Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 Basis of Presentation Basis of Historical Presentation The unaudited interim condensed consolidated financial statements of AbbVie Inc. (AbbVie or the company) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the company’s audited consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended December 31, 2022.
It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the company’s financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results. Certain other reclassifications were made to conform the prior period interim condensed consolidated financial statements to the current period presentation.
Note 2 Supplemental Financial InformationInterest Expense, Net | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(in millions) | | | | | | 2023 | | 2022 |
Interest expense | | | | | | $ | 553 | | | $ | 548 | |
Interest income | | | | | | (99) | | | (9) | |
Interest expense, net | | | | | | $ | 454 | | | $ | 539 | |
Inventories | | | | | | | | | | | |
(in millions) | March 31, 2023 | | December 31, 2022 |
Finished goods | $ | 1,319 | | | $ | 1,162 | |
Work-in-process | 1,312 | | | 1,417 | |
Raw materials | 1,202 | | | 1,000 | |
Inventories | $ | 3,833 | | | $ | 3,579 | |
Property and Equipment, Net | | | | | | | | | | | |
(in millions) | March 31, 2023 | | December 31, 2022 |
Property and equipment, gross | $ | 11,142 | | | $ | 10,986 | |
Accumulated depreciation | (6,211) | | | (6,051) | |
Property and equipment, net | $ | 4,931 | | | $ | 4,935 | |
Depreciation expense was $179 million for the three months ended March 31, 2023 and $198 million for the three months ended March 31, 2022.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 6 |
Note 3 Earnings Per ShareAbbVie grants certain restricted stock units (RSUs) that are considered to be participating securities. Due to the presence of participating securities, AbbVie calculates earnings per share (EPS) using the more dilutive of the treasury stock or the two-class method. For all periods presented, the two-class method was more dilutive. The following table summarizes the impact of the two-class method: | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(in millions, except per share data) | | | | | | 2023 | | 2022 |
Basic EPS | | | | | | | | |
Net earnings attributable to AbbVie Inc. | | | | | | $ | 239 | | | $ | 4,490 | |
Earnings allocated to participating securities | | | | | | 11 | | | 22 | |
Earnings available to common shareholders | | | | | | $ | 228 | | | $ | 4,468 | |
Weighted-average basic shares outstanding | | | | | | 1,770 | | | 1,771 | |
Basic earnings per share attributable to AbbVie Inc. | | | | | | $ | 0.13 | | | $ | 2.52 | |
| | | | | | | | |
Diluted EPS | | | | | | | | |
Net earnings attributable to AbbVie Inc. | | | | | | $ | 239 | | | $ | 4,490 | |
Earnings allocated to participating securities | | | | | | 11 | | | 22 | |
Earnings available to common shareholders | | | | | | $ | 228 | | | $ | 4,468 | |
Weighted-average shares of common stock outstanding | | | | | | 1,770 | | | 1,771 | |
Effect of dilutive securities | | | | | | 6 | | | 7 | |
Weighted-average diluted shares outstanding | | | | | | 1,776 | | | 1,778 | |
Diluted earnings per share attributable to AbbVie Inc. | | | | | | $ | 0.13 | | | $ | 2.51 | |
Certain shares issuable under stock-based compensation plans were excluded from the computation of EPS because the effect would have been antidilutive. The number of common shares excluded was insignificant for all periods presented.
Note 4 Licensing, Acquisitions and Other Arrangements Other Licensing & Acquisitions Activity
Cash outflows related to acquisitions and investments totaled $353 million for the three months ended March 31, 2023 and $185 million for the three months ended March 31, 2022. AbbVie recorded acquired IPR&D and milestones expense of $150 million for the three months ended March 31, 2023 and $145 million for the three months ended March 31, 2022.
Syndesi Therapeutics SA
In February 2022, AbbVie acquired Syndesi Therapeutics SA and its portfolio of novel modulators of the synaptic vesicle protein 2A, including its lead molecule 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 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.
Other Arrangements
AbbVie entered into several other arrangements resulting in charges related to upfront payments of $132 million for the three months ended March 31, 2023. Acquired IPR&D and milestones expense also included development milestones of $18 million for the three months ended March 31, 2023 and $15 million for the three months ended March 31, 2022.
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Note 5 CollaborationsThe company has ongoing transactions with other entities through collaboration agreements. The following represent the significant collaboration agreements impacting the periods ended March 31, 2023 and 2022. Collaboration with Janssen Biotech, Inc.
In December 2011, Pharmacyclics, a wholly-owned subsidiary of AbbVie, entered into a worldwide collaboration and license agreement with Janssen Biotech, Inc. and its affiliates (Janssen), one of the Janssen Pharmaceutical companies of Johnson & Johnson, for the joint development and commercialization of Imbruvica, a novel, orally active, selective covalent inhibitor of Bruton’s tyrosine kinase and certain compounds structurally related to Imbruvica, for oncology and other indications, excluding all immune and inflammatory mediated diseases or conditions and all psychiatric or psychological diseases or conditions, in the United States and outside the United States.
The collaboration provides Janssen with an exclusive license to commercialize Imbruvica outside of the United States and co-exclusively with AbbVie in the United States. Both parties are responsible for the development, manufacturing and marketing of any products generated as a result of the collaboration. The collaboration has no set duration or specific expiration date and provides for potential future development, regulatory and approval milestone payments of up to $200 million to AbbVie. The collaboration also includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, Janssen is responsible for approximately 60% of collaboration development costs and AbbVie is responsible for the remaining 40% of collaboration development costs.
In the United States, both parties have co-exclusive rights to commercialize the products; however, AbbVie is the principal in the end-customer product sales. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. Sales of Imbruvica are included in AbbVie's net revenues. Janssen's share of profits is included in AbbVie's cost of products sold. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share.
Outside the United States, Janssen is responsible for and has exclusive rights to commercialize Imbruvica. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. AbbVie's share of profits is included in AbbVie's net revenues. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share.
The following table shows the profit and cost sharing relationship between Janssen and AbbVie: | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(in millions) | | | | | | 2023 | | 2022 |
United States - Janssen's share of profits (included in cost of products sold) | | | | | | $ | 297 | | | $ | 408 | |
International - AbbVie's share of profits (included in net revenues) | | | | | | 240 | | | 299 | |
Global - AbbVie's share of other costs (included in respective line items) | | | | | | 55 | | | 64 | |
AbbVie’s receivable from Janssen, included in accounts receivable, net, was $267 million at March 31, 2023 and $295 million at December 31, 2022. AbbVie’s payable to Janssen, included in accounts payable and accrued liabilities, was $293 million at March 31, 2023 and $379 million at December 31, 2022.
Collaboration with Genentech, Inc.
AbbVie and Genentech, Inc. (Genentech), a member of the Roche Group, are parties to a collaboration and license agreement executed in 2007 to jointly research, develop and commercialize human therapeutic products containing BCL-2 inhibitors and certain other compound inhibitors which includes Venclexta, a BCL-2 inhibitor used to treat certain hematological malignancies. AbbVie 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.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 8 |
The following table shows the profit and cost sharing relationship between Genentech and AbbVie: | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(in millions) | | | | | | 2023 | | 2022 |
Genentech's share of profits, including royalties (included in cost of products sold) | | | | | | $ | 202 | | | $ | 178 | |
AbbVie's share of sales and marketing costs from U.S. collaboration (included in SG&A) | | | | | | 11 | | | 12 | |
AbbVie's share of development costs (included in R&D) | | | | | | 28 | | | 27 | |
Note 6 Goodwill and Intangible AssetsGoodwill The following table summarizes the changes in the carrying amount of goodwill: | | | | | |
(in millions) | |
Balance as of December 31, 2022 | $ | 32,156 | |
Foreign currency translation adjustments | 64 | |
Balance as of March 31, 2023 | $ | 32,220 | |
The company performs its annual goodwill impairment assessment in the third quarter, or earlier if impairment indicators exist. As of March 31, 2023, there were no accumulated goodwill impairment losses.
Intangible Assets, Net
The following table summarizes intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(in millions) | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
Definite-lived intangible assets | | | | | | | | | | | |
Developed product rights | $ | 87,622 | | | $ | (26,635) | | | $ | 60,987 | | | $ | 87,698 | | | $ | (25,003) | | | $ | 62,695 | |
License agreements | 8,474 | | | (4,902) | | | 3,572 | | | 8,474 | | | (4,642) | | | 3,832 | |
Total definite-lived intangible assets | 96,096 | | | (31,537) | | | 64,559 | | | 96,172 | | | (29,645) | | | 66,527 | |
Indefinite-lived intangible assets | 289 | | | — | | | 289 | | | 912 | | | — | | | 912 | |
Total intangible assets, net | $ | 96,385 | | | $ | (31,537) | | | $ | 64,848 | | | $ | 97,084 | | | $ | (29,645) | | | $ | 67,439 | |
Definite-Lived Intangible Assets
Amortization expense was $1.9 billion for the three months ended March 31, 2023 and 2022. Amortization expense was included in cost of products sold in the condensed consolidated statements of earnings.
The company monitors intangible assets for impairment on a quarterly basis. The definite-lived intangible asset related to Imbruvica in the United States has a carrying value of $4.8 billion as of March 31, 2023. Estimated future cash flows are not significantly higher than the intangible asset’s carrying value, reflecting the company’s current expectations of the impact of the Inflation Reduction Act of 2022. Future changes to the company’s estimates of the impact of the Inflation Reduction Act and the potential of government selection for price negotiations as well as regulatory, market and competitive developments could unfavorably impact the company’s ability to recover the carrying value of the related intangible asset. It is reasonably possible that an intangible asset impairment may occur in future periods, which may have a material effect on AbbVie’s results of operations.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 9 |
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets represent acquired IPR&D associated with products that have not yet received regulatory approval. The company performs its annual impairment assessment of indefinite-lived intangible assets in the third quarter, or earlier if impairment indicators exist.
During the first quarter of 2023, the company made a decision to revise the research and development plan for AGN-151607, a novel investigational neurotoxin for the prevention of postoperative atrial fibrillation in cardiac surgery patients. This decision contributed to a delay in the estimated timing of regulatory approval as well as a significant decrease in estimated future cash flows of the product and represented a triggering event which required the company to evaluate the underlying indefinite-lived intangible asset for impairment. The company utilized a discounted cash flow analysis to estimate the fair value which was below the carrying value of the intangible asset. Based on the revised cash flows, the company recorded a pre-tax impairment charge of $630 million to research and development expense in the condensed consolidated statement of earnings for the first quarter of 2023.
Note 7 Integration and Restructuring Plans Allergan Integration Plan
Following the closing of the Allergan acquisition, AbbVie implemented an integration plan designed to reduce costs, integrate and optimize the combined organization and incurred total cumulative charges of $2.3 billion through March 31, 2023. These costs consist of severance and employee benefit costs (cash severance, non-cash severance including accelerated equity award compensation expense, retention and other termination benefits) and other integration expenses.
The following table summarizes the charges (benefits) associated with the Allergan acquisition integration plan: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Three months ended March 31, |
(in millions) | | | | | | | | | | | | | | | | 2023 | | 2022 |
Cost of products sold | | | | | | | | | | | | | | | | $ | 14 | | | $ | 31 | |
Research and development | | | | | | | | | | | | | | | | — | | | 9 | |
Selling, general and administrative | | | | | | | | | | | | | | | | 44 | | | 70 | |
Total charges | | | | | | | | | | | | | | | | $ | 58 | | | $ | 110 | |
The following table summarizes the cash activity in the recorded liability associated with the Allergan integration plan for the three months ended March 31, 2023: | | | | | |
(in millions) | |
Accrued balance as of December 31, 2022 | $ | 107 | |
Charges | 58 | |
Payments and other adjustments | (69) | |
Accrued balance as of March 31, 2023 | $ | 96 | |
Other Restructuring
AbbVie recorded restructuring charges of $27 million for the three months ended March 31, 2023 and $57 million for the three months ended March 31, 2022.
The following table summarizes the cash activity in the restructuring reserve for the three months ended March 31, 2023: | | | | | |
(in millions) | |
Accrued balance as of December 31, 2022 | $ | 176 | |
Restructuring charges | 17 | |
Payments and other adjustments | (24) | |
Accrued balance as of March 31, 2023 | $ | 169 | |
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 10 |
Note 8 Financial Instruments and Fair Value MeasuresRisk Management Policy See Note 11 to the company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a summary of AbbVie’s risk management policy and use of derivative instruments.
Financial Instruments
Various AbbVie foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany transactions denominated in a currency other than the functional currency of the local entity. These contracts, with notional amounts totaling $1.7 billion at March 31, 2023 and December 31, 2022, are designated as cash flow hedges and are recorded at fair value. The durations of these forward exchange contracts were generally less than 18 months. Accumulated gains and losses as of March 31, 2023 are reclassified from accumulated other comprehensive income (loss) (AOCI) and included in cost of products sold at the time the products are sold, generally not exceeding six months from the date of settlement.
In 2019, the company entered into treasury rate lock agreements with notional amounts totaling $10.0 billion to hedge exposure to variability in future cash flows resulting from changes in interest rates related to the issuance of long-term debt in connection with the acquisition of Allergan. The treasury rate lock agreements were designated as cash flow hedges and recorded at fair value. The agreements were net settled upon issuance of the senior notes in 2019 and the resulting net gain was recognized in other comprehensive loss. This gain is reclassified to interest expense, net over the term of the related debt.
The company was a party to interest rate swap contracts designated as cash flow hedges that matured in November 2022. The effect of the hedge contracts was to change a floating-rate interest obligation to a fixed rate for that portion of the floating-rate debt. Realized and unrealized gains or losses were included in AOCI and are reclassified to interest expense, net over the lives of the floating-rate debt.
The company also enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated trade payables and receivables and intercompany loans. These contracts are not designated as hedges and are recorded at fair value. Resulting gains or losses are reflected in net foreign exchange gain or loss in the condensed consolidated statements of earnings and are generally offset by losses or gains on the foreign currency exposure being managed. These contracts had notional amounts totaling $7.8 billion at March 31, 2023 and $6.5 billion at December 31, 2022.
The company also uses foreign currency forward exchange contracts or foreign currency denominated debt to hedge its net investments in certain foreign subsidiaries and affiliates. The company had an aggregate principal amount of senior Euro notes designated as net investment hedges of €5.9 billion at March 31, 2023 and December 31, 2022. In addition, the company had foreign currency forward exchange contracts designated as net investment hedges with notional amounts totaling €4.3 billion, SEK2.2 billion, CAD750 million and CHF70 million at March 31, 2023 and €4.3 billion, SEK2.0 billion, CAD750 million and CHF90 million at December 31, 2022. The company uses the spot method of assessing hedge effectiveness for derivative instruments designated as net investment hedges. Realized and unrealized gains and losses from these hedges are included in AOCI and the 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 $6.0 billion at March 31, 2023 and $4.5 billion at December 31, 2022. The effect of the hedge contracts is to change a fixed-rate interest obligation to a floating rate for that portion of the debt. AbbVie records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount.
No amounts are excluded from the assessment of effectiveness for cash flow hedges or fair value hedges.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 11 |
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 | March 31, 2023 | December 31, 2022 | | Balance sheet caption | March 31, 2023 | December 31, 2022 |
Foreign currency forward exchange contracts | | | | | | | |
Designated as cash flow hedges | Prepaid expenses and other | $ | 32 | | $ | 49 | | | Accounts payable and accrued liabilities | $ | 12 | | $ | 8 | |
Designated as cash flow hedges | Other assets | 1 | | 1 | | | Other long-term liabilities | 1 | | — | |
Designated as net investment hedges | Prepaid expenses and other | 3 | | 6 | | | Accounts payable and accrued liabilities | 78 | | 36 | |
Designated as net investment hedges | Other assets | 37 | | 74 | | | Other long-term liabilities | 57 | | 47 | |
Not designated as hedges | Prepaid expenses and other | 77 | | 33 | | | Accounts payable and accrued liabilities | 28 | | 41 | |
Interest rate swap contracts | | | | | | | |
Designated as fair value hedges | Prepaid expenses and other | — | | — | | | Accounts payable and accrued liabilities | 17 | | 17 | |
Designated as fair value hedges | Other assets | 11 | | — | | | Other long-term liabilities | 351 | | 375 | |
Total derivatives | | $ | 161 | | $ | 163 | | | | $ | 544 | | $ | 524 | |
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 loss: | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(in millions) | | | | | | 2023 | | 2022 |
Foreign currency forward exchange contracts | | | | | | | | |
Designated as cash flow hedges | | | | | | $ | (9) | | | $ | (6) | |
Designated as net investment hedges | | | | | | (94) | | | 82 | |
Interest rate swap contracts designated as cash flow hedges | | | | | | — | | | 4 | |
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Assuming market rates remain constant through contract maturities, the company expects to reclassify pre-tax gains of $46 million into cost of products sold for foreign currency 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 losses of $162 million for the three months ended March 31, 2023 and pre-tax gains of $99 million for the three months ended March 31, 2022.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 12 |
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 March 31, |
(in millions) | Statement of earnings caption | | | | | | 2023 | | 2022 |
Foreign currency forward exchange contracts | | | | | | | | | |
Designated as cash flow hedges | Cost of products sold | | | | | | $ | 30 | | | $ | 8 | |
Designated as net investment hedges | Interest expense, net | | | | | | 28 | | | 14 | |
Not designated as hedges | Net foreign exchange loss | | | | | | 30 | | | (41) | |
Treasury rate lock agreements designated as cash flow hedges | Interest expense, net | | | | | | 6 | | | 6 | |
Interest rate swap contracts | | | | | | | | | |
Designated as cash flow hedges | Interest expense, net | | | | | | — | | | (2) | |
Designated as fair value hedges | Interest expense, net | | | | | | 35 | | | (184) | |
Debt designated as hedged item in fair value hedges | Interest expense, net | | | | | | (35) | | | 184 | |
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 March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | $ | 6,711 | | | $ | 3,297 | | | $ | 3,414 | | | $ | — | |
Money market funds and time deposits | 10 | | | — | | | 10 | | | — | |
Debt securities | 33 | | | — | | | 33 | | | — | |
Equity securities | 110 | | | 80 | | | 30 | | | — | |
Interest rate swap contracts | 11 | | | — | | | 11 | | | — | |
Foreign currency contracts | 150 | | | — | | | 150 | | | — | |
| | | | | | | |
Total assets | $ | 7,025 | | | $ | 3,377 | | | $ | 3,648 | | | $ | — | |
Liabilities | | | | | | | |
Interest rate swap contracts | $ | 368 | | | $ | — | | | $ | 368 | | | $ | — | |
Foreign currency contracts | 176 | | | — | | | 176 | | | — | |
| | | | | | | |
Contingent consideration | 17,931 | | | — | | | — | | | 17,931 | |
Total liabilities | $ | 18,475 | | | $ | — | | | $ | 544 | | | $ | 17,931 | |
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 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 December 31, 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 | $ | 9,201 | | | $ | 4,201 | | | $ | 5,000 | | | $ | — | |
Money market funds and time deposits | 21 | | | — | | | 21 | | | — | |
Debt securities | 28 | | | — | | | 28 | | | — | |
Equity securities | 91 | | | 59 | | | 32 | | | — | |
Foreign currency contracts | 163 | | | — | | | 163 | | | — | |
Total assets | $ | 9,504 | | | $ | 4,260 | | | $ | 5,244 | | | $ | — | |
Liabilities | | | | | | | |
Interest rate swap contracts | $ | 392 | | | $ | — | | | $ | 392 | | | $ | — | |
Foreign currency contracts | 132 | | | — | | | 132 | | | — | |
Contingent consideration | 16,384 | | | — | | | — | | | 16,384 | |
Total liabilities | $ | 16,908 | | | $ | — | | | $ | 524 | | | $ | 16,384 | |
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 primarily consist of investments for which the fair values were determined by using the published market prices 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 was calculated using the following significant unobservable inputs: | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(in millions) | Range | Weighted average(a) | | Range | Weighted average(a) |
Discount rate | 4.2% - 5.4% | 4.5% | | 4.7%- 5.1% | 4.8% |
Probability of payment for unachieved milestones | 100% - 100% | 100% | | 100% - 100% | 100% |
Probability of payment for royalties by indication(b) | 89% - 100% | 100% | | 56% - 100% | 99% |
| | | | | |
Projected year of payments | 2023 - 2034 | 2028 | | 2023 - 2034 | 2028 |
(a) Unobservable inputs were weighted by the relative fair value of the contingent consideration liabilities.
(b) Excluding approved indications, the estimated probability of payment was 89% at March 31, 2023 and 56% at December 31, 2022.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 14 |
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: | | | | | | | | | | | | | | |
| | Three months ended March 31, |
(in millions) | | 2023 | | 2022 |
Beginning balance | | $ | 16,384 | | | $ | 14,887 | |
Change in fair value recognized in net earnings | | 1,872 | | | (748) | |
Payments | | (325) | | | (321) | |
Ending balance | | $ | 17,931 | | | $ | 13,818 | |
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 March 31, 2023 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 | $ | 1 | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | |
Current portion of long-term debt and finance lease obligations, excluding fair value hedges | 2,816 | | 2,793 | | | 2,703 | | | 90 | | | — | |
Long-term debt and finance lease obligations, excluding fair value hedges | 59,590 | | 55,784 | | | 55,058 | | | 726 | | | — | |
Total liabilities | $ | 62,407 | | $ | 58,578 | | | $ | 57,761 | | | $ | 817 | | | $ | — | |
The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of December 31, 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 | $ | 1 | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | |
Current portion of long-term debt and finance lease obligations, excluding fair value hedges | 4,152 | | 4,121 | | | 3,930 | | | 191 | | | — | |
Long-term debt and finance lease obligations, excluding fair value hedges | 59,463 | | 54,073 | | | 53,365 | | | 708 | | | — | |
Total liabilities | $ | 63,616 | | $ | 58,195 | | | $ | 57,295 | | | $ | 900 | | | $ | — | |
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 $115 million as of March 31, 2023 and $129 million as of December 31, 2022. No significant cumulative upward or downward adjustments have been recorded for these investments as of March 31, 2023.
Concentrations of Risk
Of total net accounts receivable, three U.S. wholesalers accounted for 77% as of March 31, 2023 and 82% as of December 31, 2022, and substantially all of AbbVie’s pharmaceutical product net revenues in the United States were to these three wholesalers.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 15 |
Humira (adalimumab) is AbbVie’s single largest product and accounted for approximately 29% of AbbVie’s total net revenues for the three months ended March 31, 2023 and 35% for the three months ended March 31, 2022.
Debt and Credit Facilities
Long-Term Debt
In January 2023, the company repaid a $1.0 billion floating rate three-year term loan that was scheduled to mature in May 2023. In March 2023, the company repaid a $350 million aggregate principal amount of 2.80% senior notes at maturity.
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.
Short-Term Borrowings
In March 2023, AbbVie entered into an amended and restated five-year revolving credit facility. The amendment increased the unsecured revolving credit facility commitments from $4.0 billion to $5.0 billion and extended the maturity date of the facility from August 2023 to March 2028. This amended facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants. At March 31, 2023, the company was in compliance with all covenants, and commitment fees under the credit facility were insignificant. No amounts were outstanding under the company's credit facilities as of March 31, 2023 and December 31, 2022.
Note 9 Post-Employment BenefitsThe 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 March 31, | | | | Three months ended March 31, |
(in millions) | | | | | 2023 | | 2022 | | | | | | 2023 | | 2022 |
Service cost | | | | | $ | 68 | | | $ | 116 | | | | | | | $ | 8 | | | $ | 12 | |
Interest cost | | | | | 107 | | | 74 | | | | | | | 9 | | | 6 | |
Expected return on plan assets | | | | | (180) | | | (180) | | | | | | | — | | | — | |
Amortization of prior service cost (credit) | | | | | — | | | 1 | | | | | | | (9) | | | (10) | |
Amortization of actuarial loss | | | | | 4 | | | 57 | | | | | | | 3 | | | 7 | |
Net periodic benefit cost | | | | | $ | (1) | | | $ | 68 | | | | | | | $ | 11 | | | $ | 15 | |
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.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 16 |
Note 10 EquityStock-Based Compensation Stock-based compensation expense is principally related to awards issued pursuant to the AbbVie 2013 Incentive Stock Program and the AbbVie Amended and Restated 2013 Incentive Stock Program and is summarized as follows: | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(in millions) | | | | | | 2023 | | 2022 |
Cost of products sold | | | | | | $ | 20 | | | $ | 19 | |
Research and development | | | | | | 117 | | | 107 | |
Selling, general and administrative | | | | | | 176 | | | 180 | |
Pre-tax compensation expense | | | | | | 313 | | | 306 | |
Tax benefit | | | | | | 55 | | | 56 | |
After-tax compensation expense | | | | | | $ | 258 | | | $ | 250 | |
Stock Options
During the three months ended March 31, 2023, primarily in connection with the company's annual grant, AbbVie granted 0.6 million stock options with a weighted-average grant-date fair value of $29.95. As of March 31, 2023, $10 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 three months ended March 31, 2023, primarily in connection with the company's annual grant, AbbVie granted 5.6 million RSUs and performance shares with a weighted-average grant-date fair value of $149.74. As of March 31, 2023, $924 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 2023 and 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2023 | | 2022 |
Date Declared | | Payment Date | | Dividend Per Share | | Date Declared | | Payment Date | | Dividend Per Share |
02/16/23 | | 05/15/23 | | $ | 1.48 | | | 10/28/22 | | 02/15/23 | | $ | 1.48 | |
| | | | | | 09/09/22 | | 11/15/22 | | $ | 1.41 | |
| | | | | | 06/23/22 | | 08/15/22 | | $ | 1.41 | |
| | | | | | 02/17/22 | | 05/16/22 | | $ | 1.41 | |
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.
On February 16, 2023, AbbVie’s board of directors authorized a $5.0 billion increase to the existing stock repurchase authorization. AbbVie repurchased 10 million shares for $1.6 billion during the three months ended March 31, 2023 and 8 million shares for $1.1 billion during the three months ended March 31, 2022. AbbVie's remaining stock repurchase authorization was approximately $4.8 billion as of March 31, 2023.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 17 |
Accumulated Other Comprehensive Loss
The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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, 2022 | $ | (1,513) | | | $ | 464 | | | $ | (1,458) | | | | | $ | 308 | | | $ | (2,199) | |
Other comprehensive income (loss) before reclassifications | 194 | | | (202) | | | 40 | | | | | (10) | | | 22 | |
Net gains reclassified from accumulated other comprehensive loss | — | | | (22) | | | (2) | | | | | (31) | | | (55) | |
Net current-period other comprehensive income (loss) | 194 | | | (224) | | | 38 | | | | | (41) | | | (33) | |
Balance as of March 31, 2023 | $ | (1,319) | | | $ | 240 | | | $ | (1,420) | | | | | $ | 267 | | | $ | (2,232) | |
Other comprehensive loss for the three months ended March 31, 2023 included foreign currency translation adjustments totaling a gain of $194 million principally due to the impact of the strengthening of the Euro on the translation of the company’s Euro-denominated asset and the offsetting impact of net investment hedging activities totaling a loss of $224 million.
The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, 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 | (231) | | | 142 | | | (15) | | | | | (1) | | | (105) | |
Net losses (gains) reclassified from accumulated other comprehensive loss | — | | | (12) | | | 43 | | | | | (11) | | | 20 | |
Net current-period other comprehensive income (loss) | (231) | | | 130 | | | 28 | | | | | (12) | | | (85) | |
Balance as of March 31, 2022 | $ | (801) | | | $ | 39 | | | $ | (2,518) | | | | | $ | 296 | | | $ | (2,984) | |
Other comprehensive loss for the three months ended March 31, 2022 included foreign currency translation adjustments totaling a loss of $231 million principally due to the impact of the weakening of the Euro on the translation of the company’s Euro-denominated asset and the offsetting impact of net investment hedging activities totaling a gain of $130 million.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 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 March 31, |
(in millions) (brackets denote gains) | | | | | 2023 | | 2022 |
Net investment hedging activities | | | | | | | |
Gains on derivative amount excluded from effectiveness testing(a) | | | | | $ | (28) | | | $ | (14) | |
Tax expense | | | | | 6 | | | 2 | |
Total reclassifications, net of tax | | | | | $ | (22) | | | $ | (12) | |
Pension and post-employment benefits | | | | | | | |
Amortization of actuarial losses and other(b) | | | | | $ | (2) | | | $ | 55 | |
Tax benefit | | | | | — | | | (12) | |
Total reclassifications, net of tax | | | | | $ | (2) | | | $ | 43 | |
Cash flow hedging activities | | | | | | | |
Losses (gains) on foreign currency forward exchange contracts(c) | | | | | $ | (30) | | | $ | (8) | |
Gains on treasury rate lock agreements(a) | | | | | (6) | | | (6) | |
Losses on interest rate swap contracts(a) | | | | | — | | | 2 | |
Tax expense (benefit) | | | | | 5 | | | 1 | |
Total reclassifications, net of tax | | | | | $ | (31) | | | $ | (11) | |
(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 49% for the three months ended March 31, 2023 compared to 9% for the three months ended March 31, 2022. 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, changes in fair value of contingent consideration and business development activities. The increase in the effective tax rate for the three months ended March 31, 2023 over the prior year was primarily due to changes in fair value of contingent consideration, tax law changes in Puerto Rico and impairment of certain intangible assets. 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 $110 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
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 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 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 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 November 2022, the State of Oregon filed a lawsuit in the Multnomah County, Oregon Circuit Court making similar allegations regarding the 2011 patent litigation with one of the generic companies.
Lawsuits were filed 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 sought monetary damages and/or injunctive relief and attorneys’ fees. The lawsuits, purported class actions filed by indirect purchasers of Namenda, were consolidated as In re: Namenda Indirect Purchaser Antitrust Litigation in the United States District Court for the Southern District of New York. In March 2023, the parties’ settlement of this matter received final court approval.
Lawsuits were filed 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, were consolidated as In re: Bystolic Antitrust Litigation in the United States District Court for the Southern District of New York. In February 2023, the court granted Forest Laboratories’ motion to dismiss the cases, dismissing them with prejudice. Plaintiffs are appealing the court’s motion to dismiss ruling.
Government Proceedings
Lawsuits are pending against Allergan and several other manufacturers generally alleging that they improperly promoted and sold prescription opioid products. Approximately 3,000 matters are pending against Allergan. Most of 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 270 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. In November 2022, Allergan finalized the terms of a settlement with state and local government entities and Native American tribes. That settlement is subject to certain conditions, including Allergan's determination that a sufficient number of government entities elect to participate in the 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.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 20 |
In March 2023, AbbVie Inc. filed a petition in the United States Tax Court, AbbVie Inc. and Subsidiaries v. Commissioner of Internal Revenue. The petition disputes the Internal Revenue Service determination concerning a $572 million income tax benefit recorded in 2014 related to a payment made to a third party for the termination of a proposed business combination.
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. In September 2021, the Illinois court granted AbbVie's motion for summary judgment on all pending claims in all pending cases, dismissing them with prejudice. In November 2022, the Illinois appellate court affirmed summary judgment in AbbVie's favor and, in December 2022, denied plaintiffs' petition for rehearing. In March 2023, the Illinois Supreme Court denied the plaintiff’s petition for review.
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.
Lawsuits were filed against Allergan and certain of its 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 December 2022, the court granted Allergan's motion for summary judgment on the remaining claims, dismissing them with prejudice. Plaintiffs are appealing the court's motion to dismiss and summary judgment rulings.
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 February 2023, that lawsuit was voluntarily dismissed without prejudice. 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 sought 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 2023, the court granted Allergan’s motion to dismiss, dismissing plaintiff-realtor’s federal law claims with prejudice and state law claims without prejudice. The plaintiff-realtor is appealing the court’s motion to dismiss ruling.
Intellectual Property Litigation
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.
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2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 21 |
Note 13 Segment InformationAbbVie 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 March 31, |
| | |
(in millions) | | | | | | 2023 | | 2022 |
Immunology | | | | | | | |
Humira | United States | | | | | $ | 2,948 | | | $ | 3,993 | |
| International | | | | | 593 | | | 743 | |
| Total | | | | | $ | 3,541 | | | $ | 4,736 | |
Skyrizi | United States | | | | | $ | 1,139 | | | $ | 781 | |
| International | | | | | 221 | | | 159 | |
| Total | | | | | $ | 1,360 | | | $ | 940 | |
Rinvoq | United States | | | | | $ | 449 | | | $ | 311 | |
| International | | | | | 237 | | | 154 | |
| Total | | | | | $ | 686 | | | $ | 465 | |
Hematologic Oncology | | | | | | | |
Imbruvica | United States | | | | | $ | 638 | | | $ | 874 | |
| Collaboration revenues | | | | | 240 | | | 299 | |
| Total | | | | | $ | 878 | | | $ | 1,173 | |
Venclexta | United States | | | | | $ | 265 | | | $ | 228 | |
| International | | | | | 273 | | | 245 | |
| Total | | | | | $ | 538 | | | $ | 473 | |
Aesthetics | | | | | | | |
Botox Cosmetic | United States | | | | | $ | 409 | | | $ | 413 | |
| International | | | | | 250 | | | 228 | |
| Total | | | | | $ | 659 | | | $ | 641 | |
Juvederm Collection | United States | | | | | $ | 122 | | | $ | 148 | |
| International | | | | | 233 | | | 262 | |
| Total | | | | | $ | 355 | | | $ | 410 | |
Other Aesthetics | United States | | | | | $ | 246 | | | $ | 285 | |
| International | | | | | 40 | | | 38 | |
| Total | | | | | $ | 286 | | | $ | 323 | |
Neuroscience | | | | | | | |
Botox Therapeutic | United States | | | | | $ | 587 | | | $ | 500 | |
| International | | | | | 132 | | | 114 | |
| Total | | | | | $ | 719 | | | $ | 614 | |
Vraylar | United States | | | | | $ | 560 | | | $ | 427 | |
| International | | | | | 1 | | | — | |
| Total | | | | | $ | 561 | | | $ | 427 | |
Duodopa | United States | | | | | $ | 25 | | | $ | 24 | |
| International | | | | | 93 | | | 97 | |
| Total | | | | | $ | 118 | | | $ | 121 | |
Ubrelvy | United States | | | | | $ | 150 | | | $ | 138 | |
| International | | | | | 2 | | | — | |
| Total | | | | | $ | 152 | | | $ | 138 | |
Qulipta | United States | | | | | $ | 66 | | | $ | 11 | |
| | | | | |
2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 22 |
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| | |
(in millions) | | | | | | 2023 | | 2022 |
Other Neuroscience | United States | | | | | $ | 75 | | | $ | 173 | |
| International | | | | | 4 | | | 4 | |
| Total | | | | | $ | 79 | | | $ | 177 | |
Eye Care | | | | | | | |
Ozurdex | United States | | | | | $ | 39 | | | $ | 33 | |
| International | | | | | 76 | | | 74 | |
| Total | | | | | 115 | | | 107 | |
Lumigan/Ganfort | United States | | | | | $ | 63 | | | $ | 67 | |
| International | | | | | 67 | | | 73 | |
| Total | | | | | $ | 130 | | | $ | 140 | |
Alphagan/Combigan | United States | | | | | $ | 28 | | | $ | 70 | |
| International | | | | | 43 | | | 37 | |
| Total | | | | | $ | 71 | | | $ | 107 | |
Restasis | United States | | | | | $ | 79 | | | $ | 235 | |
| International | | | | | 13 | | | 11 | |
| Total | | | | | $ | 92 | | | $ | 246 | |
Other Eye Care | United States | | | | | $ | 110 | | | $ | 91 | |
| International | | | | | 90 | | | 80 | |
| Total | | | | | $ | 200 | | | $ | 171 | |
Other Key Products | | | | | | | |
Mavyret | United States | | | | | $ | 171 | | | $ | 169 | |
| International | | | | | 193 | | | 211 | |
| Total | | | | | $ | 364 | | | $ | 380 | |
Creon | United States | | | | | $ | 305 | | | $ | 287 | |
Linzess/Constella | United States | | | | | $ | 251 | | | $ | 233 | |
| International | | | | | 8 | | | 7 | |
| Total | | | | | $ | 259 | | | $ | 240 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
All other | | | | | | $ | 691 | | | $ | 1,211 | |
Total net revenues | | | | | $ | 12,225 | | | $ | 13,538 | |
| | | | | |
2023 Form 10-Q | ![abbvieimage2a21.gif](https://content.edgar-online.com/edgar_conv_img/2023/05/05/0001551152-23-000023_abbv-20230331_g2.gif) | 23 |