The following is a discussion and analysis of the financial condition of AbbVie
Inc. (AbbVie or the company) as of June 30, 2020 and December 31, 2019 and the
results of operations for the three and six months ended June 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.
On May 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. In the United States, AbbVie
distributes pharmaceutical products principally through independent wholesale
distributors, with some sales directly to pharmacies and patients. Outside the
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 ended June 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 the U.S.
as well as revenue growth from Imbruvica and Venclexta.

2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 31

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Diluted earnings per share was $1.43 for the six months ended June 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)
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic, which continues to spread throughout the
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. In June 2020, AbbVie announced that it has entered into a
collaboration with Harbour BioMed, Utrecht University and Erasmus 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
•         In February 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 who did not adequately

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 May 2020, AbbVie submitted a New Drug Application (NDA) to the U.S.

Food and Drug Administration (FDA) and, in June 2020, submitted a

marketing authorization application (MAA) to the European Medicines


          Agency (EMA) for Rinvoq for the treatment of adult patients with active
          psoriatic arthritis.


•         In June 2020, AbbVie announced top-line results from its Phase 3
          Measure Up 1 study and, in July 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.

2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 32

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Oncology

Imbruvica

• In April 2020, AbbVie received FDA approval for the use of Imbruvica in

combination with rituximab for the treatment of previously untreated

patients with chronic lymphocytic leukemia (CLL) or small lymphocytic


          lymphoma (SLL).


Venclexta

• In February 2020, AbbVie announced that the Phase 3 VIALE-C trial of

Venclexta in combination with low-dose cytarabine in newly-diagnosed

patients with acute myeloid leukemia (AML) did not meet its primary

endpoint.

• In March 2020, AbbVie announced that top-line results from its Phase 3

VIALE-A trial of Venclexta in combination with azacitidine in patients

with AML met its primary endpoints.

• In March 2020, AbbVie received European Commission (EC) approval of

Venclyxto in combination with obinutuzumab for patients with previously


          untreated CLL.


•         In May 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. In June 2020, AbbVie submitted an MAA
          to the EMA for Venclyxto for the treatment of patients with AML.

Aesthetics


Juvederm Collection
•         In June 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 June 2020, the FDA accepted the company's supplemental Biologics

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.


•         In July 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 July 2020, AbbVie announced that the Phase 3 ADVANCE trial

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
•         In March 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
•         In June 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. In July 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.


2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 33

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Women's Health
Oriahnn
•         In May 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 ended December 31, 2019.
RESULTS OF OPERATIONS
Net 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 %


2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 34

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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


2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 35

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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 rates
Eye 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/Constella (a) United States $ 130 $ -


      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 from May 8, 2020,
which was the acquisition closing date, through June 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 ended June 30, 2020 primarily driven by market growth across therapeutic
categories, offset by direct biosimilar competition in certain international
markets. In the United States, Humira sales increased 5% for the three months
and 9% for the six months ended June 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 ended June 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
ended June 30, 2020 primarily driven by higher patient volumes over the prior
year following the April 2019 regulatory approvals for the treatment of moderate
to severe plaque psoriasis.

2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 36

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Net revenues for Rinvoq were $149 million for the three months and $235 million
for the six months ended June 30, 2020 following the August 2019 FDA approval
and December 2019 EC approval for the treatment of moderate to severe rheumatoid
arthritis.
Net revenues for Imbruvica represent product revenues in the United States and
collaboration revenues outside of the 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 30, 2020 primarily driven by competitive dynamics in the U.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 ended June 30, 2020
driven by lower new patient starts due to the COVID-19 pandemic. Creon increased
by 9% for the six months ended June 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 ended June 30, 2020 compared to the prior year. Gross margin percentage
for the three and six months ended June 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 ended June 30, 2020 compared to
the prior year. SG&A expense percentage for the three and six months ended June
30, 2020 was unfavorably impacted by incremental SG&A expenses of Allergan,
including transaction and integration costs resulting from the acquisition.

2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 37

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Research and Development and Acquired In-Process Research and Development


                                          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 $ 246 >100%




R&D expenses as a percentage of net revenues decreased for the three months
ended June 30, 2020 and were flat for the six months ended June 30, 2020
compared to the prior year. R&D expenses for the three and six months ended June
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 ended June 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 ended June 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 $ 29 $ 6 $ 34 $ 12 Other expense, net

               802          2,278            874      2,413


Interest expense increased for the three and six months ended June 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 ended June 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 ended June 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 ended June 30, 2020 and $2.3 billion for the
three months and $2.5 billion for the six months ended June 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 ended June 30, 2020, the change in fair value represented lower
discount rates and the passage of time. For the three and six months ended June
30, 2019, the change in fair value represented higher probabilities of success,
higher estimated future sales and declining interest rates.

2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 38

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Income Tax Expense
The effective tax rate was 7% income tax expense on pre-tax loss for the three
months ended June 30, 2020 and 6% income tax expense on pre-tax income for the
six months ended June 30, 2020. The effective tax rate was 8% and 5% for the
three months and six months ended June 30, 2019, respectively. The effective tax
rate in each period differed from the U.S. statutory tax rate of 21% principally
due to the benefit from foreign operations which reflects the impact of lower
income tax rates in locations outside the United States, tax incentives in
Puerto Rico and other foreign tax jurisdictions and business development
activities. The change in the effective tax rate for the three months ended June
30, 2020 over prior year was principally due to the unfavorable impact of
non-deductible Allergan acquisition related costs, the impact of changes in
contingent consideration liabilities and collaboration related costs. These
contributed to net income tax expense on a pre-tax loss for the three months
ended June 30, 2020.
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 ended June 30, 2020 increased compared
to the prior year and included the results of Allergan subsequent to the May 8
acquisition date. Operating cash flows for the six months ended June 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 ended June 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 ended June 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 ended June 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 the May 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 ended June 30,
2020 and $3.2 billion for the six months ended June 30, 2019. The increase in
cash dividend payments was driven by an increase in the quarterly dividend rate.
On June 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 on July 15,
2020, payable on August 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 ended June 30, 2020 and 4 million shares for $300 million
during the six months ended June 30, 2019. AbbVie cash-settled $201 million of
its December 2018 open market purchases in January 2019.
During the six months ended June 30, 2020, the company issued and redeemed
commercial paper. There were no commercial paper borrowings outstanding as of
June 30, 2020 and December 31, 2019. AbbVie may issue additional commercial
paper or retire commercial paper to meet liquidity requirements as needed.

2020 Form 10-Q | [[Image Removed: abbvieimage2a19.gif]] 39

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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 of June 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 in August 2024. This credit facility enables the company to borrow funds
on an unsecured basis at variable interest rates and contains various covenants.
At June 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 of June 30, 2020 and
December 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 ended December 31, 2019. There have been no significant
changes in the company's application of its critical accounting policies during
the six months ended June 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 ended December 31, 2019, which has been filed
with the Securities 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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