Net investment hedging activities, net of tax expense (benefit) of $165 for the three months and $348 for the nine months ended September 30, 2022 and $51 for the three months and $123 for the nine months ended September 30, 2021 | 599 | 184 | 1,265 | 444 | |||||||||||||||||||
| Pension and post-employment benefits, net of tax expense (benefit) of $14 for the three months and $35 for the nine months ended September 30, 2022 and $17 for the three months and $50 for the nine months ended September 30, 2021 | 60 | 67 | 136 | 196 | |||||||||||||||||||
| Cash flow hedging activities, net of tax expense (benefit) of $14 for the three months and $17 for the nine months ended September 30, 2022 and $13 for the three months and $16 for the nine months ended September 30, 2021 | 83 | 57 | 98 | 115 | |||||||||||||||||||
| Other comprehensive loss | (247) | (53) | (544) | (39) | |||||||||||||||||||
| Comprehensive income | 3,705 | 3,127 | 8,829 | 7,465 | |||||||||||||||||||
| Comprehensive income attributable to noncontrolling interest | 3 | 1 | 10 | 6 | |||||||||||||||||||
| Comprehensive income attributable to AbbVie Inc. | $ | 3,702 | $ | 3,126 | $ | 8,819 | $ | 7,459 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2022 Form 10-Q | | 2 |
AbbVie Inc. and Subsidiaries Condensed Consolidated Balance Sheets
| (in millions, except share data) | September 30, 2022 | December 31, 2021 | |||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and equivalents | $ | 11,832 | $ | 9,746 | |||||||
| Short-term investments | 47 | 84 | |||||||||
| Accounts receivable, net | 10,743 | 9,977 | |||||||||
| Inventories | 3,172 | 3,128 | |||||||||
| Prepaid expenses and other | 4,570 | 4,993 | |||||||||
| Total current assets | 30,364 | 27,928 | |||||||||
| Investments | 235 | 277 | |||||||||
| Property and equipment, net | 4,893 | 5,110 | |||||||||
| Intangible assets, net | 68,725 | 75,951 | |||||||||
| Goodwill | 31,726 | 32,379 | |||||||||
| Other assets | 5,382 | 4,884 | |||||||||
| Total assets | $ | 141,325 | $ | 146,529 | |||||||
| Liabilities and Equity | |||||||||||
| Current liabilities | |||||||||||
| Short-term borrowings | $ | 10 | $ | 14 | |||||||
| Current portion of long-term debt and finance lease obligations | 9,197 | 12,481 | |||||||||
| Accounts payable and accrued liabilities | 23,505 | 22,699 | |||||||||
| Total current liabilities | 32,712 | 35,194 | |||||||||
| Long-term debt and finance lease obligations | 60,399 | 64,189 | |||||||||
| Deferred income taxes | 1,972 | 3,009 | |||||||||
| Other long-term liabilities | 30,215 | 28,701 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity | |||||||||||
| Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,812,973,038 shares issued as of September 30, 2022 and 1,803,195,293 as of December 31, 2021 | 18 | 18 | |||||||||
| Common stock held in treasury, at cost, 44,572,117 shares as of September 30, 2022 and 34,857,597 as of December 31, 2021 | (4,590) | (3,143) | |||||||||
| Additional paid-in capital | 19,056 | 18,305 | |||||||||
| Retained earnings | 4,953 | 3,127 | |||||||||
| Accumulated other comprehensive loss | (3,443) | (2,899) | |||||||||
| Total stockholders' equity | 15,994 | 15,408 | |||||||||
| Noncontrolling interest | 33 | 28 | |||||||||
| Total equity | 16,027 | 15,436 | |||||||||
| Total liabilities and equity | $ | 141,325 | $ | 146,529 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2022 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 June 30, 2021 | 1,767 | $ | 18 | $ | (3,022) | $ | 17,936 | $ | 740 | $ | (3,103) | $ | 25 | $ | 12,594 | ||||||||||||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | — | — | — | — | 3,179 | — | — | 3,179 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (53) | — | (53) | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | — | (2,319) | — | — | (2,319) | |||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | (6) | — | — | — | — | (6) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation plans and other | 1 | — | 8 | 172 | — | — | — | 180 | |||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | — | — | — | — | — | 2 | 2 | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 1,768 | $ | 18 | $ | (3,020) | $ | 18,108 | $ | 1,600 | $ | (3,156) | $ | 27 | $ | 13,577 | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 1,768 | $ | 18 | $ | (4,591) | $ | 18,906 | $ | 3,516 | $ | (3,196) | $ | 35 | $ | 14,688 | ||||||||||||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | — | — | — | — | 3,949 | — | — | 3,949 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (247) | — | (247) | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | — | (2,512) | — | — | (2,512) | |||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | (4) | — | — | — | — | (4) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation plans and other | — | — | 5 | 150 | — | — | — | 155 | |||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | — | — | — | — | — | (2) | (2) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | 1,768 | $ | 18 | $ | (4,590) | $ | 19,056 | $ | 4,953 | $ | (3,443) | $ | 33 | $ | 16,027 | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 1,765 | $ | 18 | $ | (2,264) | $ | 17,384 | $ | 1,055 | $ | (3,117) | $ | 21 | $ | 13,097 | ||||||||||||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | — | — | — | — | 7,498 | — | — | 7,498 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (39) | — | (39) | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | — | (6,953) | — | — | (6,953) | |||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | (7) | — | (803) | — | — | — | — | (803) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation plans and other | 10 | — | 47 | 724 | — | — | — | 771 | |||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | — | — | — | — | — | 6 | 6 | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 1,768 | $ | 18 | $ | (3,020) | $ | 18,108 | $ | 1,600 | $ | (3,156) | $ | 27 | $ | 13,577 | ||||||||||||||||||||||||||||||||
| 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. | — | — | — | — | 9,363 | — | — | 9,363 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (544) | — | (544) | |||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | — | (7,537) | — | — | (7,537) | |||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | (10) | — | (1,483) | — | — | — | — | (1,483) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation plans and other | 10 | — | 36 | 751 | — | — | — | 787 | |||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | — | — | — | — | — | 5 | 5 | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | 1,768 | $ | 18 | $ | (4,590) | $ | 19,056 | $ | 4,953 | $ | (3,443) | $ | 33 | $ | 16,027 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2022 Form 10-Q | | 4 |
AbbVie Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited)
| Nine months ended September 30, | |||||||||||
| (in millions) (brackets denote cash outflows) | 2022 | 2021 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net earnings | $ | 9,373 | $ | 7,504 | |||||||
| Adjustments to reconcile net earnings to net cash from operating activities: | |||||||||||
| Depreciation | 582 | 630 | |||||||||
| Amortization of intangible assets | 5,728 | 5,912 | |||||||||
| Deferred income taxes | (1,415) | (153) | |||||||||
| Change in fair value of contingent consideration liabilities | 647 | 2,447 | |||||||||
| Stock-based compensation | 539 | 563 | |||||||||
| Acquired IPR&D and milestones | 454 | 719 | |||||||||
| Other charges related to collaborations | — | 500 | |||||||||
| Gain on divestitures | (172) | (68) | |||||||||
| Non-cash litigation reserve adjustments, net of cash payments | 2,261 | 21 | |||||||||
| Impairment of intangible assets | 770 | 50 | |||||||||
| Other, net | (151) | (185) | |||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | (1,039) | (572) | |||||||||
| Inventories | (516) | (30) | |||||||||
| Prepaid expenses and other assets | (60) | (462) | |||||||||
| Accounts payable and other liabilities | 330 | 1,454 | |||||||||
| Income tax assets and liabilities, net | 184 | (628) | |||||||||
| Cash flows from operating activities | 17,515 | 17,702 | |||||||||
| Cash flows from investing activities | |||||||||||
| Acquisitions and investments | (494) | (837) | |||||||||
| Acquisitions of property and equipment | (482) | (600) | |||||||||
| Purchases of investment securities | (1,428) | (73) | |||||||||
| Sales and maturities of investment securities | 1,460 | 88 | |||||||||
| Other, net | 769 | 223 | |||||||||
| Cash flows from investing activities | (175) | (1,199) | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from issuance of long-term debt | 2,000 | 1,000 | |||||||||
| Repayments of long-term debt and finance lease obligations | (7,582) | (5,662) | |||||||||
| Dividends paid | (7,537) | (6,947) | |||||||||
| Purchases of treasury stock | (1,483) | (803) | |||||||||
| Proceeds from the exercise of stock options | 209 | 169 | |||||||||
| Payments of contingent consideration liabilities | (817) | (480) | |||||||||
| Other, net | 41 | 22 | |||||||||
| Cash flows from financing activities | (15,169) | (12,701) | |||||||||
| Effect of exchange rate changes on cash and equivalents | (85) | (69) | |||||||||
| Net change in cash and equivalents | 2,086 | 3,733 | |||||||||
| Cash and equivalents, beginning of period | 9,746 | 8,449 | |||||||||
| Cash and equivalents, end of period | $ | 11,832 | $ | 12,182 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2022 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, 2021.
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.
During the three months ended March 31, 2022, AbbVie revised its classification of development milestone expense associated with licensing and collaboration arrangements in the consolidated statement of earnings. Milestone payments incurred prior to regulatory approval, which were previously included in research and development expense, are now presented as acquired IPR&D and milestones expense. The reclassification decreased research and development expense and increased acquired IPR&D and milestones expense by $12 million for the three months and $162 million for the nine months ended September 30, 2021. The company believes this presentation assists users of the financial statements to better understand the total upfront and subsequent development milestone payments incurred to acquire in-process research and development projects. Prior periods have been reclassified to conform to the current period presentation. The reclassification had no impact on total operating costs and expenses, operating earnings, net earnings, net earnings attributable to AbbVie, Inc., earnings per share, or total equity. Certain other reclassifications were made to conform the prior period interim condensed consolidated financial statements to the current period presentation.
Note 2 Supplemental Financial Information
Interest Expense, Net
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Interest expense | $ | 560 | $ | 596 | $ | 1,664 | $ | 1,843 | ||||||||||||||||||
| Interest income | (63) | (11) | (96) | (30) | ||||||||||||||||||||||
| Interest expense, net | $ | 497 | $ | 585 | $ | 1,568 | $ | 1,813 |
Inventories
| (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Finished goods | $ | 903 | $ | 932 | |||||||
| Work-in-process | 1,309 | 1,193 | |||||||||
| Raw materials | 960 | 1,003 | |||||||||
| Inventories | $ | 3,172 | $ | 3,128 |
| 2022 Form 10-Q | | 6 |
Property and Equipment, Net
| (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Property and equipment, gross | $ | 10,679 | $ | 10,727 | |||||||
| Accumulated depreciation | (5,786) | (5,617) | |||||||||
| Property and equipment, net | $ | 4,893 | $ | 5,110 |
Depreciation expense was $181 million for the three months and $582 million for the nine months ended September 30, 2022 and $223 million for the three months and $630 million for the nine months ended September 30, 2021.
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.
The following table summarizes the impact of the two-class method:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions, except per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Basic EPS | ||||||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | $ | 3,949 | $ | 3,179 | $ | 9,363 | $ | 7,498 | ||||||||||||||||||
| Earnings allocated to participating securities | 18 | 21 | 43 | 53 | ||||||||||||||||||||||
| Earnings available to common shareholders | $ | 3,931 | $ | 3,158 | $ | 9,320 | $ | 7,445 | ||||||||||||||||||
| Weighted-average basic shares outstanding | 1,771 | 1,770 | 1,771 | 1,769 | ||||||||||||||||||||||
| Basic earnings per share attributable to AbbVie Inc. | $ | 2.22 | $ | 1.78 | $ | 5.26 | $ | 4.21 | ||||||||||||||||||
| Diluted EPS | ||||||||||||||||||||||||||
| Net earnings attributable to AbbVie Inc. | $ | 3,949 | $ | 3,179 | $ | 9,363 | $ | 7,498 | ||||||||||||||||||
| Earnings allocated to participating securities | 18 | 21 | 43 | 53 | ||||||||||||||||||||||
| Earnings available to common shareholders | $ | 3,931 | $ | 3,158 | $ | 9,320 | $ | 7,445 | ||||||||||||||||||
| Weighted-average shares of common stock outstanding | 1,771 | 1,770 | 1,771 | 1,769 | ||||||||||||||||||||||
| Effect of dilutive securities | 5 | 7 | 6 | 7 | ||||||||||||||||||||||
| Weighted-average diluted shares outstanding | 1,776 | 1,777 | 1,777 | 1,776 | ||||||||||||||||||||||
| Diluted earnings per share attributable to AbbVie Inc. | $ | 2.21 | $ | 1.78 | $ | 5.24 | $ | 4.19 |
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
Cash outflows related to acquisitions and investments totaled $494 million for the nine months ended September 30, 2022 and $837 million for the nine months ended September 30, 2021. AbbVie recorded acquired IPR&D and milestones expense of $40 million for the three months and $454 million for the nine months ended September 30, 2022 and $402 million for the three months and $719 million for the nine months ended September 30, 2021.
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 SDI-118 and accounted for the transaction as an asset acquisition. SDI-118 is a small molecule currently in Phase 1b studies, 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
| 2022 Form 10-Q | | 7 |
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, 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.
DJS Antibodies Ltd
Subsequent to September 30, 2022, AbbVie entered into an agreement to acquire DJS Antibodies Ltd (DJS) including its lead program DJS-002 and proprietary HEPTAD platform. DJS-002 is an LPAR1 antagonist antibody currently in preclinical studies for the treatment of Idiopathic Pulmonary Fibrosis and other fibrotic diseases. HEPTAD platform is a potential novel approach to antibody discovery with specific capabilities targeting transmembrane protein targets. Under the terms of the agreement, AbbVie will make an upfront payment of approximately $255 million plus additional future payments of up to $95 million upon achievement of certain development milestones.
Calico Life Sciences LLC
In July 2021, AbbVie and Calico Life Sciences LLC (Calico) entered into 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. Under the terms of the agreement, AbbVie and Calico will each contribute an additional $500 million and the term is extended for an additional three years. AbbVie’s contribution is payable in two equal installments beginning in 2023. Calico will be responsible for research and early development until 2025 and will advance collaboration projects into Phase 2a through 2030. Following completion of the Phase 2a studies, AbbVie will have the option to exclusively license the collaboration compounds. Upon exercise, AbbVie would be responsible for late-stage development and commercial activities. Collaboration costs and profits will be shared equally by both parties post option exercise. During the third quarter of 2021, AbbVie recorded $500 million as other operating expense in the condensed consolidated statement of earnings related to its commitments under the agreement.
TeneoOne and TNB-383B
In September 2021, AbbVie acquired 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 and accounted for the transaction as an asset acquisition. Under the terms of the agreement, AbbVie made an exercise payment of $400 million which was recorded to acquired IPR&D and milestones expense in the condensed consolidated statement of earnings in the third quarter of 2021. The agreement also included additional payments of up to $250 million upon the achievement of certain development, regulatory and commercial milestones.
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 September 30, 2022 and 2021.
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.
| 2022 Form 10-Q | | 8 |
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 September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| United States - Janssen's share of profits (included in cost of products sold) | $ | 398 | $ | 518 | $ | 1,210 | $ | 1,497 | ||||||||||||||||||
| International - AbbVie's share of profits (included in net revenues) | 286 | 265 | 868 | 816 | ||||||||||||||||||||||
| Global - AbbVie's share of other costs (included in respective line items) | 63 | 76 | 196 | 220 |
AbbVie’s receivable from Janssen, included in accounts receivable, net, was $296 million at September 30, 2022 and $294 million at December 31, 2021. AbbVie’s payable to Janssen, included in accounts payable and accrued liabilities, was $379 million at September 30, 2022 and $509 million at December 31, 2021.
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 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 September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Genentech's share of profits, including royalties (included in cost of products sold) | $ | 204 | $ | 187 | $ | 578 | $ | 514 | ||||||||||||||||||
| AbbVie's share of sales and marketing costs from U.S. collaboration (included in SG&A) | 10 | 10 | 27 | 29 | ||||||||||||||||||||||
| AbbVie's share of development costs (included in R&D) | 29 | 34 | 87 | 110 |
| 2022 Form 10-Q | | 9 |
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, 2021 | $ | 32,379 | |||
| Foreign currency translation adjustments | (653) | ||||
| Balance as of September 30, 2022 | $ | 31,726 |
The company performs its annual goodwill impairment assessment in the third quarter, or earlier if impairment indicators exist. As of September 30, 2022, there were no accumulated goodwill impairment losses.
Intangible Assets, Net
The following table summarizes intangible assets:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| (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 | $ | 87,313 | $ | (23,368) | $ | 63,945 | $ | 88,945 | $ | (18,463) | $ | 70,482 | |||||||||||||||||||||||
| License agreements | 8,486 | (4,376) | 4,110 | 8,487 | (3,688) | 4,799 | |||||||||||||||||||||||||||||
| Total definite-lived intangible assets | 95,799 | (27,744) | 68,055 | 97,432 | (22,151) | 75,281 | |||||||||||||||||||||||||||||
| Indefinite-lived intangible assets | 670 | — | 670 | 670 | — | 670 | |||||||||||||||||||||||||||||
| Total intangible assets, net | $ | 96,469 | $ | (27,744) | $ | 68,725 | $ | 98,102 | $ | (22,151) | $ | 75,951 |
Definite-Lived Intangible Assets
Amortization expense was $2.0 billion for the three months and $5.7 billion for the nine months ended September 30, 2022 and $1.9 billion for the three months and $5.9 billion for the nine months ended September 30, 2021. Amortization expense was included in cost of products sold in the condensed consolidated statements of earnings.
In September 2022, the company made a strategic decision to reduce ongoing sales and marketing investment related to Vuity, an on-market product to treat presbyopia. This strategic decision contributed to a significant decrease in the estimated future cash flows for the product and represented a triggering event which required the company to evaluate the underlying definite lived-intangible asset for impairment. The company utilized a discounted cash flow analysis to estimate the fair value of the intangible asset resulting in a full impairment of both the gross and net carrying amount. Based on the revised cash flows, the company recorded a pre-tax impairment charge of $770 million to cost of products sold in the condensed consolidated statement of earnings for the third quarter of 2022.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets represent in-process research and development 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 cumulative charges of approximately $2 billion through 2022. 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.
| 2022 Form 10-Q | | 10 |
The following table summarizes the charges (benefits) associated with the Allergan acquisition integration plan:
| Severance and employee benefits | Other integration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of products sold | $ | — | $ | 2 | $ | (4) | $ | 8 | $ | 24 | $ | 44 | $ | 85 | $ | 84 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | 1 | — | 2 | — | 3 | 18 | 12 | 87 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 4 | 18 | 4 | 47 | 84 | 88 | 230 | 213 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total charges | $ | 5 | $ | 20 | $ | 2 | $ | 55 | $ | 111 | $ | 150 | $ | 327 | $ | 384 |
The following table summarizes the cash activity in the recorded liability associated with the Allergan integration plan for the nine months ended September 30, 2022:
| (in millions) | Severance and employee benefits | Other integration | |||||||||
| Accrued balance as of December 31, 2021 | $ | 222 | $ | 33 | |||||||
| Charges | 2 | 316 | |||||||||
| Payments and other adjustments | (107) | (343) | |||||||||
| Accrued balance as of September 30, 2022 | $ | 117 | $ | 6 |
Other Restructuring
AbbVie recorded restructuring charges of $50 million for the three months and $143 million for the nine months ended September 30, 2022 and $13 million for the three months and $56 million for the nine months ended September 30, 2021.
The following table summarizes the cash activity in the restructuring reserve for the nine months ended September 30, 2022:
| (in millions) | |||||
| Accrued balance as of December 31, 2021 | $ | 33 | |||
| Restructuring charges | 112 | ||||
| Payments and other adjustments | (25) | ||||
| Accrued balance as of September 30, 2022 | $ | 120 |
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, 2021 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 $1.8 billion at September 30, 2022 and $1.1 billion at December 31, 2021, 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 September 30, 2022 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 loss. This gain is reclassified to interest expense, net over the term of the related debt.
| 2022 Form 10-Q | | 11 |
The company is a party to interest rate swap contracts designated as cash flow hedges with notional amounts totaling $750 million at September 30, 2022 and December 31, 2021. 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 $6.8 billion at September 30, 2022 and $8.2 billion at December 31, 2021.
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 designated as net investment hedges with notional amounts totaling €4.5 billion at September 30, 2022 and €4.3 billion at December 31, 2021. The company also had an aggregate principal amount of senior Euro notes designated as net investment hedges of €5.9 billion at September 30, 2022 and December 31, 2021. 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 a party to interest rate swap contracts designated as fair value hedges with notional amounts totaling $4.5 billion at September 30, 2022 and December 31, 2021. 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 | September 30, 2022 | December 31, 2021 | Balance sheet caption | September 30, 2022 | December 31, 2021 | |||||||||||||||||
| Foreign currency forward exchange contracts | |||||||||||||||||||||||
| Designated as cash flow hedges | Prepaid expenses and other | $ | 153 | $ | 51 | Accounts payable and accrued liabilities | $ | 9 | $ | 2 | |||||||||||||
| Designated as cash flow hedges | Other assets | 1 | — | Other long-term liabilities | — | — | |||||||||||||||||
| Designated as net investment hedges | Prepaid expenses and other | 70 | 149 | Accounts payable and accrued liabilities | — | — | |||||||||||||||||
| Designated as net investment hedges | Other assets | 283 | 15 | Other long-term liabilities | — | — | |||||||||||||||||
| Not designated as hedges | Prepaid expenses and other | 60 | 26 | Accounts payable and accrued liabilities | 86 | 13 | |||||||||||||||||
| Interest rate swap contracts | |||||||||||||||||||||||
| Designated as cash flow hedges | Prepaid expenses and other | 2 | — | Accounts payable and accrued liabilities | — | 7 | |||||||||||||||||
| Designated as fair value hedges | Prepaid expenses and other | — | — | Accounts payable and accrued liabilities | 21 | — | |||||||||||||||||
| Designated as fair value hedges | Other assets | — | 26 | Other long-term liabilities | 393 | 15 | |||||||||||||||||
| Total derivatives | $ | 569 | $ | 267 | $ | 509 | $ | 37 |
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.
| 2022 Form 10-Q | | 12 |
The following table presents the pre-tax amounts of gains (losses) from derivative instruments recognized in other comprehensive loss:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Foreign currency forward exchange contracts | ||||||||||||||||||||||||||
| Designated as cash flow hedges | $ | 124 | $ | 43 | $ | 171 | $ | 67 | ||||||||||||||||||
| Designated as net investment hedges | 362 | 101 | 748 | 186 | ||||||||||||||||||||||
| Interest rate swap contracts designated as cash flow hedges | — | (1) | 6 | — | ||||||||||||||||||||||
Assuming market rates remain constant through contract maturities, the company expects to reclassify pre-tax gains of $150 million into cost of products sold for foreign currency cash flow hedges, pre-tax gains of $2 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 loss pre-tax gains of $431 million for three months and pre-tax gains of $932 million for the nine months ended September 30, 2022 and pre-tax gains of $141 million for the three months and pre-tax gains of $397 million for the nine months ended September 30, 2021.
The following table summarizes the pre-tax amounts and location of derivative instrument net gains (losses) recognized in the condensed consolidated statements of earnings, including the net gains (losses) reclassified out of AOCI into net earnings. See Note 10 for the amount of net gains (losses) reclassified out of AOCI.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||
| (in millions) | Statement of earnings caption | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
| Foreign currency forward exchange contracts | |||||||||||||||||||||||||||||
| Designated as cash flow hedges | Cost of products sold | $ | 21 | $ | (28) | $ | 47 | $ | (62) | ||||||||||||||||||||
| Designated as net investment hedges | Interest expense, net | 29 | 7 | 67 | 16 | ||||||||||||||||||||||||
| Not designated as hedges | Net foreign exchange loss | (121) | (25) | (285) | (53) | ||||||||||||||||||||||||
| Treasury rate lock agreements designated as cash flow hedges | Interest expense, net | 6 | 6 | 18 | 18 | ||||||||||||||||||||||||
| Interest rate swap contracts | |||||||||||||||||||||||||||||
| Designated as cash flow hedges | Interest expense, net | — | (6) | (3) | (20) | ||||||||||||||||||||||||
| Designated as fair value hedges | Interest expense, net | (141) | (5) | (424) | (73) | ||||||||||||||||||||||||
| Debt designated as hedged item in fair value hedges | Interest expense, net | 141 | 5 | 424 | 73 |
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.
| 2022 Form 10-Q | | 13 |
The following table summarizes the bases used to measure certain assets and liabilities carried at fair value on a recurring basis on the condensed consolidated balance sheet as of September 30, 2022:
| 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 | $ | 11,832 | $ | 4,303 | $ | 7,529 | $ | — | |||||||||||||||
| Money market funds and time deposits | 36 | — | 36 | — | |||||||||||||||||||
| Debt securities | 31 | — | 31 | — | |||||||||||||||||||
| Equity securities | 72 | 50 | 22 | — | |||||||||||||||||||
| Interest rate swap contracts | 2 | — | 2 | — | |||||||||||||||||||
| Foreign currency contracts | 567 | — | 567 | — | |||||||||||||||||||
| Total assets | $ | 12,540 | $ | 4,353 | $ | 8,187 | $ | — | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate swap contracts | $ | 414 | $ | — | $ | 414 | $ | — | |||||||||||||||
| Foreign currency contracts | 95 | — | 95 | — | |||||||||||||||||||
| Contingent consideration | 14,556 | — | — | 14,556 | |||||||||||||||||||
| Total liabilities | $ | 15,065 | $ | — | $ | 509 | $ | 14,556 |
The following table summarizes the bases used to measure certain assets and liabilities carried at fair value on a recurring basis on the condensed consolidated balance sheet as of December 31, 2021:
| 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 | $ | 9,746 | $ | 4,451 | $ | 5,295 | $ | — | |||||||||||||||
| Money market funds and time deposits | 45 | — | 45 | — | |||||||||||||||||||
| Debt securities | 46 | — | 46 | — | |||||||||||||||||||
| Equity securities | 121 | 100 | 21 | — | |||||||||||||||||||
| Interest rate swap contracts | 26 | — | 26 | — | |||||||||||||||||||
| Foreign currency contracts | 241 | — | 241 | — | |||||||||||||||||||
| Total assets | $ | 10,225 | $ | 4,551 | $ | 5,674 | $ | — | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate swap contracts | $ | 22 | $ | — | $ | 22 | $ | — | |||||||||||||||
| Foreign currency contracts | 15 | — | 15 | — | |||||||||||||||||||
| Contingent consideration | 14,887 | — | — | 14,887 | |||||||||||||||||||
| Total liabilities | $ | 14,924 | $ | — | $ | 37 | $ | 14,887 |
Money market funds and time deposits are valued using relevant observable market inputs including quoted prices for similar assets and interest rate curves. 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 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. 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, probabilities of
| 2022 Form 10-Q | | 14 |
achieving the milestones, 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 was calculated using the following significant unobservable inputs:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||
| (in millions) | Range | Weighted average**(a)** | Range | Weighted average**(a)** | |||||||||||||
| Discount rate | 4.1% - 5.5% | 5.0% | 0.2%- 2.6% | 1.7% | |||||||||||||
| Probability of payment for unachieved milestones | 89% - 100% | 91% | 89% - 100% | 90% | |||||||||||||
| Probability of payment for royalties by indication(b) | 56% - 100% | 98% | 56% - 100% | 96% | |||||||||||||
| Projected year of payments | 2022 - 2034 | 2027 | 2022 - 2034 | 2027 |
(a) Unobservable inputs were weighted by the relative fair value of the contingent consideration liabilities.
(b) Excluding approved indications, the estimated probability of payment ranged from 56% to 89% at September 30, 2022 and December 31, 2021.
There have been no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy. The following table presents the changes in fair value of total contingent consideration liabilities which are measured using Level 3 inputs:
| Nine months ended September 30, | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Beginning balance | $ | 14,887 | $ | 12,997 | ||||||||||
| Change in fair value recognized in net earnings | 647 | 2,447 | ||||||||||||
| Payments | (978) | (525) | ||||||||||||
| Ending balance | $ | 14,556 | $ | 14,919 |
The change in fair value recognized in net earnings is recorded in other expense (income), 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 September 30, 2022 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 | $ | 10 | $ | 10 | $ | — | $ | 10 | $ | — | ||||||||||||||||
| Current portion of long-term debt and finance lease obligations, excluding fair value hedges | 9,215 | 9,191 | 9,071 | 120 | — | |||||||||||||||||||||
| Long-term debt and finance lease obligations, excluding fair value hedges | 60,740 | 53,834 | 53,093 | 741 | — | |||||||||||||||||||||
| Total liabilities | $ | 69,965 | $ | 63,035 | $ | 62,164 | $ | 871 | $ | — |
| 2022 Form 10-Q | | 15 |
The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of December 31, 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 | $ | 14 | $ | 14 | $ | — | $ | 14 | $ | — | ||||||||||||||||
| Current portion of long-term debt and finance lease obligations, excluding fair value hedges | 12,455 | 11,830 | 11,329 | 501 | — | |||||||||||||||||||||
| Long-term debt and finance lease obligations, excluding fair value hedges | 64,113 | 71,810 | 70,757 | 1,053 | — | |||||||||||||||||||||
| Total liabilities | $ | 76,582 | $ | 83,654 | $ | 82,086 | $ | 1,568 | $ | — |
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 $143 million as of September 30, 2022 and $149 million as of December 31, 2021. No significant cumulative upward or downward adjustments have been recorded for these investments as of September 30, 2022.
Concentrations of Risk
Of total net accounts receivable, three U.S. wholesalers accounted for 79% as of September 30, 2022 and 75% as of December 31, 2021, and substantially all of AbbVie’s pharmaceutical product net revenues in the United States were to these three wholesalers.
Humira (adalimumab) is AbbVie’s single largest product and accounted for approximately 36% of AbbVie’s total net revenues for the nine months ended September 30, 2022 and 37% for the nine months ended September 30, 2021.
Debt and Credit Facilities
In January 2022, the company repaid $2.9 billion aggregate principal amount of 3.45% senior notes that were scheduled to mature in March 2022. This repayment was made by exercising, under the terms of the notes, 60-day early redemption at 100% of the principal amount.
In February 2022, the company refinanced its $2.0 billion floating rate five-year term loan. As part of the refinancing, the company repaid the existing $2.0 billion term loan due May 2025 and borrowed $2.0 billion under a new term loan at a lower floating rate. All other significant terms of the loan, including the maturity date, remained unchanged after the refinancing.
In July 2022, the company repaid $1.7 billion aggregate principal amount of 3.25% senior notes that were scheduled to mature in October 2022. This repayment was made by exercising, under the terms of the notes, 90-day early redemption at 100% of the principal amount.
In September 2022, the company repaid $1.0 billion aggregate principal amount of 3.2% senior notes that were scheduled to mature in November 2022. This payment was made by exercising, under the terms of the notes, 60-day early redemption at 100% of the principal amount.
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 September 2021, the company refinanced its $1.0 billion floating rate three-year term loan. As part of the refinancing, the company repaid the existing $1.0 billion term loan due May 2023 and borrowed $1.0 billion under a new term loan at a lower floating rate. All other significant terms of the loan, including the maturity date, remained unchanged after the refinancing.
In September 2021, the company repaid $1.2 billion aggregate principal amount of 5.0% senior notes that were scheduled to mature in December 2021. This repayment was made by exercising, under the terms of the notes, 90-day early redemption at 100% of the principal amount.
| 2022 Form 10-Q | | 16 |
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 September 30, | Nine months ended September 30, | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||
| Service cost | $ | 113 | $ | 110 | $ | 342 | $ | 331 | $ | 13 | $ | 12 | $ | 38 | $ | 36 | |||||||||||||||||||||||||||||||
| Interest cost | 74 | 59 | 223 | 177 | 6 | 5 | 18 | 14 | |||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (177) | (166) | (536) | (498) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Amortization of prior service cost (credit) | 1 | 1 | 2 | 2 | (10) | (10) | (29) | (29) | |||||||||||||||||||||||||||||||||||||||
| Amortization of actuarial loss | 57 | 72 | 173 | 217 | 7 | 8 | 20 | 24 | |||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | 68 | $ | 76 | $ | 204 | $ | 229 | $ | 16 | $ | 15 | $ | 47 | $ | 45 |
The components of net periodic benefit cost other than service cost are included in other expense (income), net in the condensed consolidated statements of earnings.
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. 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 September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Cost of products sold | $ | 8 | $ | 9 | $ | 33 | $ | 39 | ||||||||||||||||||
| Research and development | 47 | 47 | 194 | 181 | ||||||||||||||||||||||
| Selling, general and administrative | 71 | 79 | 312 | 343 | ||||||||||||||||||||||
| Pre-tax compensation expense | 126 | 135 | 539 | 563 | ||||||||||||||||||||||
| Tax benefit | 25 | 27 | 102 | 101 | ||||||||||||||||||||||
| After-tax compensation expense | $ | 101 | $ | 108 | $ | 437 | $ | 462 |
Stock Options
During the nine months ended September 30, 2022, primarily in connection with the company's annual grant, AbbVie granted 0.9 million stock options with a weighted-average grant-date fair value of $22.83. As of September 30, 2022, $8 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 nine months ended September 30, 2022, primarily in connection with the company's annual grant, AbbVie granted 5.9 million RSUs and performance shares with a weighted-average grant-date fair value of $146.30. As of September 30, 2022, $692 million of unrecognized compensation cost related to RSUs and performance shares is expected to be recognized as expense over approximately the next two years.
| 2022 Form 10-Q | | 17 |
Cash Dividends
The following table summarizes quarterly cash dividends declared during 2022 and 2021:
| 2022 | 2021 | |||||||||||||||||||||||||||||||
| Date Declared | Payment Date | Dividend Per Share | Date Declared | Payment Date | Dividend Per Share | |||||||||||||||||||||||||||
| 10/28/22 | 02/15/23 | $ | 1.48 | 10/29/21 | 02/15/22 | $ | 1.41 | |||||||||||||||||||||||||
| 09/09/22 | 11/15/22 | $ | 1.41 | 09/10/21 | 11/15/21 | $ | 1.30 | |||||||||||||||||||||||||
| 06/23/22 | 08/15/22 | $ | 1.41 | 06/17/21 | 08/16/21 | $ | 1.30 | |||||||||||||||||||||||||
| 02/17/22 | 05/16/22 | $ | 1.41 | 02/18/21 | 05/14/21 | $ | 1.30 |
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 8 million shares for $1.1 billion during the nine months ended September 30, 2022 and 5 million shares for $550 million during the nine months ended September 30, 2021. AbbVie's remaining stock repurchase authorization was approximately $1.4 billion as of September 30, 2022.
Accumulated Other Comprehensive Loss
The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2022:
| (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, 2021 | $ | (570) | $ | (91) | $ | (2,546) | $ | 308 | $ | (2,899) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (2,043) | 1,318 | 6 | 151 | (568) | ||||||||||||||||||||||||||||||
| Net losses (gains) reclassified from accumulated other comprehensive loss | — | (53) | 130 | (53) | 24 | ||||||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | (2,043) | 1,265 | 136 | 98 | (544) | ||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | (2,613) | $ | 1,174 | $ | (2,410) | $ | 406 | $ | (3,443) |
Other comprehensive loss for the nine months ended September 30, 2022 included foreign currency translation adjustments totaling a loss of $2.0 billion and the offsetting impact of net investment hedging activities totaling a gain of $1.3 billion, which were principally due to the impact of the weakening of the Euro on the translation of the company’s Euro-denominated assets.
The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2021:
| (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 | $ | 583 | $ | (790) | $ | (3,067) | $ | 157 | $ | (3,117) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (794) | 457 | 27 | 60 | (250) | ||||||||||||||||||||||||||||||
| Net losses (gains) reclassified from accumulated other comprehensive loss | — | (13) | 169 | 55 | 211 | ||||||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | (794) | 444 | 196 | 115 | (39) | ||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | (211) | $ | (346) | $ | (2,871) | $ | 272 | $ | (3,156) |
Other comprehensive loss for the nine months ended September 30, 2021 included foreign currency translation adjustments totaling a loss of $794 million and the offsetting impact of net investment hedging activities totaling a gain of $444 million, which were principally due to the impact of the weakening of the Euro on the translation of the company’s Euro-denominated assets.
| 2022 Form 10-Q | | 18 |
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 September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in millions) (brackets denote gains) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net investment hedging activities | |||||||||||||||||||||||
| Gains on derivative amount excluded from effectiveness testing(a) | $ | (29) | $ | (7) | $ | (67) | $ | (16) | |||||||||||||||
| Tax expense | 6 | 1 | 14 | 3 | |||||||||||||||||||
| Total reclassifications, net of tax | $ | (23) | $ | (6) | $ | (53) | $ | (13) | |||||||||||||||
| Pension and post-employment benefits | |||||||||||||||||||||||
| Amortization of actuarial losses and other(b) | $ | 55 | $ | 71 | $ | 166 | $ | 214 | |||||||||||||||
| Tax benefit | (12) | (15) | (36) | (45) | |||||||||||||||||||
| Total reclassifications, net of tax | $ | 43 | $ | 56 | $ | 130 | $ | 169 | |||||||||||||||
| Cash flow hedging activities | |||||||||||||||||||||||
| Losses (gains) on foreign currency forward exchange contracts(c) | $ | (21) | $ | 28 | $ | (47) | $ | 62 | |||||||||||||||
| Gains on treasury rate lock agreements(a) | (6) | (6) | (18) | (18) | |||||||||||||||||||
| Losses on interest rate swap contracts(a) | — | 6 | 3 | 20 | |||||||||||||||||||
| Tax expense (benefit) | 4 | (4) | 9 | (9) | |||||||||||||||||||
| Total reclassifications, net of tax | $ | (23) | $ | 24 | $ | (53) | $ | 55 |
(a) Amounts are included in interest expense, net (see Note 8).
(b) Amounts are included in the computation of net periodic benefit cost (see Note 9).
(c) Amounts are included in cost of products sold (see Note 8).
Note 11 Income Taxes
The effective tax rate was 10% for the three months and 11% for the nine months ended September 30, 2022 compared to 14% for the three and nine months ended September 30, 2021. The effective tax rate in each period differed from the U.S. statutory tax rate of 21% principally due to the impact of 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, business development activities and accretion on contingent consideration. The decrease in the effective tax rate for the three and nine months ended September 30, 2022 over the prior year was primarily due to differences in the company’s jurisdictional mix of earnings, accretion on contingent consideration, and acquired IPR&D and milestones.
Due to the potential for resolution of federal, state and foreign examinations and the expiration of various statutes of limitations, it is reasonably possible that the company’s gross unrecognized tax benefits balance may change within the next 12 months by up to $141 million.
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. For litigation matters discussed below for which a loss is probable or reasonably possible, the company is unable to estimate the possible loss or range of loss, if any, beyond the amounts accrued. 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.
Subject to certain exceptions specified in the separation agreement by and between Abbott Laboratories (Abbott) and AbbVie, AbbVie assumed the liability for, and control of, all pending and threatened legal matters related to its business, including liabilities for any claims or legal proceedings related to products that had been part of its business, but were discontinued prior to the
| 2022 Form 10-Q | | 19 |
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-payors. 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 and August 2021, the court denied the end-payors' 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 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 alleging that 2011 patent litigation by Abbott with two generic companies regarding AndroGel was sham litigation and the settlements of those litigations violated federal antitrust law. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys’ fees. In May 2020, Perrigo Company and related entities filed a lawsuit against AbbVie and others, alleging that Abbott’s 2011 AndroGel patent lawsuit filed against Perrigo was sham litigation. In September 2021, the United States District Court for the District of New Jersey granted AbbVie's motion for judgment on the pleadings in the Perrigo lawsuit, dismissing it with prejudice. The United States Court of Appeals for the Third Circuit affirmed that dismissal in July 2022 and denied Perrigo’s petition for rehearing in August 2022.
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. In August 2022, the United States Court of Appeals for the Seventh Circuit affirmed that dismissal.
Lawsuits are pending against Forest Laboratories, LLC, an AbbVie subsidiary, 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 and/or 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. In October 2022, the parties reached an agreement in principle to settle this matter.
Lawsuits are pending against Allergan Inc., an Allergan subsidiary, 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 August 2022, the court granted final approval to the parties’ agreement to settle this matter.
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 and/or injunctive relief and attorneys’ fees. The 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 several other manufacturers generally alleging that they improperly promoted and sold prescription opioid products. Approximately 3,083 matters are pending against Allergan. The federal court cases are consolidated for
| 2022 Form 10-Q | | 20 |
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 284 matters are pending in various state courts. The plaintiffs in these cases, which include states, counties, cities, other municipal entities, Native American tribes, union trust funds and other third-party payors, private hospitals and personal injury claimants, generally seek compensatory and punitive damages. Allergan has previously reached settlements with certain states, counties, and cities. Allergan is engaged in negotiations with representatives for the remaining states, counties, cities, other municipal entities and Native American tribes regarding a potential settlement, with payments likely to be made over a number of years. While negotiations are on-going and definitive terms have not been reached, a framework for an agreement exists, including an estimate of a potential settlement amount based on maximum participation in the potential settlement. AbbVie recorded a charge of $2.1 billion to selling, general and administrative expense in the consolidated statement of earnings in the second quarter of 2022 related to this potential settlement.
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. In August 2022, the parties finalized their settlement of this matter.
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. One appeal was dismissed with prejudice in August 2021. In the other two appeals, the Illinois Appellate Court affirmed the dismissal of one in March 2021 and affirmed the dismissal of the other in February 2022. One of these plaintiffs refiled its lawsuit in the New York Supreme Court for the County of New York, where it was dismissed in November 2020, and that dismissal was affirmed by the Supreme Court of New York, Appellate Division, in January 2022. In September 2021, the Illinois court granted AbbVie's motion for summary judgment against all remaining plaintiffs on all the remaining claims, dismissing them with prejudice. Those plaintiffs have appealed the dismissals.
In October 2018, a federal securities 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 2018 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. In September 2021, the court granted plaintiffs' motion to certify a class. In May 2022, a shareholder derivative lawsuit, Ranney v. Gonzalez, et al., was filed in Delaware Chancery Court, alleging that certain AbbVie directors and officers breached their fiduciary duties based on related allegations.
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 2021, the court granted plaintiffs' motion to certify a class.
In April 2022, a federal securities lawsuit, Nakata v. AbbVie Inc., was filed in the United States District Court for the Northern District of Illinois against AbbVie and certain officers alleging misstatements regarding the potential effect that safety information about another company’s product would have on the Food and Drug Administration’s approval and labeling for AbbVie’s Rinvoq. In May and July 2022, two shareholder derivative lawsuits, Treppel Family Trust v. Gonzalez et al., and Katcher v. Gonzalez, et al., were filed in the same court, alleging that certain AbbVie directors and officers breached fiduciary and other legal duties based on related allegations.
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
| 2022 Form 10-Q | | 21 |
governments declined to intervene in the lawsuit. In August 2022, the United States Court of Appeals reversed the district court’s denial of Allergan’s motion to dismiss the case.
Intellectual Property Litigation
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 against Alvogen Pine Brook LLC and Natco Pharma Ltd.. In August 2021, the court issued a decision holding all asserted patents infringed and valid. The judgment precludes Defendants from obtaining regulatory approval and launching until the last patent expires in 2036. On August 30, 2021, Defendants appealed. An appellate hearing occurred in October 2022. 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.
AbbVie Inc. is seeking to enforce patent rights relating to venetoclax (a drug sold under the trademark Venclexta). Litigation was filed in the United States District Court for the District of Delaware in July 2020 against Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc.: and Alembic Pharmaceuticals Ltd., Alembic Pharmaceuticals, Inc., and Alembic Global Holdings SA. AbbVie alleges defendants’ proposed generic venetoclax products infringe certain patents and seeks declaratory and injunctive relief. Genentech, Inc., which is in a global collaboration with AbbVie concerning the development and marketing of Venclexta, is the co-plaintiff in this suit.
| 2022 Form 10-Q | | 22 |
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.
The following table details AbbVie’s worldwide net revenues:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Immunology | ||||||||||||||||||||||||||
| Humira | United States | $ | 4,956 | $ | 4,613 | $ | 13,613 | $ | 12,777 | |||||||||||||||||
| International | 603 | 812 | 2,045 | 2,583 | ||||||||||||||||||||||
| Total | $ | 5,559 | $ | 5,425 | $ | 15,658 | $ | 15,360 | ||||||||||||||||||
| Skyrizi | United States | $ | 1,221 | $ | 679 | $ | 3,081 | $ | 1,725 | |||||||||||||||||
| International | 176 | 117 | 508 | 319 | ||||||||||||||||||||||
| Total | $ | 1,397 | $ | 796 | $ | 3,589 | $ | 2,044 | ||||||||||||||||||
| Rinvoq | United States | $ | 505 | $ | 348 | $ | 1,228 | $ | 889 | |||||||||||||||||
| International | 190 | 105 | 524 | 245 | ||||||||||||||||||||||
| Total | $ | 695 | $ | 453 | $ | 1,752 | $ | 1,134 | ||||||||||||||||||
| Hematologic Oncology | ||||||||||||||||||||||||||
| Imbruvica | United States | $ | 849 | $ | 1,109 | $ | 2,585 | $ | 3,207 | |||||||||||||||||
| Collaboration revenues | 286 | 265 | 868 | 816 | ||||||||||||||||||||||
| Total | $ | 1,135 | $ | 1,374 | $ | 3,453 | $ | 4,023 | ||||||||||||||||||
| Venclexta | United States | $ | 259 | $ | 237 | $ | 740 | $ | 685 | |||||||||||||||||
| International | 256 | 255 | 753 | 647 | ||||||||||||||||||||||
| Total | $ | 515 | $ | 492 | $ | 1,493 | $ | 1,332 | ||||||||||||||||||
| Aesthetics | ||||||||||||||||||||||||||
| Botox Cosmetic | United States | $ | 370 | $ | 356 | $ | 1,232 | $ | 1,027 | |||||||||||||||||
| International | 267 | 189 | 741 | 579 | ||||||||||||||||||||||
| Total | $ | 637 | $ | 545 | $ | 1,973 | $ | 1,606 | ||||||||||||||||||
| Juvederm Collection | United States | $ | 125 | $ | 159 | $ | 420 | $ | 478 | |||||||||||||||||
| International | 227 | 195 | 686 | 625 | ||||||||||||||||||||||
| Total | $ | 352 | $ | 354 | $ | 1,106 | $ | 1,103 | ||||||||||||||||||
| Other Aesthetics | United States | $ | 265 | $ | 305 | $ | 837 | $ | 968 | |||||||||||||||||
| International | 47 | 47 | 130 | 149 | ||||||||||||||||||||||
| Total | $ | 312 | $ | 352 | $ | 967 | $ | 1,117 | ||||||||||||||||||
| Neuroscience | ||||||||||||||||||||||||||
| Botox Therapeutic | United States | $ | 584 | $ | 534 | $ | 1,641 | $ | 1,451 | |||||||||||||||||
| International | 115 | 111 | 350 | 329 | ||||||||||||||||||||||
| Total | $ | 699 | $ | 645 | $ | 1,991 | $ | 1,780 | ||||||||||||||||||
| Vraylar | United States | $ | 554 | $ | 461 | $ | 1,473 | $ | 1,239 | |||||||||||||||||
| Duodopa | United States | $ | 22 | $ | 23 | $ | 72 | $ | 73 | |||||||||||||||||
| International | 88 | 104 | 279 | 310 | ||||||||||||||||||||||
| Total | $ | 110 | $ | 127 | $ | 351 | $ | 383 | ||||||||||||||||||
| Ubrelvy | United States | $ | 160 | $ | 162 | $ | 483 | $ | 369 | |||||||||||||||||
| Qulipta | United States | $ | 62 | $ | — | $ | 106 | $ | — | |||||||||||||||||
| Other Neuroscience | United States | $ | 82 | $ | 166 | $ | 400 | $ | 489 | |||||||||||||||||
| International | 5 | 5 | 14 | 13 | ||||||||||||||||||||||
| Total | $ | 87 | $ | 171 | $ | 414 | $ | 502 |
| 2022 Form 10-Q | | 23 |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Eye Care | ||||||||||||||||||||||||||
| Lumigan/Ganfort | United States | $ | 59 | $ | 63 | $ | 186 | $ | 201 | |||||||||||||||||
| International | 62 | 75 | 205 | 229 | ||||||||||||||||||||||
| Total | $ | 121 | $ | 138 | $ | 391 | $ | 430 | ||||||||||||||||||
| Alphagan/Combigan | United States | $ | 37 | $ | 89 | $ | 161 | $ | 271 | |||||||||||||||||
| International | 36 | 39 | 111 | 117 | ||||||||||||||||||||||
| Total | $ | 73 | $ | 128 | $ | 272 | $ | 388 | ||||||||||||||||||
| Restasis | United States | $ | 132 | $ | 305 | $ | 518 | $ | 884 | |||||||||||||||||
| International | 10 | 14 | 38 | 42 | ||||||||||||||||||||||
| Total | $ | 142 | $ | 319 | $ | 556 | $ | 926 | ||||||||||||||||||
| Other Eye Care | United States | $ | 134 | $ | 128 | $ | 400 | $ | 375 | |||||||||||||||||
| International | 153 | 158 | 492 | 488 | ||||||||||||||||||||||
| Total | $ | 287 | $ | 286 | $ | 892 | $ | 863 | ||||||||||||||||||
| Other Key Products | ||||||||||||||||||||||||||
| Mavyret | United States | $ | 190 | $ | 183 | $ | 562 | $ | 557 | |||||||||||||||||
| International | 193 | 243 | 599 | 726 | ||||||||||||||||||||||
| Total | $ | 383 | $ | 426 | $ | 1,161 | $ | 1,283 | ||||||||||||||||||
| Creon | United States | $ | 336 | $ | 310 | $ | 941 | $ | 864 | |||||||||||||||||
| Linzess/Constella | United States | $ | 262 | $ | 253 | $ | 742 | $ | 728 | |||||||||||||||||
| International | 9 | 8 | 24 | 23 | ||||||||||||||||||||||
| Total | $ | 271 | $ | 261 | $ | 766 | $ | 751 | ||||||||||||||||||
| All other | $ | 925 | $ | 1,117 | $ | 3,145 | $ | 3,814 | ||||||||||||||||||
| Total net revenues | $ | 14,812 | $ | 14,342 | $ | 42,933 | $ | 41,311 |
| 2022 Form 10-Q | | 24 |
Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS