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, 2019.
It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the company’s financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results. Certain reclassifications were made to conform the prior period interim condensed consolidated financial statements to the current period presentation.
On May 8, 2020, AbbVie completed its previously announced acquisition of Allergan plc (Allergan). Refer to Note 4 for additional information regarding this acquisition.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
ASU No. 2016-13
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The standard changes how credit losses are measured for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, the standard requires the use of a new forward-looking "expected credit loss" model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. AbbVie adopted the standard in the first quarter of 2020. The adoption did not have a material impact on the company's consolidated financial statements.
Upon adoption of the standard, accounts receivable are stated at amortized cost less allowance for credit losses. The allowance for credit losses reflects the best estimate of future losses over the contractual life of outstanding accounts receivable and is determined on the basis of historical experience, specific allowances for known troubled accounts, other currently available information including customer financial condition, and both current and forecasted economic conditions. There were no significant changes in credit loss risk factors that impacted the company's recorded allowance during the six months ended June 30, 2020.
Recent Accounting Pronouncements Not Yet Adopted
ASU No. 2019-12
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). The standard includes simplifications related to accounting for income taxes including removing certain exceptions related to the approach for intraperiod tax allocation and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard will be effective for AbbVie starting with the first quarter of 2021. AbbVie is currently assessing the impact of this guidance on its consolidated financial statements.
|
|
|
2020 Form 10-Q |
|
7
|
Note 2 Supplemental Financial Information
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest expense
|
|
$
|
632
|
|
|
$
|
358
|
|
|
$
|
1,195
|
|
|
$
|
745
|
|
Interest income
|
|
(18
|
)
|
|
(49
|
)
|
|
(153
|
)
|
|
(111
|
)
|
Interest expense, net
|
|
$
|
614
|
|
|
$
|
309
|
|
|
$
|
1,042
|
|
|
$
|
634
|
|
Inventories
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30, 2020
|
|
December 31, 2019
|
Finished goods
|
$
|
1,968
|
|
|
$
|
485
|
|
Work-in-process
|
1,363
|
|
|
942
|
|
Raw materials
|
728
|
|
|
386
|
|
Inventories
|
$
|
4,059
|
|
|
$
|
1,813
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30, 2020
|
|
December 31, 2019
|
Property and equipment, gross
|
$
|
10,327
|
|
|
$
|
8,188
|
|
Accumulated depreciation
|
(5,419
|
)
|
|
(5,226
|
)
|
Property and equipment, net
|
$
|
4,908
|
|
|
$
|
2,962
|
|
Depreciation expense was $149 million for the three months and $264 million for the six months ended June 30, 2020 and $114 million for the three months and $232 million for the six months ended June 30, 2019.
|
|
|
2020 Form 10-Q |
|
8
|
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
June 30,
|
|
Six months ended
June 30,
|
(in millions, except per share data)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Basic EPS
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to AbbVie Inc.
|
|
$
|
(738
|
)
|
|
$
|
741
|
|
|
$
|
2,272
|
|
|
$
|
3,197
|
|
Earnings allocated to participating securities
|
|
18
|
|
|
8
|
|
|
28
|
|
|
17
|
|
Earnings available to common shareholders
|
|
$
|
(756
|
)
|
|
$
|
733
|
|
|
$
|
2,244
|
|
|
$
|
3,180
|
|
Weighted-average basic shares outstanding
|
|
1,647
|
|
|
1,480
|
|
|
1,564
|
|
|
1,480
|
|
Basic earnings (loss) per share attributable to AbbVie Inc.
|
|
$
|
(0.46
|
)
|
|
$
|
0.49
|
|
|
$
|
1.44
|
|
|
$
|
2.15
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to AbbVie Inc.
|
|
$
|
(738
|
)
|
|
$
|
741
|
|
|
$
|
2,272
|
|
|
$
|
3,197
|
|
Earnings allocated to participating securities
|
|
18
|
|
|
8
|
|
|
28
|
|
|
17
|
|
Earnings available to common shareholders
|
|
$
|
(756
|
)
|
|
$
|
733
|
|
|
$
|
2,244
|
|
|
$
|
3,180
|
|
Weighted-average shares of common stock outstanding
|
|
1,647
|
|
|
1,480
|
|
|
1,564
|
|
|
1,480
|
|
Effect of dilutive securities
|
|
—
|
|
|
4
|
|
|
4
|
|
|
3
|
|
Weighted-average diluted shares outstanding
|
|
1,647
|
|
|
1,484
|
|
|
1,568
|
|
|
1,483
|
|
Diluted earnings (loss) per share attributable to AbbVie Inc.
|
|
$
|
(0.46
|
)
|
|
$
|
0.49
|
|
|
$
|
1.43
|
|
|
$
|
2.14
|
|
Certain shares issuable under stock-based compensation plans were excluded from the computation of EPS because the effect would have been antidilutive. The number of common shares excluded was insignificant for all periods presented.
Note 4 Licensing, Acquisitions and Other Arrangements
Acquisition of Allergan
On May 8, 2020, AbbVie completed its previously announced acquisition of all outstanding equity interests in Allergan in a cash and stock transaction. Allergan is a global pharmaceutical leader focused on developing, manufacturing and commercializing branded pharmaceutical, device, biologic, surgical and regenerative medicine products for patients around the world. The combination creates a diverse entity with leadership positions across immunology, hematologic oncology, aesthetics, neuroscience, eye care and women's health. AbbVie's existing product portfolio and pipeline is enhanced with numerous Allergan assets and Allergan's product portfolio benefits from AbbVie's commercial strength, expertise and international infrastructure. Under the terms of the acquisition, each ordinary share of Allergan common stock was converted into the right to receive (i) $120.30 in cash and (ii) 0.8660 of a share of AbbVie common stock.
|
|
|
2020 Form 10-Q |
|
9
|
Total consideration for the acquisition of Allergan is summarized as follows:
|
|
|
|
|
(in millions)
|
|
Cash consideration paid to Allergan shareholders (a)
|
$
|
39,675
|
|
Fair value of AbbVie common stock issued to Allergan shareholders (b)
|
23,979
|
|
Fair value of AbbVie equity awards issued to Allergan equity award holders (c)
|
430
|
|
Total consideration
|
$
|
64,084
|
|
|
|
(a)
|
Represents cash consideration transferred of $120.30 per outstanding Allergan ordinary share based on 330 million Allergan ordinary shares outstanding at closing.
|
|
|
(b)
|
Represents the acquisition date fair value of 286 million shares of AbbVie common stock issued to Allergan shareholders based on the exchange ratio of 0.8660 AbbVie shares for each outstanding Allergan ordinary share at the May 8, 2020 closing price of $83.96 per share.
|
|
|
(c)
|
Represents the pre-acquisition service portion of the fair value of 11 million AbbVie stock options and 8 million RSUs issued to Allergan equity award holders.
|
The acquisition of Allergan has been accounted for as a business combination using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The valuation of assets acquired and liabilities assumed has not yet been finalized as of June 30, 2020. As a result, AbbVie recorded preliminary estimates for the fair value of assets acquired and liabilities assumed as of the acquisition date. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value of intangible assets, goodwill, property and equipment, inventories and income taxes among other items. The completion of the valuation will occur no later than one year from the acquisition date.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
|
|
|
|
|
(in millions)
|
|
Assets acquired and liabilities assumed
|
|
Cash and equivalents
|
$
|
1,537
|
|
Short-term investments
|
1,421
|
|
Accounts receivable
|
2,423
|
|
Inventories
|
2,370
|
|
Prepaid expenses and other current assets
|
1,984
|
|
Investments
|
137
|
|
Property and equipment
|
1,912
|
|
Intangible assets
|
|
Developed product rights
|
58,280
|
|
In-process research and development
|
1,040
|
|
Other noncurrent assets
|
1,532
|
|
Short-term borrowings
|
(60
|
)
|
Current portion of long-term debt and finance lease obligations
|
(1,899
|
)
|
Accounts payable and accrued liabilities
|
(5,850
|
)
|
Long-term debt and finance lease obligations
|
(18,937
|
)
|
Deferred income taxes
|
(4,078
|
)
|
Other long-term liabilities
|
(4,772
|
)
|
Total identifiable net assets
|
37,040
|
|
Goodwill
|
27,044
|
|
Total assets acquired and liabilities assumed
|
$
|
64,084
|
|
The fair value step-up adjustment to inventories of $1.2 billion is being amortized to cost of products sold when the inventory is sold to customers, which is expected to be within approximately one year from the acquisition date.
|
|
|
2020 Form 10-Q |
|
10
|
Intangible assets relate to $58.3 billion of developed product rights and $1.0 billion of in-process research and development (IPR&D). The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately 9 years using the estimated pattern of economic benefit. The estimated fair values of identifiable intangible assets were determined using the "income approach" which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of these asset valuations include the estimated net cash flows for each year for each asset or product (including net revenues, cost of products sold, research and development (R&D) costs, selling and marketing costs and contributory asset charges), the appropriate discount rate necessary to measure the risk inherent in each future cash flow stream, the life cycle of each asset, the potential regulatory and commercial success risk, competitive trends impacting the asset and each cash flow stream, as well as other factors.
The fair value of long-term debt was determined by quoted market prices as of the acquisition date and the total purchase price adjustment of $1.3 billion is being amortized as a reduction to interest expense, net over the lives of the related debt.
Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recognized from the acquisition of Allergan represents the value of additional growth platforms and an expanded revenue base as well as anticipated operational synergies and cost savings from the creation of a single combined global organization. The goodwill is not deductible for tax purposes.
Following the acquisition date, the operating results of Allergan have been included in the condensed consolidated financial statements. For the period from the acquisition date through June 30, 2020, net revenues attributable to Allergan were $2.0 billion and operating losses attributable to Allergan were $909 million, inclusive of $961 million of intangible asset amortization and $431 million of inventory fair value step-up amortization.
Acquisition-related expenses, which were comprised primarily of regulatory, financial advisory and legal fees, totaled $777 million for the three months and $781 million for the six months ended June 30, 2020 and $24 million for the three and six months ended June 30, 2019 and were included in selling, general and administrative (SG&A) expenses in the condensed consolidated statements of earnings.
Pro Forma Financial Information
The following table presents the unaudited pro forma combined results of AbbVie and Allergan for the three and six months ended June 30, 2020 and 2019 as if the acquisition of Allergan had occurred on January 1, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net revenues
|
|
$
|
11,542
|
|
|
$
|
12,267
|
|
|
$
|
23,761
|
|
|
$
|
23,657
|
|
Net earnings (loss)
|
|
53
|
|
|
(1,735
|
)
|
|
3,312
|
|
|
(3,726
|
)
|
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of AbbVie and Allergan. In order to reflect the occurrence of the acquisition on January 1, 2019 as required, the unaudited pro forma financial information includes adjustments to reflect incremental amortization expense to be incurred based on the current preliminary fair values of the identifiable intangible assets acquired; the incremental cost of products sold related to the fair value adjustments associated with acquisition date inventory; the additional interest expense associated with the issuance of debt to finance the acquisition; and the reclassification of acquisition-related costs incurred during the three and six months ended June 30, 2020 to the six months ended June 30, 2019. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisition been completed on January 1, 2019. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company nor does it reflect the expected realization of any synergies or cost savings associated with the acquisition.
Other Licensing & Acquisitions Activity
Cash outflows related to other acquisitions and investments totaled $192 million for the six months ended June 30, 2020 and $440 million for the six months ended June 30, 2019. AbbVie recorded acquired IPR&D charges of $853 million for the three months and six months ended June 30, 2020 and recorded acquired IPR&D charges of $91 million for the three months and $246 million for the six months ended June 30, 2019.
|
|
|
2020 Form 10-Q |
|
11
|
Genmab A/S
In June 2020, AbbVie and Genmab A/S (Genmab) entered into a collaboration agreement to jointly develop and commercialize three of Genmab's early-stage investigational bispecific antibody therapeutics and entered into a discovery research collaboration for future differentiated antibody therapeutics for the treatment of cancer. Under the terms of the agreement, Genmab granted to AbbVie an exclusive license to its epcoritamab (DuoBody-CD3xCD20), DuoHexaBody-CD37 and DuoBody-CD3x5T4 programs. For epcoritamab, the companies will share commercial responsibilities in the U.S. and Japan, with AbbVie responsible for further global commercialization. Genmab will record net revenues in the U.S. and Japan, and the parties will share equally in pre-tax profits from these sales. Genmab will receive tiered royalties on remaining global sales. For the discovery research partnership, Genmab will conduct Phase 1 studies for these programs and AbbVie retains the right to opt-in to program development. AbbVie made an upfront payment of $750 million, which was recorded to IPR&D in the three months ended June 30, 2020. AbbVie could make additional payments of up to $3.2 billion upon the achievement of certain development, regulatory and commercial milestones for all programs.
Note 5 Collaborations
The company has ongoing transactions with other entities through collaboration agreements. The following represent the significant collaboration agreements impacting the periods ended June 30, 2020 and 2019. As a result of the significant growth in Venclexta during the three and six months ended June 30, 2020 compared to the prior year, the details of the collaboration with Genentech, Inc. are disclosed below.
Collaboration with Janssen Biotech, Inc.
In December 2011, Pharmacyclics, a wholly-owned subsidiary of AbbVie, entered into a worldwide collaboration and license agreement with Janssen Biotech, Inc. and its affiliates (Janssen), one of the Janssen Pharmaceutical companies of Johnson & Johnson, for the joint development and commercialization of Imbruvica, a novel, orally active, selective covalent inhibitor of Bruton's tyrosine kinase (BTK) and certain compounds structurally related to Imbruvica, for oncology and other indications, excluding all immune and inflammatory mediated diseases or conditions and all psychiatric or psychological diseases or conditions, in the United States and outside the United States.
The collaboration provides Janssen with an exclusive license to commercialize Imbruvica outside of the United States and co-exclusively with AbbVie in the United States. Both parties are responsible for the development, manufacturing and marketing of any products generated as a result of the collaboration. The collaboration has no set duration or specific expiration date and provides for potential future development, regulatory and approval milestone payments of up to $200 million to AbbVie. The collaboration also includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, Janssen is responsible for approximately 60% of collaboration development costs and AbbVie is responsible for the remaining 40% of collaboration development costs.
In the United States, both parties have co-exclusive rights to commercialize the products; however, AbbVie is the principal in the end-customer product sales. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. Sales of Imbruvica are included in AbbVie's net revenues. Janssen's share of profits is included in AbbVie's cost of products sold. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share.
Outside the United States, Janssen is responsible for and has exclusive rights to commercialize Imbruvica. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. AbbVie's share of profits is included in AbbVie's net revenues. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share.
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)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
United States - Janssen's share of profits (included in cost of products sold)
|
|
$
|
493
|
|
|
$
|
422
|
|
|
$
|
943
|
|
|
$
|
808
|
|
International - AbbVie's share of profits (included in net revenues)
|
|
233
|
|
|
213
|
|
|
499
|
|
|
406
|
|
Global - AbbVie's share of other costs (included in respective line items)
|
|
67
|
|
|
77
|
|
|
137
|
|
|
149
|
|
|
|
|
2020 Form 10-Q |
|
12
|
AbbVie’s receivable from Janssen, included in accounts receivable, net, was $258 million at June 30, 2020 and $235 million at December 31, 2019. AbbVie’s payable to Janssen, included in accounts payable and accrued liabilities, was $483 million at June 30, 2020 and $455 million at December 31, 2019.
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 sales 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 SG&A expenses and global development costs as part of R&D expenses, net of Genentech’s share. Royalties paid for Venclexta sales 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)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Genentech's share of profits, including royalties (included in cost of products sold)
|
|
$
|
123
|
|
|
$
|
69
|
|
|
$
|
251
|
|
|
$
|
131
|
|
AbbVie's share of sales and marketing costs from U.S. collaboration (included in SG&A)
|
|
11
|
|
|
10
|
|
|
25
|
|
|
18
|
|
AbbVie's share of development costs (included in R&D)
|
|
36
|
|
|
30
|
|
|
61
|
|
|
62
|
|
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, 2019
|
$
|
15,604
|
|
Additions(a)
|
27,044
|
|
Foreign currency translation adjustments
|
21
|
|
Balance as of June 30, 2020
|
$
|
42,669
|
|
(a) Goodwill additions related to the acquisition of Allergan in the second quarter of 2020 (see Note 4).
The company performs its annual goodwill impairment assessment in the third quarter, or earlier if impairment indicators exist. As of June 30, 2020, there were no accumulated goodwill impairment losses.
|
|
|
2020 Form 10-Q |
|
13
|
Intangible Assets, Net
The following table summarizes intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
(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
|
$
|
78,142
|
|
|
$
|
(7,944
|
)
|
|
$
|
70,198
|
|
|
$
|
19,547
|
|
|
$
|
(6,405
|
)
|
|
$
|
13,142
|
|
License agreements
|
7,828
|
|
|
(2,603
|
)
|
|
5,225
|
|
|
7,798
|
|
|
(2,291
|
)
|
|
5,507
|
|
Total definite-lived intangible assets
|
$
|
85,970
|
|
|
$
|
(10,547
|
)
|
|
$
|
75,423
|
|
|
$
|
27,345
|
|
|
$
|
(8,696
|
)
|
|
$
|
18,649
|
|
Indefinite-lived research and development
|
1,040
|
|
|
—
|
|
|
1,040
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total intangible assets, net
|
$
|
87,010
|
|
|
$
|
(10,547
|
)
|
|
$
|
76,463
|
|
|
$
|
27,345
|
|
|
$
|
(8,696
|
)
|
|
$
|
18,649
|
|
Definite-Lived Intangible Assets
The increase in definite-lived intangible assets during 2020 was primarily due to the acquisition of Allergan in the second quarter of 2020. The intangible assets will be amortized using the estimated pattern of economic benefit. Refer to Note 4 for additional information regarding this acquisition.
Amortization expense was $1.4 billion for the three months and $1.9 billion for the six months ended June 30, 2020 and $388 million for the three months and $773 million for the six months ended June 30, 2019. Amortization expense was included in cost of products sold in the condensed consolidated statements of earnings. No definite-lived intangible asset impairment charges were recorded for the six months ended June 30, 2020 and 2019.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets represents IPR&D associated with products that have not yet received regulatory approval. The increase in indefinite-lived research and development assets during 2020 was due to the acquisition of Allergan in the second quarter of 2020. Refer to Note 4 for additional information regarding this acquisition.
The company performs its annual impairment assessment of indefinite-lived intangible assets in the third quarter, or earlier if impairment indicators exist. No indefinite-lived intangible asset impairment charges were recorded for the six months ended June 30, 2020 and 2019.
|
|
|
2020 Form 10-Q |
|
14
|
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. The integration plan is expected to realize more than $2 billion of expected annual cost synergies over a three-year period, with approximately 50% realized in R&D, 40% in SG&A and 10% in cost of products sold.
To achieve these integration objectives, AbbVie expects to incur approximately $2 billion of charges through 2022. These costs will consist of severance and employee benefit costs (cash severance, non-cash severance, including accelerated equity award compensation expense, retention and other termination benefits) and other integration expenses.
The following table summarizes the charges associated with the Allergan acquisition integration plan for the three and six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
2020
|
|
2020
|
(in millions)
|
Severance and employee benefits
|
Other integration
|
|
Severance and employee benefits
|
Other integration
|
Cost of products sold
|
$
|
33
|
|
$
|
1
|
|
|
$
|
33
|
|
$
|
1
|
|
Research and development
|
132
|
|
44
|
|
|
132
|
|
44
|
|
Selling, general and administrative
|
318
|
|
60
|
|
|
318
|
|
98
|
|
Total charges
|
$
|
483
|
|
$
|
105
|
|
|
$
|
483
|
|
$
|
143
|
|
The following table summarizes the cash activity in the recorded liability associated with the integration plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
2020
|
|
2020
|
(in millions)
|
Severance and employee benefits
|
Other integration
|
|
Severance and employee benefits
|
Other integration
|
Charges
|
$
|
394
|
|
$
|
105
|
|
|
$
|
394
|
|
$
|
143
|
|
Payments and other adjustments
|
(46
|
)
|
(98
|
)
|
|
(46
|
)
|
(136
|
)
|
Accrued balance as of June 30, 2020
|
$
|
348
|
|
$
|
7
|
|
|
$
|
348
|
|
$
|
7
|
|
Other Restructuring
AbbVie recorded restructuring charges of $14 million for the three months and $31 million for the six months ended June 30, 2020 and $19 million for the three months and $186 million for the six months ended June 30, 2019.
The following table summarizes the cash activity in the restructuring reserve for the six months ended June 30, 2020:
|
|
|
|
|
(in millions)
|
|
Accrued balance as of December 31, 2019
|
$
|
140
|
|
Restructuring charges
|
29
|
|
Payments and other adjustments
|
(67
|
)
|
Accrued balance as of June 30, 2020
|
$
|
102
|
|
|
|
|
2020 Form 10-Q |
|
15
|
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, 2019 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 $1.5 billion at June 30, 2020 and $957 million at December 31, 2019, 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, 2020 are reclassified from accumulated other comprehensive income (AOCI) and included in cost of products sold at the time the products are sold, generally not exceeding six months from the date of settlement.
In the third quarter of 2019, the company entered into treasury rate lock agreements with notional amounts totaling $10.0 billion to hedge exposure to variability in future cash flows resulting from changes in interest rates related to the issuance of long-term debt in connection with the acquisition of Allergan. The treasury rate lock agreements were designated as cash flow hedges and recorded at fair value. The agreements were net settled upon issuance of the senior notes in November 2019 and the resulting net gain was recognized in other comprehensive income (loss). This gain is reclassified to interest expense, net over the term of the related debt.
In the fourth quarter of 2019, the company entered into interest rate swap contracts with notional amounts totaling $2.3 billion at June 30, 2020 and December 31, 2019. 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. The contracts were designated as cash flow hedges and are recorded at fair value. Realized and unrealized gains or losses are included in AOCI and are reclassified to interest expense, net over the lives of the floating-rate debt.
The company also enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated trade payables and receivables and intercompany loans. These contracts are not designated as hedges and are recorded at fair value. Resulting gains or losses are reflected in net foreign exchange gain or loss in the condensed consolidated statements of earnings and are generally offset by losses or gains on the foreign currency exposure being managed. These contracts had notional amounts totaling $7.0 billion at June 30, 2020 and $7.1 billion at December 31, 2019.
The company also uses foreign currency forward exchange contracts or foreign currency denominated debt to hedge its net investments in certain foreign subsidiaries and affiliates. The company had foreign currency forward exchange contracts with notional amounts totaling €971 million, £204 million and CHF62 million at June 30, 2020 and December 31, 2019. The company also had an aggregate principal amount of senior Euro notes designated as net investment hedges of €7.3 billion at June 30, 2020 and €3.6 billion at December 31, 2019. 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.
AbbVie is a party to interest rate swap contracts designated as fair value hedges with notional amounts totaling $4.8 billion at June 30, 2020 and $10.8 billion at December 31, 2019. 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.
|
|
|
2020 Form 10-Q |
|
16
|
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,
2020
|
December 31, 2019
|
|
Balance sheet caption
|
June 30,
2020
|
December 31, 2019
|
Foreign currency forward exchange contracts
|
|
|
|
|
|
|
|
Designated as cash flow hedges
|
Prepaid expenses and other
|
$
|
20
|
|
$
|
3
|
|
|
Accounts payable and accrued liabilities
|
$
|
2
|
|
$
|
14
|
|
Designated as cash flow hedges
|
Other assets
|
2
|
|
—
|
|
|
Other long-term liabilities
|
1
|
|
—
|
|
Designated as net investment hedges
|
Prepaid expenses and other
|
14
|
|
—
|
|
|
Accounts payable and accrued liabilities
|
16
|
|
24
|
|
Not designated as hedges
|
Prepaid expenses and other
|
17
|
|
19
|
|
|
Accounts payable and accrued liabilities
|
11
|
|
18
|
|
Interest rate swap contracts
|
|
|
|
|
|
|
|
Designated as cash flow hedges
|
Prepaid expenses and other
|
—
|
|
—
|
|
|
Accounts payable and accrued liabilities
|
9
|
|
—
|
|
Designated as cash flow hedges
|
Other assets
|
—
|
|
3
|
|
|
Other long-term liabilities
|
38
|
|
—
|
|
Designated as fair value hedges
|
Prepaid expenses and other
|
14
|
|
—
|
|
|
Accounts payable and accrued liabilities
|
—
|
|
2
|
|
Designated as fair value hedges
|
Other assets
|
156
|
|
28
|
|
|
Other long-term liabilities
|
—
|
|
74
|
|
Total derivatives
|
|
$
|
223
|
|
$
|
53
|
|
|
|
$
|
77
|
|
$
|
132
|
|
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.
The following table presents the pre-tax amounts of gains (losses) from derivative instruments recognized in other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Foreign currency forward exchange contracts
|
|
|
|
|
|
|
|
|
Designated as cash flow hedges
|
|
$
|
(2
|
)
|
|
$
|
2
|
|
|
$
|
47
|
|
|
$
|
5
|
|
Designated as net investment hedges
|
|
(16
|
)
|
|
10
|
|
|
24
|
|
|
10
|
|
Interest rate swap contracts designated as cash flow hedges
|
|
(6
|
)
|
|
—
|
|
|
(52
|
)
|
|
—
|
|
Assuming market rates remain constant through contract maturities, the company expects to reclassify pre-tax gains of $33 million into cost of products sold for foreign currency cash flow hedges, pre-tax losses of $28 million into interest expense, net for interest rate swap cash flow hedges and pre-tax gains of $24 million into interest expense, net for treasury rate lock agreement cash flow hedges during the next 12 months.
Related to AbbVie’s non-derivative, foreign currency denominated debt designated as net investment hedges, the company recognized in other comprehensive income (loss) pre-tax loss of $252 million for the three months and pre-tax loss of $192 million for the six months ended June 30, 2020 and recognized pre-tax loss of $49 million for the three months and pre-tax gain of $35 million for the six months ended June 30, 2019.
|
|
|
2020 Form 10-Q |
|
17
|
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
June 30,
|
|
Six months ended
June 30,
|
(in millions)
|
Statement of earnings caption
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Foreign currency forward exchange contracts
|
|
|
|
|
|
|
|
|
|
Designated as cash flow hedges
|
Cost of products sold
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
77
|
|
Designated as net investment hedges
|
Interest expense, net
|
|
5
|
|
|
9
|
|
|
13
|
|
|
9
|
|
Not designated as hedges
|
Net foreign exchange loss
|
|
3
|
|
|
(25
|
)
|
|
5
|
|
|
(40
|
)
|
Treasury rate lock agreements designated as cash flow hedges
|
Interest expense, net
|
|
6
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Interest rate swap contracts
|
|
|
|
|
|
|
|
|
|
Designated as cash flow hedges
|
Interest expense, net
|
|
(3
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
Designated as fair value hedges
|
Interest expense, net
|
|
37
|
|
|
253
|
|
|
397
|
|
|
365
|
|
Debt designated as hedged item in fair value hedges
|
Interest expense, net
|
|
(37
|
)
|
|
(253
|
)
|
|
(397
|
)
|
|
(365
|
)
|
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.
|
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 June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
6,017
|
|
|
$
|
1,432
|
|
|
$
|
4,585
|
|
|
$
|
—
|
|
Money market funds and time deposits
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Debt securities
|
50
|
|
|
—
|
|
|
50
|
|
|
—
|
|
Equity securities
|
95
|
|
|
95
|
|
|
—
|
|
|
—
|
|
Interest rate swap contracts
|
170
|
|
|
—
|
|
|
170
|
|
|
—
|
|
Foreign currency contracts
|
53
|
|
|
—
|
|
|
53
|
|
|
—
|
|
Total assets
|
$
|
6,397
|
|
|
$
|
1,527
|
|
|
$
|
4,870
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
47
|
|
|
$
|
—
|
|
Foreign currency contracts
|
30
|
|
|
—
|
|
|
30
|
|
|
—
|
|
Contingent consideration
|
8,213
|
|
|
—
|
|
|
—
|
|
|
8,213
|
|
Total liabilities
|
$
|
8,290
|
|
|
$
|
—
|
|
|
$
|
77
|
|
|
$
|
8,213
|
|
|
|
|
2020 Form 10-Q |
|
18
|
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, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
39,924
|
|
|
$
|
1,542
|
|
|
$
|
38,382
|
|
|
$
|
—
|
|
Debt securities
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Equity securities
|
24
|
|
|
24
|
|
|
—
|
|
|
—
|
|
Interest rate swap contracts
|
31
|
|
|
—
|
|
|
31
|
|
|
—
|
|
Foreign currency contracts
|
22
|
|
|
—
|
|
|
22
|
|
|
—
|
|
Total assets
|
$
|
40,004
|
|
|
$
|
1,566
|
|
|
$
|
38,438
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
$
|
76
|
|
|
$
|
—
|
|
|
$
|
76
|
|
|
$
|
—
|
|
Foreign currency contracts
|
56
|
|
|
—
|
|
|
56
|
|
|
—
|
|
Contingent consideration
|
7,340
|
|
|
—
|
|
|
—
|
|
|
7,340
|
|
Total liabilities
|
$
|
7,472
|
|
|
$
|
—
|
|
|
$
|
132
|
|
|
$
|
7,340
|
|
Equity securities consist of investments for which the fair values were determined by using the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The derivatives entered into by the company were valued using observable market inputs including published interest rate curves and both forward and spot prices for foreign currencies.
The fair value measurements of the contingent consideration liabilities were determined based on significant unobservable inputs, including the discount rate, estimated probabilities and timing of achieving specified development, regulatory and commercial milestones and the estimated amount of future sales of the acquired products. The potential contingent consideration payments are estimated by applying a probability-weighted expected payment model for contingent milestone payments and a Monte Carlo simulation model for contingent royalty payments, which are then discounted to present value. Changes to the fair value of the contingent consideration liabilities can result from changes to one or a number of inputs, including discount rates, the probabilities of achieving the milestones, the time required to achieve the milestones and estimated future sales. Significant judgment is employed in determining the appropriateness of certain of these inputs. Changes to the inputs described above could have a material impact on the company's financial position and results of operations in any given period.
The fair value of the company's contingent consideration liabilities as of June 30, 2020 was calculated using the following significant unobservable inputs:
|
|
|
|
|
|
Range
|
Weighted average(a)
|
Discount rate
|
0.5% - 2.6%
|
1.6
|
%
|
Probability of payment for unachieved milestones
|
16% - 57%
|
54
|
%
|
Probability of payment for royalties by indication(b)
|
16% - 100%
|
89
|
%
|
Projected year of payments
|
2020 - 2034
|
2027
|
|
(a) Unobservable inputs were weighted by the relative fair value of the contingent consideration liabilities.
(b) Excludes early stage indications with 0% estimated probability of payment and includes approved indications with 100% probability of payment. Excluding approved indications, the estimated probability of payment ranged from 16% to 56% at June 30, 2020.
|
|
|
2020 Form 10-Q |
|
19
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30,
|
(in millions)
|
|
2020
|
|
2019
|
Beginning balance
|
|
$
|
7,340
|
|
|
$
|
4,483
|
|
Additions(a)
|
|
121
|
|
|
—
|
|
Change in fair value recognized in net earnings
|
|
881
|
|
|
2,473
|
|
Payments
|
|
(129
|
)
|
|
(167
|
)
|
Ending balance
|
|
$
|
8,213
|
|
|
$
|
6,789
|
|
(a) Represents contingent consideration liabilities assumed in the Allergan acquisition.
The change in fair value recognized in net earnings is recorded in other expense, net in the condensed consolidated statements of earnings.
Certain financial instruments are carried at historical cost or some basis other than fair value. The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of June 30, 2020 are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of fair value measurement
|
(in millions)
|
Book value
|
Approximate fair value
|
|
Quoted prices
in active markets for
identical assets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
64
|
|
$
|
64
|
|
|
$
|
—
|
|
|
$
|
64
|
|
|
$
|
—
|
|
Current portion of long-term debt and finance lease obligations, excluding fair value hedges
|
5,293
|
|
5,325
|
|
|
4,550
|
|
|
775
|
|
|
—
|
|
Long-term debt and finance lease obligations, excluding fair value hedges
|
81,740
|
|
90,288
|
|
|
88,696
|
|
|
1,592
|
|
|
—
|
|
Total liabilities
|
$
|
87,097
|
|
$
|
95,677
|
|
|
$
|
93,246
|
|
|
$
|
2,431
|
|
|
$
|
—
|
|
The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of December 31, 2019 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
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and finance lease obligations, excluding fair value hedges
|
$
|
3,755
|
|
$
|
3,760
|
|
|
$
|
3,753
|
|
|
$
|
7
|
|
|
$
|
—
|
|
Long-term debt and finance lease obligations, excluding fair value hedges
|
63,021
|
|
66,651
|
|
|
66,631
|
|
|
20
|
|
|
—
|
|
Total liabilities
|
$
|
66,776
|
|
$
|
70,411
|
|
|
$
|
70,384
|
|
|
$
|
27
|
|
|
$
|
—
|
|
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 $91 million as of June 30, 2020 and $66 million as of December 31, 2019. No significant cumulative upward or downward adjustments have been recorded for these investments as of June 30, 2020.
|
|
|
2020 Form 10-Q |
|
20
|
Concentrations of Risk
Of total net accounts receivable, three U.S. wholesalers accounted for 73% as of June 30, 2020 and 68% as of December 31, 2019, and substantially all of AbbVie’s net revenues in the United States were to these three wholesalers.
Humira (adalimumab) is AbbVie’s single largest product and accounted for approximately 50% of AbbVie’s total net revenues for the six months ended June 30, 2020 and 58% for the six months ended June 30, 2019.
Debt and Credit Facilities
Allergan-Related Financing
In connection with the acquisition of Allergan, in May 2020, the company borrowed $3.0 billion under a $6.0 billion term loan credit agreement, of which $1.0 billion was outstanding under a floating rate three-year term loan tranche and $2.0 billion outstanding under a floating rate five-year term loan tranche as of June 30, 2020. Subsequent to these borrowings, AbbVie terminated the unused commitments of the lenders under the term loan.
In May 2020, AbbVie completed its previously announced offers to exchange any and all outstanding notes of certain series issued by Allergan for new notes to be issued by AbbVie and cash. Following the settlement of the exchange offers, AbbVie issued $14.0 billion and €3.1 billion of new notes in exchange for the Allergan notes tendered in the exchange offers. The aggregate principal amount of Allergan notes that remained outstanding following the settlement of the exchange offers was approximately $1.5 billion and €635 million. The exchange transaction was accounted for as a modification of the assumed debt instruments.
The following table summarizes acquired debt outstanding as of June 30, 2020:
|
|
|
|
|
(dollars in millions)
|
June 30, 2020
|
Senior USD notes
|
|
3.375% Senior Notes due 2020
|
$
|
650
|
|
4.875% Senior Notes due 2021
|
450
|
|
5.000% Senior Notes due 2021
|
1,200
|
|
3.450% Senior Notes due 2022
|
2,878
|
|
3.250% Senior Notes due 2022
|
1,700
|
|
2.800% Senior Notes due 2023
|
350
|
|
3.850% Senior Notes due 2024
|
1,032
|
|
3.800% Senior Notes due 2025
|
3,021
|
|
4.550% Senior Notes due 2035
|
1,789
|
|
4.625% Senior Notes due 2042
|
457
|
|
4.850% Senior Notes due 2044
|
1,074
|
|
4.750% Senior Notes due 2045
|
881
|
|
Senior Euro notes
|
|
Floating Rate Notes due 2020 (€700 principal)
|
788
|
|
0.500% Senior Notes due 2021 (€750 principal)
|
845
|
|
1.500% Senior Notes due 2023 (€500 principal)
|
563
|
|
1.250% Senior Notes due 2024 (€700 principal)
|
788
|
|
2.625% Senior Notes due 2028 (€500 principal)
|
563
|
|
2.125% Senior Notes due 2029 (€550 principal)
|
619
|
|
Unamortized purchase price adjustments of Allergan debt
|
1,312
|
|
Total acquired debt outstanding
|
$
|
20,960
|
|
Other Long-Term Debt
In May 2020, the company repaid $3.8 billion aggregate principal amount of 2.5% senior notes at maturity.
|
|
|
2020 Form 10-Q |
|
21
|
Short-Term Borrowings
There were no commercial paper borrowings outstanding as of June 30, 2020 and December 31, 2019. The weighted-average interest rate on commercial paper borrowings was 1.8% for the six months ended June 30, 2020 and 2.7% for the six months ended June 30, 2019.
In March 2019, AbbVie repaid its $3.0 billion 364-day term loan credit agreement that was scheduled to mature in June 2019.
Note 9 Post-Employment Benefits
The following table summarizes net periodic benefit cost relating to the company’s defined benefit and other post-employment plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
benefit plans
|
|
Other post-
employment plans
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost
|
$
|
92
|
|
|
$
|
68
|
|
|
$
|
184
|
|
|
$
|
135
|
|
|
$
|
9
|
|
|
$
|
7
|
|
|
$
|
21
|
|
|
$
|
13
|
|
Interest cost
|
67
|
|
|
66
|
|
|
128
|
|
|
130
|
|
|
8
|
|
|
9
|
|
|
17
|
|
|
15
|
|
Expected return on plan assets
|
(143
|
)
|
|
(119
|
)
|
|
(278
|
)
|
|
(238
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of actuarial losses and prior service cost (credit)
|
59
|
|
|
29
|
|
|
114
|
|
|
55
|
|
|
4
|
|
|
1
|
|
|
10
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
75
|
|
|
$
|
44
|
|
|
$
|
148
|
|
|
$
|
82
|
|
|
$
|
21
|
|
|
$
|
17
|
|
|
$
|
48
|
|
|
$
|
28
|
|
In connection with the Allergan acquisition, AbbVie assumed certain post-employment benefit obligations which were recorded at fair value. Upon acquisition in the second quarter of 2020, the excess of projected benefit obligations over the plan assets was recognized as a liability totaling $156 million.
The components of net periodic benefit cost other than service cost are included in other expense, net in the condensed consolidated statements of earnings.
|
|
|
2020 Form 10-Q |
|
22
|
Note 10 Equity
Stock-Based Compensation
Stock-based compensation expense is principally related to awards issued pursuant to the AbbVie 2013 Incentive Stock Program and is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cost of products sold
|
|
$
|
11
|
|
|
$
|
5
|
|
|
$
|
26
|
|
|
$
|
20
|
|
Research and development
|
|
54
|
|
|
33
|
|
|
146
|
|
|
105
|
|
Selling, general and administrative
|
|
171
|
|
|
49
|
|
|
283
|
|
|
151
|
|
Pre-tax compensation expense
|
|
236
|
|
|
87
|
|
|
455
|
|
|
276
|
|
Tax benefit
|
|
38
|
|
|
16
|
|
|
77
|
|
|
49
|
|
After-tax compensation expense
|
|
$
|
198
|
|
|
$
|
71
|
|
|
$
|
378
|
|
|
$
|
227
|
|
Stock Options
During the six months ended June 30, 2020, primarily in connection with the company's annual grant, AbbVie granted 2.0 million stock options with a weighted-average grant-date fair value of $12.14. In connection with the Allergan acquisition, during the second quarter of 2020, AbbVie issued 11.2 million stock options to holders of Allergan options as a result of the conversion of such options. These options were fair-valued using a lattice valuation model. Refer to Note 4 for additional information regarding the Allergan acquisition. As of June 30, 2020, $20.5 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next two years.
RSUs and Performance Shares
During the six months ended June 30, 2020, primarily in connection with the company's annual grant, AbbVie granted 5.3 million RSUs and performance shares with a weighted-average grant-date fair value of $93.38. In connection with the Allergan acquisition, during the second quarter of 2020, AbbVie issued 8.2 million RSUs to holders of Allergan equity awards based on a conversion factor described in the transaction agreement. Refer to Note 4 for additional information regarding the Allergan acquisition. As of June 30, 2020, $864 million of unrecognized compensation cost related to RSUs and performance shares is expected to be recognized as expense over approximately the next two years.
Cash Dividends
The following table summarizes quarterly cash dividends declared during 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Date Declared
|
|
Payment Date
|
|
Dividend Per Share
|
|
Date Declared
|
|
Payment Date
|
|
Dividend Per Share
|
06/17/20
|
|
08/14/20
|
|
$
|
1.18
|
|
|
11/01/19
|
|
02/14/20
|
|
$
|
1.18
|
|
02/20/20
|
|
05/15/20
|
|
$
|
1.18
|
|
|
09/06/19
|
|
11/15/19
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
06/20/19
|
|
08/15/19
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
02/21/19
|
|
05/15/19
|
|
$
|
1.07
|
|
|
|
|
2020 Form 10-Q |
|
23
|
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.
Under this authorization, AbbVie repurchased 6 million shares for $500 million during the six months ended June 30, 2020 and 4 million shares for $300 million during the six months ended June 30, 2019. AbbVie's remaining stock repurchase authorization was approximately $3.5 billion as of June 30, 2020.
Accumulated Other Comprehensive Loss
The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign currency
translation adjustments
|
|
Net investment
hedging activities
|
|
Pension
and post-employment
benefits
|
|
Cash flow hedging
activities
|
|
Total
|
Balance as of December 31, 2019
|
$
|
(928
|
)
|
|
$
|
9
|
|
|
$
|
(2,965
|
)
|
|
$
|
288
|
|
|
$
|
(3,596
|
)
|
Other comprehensive income (loss) before reclassifications
|
214
|
|
|
(131
|
)
|
|
1
|
|
|
(2
|
)
|
|
82
|
|
Net losses (gains) reclassified from accumulated other comprehensive loss
|
—
|
|
|
(10
|
)
|
|
98
|
|
|
(9
|
)
|
|
79
|
|
Net current-period other comprehensive income (loss)
|
214
|
|
|
(141
|
)
|
|
99
|
|
|
(11
|
)
|
|
161
|
|
Balance as of June 30, 2020
|
$
|
(714
|
)
|
|
$
|
(132
|
)
|
|
$
|
(2,866
|
)
|
|
$
|
277
|
|
|
$
|
(3,435
|
)
|
Other comprehensive loss for the six months ended June 30, 2020 included foreign currency translation adjustments totaling a gain of $214 million, which was principally due to the impact of the strengthening of the Euro on the translation of the company’s Euro-denominated assets.
The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign currency
translation adjustments
|
|
Net investment
hedging activities
|
|
Pension
and post-
employment
benefits
|
|
Marketable
security activities
|
|
Cash flow hedging
activities
|
|
Total
|
Balance as of December 31, 2018
|
$
|
(830
|
)
|
|
$
|
(65
|
)
|
|
$
|
(1,722
|
)
|
|
$
|
(10
|
)
|
|
$
|
147
|
|
|
$
|
(2,480
|
)
|
Other comprehensive income (loss) before reclassifications
|
(32
|
)
|
|
35
|
|
|
2
|
|
|
10
|
|
|
7
|
|
|
22
|
|
Net losses (gains) reclassified from accumulated other comprehensive loss
|
—
|
|
|
(7
|
)
|
|
43
|
|
|
1
|
|
|
(70
|
)
|
|
(33
|
)
|
Net current-period other comprehensive income (loss)
|
(32
|
)
|
|
28
|
|
|
45
|
|
|
11
|
|
|
(63
|
)
|
|
(11
|
)
|
Balance as of June 30, 2019
|
$
|
(862
|
)
|
|
$
|
(37
|
)
|
|
$
|
(1,677
|
)
|
|
$
|
1
|
|
|
$
|
84
|
|
|
$
|
(2,491
|
)
|
Other comprehensive loss for the six months ended June 30, 2019 included foreign currency translation adjustments totaling a loss of $32 million, which was principally due to the impact of the weakening of the Euro on the translation of the company’s Euro-denominated assets.
|
|
|
2020 Form 10-Q |
|
24
|
The following table presents the impact on AbbVie’s condensed consolidated statements of earnings for significant amounts reclassified out of each component of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in millions) (brackets denote gains)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net investment hedging activities
|
|
|
|
|
|
|
|
Gains on derivative amount excluded from effectiveness testing(a)
|
$
|
(5
|
)
|
|
$
|
(9
|
)
|
|
$
|
(13
|
)
|
|
$
|
(9
|
)
|
Tax expense
|
1
|
|
|
2
|
|
|
3
|
|
|
2
|
|
Total reclassifications, net of tax
|
$
|
(4
|
)
|
|
$
|
(7
|
)
|
|
$
|
(10
|
)
|
|
$
|
(7
|
)
|
Pension and post-employment benefits
|
|
|
|
|
|
|
|
Amortization of actuarial losses and other(b)
|
$
|
64
|
|
|
$
|
30
|
|
|
$
|
125
|
|
|
$
|
55
|
|
Tax benefit
|
(14
|
)
|
|
(7
|
)
|
|
(27
|
)
|
|
(12
|
)
|
Total reclassifications, net of tax
|
$
|
50
|
|
|
$
|
23
|
|
|
$
|
98
|
|
|
$
|
43
|
|
Cash flow hedging activities
|
|
|
|
|
|
|
|
Gains on foreign currency forward exchange contracts(c)
|
$
|
—
|
|
|
$
|
(37
|
)
|
|
$
|
—
|
|
|
$
|
(77
|
)
|
Gains on treasury rate lock agreements and interest rate swap contracts(a)
|
(3
|
)
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
Tax expense
|
—
|
|
|
2
|
|
|
1
|
|
|
7
|
|
Total reclassifications, net of tax
|
$
|
(3
|
)
|
|
$
|
(35
|
)
|
|
$
|
(9
|
)
|
|
$
|
(70
|
)
|
(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 7% income tax expense on pre-tax loss for the three months ended June 30, 2020 and 6% income tax expense on pre-tax income for the six months ended June 30, 2020. The effective tax rate was 8% and 5% for the three months and six months ended June 30, 2019, respectively. The effective tax rate in each period differed from the U.S. statutory tax rate of 21% principally due to the benefit from foreign operations which reflects the impact of lower income tax rates in locations outside the United States, tax incentives in Puerto Rico and other foreign tax jurisdictions and business development activities. The change in the effective tax rate for the three months ended June 30, 2020 over prior year was principally due to the unfavorable impact of non-deductible Allergan acquisition related costs, the impact of changes in contingent consideration liabilities and collaboration related costs. These contributed to net income tax expense on a pre-tax loss for the three months ended June 30, 2020.
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 $156 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. 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. The recorded accrual balance for litigation was approximately $330 million as of June 30, 2020 and $290 million as of December 31, 2019. 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.
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|
|
2020 Form 10-Q |
|
25
|
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 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.
A lawsuit against Unimed Pharmaceuticals, LLC, Solvay Pharmaceuticals, Inc. (a company Abbott acquired in February 2010 and now known as AbbVie Products LLC) and others remains pending in the United States District Court for the Northern District of Georgia for pre-trial purposes under the Multi-District Litigation (MDL) Rules as In re: AndroGel Antitrust Litigation, MDL No. 2084. This case, brought by a direct AndroGel purchaser, generally alleges Solvay's 2006 patent litigation settlement agreements and related agreements with three generic companies violate federal antitrust laws. The plaintiff seeks monetary damages and attorneys' fees. This lawsuit is no longer material to AbbVie and AbbVie will no longer report on this case.
In September 2014, the FTC filed a lawsuit, FTC v. AbbVie Inc., et al., against AbbVie and others in the United States District Court for the Eastern District of Pennsylvania, alleging that the 2011 patent litigation with two generic companies regarding AndroGel was sham litigation and the settlements of that litigation violated federal antitrust law. In May 2015, the court dismissed the FTC’s settlement-related claim. In June 2018, following a bench trial, the court found for the FTC on its sham litigation claim and ordered a disgorgement remedy of $448 million, plus prejudgment interest. The court denied the FTC’s request for injunctive relief. AbbVie is appealing the court’s liability and disgorgement rulings and, based on an assessment of the merits of that appeal, no liability has been accrued for this matter. The FTC is also appealing aspects of the court’s trial ruling and the dismissal of its settlement-related claim.
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, making allegations similar to those in In re: AndroGel Antitrust Litigation (No. II), MDL No. 2084 (above) and FTC v. AbbVie Inc. (above). In May 2020, Perrigo Company and related entities filed a lawsuit against AbbVie and others in the United States District Court for the Eastern District of Pennsylvania, making sham litigation allegations similar to those in FTC v. AbbVie Inc. (above).
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 consist of four individual plaintiff lawsuits and two consolidated purported class actions: one brought by Niaspan direct purchasers and one brought by Niaspan end-payers. The cases are pending in the United States District Court for the Eastern District of Pennsylvania for coordinated or consolidated pre-trial proceedings under the MDL Rules as In re: Niaspan Antitrust Litigation, MDL No. 2460. In August 2019, the court certified a class of direct purchasers of Niaspan. In June 2020, the court denied the end-payers' motion to certify a class. In October 2016, the Orange County, California District Attorney’s Office filed a lawsuit on behalf of the State of California regarding the Niaspan patent litigation settlement in Orange County Superior Court, asserting a claim under the unfair competition provision of the California Business and Professions Code seeking injunctive relief, restitution, civil penalties and attorneys’ fees. In June 2020, the California Supreme Court reversed a lower court's ruling and held that the District Attorney’s suit may proceed on a statewide basis.
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 violate state and federal antitrust laws. The court consolidated these lawsuits as In re: Humira (Adalimumab) Antitrust Litigation. In June 2020, the court dismissed the consolidated litigation with prejudice. The plaintiffs have indicated they plan to appeal.
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 September 2018, the Commissioner of the California Department of Insurance intervened in a qui tam lawsuit, State of California and Lazaro Suarez v. AbbVie Inc., et al., brought under the California Insurance Frauds Prevention Act, in California Superior Court for Alameda County. The Department of Insurance’s complaint alleged that, through patient and reimbursement support services and other services and items of value provided in connection with Humira, AbbVie caused the submission of fraudulent commercial insurance claims for Humira in violation of the California statute. The complaint sought injunctive relief, an assessment of up to three times the amount of the claims at issue, and civil penalties. AbbVie has reached a resolution of the Department of Insurance's lawsuit that allows AbbVie to continue to operate its Humira patient support program. In addition, a federal securities lawsuit (Holwill v. AbbVie Inc., et al.) is pending in the United States District Court for the Northern District of Illinois) against AbbVie, its chief
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|
|
2020 Form 10-Q |
|
26
|
executive officer and former chief financial officer, alleging that reasons stated for Humira sales growth in financial filings between 2013 and 2017 were misleading because they omitted the conduct alleged in the Department of Insurance’s complaint.
In February 2020, a shareholder derivative lawsuit that had previously been filed in the United States District Court for the Northern District of Illinois and then voluntarily dismissed was refiled in the United States District Court for the District of Delaware. The lawsuit, Elfers v. Gonzalez, et al., alleges that certain AbbVie directors and officers breached their fiduciary duties in connection with Humira patient and reimbursement support services and other services and items of value, as alleged in the State of California case discussed above, and in connection with the announcements of results of AbbVie’s 2018 Dutch auction tender offer.
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. Plaintiffs seek compensatory and punitive damages.
Product liability cases were filed in which plaintiffs generally allege that AbbVie and other manufacturers of TRTs did not adequately warn about risks of certain injuries, primarily heart attacks, strokes and blood clots. Approximately 3,500 claims against AbbVie are consolidated for pre-trial purposes in the United States District Court for the Northern District of Illinois under the MDL Rules as In re: Testosterone Replacement Therapy Products Liability Litigation, MDL No. 2545. Approximately 175 claims against AbbVie are pending in various state courts. Plaintiffs generally seek compensatory and punitive damages. In November 2018, AbbVie entered into a Master Settlement Agreement with the Plaintiffs’ Steering Committee in the MDL encompassing existing claims in all courts. All proceedings in pending cases are effectively stayed during the settlement administration process.
Product liability cases are pending in which plaintiffs generally allege that AbbVie did not adequately warn about risk of certain injuries, primarily various birth defects, arising from use of Depakote. Approximately 95 cases are pending in the United States District Court for the Southern District of Illinois, and approximately 14 others are pending in various federal and state courts. Plaintiffs generally seek compensatory and punitive damages. Approximately ninety-five percent of these pending cases, plus other unfiled claims, are subject to confidential settlement agreements and are expected to be dismissed with prejudice.
Lawsuits are pending against Forest Laboratories, LLC and others generally alleging that 2009 and 2010 patent litigation settlements involving Namenda entered into between Forest and generic companies, and other conduct by Forest involving Namenda, violated state antitrust, unfair and deceptive trade practices, and unjust enrichment laws. Plaintiffs generally seek monetary damages, injunctive relief and attorneys’ fees. The lawsuits, purported class actions filed by indirect purchasers of Namenda, are consolidated as In re: Namenda Indirect Purchaser Antitrust Litigation in the United States District Court for the Southern District of New York. Similar lawsuits brought by direct purchasers of Namenda were resolved and dismissed in May 2020.
Lawsuits are pending against Allergan Inc. generally alleging that Allergan’s petitioning to the U.S. Patent Office and Food and Drug Administration, and other conduct by Allergan, involving Restasis violated federal and state antitrust laws, and state unfair and deceptive trade practices, and unjust enrichment laws. Plaintiffs generally seek monetary damages, injunctive relief and attorneys’ fees. The lawsuits, purported class actions filed by 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 2819. In June 2020, the court certified a class of indirect purchasers of Restasis. Similar lawsuits brought by direct purchasers of Restasis are subject to a settlement that was preliminarily approved by the court in May 2020 and is pending final approval, and by Restasis direct purchaser assignees were resolved and dismissed in March 2020.
Lawsuits are pending against Allergan and certain of its current and former officers alleging they made misrepresentations and omissions regarding Allergan’s former Actavis generics unit and its alleged anticompetitive conduct with other generic drug companies. The lawsuits were filed by Allergan shareholders and consist of three purported class actions and one individual action that have been consolidated in the U.S. District Court for the District of New Jersey as In re: Allergan Generic Drug Pricing Securities Litigation, and one individual action that is pending in New Jersey state court. The plaintiffs seek monetary damages and attorneys’ fees.
Lawsuits have been filed in which plaintiffs generally allege that Allergan and several other manufacturers improperly promoted and sold prescription opioid products. Approximately 3,050 matters are pending against Allergan. The federal court cases are consolidated for pre-trial purposes in the United States District Court for the Northern District of Ohio under the MDL rules as In re: National Prescription Opiate Litigation, MDL No. 2804. Approximately 279 of the claims are pending in various state courts. The plaintiffs in these cases, which include states, counties, cities, and Native American tribes, generally seek compensatory damages.
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
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|
|
2020 Form 10-Q |
|
27
|
plaintiffs generally seek compensatory damages and attorneys’ fees. In September 2019, the court partially granted Allergan's motion to dismiss.
In 2018, a qui tam lawsuit, U.S. ex rel. Silbersher v. Allergan Inc., et al., was filed in the United States District Court for the Northern District of California against several Allergan entities and others, alleging that their conduct before the U.S. Patent Office resulted in false claims for payment being made to federal and state healthcare payors for Namenda XR and Namzaric. The plaintiff-relator seeks damages and attorneys' fees under the federal False Claims Act and state law analogues. The federal government and state governments declined to intervene in the lawsuit.
In March 2017, AbbVie filed a lawsuit, AbbVie Inc. v. Novartis Vaccines and Diagnostics, Inc. and Grifols Worldwide Operations Ltd., in the United States District Court for the Northern District of California against Novartis Vaccines and Grifols Worldwide seeking a declaratory judgment that 11 hepatitis C virus (HCV)-related patents licensed to AbbVie in 2002 are invalid. The parties entered into a settlement agreement and the case was dismissed on March 26, 2020.
Pharmacyclics LLC, a wholly owned subsidiary of AbbVie, is seeking to enforce its patent rights relating to ibrutinib capsules (a drug Pharmacyclics sells under the trademark Imbruvica). In February 2018 and March 2020, cases were filed in the United States District Court for the District of Delaware against the following defendants: Zydus Worldwide DMCC and Cadila Healthcare Limited; and Sandoz Inc., and Lek Pharmaceuticals D.D. In each case, Pharmacyclics alleges the defendants' proposed generic ibrutinib product infringes certain Pharmacyclics patents and seeks declaratory and injunctive relief. Janssen Biotech, Inc. which is in a global collaboration with Pharmacyclics concerning the development and marketing of Imbruvica, is the co-plaintiff in these suits.
Pharmacyclics LLC, a wholly owned subsidiary of AbbVie, is seeking to enforce its patent rights relating to ibrutinib tablets (a drug Pharmacyclics sells under the trademark Imbruvica). Cases were filed in the United States District Court for the District of Delaware in March 2019 and March 2020 against Alvogen Pine Brook LLC and Natco Pharma Ltd., and in April 2020 against Zydus Worldwide DMCC and Cadila Healthcare Limited. In each case, Pharmacyclics alleges defendants’ proposed generic ibrutinib tablet product infringes certain Pharmacyclics patents. Pharmacyclics seeks declaratory and injunctive relief. Janssen Biotech, Inc. which is in a global collaboration with Pharmacyclics concerning the development and marketing of Imbruvica, is the co-plaintiff in these suits.
Allergan USA, Inc., Allergan Sales, LLC, and Forest Laboratories Holdings Limited, wholly owned subsidiaries of AbbVie, are seeking to enforce patent rights relating to cariprazine (a drug sold under the trademark Vraylar). Litigation was filed in the United States District Court for the District of Delaware in December 2019 against Sun Pharmaceutical Industries Limited and Sun Pharma Global FZE; Aurobindo Pharma Limited and Aurobindo Pharma USA, Inc.; and Zydus Pharmaceuticals (USA), Inc. and Cadila Healthcare Limited. Allergan alleges defendants' proposed generic cariprazine products infringe certain patents and seeks declaratory and injunctive relief. Gedeon Richter Plc, Inc. which is in a global collaboration with Allergan concerning the development and marketing of Vraylar, is the co-plaintiff in this suit.
In January 2019, Allergan, Inc. and Allergan plc (now Allergan Limited) and Medytox Inc. (collectively, "Complainants") filed a complaint with the United States International Trade Commission (ITC) against Daewoong Pharmaceuticals Co., Ltd., Daewoong Co., Ltd., and Evolus Inc. (collectively, "Respondents") requesting the ITC commence an investigation regarding the importation into the United States of Respondents' botulinum neurotoxin products, including Jeuveau, which Complainants assert were developed using Medytox's trade secrets. Complainants seek permanent exclusion and cease and desist orders covering Respondents' products, including Jeuveau. In July 2020, the administrative law judge issued a non-public initial ruling in favor of Allergan and Medytox, which is subject to review by the full commission.
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|
|
2020 Form 10-Q |
|
28
|
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
June 30,
|
|
Six months ended
June 30,
|
|
|
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Immunology
|
|
|
|
|
|
|
|
Humira
|
United States
|
$
|
3,974
|
|
|
$
|
3,793
|
|
|
$
|
7,630
|
|
|
$
|
7,008
|
|
|
International
|
863
|
|
|
1,077
|
|
|
1,910
|
|
|
2,308
|
|
|
Total
|
$
|
4,837
|
|
|
$
|
4,870
|
|
|
$
|
9,540
|
|
|
$
|
9,316
|
|
Skyrizi
|
United States
|
$
|
289
|
|
|
$
|
42
|
|
|
$
|
555
|
|
|
$
|
42
|
|
|
International
|
41
|
|
|
6
|
|
|
75
|
|
|
6
|
|
|
Total
|
$
|
330
|
|
|
$
|
48
|
|
|
$
|
630
|
|
|
$
|
48
|
|
Rinvoq
|
United States
|
$
|
136
|
|
|
$
|
—
|
|
|
$
|
218
|
|
|
$
|
—
|
|
|
International
|
13
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
Total
|
$
|
149
|
|
|
$
|
—
|
|
|
$
|
235
|
|
|
$
|
—
|
|
Hematologic Oncology
|
|
|
|
|
|
|
|
Imbruvica
|
United States
|
$
|
1,055
|
|
|
$
|
886
|
|
|
$
|
2,021
|
|
|
$
|
1,715
|
|
|
Collaboration revenues
|
233
|
|
|
213
|
|
|
499
|
|
|
406
|
|
|
Total
|
$
|
1,288
|
|
|
$
|
1,099
|
|
|
$
|
2,520
|
|
|
$
|
2,121
|
|
Venclexta
|
United States
|
$
|
191
|
|
|
$
|
117
|
|
|
$
|
392
|
|
|
$
|
222
|
|
|
International
|
112
|
|
|
52
|
|
|
228
|
|
|
98
|
|
|
Total
|
$
|
303
|
|
|
$
|
169
|
|
|
$
|
620
|
|
|
$
|
320
|
|
Aesthetics
|
|
|
|
|
|
|
|
Botox Cosmetic (a)
|
United States
|
$
|
147
|
|
|
$
|
—
|
|
|
$
|
147
|
|
|
$
|
—
|
|
|
International
|
79
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
Total
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
—
|
|
Juvederm Collection (a)
|
United States
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
International
|
57
|
|
|
—
|
|
|
57
|
|
|
—
|
|
|
Total
|
$
|
113
|
|
|
$
|
—
|
|
|
$
|
113
|
|
|
$
|
—
|
|
Other Aesthetics (a)
|
United States
|
$
|
127
|
|
|
$
|
—
|
|
|
$
|
127
|
|
|
$
|
—
|
|
|
International
|
15
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
Total
|
$
|
142
|
|
|
$
|
—
|
|
|
$
|
142
|
|
|
$
|
—
|
|
|
|
|
2020 Form 10-Q |
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Neuroscience
|
|
|
|
|
|
|
|
Botox Therapeutic (a)
|
United States
|
$
|
254
|
|
|
$
|
—
|
|
|
$
|
254
|
|
|
$
|
—
|
|
|
International
|
43
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
Total
|
$
|
297
|
|
|
$
|
—
|
|
|
$
|
297
|
|
|
$
|
—
|
|
Vraylar (a)
|
United States
|
$
|
192
|
|
|
$
|
—
|
|
|
$
|
192
|
|
|
$
|
—
|
|
Duodopa
|
United States
|
$
|
25
|
|
|
$
|
24
|
|
|
$
|
50
|
|
|
$
|
46
|
|
|
International
|
93
|
|
|
91
|
|
|
192
|
|
|
180
|
|
|
Total
|
$
|
118
|
|
|
$
|
115
|
|
|
$
|
242
|
|
|
$
|
226
|
|
Ubrelvy (a)
|
United States
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
—
|
|
Other Neuroscience (a)
|
United States
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
International
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Total
|
$
|
105
|
|
|
$
|
—
|
|
|
$
|
105
|
|
|
$
|
—
|
|
Eye Care
|
|
|
|
|
|
|
|
Lumigan/Ganfort (a)
|
United States
|
$
|
35
|
|
|
$
|
—
|
|
|
$
|
35
|
|
|
$
|
—
|
|
|
International
|
41
|
|
|
—
|
|
|
41
|
|
|
—
|
|
|
Total
|
$
|
76
|
|
|
$
|
—
|
|
|
$
|
76
|
|
|
$
|
—
|
|
Alphagan/Combigan(a)
|
United States
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
47
|
|
|
$
|
—
|
|
|
International
|
22
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
Total
|
$
|
69
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
—
|
|
Restasis (a)
|
United States
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
138
|
|
|
$
|
—
|
|
|
International
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
Total
|
$
|
144
|
|
|
$
|
—
|
|
|
$
|
144
|
|
|
$
|
—
|
|
Other Eye Care (a)
|
United States
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
International
|
74
|
|
|
—
|
|
|
74
|
|
|
—
|
|
|
Total
|
$
|
128
|
|
|
$
|
—
|
|
|
$
|
128
|
|
|
$
|
—
|
|
Women's Health
|
|
|
|
|
|
|
|
Lo Loestrin (a)
|
United States
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
78
|
|
|
$
|
—
|
|
|
International
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Total
|
$
|
80
|
|
|
$
|
—
|
|
|
$
|
80
|
|
|
$
|
—
|
|
Orilissa/Oriahnn
|
United States
|
$
|
30
|
|
|
$
|
18
|
|
|
$
|
60
|
|
|
$
|
31
|
|
|
International
|
1
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
Total
|
$
|
31
|
|
|
$
|
19
|
|
|
$
|
62
|
|
|
$
|
32
|
|
Other Women's Health (a)
|
United States
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
International
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Total
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
—
|
|
Other Key Products
|
|
|
|
|
|
|
|
Mavyret
|
United States
|
$
|
146
|
|
|
$
|
396
|
|
|
$
|
380
|
|
|
$
|
799
|
|
|
International
|
230
|
|
|
384
|
|
|
555
|
|
|
771
|
|
|
Total
|
$
|
376
|
|
|
$
|
780
|
|
|
$
|
935
|
|
|
$
|
1,570
|
|
Creon
|
United States
|
$
|
252
|
|
|
$
|
257
|
|
|
$
|
528
|
|
|
$
|
484
|
|
Lupron
|
United States
|
$
|
167
|
|
|
$
|
168
|
|
|
$
|
362
|
|
|
$
|
359
|
|
|
International
|
38
|
|
|
41
|
|
|
76
|
|
|
79
|
|
|
Total
|
$
|
205
|
|
|
$
|
209
|
|
|
$
|
438
|
|
|
$
|
438
|
|
Linzess/Constella (a)
|
United States
|
$
|
130
|
|
|
$
|
—
|
|
|
$
|
130
|
|
|
$
|
—
|
|
|
International
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
Total
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
133
|
|
|
$
|
—
|
|
Synthroid
|
United States
|
$
|
183
|
|
|
$
|
203
|
|
|
$
|
388
|
|
|
$
|
385
|
|
All other
|
|
$
|
590
|
|
|
$
|
486
|
|
|
$
|
1,143
|
|
|
$
|
1,143
|
|
Total net revenues
|
$
|
10,425
|
|
|
$
|
8,255
|
|
|
$
|
19,044
|
|
|
$
|
16,083
|
|
(a) Represents product revenues for Allergan products only from May 8, 2020, which was the acquisition closing date, through June 30, 2020.
|
|
|
2020 Form 10-Q |
|
30
|