The following is a discussion and analysis of the financial condition ofAbbVie Inc. (AbbVie or the company) as ofJune 30, 2020 andDecember 31, 2019 and the results of operations for the three and six months endedJune 30, 2020 and 2019. This commentary should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes appearing in Item 1, "Financial Statements and Supplementary Data." EXECUTIVE OVERVIEW Company Overview AbbVie is a global, research-based biopharmaceutical company. AbbVie uses its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world's most complex and serious diseases. OnMay 8, 2020 , AbbVie completed the acquisition of Allergan plc (Allergan). The acquisition of Allergan creates a diversified biopharmaceutical company positioned for success with a comprehensive product portfolio that has leadership positions in key therapeutic areas of immunology, hematologic oncology, aesthetics, neuroscience, eye care and women's health. AbbVie's existing product portfolio and pipeline is enhanced with numerous Allergan assets and Allergan's product portfolio benefits from AbbVie's commercial strength, expertise and international infrastructure. See Note 4 to the Condensed Consolidated Financial Statements for additional information on the acquisition. Subsequent to the acquisition date, AbbVie's consolidated financial statements include the assets, liabilities, operating results and cash flows of Allergan. AbbVie's products are generally sold worldwide directly to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies and independent retailers from AbbVie-owned distribution centers and public warehouses. Certain aesthetic products and devices are also sold directly to physicians and other licensed healthcare providers. Inthe United States , AbbVie distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to pharmacies and patients. Outsidethe United States , AbbVie sells products primarily to customers or through distributors, depending on the market served. Certain products are co-marketed or co-promoted with other companies. AbbVie has approximately 47,000 employees. AbbVie operates as a single global business segment. 2020 Strategic Objectives AbbVie's mission is to discover and develop innovative medicines and products that solve serious health issues today and address the medical challenges of tomorrow while achieving top-tier financial performance through outstanding execution. AbbVie intends to continue to advance its mission in a number of ways, including: (i) maximizing the benefits of the Allergan acquisition to create a more diversified revenue base with multiple long-term growth drivers; (ii) growing revenues by leveraging AbbVie's commercial strength and international infrastructure across Allergan's therapeutic areas and ensuring strong commercial execution of new product launches; (iii) continuing to invest in and expand its pipeline in support of opportunities in immunology, oncology, aesthetics, neuroscience, eye care and women's health as well as continued investment in key on-market products; (iv) expanding operating margins; and (iv) returning cash to shareholders via a strong and growing dividend while also reducing incremental debt. In addition, AbbVie anticipates several regulatory submissions and key data readouts from key clinical trials in the next 12 months. Financial Results The company's financial performance for the six months endedJune 30, 2020 included delivering worldwide net revenues of$19.0 billion , operating earnings of$4.4 billion , diluted earnings per share of$1.43 and cash flows from operations of$6.9 billion . Worldwide net revenues grew by 18% on a reported basis and 19% on a constant currency basis, which included$2.0 billion of contributed revenues from the Allergan acquisition, growth in the immunology portfolio from Skyrizi, Rinvoq and the continued strength of Humira in theU.S. as well as revenue growth from Imbruvica and Venclexta.
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Diluted earnings per share was$1.43 for the six months endedJune 30, 2020 and included the following after-tax costs: (i)$1.9 billion of expenses related to the Allergan acquisition; (ii)$1.6 billion related to the amortization of intangible assets; (iii)$881 million for the change in fair value of contingent consideration liabilities; (iv)$853 million for acquired in-process research and development (IPR&D); and (v)$164 million for milestones and other research and development (R&D) expenses. Additionally, financial results reflected continued funding to support all stages of AbbVie's pipeline assets and continued investment in AbbVie's on-market brands. Impact of the Coronavirus Disease 2019 (COVID-19) InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughoutthe United States and around the world. In response to the growing public health crisis, AbbVie has partnered with global authorities to support the experimental use of multiple AbbVie assets to determine their efficacy in the treatment of COVID-19. InJune 2020 , AbbVie announced that it has entered into a collaboration with Harbour BioMed,Utrecht University andErasmus Medical Center to develop a novel antibody therapeutic to prevent and treat COVID-19. Additionally, AbbVie donated$35 million to increase healthcare capacity, supply critical equipment and deliver food and essential supplies during the crisis. AbbVie continues to closely manage manufacturing and supply chain resources around the world to help ensure that patients continue to receive an uninterrupted supply of their medicines. Clinical trial sites are being monitored locally to protect the safety of study participants, staff and employees. While the impact of COVID-19 on AbbVie's operations to date has not been material, AbbVie expects this matter could continue to negatively impact its results of operations throughout the duration of the outbreak. The extent to which COVID-19 may impact AbbVie's financial condition and results of operations remains uncertain. Research and Development Research and innovation are the cornerstones of AbbVie's business as a global biopharmaceutical company. AbbVie's long-term success depends to a great extent on its ability to continue to discover and develop innovative therapies and acquire or collaborate on compounds currently in development by other biotechnology or pharmaceutical companies. AbbVie's pipeline currently includes more than 60 compounds or indications in clinical development individually or under collaboration or license agreements and is focused on such important medical specialties as immunology, oncology, aesthetics, neuroscience, eye care and women's health along with targeted investments in cystic fibrosis. Of these programs, more than 30 are in mid- and late-stage development. The Allergan acquisition added several early-to-late stage pipeline assets in key areas, such as aesthetics, neuroscience, eye care and general medicine. The following sections summarize transitions of significant programs from Phase 2 development to Phase 3 development as well as developments in significant Phase 3 and registration programs. AbbVie expects multiple Phase 2 programs to transition into Phase 3 programs in the next 12 months. Significant Programs and Developments Immunology Rinvoq • InFebruary 2020 , AbbVie announced top-line results from its second Phase 3 clinical trial of Rinvoq in adult patients with active psoriatic arthritis (PsA). Results from the SELECT-PsA 1 study, which
evaluated Rinvoq versus placebo in patients
respond to treatment with one or more non-biologic disease-modifying
anti-rheumatic drugs (DMARDs), showed that both doses of Rinvoq met the
primary and key secondary endpoints. The safety profile was consistent
with that of previous studies across indications, with no new safety risks detected.
• In
marketing authorization application (MAA) to the European Medicines
Agency (EMA) for Rinvoq for the treatment of adult patients with active psoriatic arthritis. • InJune 2020 , AbbVie announced top-line results from its Phase 3 Measure Up 1 study and, inJuly 2020 , announced top-line results from
its Phase 3 Measure Up 2 and AD Up studies of Rinvoq for the treatment
of moderate to severe atopic dermatitis met all primary and secondary
endpoints versus placebo.
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Oncology
Imbruvica
• In
combination with rituximab for the treatment of previously untreated
patients with chronic lymphocytic leukemia (CLL) or small lymphocytic
lymphoma (SLL).
Venclexta
• In
Venclexta in combination with low-dose cytarabine in newly-diagnosed
patients with acute myeloid leukemia (AML) did not meet its primary
endpoint.
• In
VIALE-A trial of Venclexta in combination with azacitidine in patients
with AML met its primary endpoints.
• In
Venclyxto in combination with obinutuzumab for patients with previously
untreated CLL. • InMay 2020 , AbbVie submitted a supplemental NDA (sNDA) to the FDA for the conversion of the conditional approval of Venclexta to full approval for patients with AML. InJune 2020 , AbbVie submitted an MAA to the EMA for Venclyxto for the treatment of patients with AML.
Aesthetics
Juvederm Collection • InJune 2020 , AbbVie received FDA approval of Juvederm Voluma XC for the augmentation of the chin region to improve the chin profile in adults over the age of 21.
Neuroscience
Botox Therapeutic
• In
License Application (sBLA) to expand the Botox prescribing information
for the treatment of detrusor (bladder muscle) overactivity associated
with an underlying neurologic condition in certain pediatric patients. • InJuly 2020 , AbbVie received FDA approval of Botox for the treatment
of lower limb spasticity caused by cerebral palsy in pediatric patients
over the age of 2.
Atogepant
• In
evaluating atogepant, an orally administered calcitonin gene-related
peptide receptor antagonist, for migraine prevention met its primary
endpoint for all doses (10mg, 30mg, and 60mg) compared to placebo, all
secondary endpoints with 30mg and 60mg doses, and four out of six
secondary endpoints with the 10mg dose.
Virology/Liver Disease Mavyret • InMarch 2020 , AbbVie announced that the EC granted marketing
authorization for Maviret to shorten once-daily treatment duration from
12 to 8 weeks in treatment-naïve, compensated cirrhotic, chronic
hepatitis C virus (HCV) patients with genotype 3 infection.
Eye Care Abicipar pegol • InJune 2020 , AbbVie announced that the FDA issued a Complete Response
Letter (CRL) to the Biologics License Application (BLA) for abicipar
pegol, a novel, investigational DARPin therapy for patients with
neovascular (wet) age-related macular degeneration (nAMD). The CRL
indicated that the rate of intraocular inflammation observed following
administration of abicipar pegol results in an unfavorable benefit-risk
ratio in the treatment of nAMD. InJuly 2020 , AbbVie withdrew the regulatory application with the EMA for abicipar pegol for the treatment of nAMD. AbbVie plans to meet with the FDA and EMA to discuss their comments and determine next steps.
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Women's Health Oriahnn • InMay 2020 , the FDA approved Oriahnn (elagolix, estradiol, and
norethindrone acetate capsules; elagolix capsules) for the management
of heavy menstrual bleeding due to uterine fibroids in pre-menopausal
women.
For a more comprehensive discussion of AbbVie's products and pipeline, see the company's Annual Report on Form 10-K for the year endedDecember 31, 2019 . RESULTS OF OPERATIONSNet Revenues The comparisons presented at constant currency rates reflect comparative local currency net revenues at the prior year's foreign exchange rates. This measure provides information on the change in net revenues assuming that foreign currency exchange rates had not changed between the prior and current periods. AbbVie believes that the non-GAAP measure of change in net revenues at constant currency rates, when used in conjunction with the GAAP measure of change in net revenues at actual currency rates, may provide a more complete understanding of the company's operations and can facilitate analysis of the company's results of operations, particularly in evaluating performance from one period to another. Three months ended Percent change Six months ended Percent change June 30, At actual At constant June 30, At actual At constant (dollars in millions) 2020 2019 currency rates currency rates 2020 2019 currency rates currency rates United States$ 8,147 $ 5,964 36.6 % 36.6 %$ 14,305 $ 11,234 27.3 % 27.3 % International 2,278 2,291 (0.5 )% 2.5 % 4,739 4,849 (2.2 )% 0.2 % Net revenues$ 10,425 $ 8,255 26.3 % 27.1 %$ 19,044 $ 16,083 18.4 % 19.1 %
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The following table details AbbVie's worldwide net revenues:
Three months ended Percent change Six months ended Percent change June 30, At actual At constant June 30, At actual At constant (dollars in millions) 2020 2019 currency rates currency rates 2020 2019 currency rates currency rates Immunology Humira United States$ 3,974 $ 3,793 4.8 % 4.8 %$ 7,630 $ 7,008 8.9 % 8.9 % International 863 1,077 (19.9 )% (17.4 )% 1,910 2,308 (17.2 )% (14.9 )% Total$ 4,837 $ 4,870 (0.7 )% (0.2 )%$ 9,540 $ 9,316 2.4 % 3.0 % Skyrizi United States$ 289 $ 42 >100% >100%$ 555 $ 42 >100% >100% International 41 6 >100% >100% 75 6 >100% >100% Total$ 330 $ 48 >100% >100%$ 630 $ 48 >100% >100% Rinvoq United States$ 136 $ - n/m n/m$ 218 $ - n/m n/m International 13 - n/m n/m 17 - n/m n/m Total$ 149 $ - n/m n/m$ 235 $ - n/m n/m Hematologic Oncology Imbruvica United States$ 1,055 $ 886 19.0 % 19.0 %$ 2,021 $ 1,715 17.9 % 17.9 % Collaboration revenues 233 213 9.4 % 9.4 % 499 406 22.9 % 22.9 % Total$ 1,288 $ 1,099 17.2 % 17.2 %$ 2,520 $ 2,121 18.8 % 18.8 % Venclexta United States$ 191 $ 117 63.5 % 63.5 %$ 392 $ 222 76.7 % 76.7 % International 112 52 >100% >100% 228 98 >100% >100% Total$ 303 $ 169 79.2 % 81.5 %$ 620 $ 320 93.7 % 95.8 % Aesthetics Botox Cosmetic (a) United States$ 147 $ - n/m n/m$ 147 $ - n/m n/m International 79 - n/m n/m 79 - n/m n/m Total$ 226 $ - n/m n/m$ 226 $ - n/m n/m Juvederm Collection (a) United States$ 56 $ - n/m n/m$ 56 $ - n/m n/m International 57 - n/m n/m 57 - n/m n/m Total$ 113 $ - n/m n/m$ 113 $ - n/m n/m Other Aesthetics (a) United States$ 127 $ - n/m n/m$ 127 $ - n/m n/m International 15 - n/m n/m 15 - n/m n/m Total$ 142 $ - n/m n/m$ 142 $ - n/m n/m Neuroscience Botox Therapeutic (a) United States$ 254 $ - n/m n/m$ 254 $ - n/m n/m International 43 - n/m n/m 43 - n/m n/m Total$ 297 $ - n/m n/m$ 297 $ - n/m n/m Vraylar (a) United States$ 192 $ - n/m n/m$ 192 $ - n/m n/m Duodopa United States$ 25 $ 24 8.3 % 8.3 %$ 50 $ 46 9.3 % 9.3 % International 93 91 1.6 % 3.7 % 192 180 6.7 % 9.2 % Total$ 118 $ 115 2.9 % 4.6 %$ 242 $ 226 7.2 % 9.2 % Ubrelvy (a) United States$ 22 $ - n/m n/m$ 22 $ - n/m n/m Other Neuroscience (a) United States$ 103 $ - n/m n/m$ 103 $ - n/m n/m International 2 - n/m n/m 2 - n/m n/m Total$ 105 $ - n/m n/m$ 105 $ - n/m n/m
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Three months ended Percent change Six months ended Percent change June 30, At actual At constant June 30, At actual At constant (dollars in millions) 2020 2019 currency rates currency rates 2020 2019 currency rates currency ratesEye Care Lumigan/Ganfort (a) United States$ 35 $ - n/m n/m$ 35 $ - n/m n/m International 41 - n/m n/m 41 - n/m n/m Total$ 76 $ - n/m n/m$ 76 $ - n/m n/m Alphagan/Combigan(a) United States$ 47 $ - n/m n/m$ 47 $ - n/m n/m International 22 - n/m n/m 22 - n/m n/m Total$ 69 $ - n/m n/m$ 69 $ - n/m n/m Restasis (a) United States$ 138 $ - n/m n/m$ 138 $ - n/m n/m International 6 - n/m n/m 6 - n/m n/m Total$ 144 $ - n/m n/m$ 144 $ - n/m n/m Other Eye Care (a) United States$ 54 $ - n/m n/m$ 54 $ - n/m n/m International 74 - n/m n/m 74 - n/m n/m Total$ 128 $ - n/m n/m$ 128 $ - n/m n/m Women's Health Lo Loestrin (a) United States$ 78 $ - n/m n/m$ 78 $ - n/m n/m International 2 - n/m n/m 2 - n/m n/m Total$ 80 $ - n/m n/m$ 80 $ - n/m n/m Orilissa/Oriahnn United States$ 30 $ 18 57.3 % 57.3 %$ 60 $ 31 88.6 % 88.6 % International 1 1 90.2 % 95.4 % 2 1 >100% >100% Total$ 31 $ 19 58.0 % 58.1 %$ 62 $ 32 90.3 % 90.4 % Other Women's Health (a) United States$ 34 $ - n/m n/m$ 34 $ - n/m n/m International 2 - n/m n/m 2 - n/m n/m Total$ 36 $ - n/m n/m$ 36 $ - n/m n/m Other Key Products Mavyret United States$ 146 $ 396 (62.9 )% (62.9 )%$ 380 $ 799 (52.4 )% (52.4 )% International 230 384 (40.2 )% (39.6 )% 555 771 (28.1 )% (27.2 )% Total$ 376 $ 780 (51.7 )% (51.4 )%$ 935 $ 1,570 (40.4 )% (39.9 )% Creon United States$ 252 $ 257 (1.9 )% (1.9 )%$ 528 $ 484 9.3 % 9.3 % Lupron United States$ 167 $ 168 (0.1 )% (0.1 )%$ 362 $ 359 1.1 % 1.1 % International 38 41 (8.9 )% (3.2 )% 76 79 (4.7 )% (0.6 )% Total$ 205 $ 209 (1.8 )% (0.7 )%$ 438 $ 438 - % 0.7 %
Linzess/
n/m n/m$ 130 $ - n/m n/m International 3 - n/m n/m 3 - n/m n/m Total$ 133 $ - n/m n/m$ 133 $ - n/m n/m Synthroid United States$ 183 $ 203 (9.7 )% (9.7 )%$ 388 $ 385 0.7 % 0.7 % All other$ 590 $ 486 21.5 % 24.6 %$ 1,143 $ 1,143 (0.1 )% 2.0 % Total net revenues$ 10,425 $ 8,255 26.3 % 27.1 %$ 19,044 $ 16,083 18.4 % 19.1 % n/m - Not meaningful (a) Represents product revenues for Allergan products only fromMay 8, 2020 , which was the acquisition closing date, throughJune 30, 2020 . The following discussion and analysis of AbbVie's net revenues by product is presented on a constant currency basis. Global Humira sales were flat for the three months and increased 3% for the six months endedJune 30, 2020 primarily driven by market growth across therapeutic categories, offset by direct biosimilar competition in certain international markets. Inthe United States , Humira sales increased 5% for the three months and 9% for the six months endedJune 30, 2020 driven by market growth across all indications, partially offset by lower new patient starts in the second quarter of 2020 due to the COVID-19 pandemic. Internationally, Humira revenues decreased 17% for the three months and 15% for the six months endedJune 30, 2020 primarily driven by direct biosimilar competition in certain international markets. Net revenues for Skyrizi increased more than 100% for the three and six months endedJune 30, 2020 primarily driven by higher patient volumes over the prior year following theApril 2019 regulatory approvals for the treatment of moderate to severe plaque psoriasis.
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Net revenues for Rinvoq were$149 million for the three months and$235 million for the six months endedJune 30, 2020 following theAugust 2019 FDA approval andDecember 2019 EC approval for the treatment of moderate to severe rheumatoid arthritis. Net revenues for Imbruvica represent product revenues inthe United States and collaboration revenues outside ofthe United States related to AbbVie's 50% share of Imbruvica profit. AbbVie's global Imbruvica revenues increased 17% for the three months and 19% for the six months endedJune 30, 2020 as a result of continued penetration of Imbruvica for patients with CLL, partially offset by lower new patient starts in the second quarter of 2020 due to the COVID-19 pandemic. Net revenues for Venclexta increased by 81% for the three months and 96% for the six months endedJune 30, 2020 primarily due to continued expansion of Venclexta for the treatment of patients with first-line CLL and relapsed/refractory CLL. Net revenues for Botox Cosmetic used in facial aesthetics were$226 million for the three and six months endedJune 30, 2020 for the period subsequent to the completion of Allergan acquisition. Net revenues for Juvederm Collection (including Juvederm Ultra XC, Juvederm Voluma XC and other Juvederm products) used in facial aesthetics were$113 million for the three and six months endedJune 30, 2020 for the period subsequent to the completion of Allergan acquisition. Net revenues for Botox Therapeutic used primarily in neuroscience and urology therapeutic areas were$297 million for the three and six months endedJune 30, 2020 for the period subsequent to the completion of Allergan acquisition. Net revenues for Vraylar for the treatment of schizophrenia and bipolar mania were$192 million for the three and six months endedJune 30, 2020 for the period subsequent to the completion of Allergan acquisition. Global Mavyret sales decreased by 51% for the three months and 40% for the six months endedJune 30, 2020 primarily driven by competitive dynamics in theU.S. and lower patient volumes in certain international markets, including lower new patient starts in the second quarter of 2020 due to the COVID-19 pandemic. Net revenues for Creon decreased by 2% for the three months endedJune 30, 2020 driven by lower new patient starts due to the COVID-19 pandemic. Creon increased by 9% for the six months endedJune 30, 2020 primarily driven by continued market growth, partially offset by lower new patient starts in the second quarter of 2020 due to the COVID-19 pandemic. Creon maintains market leadership in the pancreatic enzyme market with approximately 80% total market share. Gross Margin Three months ended Six months ended June 30, June 30, (dollars in millions) 2020 2019 % change 2020 2019 % change Gross margin$ 6,714 $ 6,436 4 %$ 13,391 $ 12,570 7 % as a % of net revenues 64 % 78 % 70 % 78 % Gross margin as a percentage of net revenues decreased for the three and six months endedJune 30, 2020 compared to the prior year. Gross margin percentage for the three and six months endedJune 30, 2020 was unfavorably impacted by higher amortization of intangible assets and inventory fair value step-up adjustments associated with the Allergan acquisition as well as collaboration profit sharing arrangements for Imbruvica and Venclexta. Selling, General and Administrative Three months ended Six months ended June 30, June 30, (dollars in millions) 2020 2019 % change 2020 2019 % change Selling, general and administrative$ 3,527 $ 1,654 >100%$ 5,222 $ 3,334 57 % as a % of net revenues 34 % 20 % 27 % 21 % Selling, general and administrative (SG&A) expenses as a percentage of net revenues increased for the three and six months endedJune 30, 2020 compared to the prior year. SG&A expense percentage for the three and six months endedJune 30, 2020 was unfavorably impacted by incremental SG&A expenses of Allergan, including transaction and integration costs resulting from the acquisition.
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Research and
Three months ended Six months ended June 30, June 30, (dollars in millions) 2020 2019 % change 2020 2019 % change Research and development$ 1,582 $ 1,291 23 %$ 2,961 $ 2,580 15 % as a % of net revenues 15 % 16 % 16 % 16 % Acquired in-process research and development$ 853 $ 91 >100% $
853
R&D expenses as a percentage of net revenues decreased for the three months endedJune 30, 2020 and were flat for the six months endedJune 30, 2020 compared to the prior year. R&D expenses for the three and six months endedJune 30, 2020 included costs associated with the acquired Allergan R&D pipeline for the period subsequent to the completion of the acquisition. Acquired in-process research and development (IPR&D) expenses reflect upfront payments related to various collaborations. Acquired IPR&D expense in the three and six months endedJune 30, 2020 included a charge of$750 million as a result of entering a collaboration agreement with Genmab A/S to research, develop and commercialize investigational bispecific antibody therapeutics for the treatment of cancer. There were no individually significant transactions during the three and six months endedJune 30, 2019 . Other Non-Operating Expenses Three months ended Six months ended June 30, June 30, (in millions) 2020 2019 2020 2019 Interest expense$ 632 $ 358 $ 1,195 $ 745 Interest income (18 ) (49 ) (153 ) (111 ) Interest expense, net$ 614 $ 309 $ 1,042 $ 634
Net foreign exchange loss
802 2,278 874 2,413 Interest expense increased for the three and six months endedJune 30, 2020 compared to the prior year primarily due to incremental interest and debt issuance costs associated with financing the Allergan acquisition and outstanding Allergan debt acquired, partially offset by the favorable impact of lower interest rates on the company's debt obligations. Interest income decreased for the three months endedJune 30, 2020 compared to the prior year primarily due to a lower average cash and cash equivalents balance as a result of the cash paid for the Allergan acquisition and the unfavorable impact of lower interest rates. Interest income increased for the six months endedJune 30, 2020 compared to the prior year primarily due to a higher average cash and cash equivalents balance partially offset by the unfavorable impact of lower interest rates. Other expense, net included charges related to changes in fair value of contingent consideration liabilities of$809 million for the three months and$881 million for the six months endedJune 30, 2020 and$2.3 billion for the three months and$2.5 billion for the six months endedJune 30, 2019 . The fair value of contingent consideration liabilities is impacted by the passage of time and multiple other inputs, including the probability of success of achieving regulatory/commercial milestones, discount rates, the estimated amount of future sales of the acquired products and other market-based factors. For the three and six months endedJune 30, 2020 , the change in fair value represented lower discount rates and the passage of time. For the three and six months endedJune 30, 2019 , the change in fair value represented higher probabilities of success, higher estimated future sales and declining interest rates.
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Income Tax Expense The effective tax rate was 7% income tax expense on pre-tax loss for the three months endedJune 30, 2020 and 6% income tax expense on pre-tax income for the six months endedJune 30, 2020 . The effective tax rate was 8% and 5% for the three months and six months endedJune 30, 2019 , respectively. The effective tax rate in each period differed from theU.S. statutory tax rate of 21% principally due to the benefit from foreign operations which reflects the impact of lower income tax rates in locations outsidethe United States , tax incentives inPuerto Rico and other foreign tax jurisdictions and business development activities. The change in the effective tax rate for the three months endedJune 30, 2020 over prior year was principally due to the unfavorable impact of non-deductible Allergan acquisition related costs, the impact of changes in contingent consideration liabilities and collaboration related costs. These contributed to net income tax expense on a pre-tax loss for the three months endedJune 30, 2020 . FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Six months ended June 30, (in millions) 2020 2019 Cash flows provided by (used in): Operating activities$ 6,904 $ 5,494 Investing activities (35,781 ) (167 ) Financing activities (4,992 ) (7,453 ) Operating cash flows for the six months endedJune 30, 2020 increased compared to the prior year and included the results of Allergan subsequent to theMay 8 acquisition date. Operating cash flows for the six months endedJune 30, 2020 were favorably impacted by lower payments for income taxes and higher net revenues of the combined company partially offset by acquisition-related cash expenses. Investing cash flows for the six months endedJune 30, 2020 primarily included$39.7 billion cash consideration paid to acquire Allergan offset by cash acquired of$1.5 billion . Investing cash flows also included capital expenditures of$302 million , net sales and maturities of investment securities totaling$1.4 billion and payments made for other acquisitions and investments of$192 million . Investing cash flows for the six months endedJune 30, 2019 included net sales and maturities of investment securities totaling$508 million , payments made for other acquisitions and investments of$440 million and capital expenditures of$235 million . Financing cash flows for the six months endedJune 30, 2020 included the issuance of term loans totaling$3.0 billion under the existing$6.0 billion term loan credit agreement which were used to finance the acquisition of Allergan. Subsequent to these borrowings, AbbVie terminated the unused commitments of the lenders under the term loan. Additionally, financing cash flows included theMay 2020 repayment of$3.8 billion aggregate principal amount of the company's 2.50% senior notes at maturity. See Note 8 to the Condensed Consolidated Financial Statements for additional information. Cash dividend payments totaled$3.5 billion for the six months endedJune 30, 2020 and$3.2 billion for the six months endedJune 30, 2019 . The increase in cash dividend payments was driven by an increase in the quarterly dividend rate. OnJune 17, 2020 , the board of directors declared a quarterly cash dividend of$1.18 per share for stockholders of record at the close of business onJuly 15, 2020 , payable onAugust 14, 2020 . The timing, declaration, amount of and payment of any dividends by AbbVie in the future is within the discretion of its board of directors and will depend upon many factors, including AbbVie's financial condition, earnings, capital requirements of its operating subsidiaries, covenants associated with certain of AbbVie's debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets and other factors deemed relevant by its board of directors. The company's stock repurchase authorization permits purchases of AbbVie shares from time to time in open-market or private transactions at management's discretion. The program has no time limit and can be discontinued at any time. Under this authorization, AbbVie repurchased 6 million shares for$500 million during the six months endedJune 30, 2020 and 4 million shares for$300 million during the six months endedJune 30, 2019 . AbbVie cash-settled$201 million of itsDecember 2018 open market purchases inJanuary 2019 . During the six months endedJune 30, 2020 , the company issued and redeemed commercial paper. There were no commercial paper borrowings outstanding as ofJune 30, 2020 andDecember 31, 2019 . AbbVie may issue additional commercial paper or retire commercial paper to meet liquidity requirements as needed.
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Credit Risk AbbVie monitors economic conditions, the creditworthiness of customers and government regulations and funding, both domestically and abroad. AbbVie regularly communicates with its customers regarding the status of receivable balances, including their payment plans and obtains positive confirmation of the validity of the receivables. AbbVie establishes an allowance for credit losses equal to the estimate of future losses over the contractual life of outstanding accounts receivable. AbbVie may also utilize factoring arrangements to mitigate credit risk, although the receivables included in such arrangements have historically not been a significant amount of total outstanding receivables. AbbVie continues to do business with foreign governments in certain countries significantly impacted by the COVID-19 pandemic. AbbVie has assessed credit risk in these countries and currently does not believe the economic conditions in these countries will have a significant impact on the company's liquidity, cash flow or financial flexibility. However, if government funding were to become unavailable in these countries or if significant adverse changes in their reimbursement practices were to occur, AbbVie may not be able to collect the entire balance of receivables outstanding as ofJune 30, 2020 . AbbVie will continue to monitor information as it becomes available with respect to COVID-19 and evaluate any expected impact on the company's receivables. Credit Facility, Access to Capital and Credit Ratings Credit Facility AbbVie currently has a$4.0 billion five-year revolving credit facility that matures inAugust 2024 . This credit facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants. AtJune 30, 2020 , the company was in compliance with all covenants, and commitment fees under the credit facility were insignificant. No amounts were outstanding under the company's credit facility as ofJune 30, 2020 andDecember 31, 2019 . Access to Capital The company intends to fund short-term and long-term financial obligations as they mature through cash on hand, future cash flows from operations or has the ability to issue additional debt. The company's ability to generate cash flows from operations, issue debt or enter into financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for the company's products or in the solvency of its customers or suppliers, deterioration in the company's key financial ratios or credit ratings or other material unfavorable changes in business conditions. At the current time, the company believes it has sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support the company's growth objectives. Credit Ratings Following the acquisition of Allergan, S&P Global Ratings revised its ratings outlook to stable from negative and lowered the issuer credit rating by one notch to BBB+ from A- and the short-term rating to A-2 from A-1. There were no changes in Moody's Investor Service of its Baa2 senior unsecured long-term rating and Prime-2 short-term rating with a stable outlook. Unfavorable changes to the ratings may have an adverse impact on future financing arrangements; however, they would not affect the company's ability to draw on its credit facility and would not result in an acceleration of scheduled maturities of any of the company's outstanding debt. CRITICAL ACCOUNTING POLICIES A summary of the company's significant accounting policies is included in Note 2, "Summary of Significant Accounting Policies" in AbbVie's Annual Report on Form 10-K for the year endedDecember 31, 2019 . There have been no significant changes in the company's application of its critical accounting policies during the six months endedJune 30, 2020 .
2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 40
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FORWARD-LOOKING STATEMENTS Some statements in this quarterly report on Form 10-Q may be forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "anticipate," "project," and similar expressions, among others, generally identify forward-looking statements. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to, failure to realize the expected benefits from AbbVie's acquisition of Allergan, failure to promptly and effectively integrate Allergan's businesses, challenges to intellectual property, competition from other products, difficulties inherent in the research and development process, adverse litigation or government action, changes to laws and regulations applicable to our industry and the impact of public health outbreaks, epidemics or pandemics, such as COVID-19. Additional information about the economic, competitive, governmental, technological and other factors that may affect AbbVie's operations is set forth in Item 1A, "Risk Factors," in AbbVie's Annual Report on Form 10-K for the year endedDecember 31, 2019 , which has been filed with theSecurities and Exchange Commission . AbbVie notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. AbbVie undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law.
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