AbbVie Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and analysis of the financial condition of AbbVie Inc. (AbbVie or the company) as of September 30, 2024 and December 31, 2023 and the results of operations for the three and nine months ended September 30, 2024 and 2023. 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, diversified research-based biopharmaceutical company positioned for success with a comprehensive product portfolio that has leadership positions across immunology, oncology, aesthetics, neuroscience and eye care. 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 August 1, 2024, AbbVie completed the acquisition of Cerevel Therapeutics Holdings, Inc. (Cerevel Therapeutics). The acquisition complements AbbVie’s neuroscience portfolio, adding a wide range of potentially best-in-class assets that may transform standards of care across psychiatric and neurological disorders where significant unmet needs remain for patients. 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 Cerevel Therapeutics. On July 1, 2024, AbbVie announced Robert A. Michael, AbbVie's former president and chief operating officer, succeeded Richard A. Gonzalez as the company's chief executive officer (CEO). Mr. Gonzalez, who has served as CEO since the company's formation in 2013, retired from the role of CEO and became executive chairman of the board of directors, effective July 1, 2024. Additionally, the board has appointed Mr. Michael as a member of the board of directors effective July 1, 2024. On February 12, 2024, AbbVie completed the acquisition of ImmunoGen, Inc. (ImmunoGen). The acquisition of ImmunoGen further builds on AbbVie's existing solid tumor pipeline of novel targeted therapies and next-generation immuno-oncology assets, which have the potential to create new treatment possibilities across multiple solid tumors and hematologic malignancies. AbbVie and ImmunoGen's combined capabilities represent an opportunity to deliver potentially transformative antibody-drug conjugate (ADC) therapies to patients. 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 ImmunoGen. 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 products (including 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 retailers, pharmacies, patients or other customers. Outside the United States, AbbVie sells products primarily to wholesalers or through distributors, and depending on the market works through largely centralized national payers system to agree on reimbursement terms. Certain products are co-marketed or co-promoted with other companies. AbbVie operates as a single global business segment and has approximately 50,000 employees. 2024 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 execute its strategy and advance its mission in a number of ways, including: (i) maximizing the benefits of a diversified revenue base with multiple long-term growth drivers; (ii) leveraging AbbVie's commercial strength and international infrastructure across 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 and eye care as well as continued investment in key on-market products; (iv) generating substantial operating cash flows to support investment in innovative research and development, and return cash to shareholders via a strong and growing dividend while also continuing to repay debt. In addition, AbbVie anticipates several regulatory submissions and data readouts from key clinical trials in the next 12 months. 2024 Form 10-Q | 31 Financial Results The company's financial performance for the nine months ended September 30, 2024 included delivering worldwide net revenues of $41.2 billion, operating earnings of $10.6 billion, diluted earnings per share of $2.41 and cash flows from operations of $11.8 billion. Worldwide net revenues increased 3% on a reported basis and 4% on a constant currency basis. Diluted earnings per share was $2.41 for the nine months ended September 30, 2024 and included the following after-tax costs: (i) $4.9 billion related to the amortization of intangible assets; (ii) $3.4 billion for the change in fair value of contingent consideration liabilities; (iii) $894 million of acquisition and integration expenses; and (iv) $585 million for charges related to litigation matters. Additionally, financial results reflected continued funding to support all stages of AbbVie’s pipeline assets and continued investment in AbbVie’s on-market brands. 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 products and acquire or collaborate on compounds currently in development by other biotechnology or pharmaceutical companies. AbbVie’s pipeline currently includes approximately 90 compounds, devices or indications in development individually or under collaboration or license agreements and is focused on such important specialties as immunology, oncology, aesthetics, neuroscience and eye care. Of these programs, approximately 50 are in mid- and late-stage development. The following sections summarize transitions of significant programs from mid-stage development to late-stage development as well as developments in significant late-stage and registration programs. AbbVie expects multiple mid-stage programs to transition into late-stage programs in the next 12 months. Significant Programs and Developments Immunology Rinvoq • In January 2024, AbbVie initiated a Phase 3 clinical trial to evaluate Rinvoq in adults and adolescents with non-segmental vitiligo who are eligible for systemic therapy. • In April 2024, AbbVie announced positive top-line results from its Phase 3 SELECT-GCA trial for Rinvoq in combination with a 26-week steroid taper regimen in patients with giant cell arteritis (GCA) achieved its primary endpoint. • In April 2024, AbbVie announced positive top-line results from the head-to-head Phase 3b/4 Level-Up trial evaluating Rinvoq compared to dupilumab in adolescent and adult patients with moderate to severe atopic dermatitis. In the study, Rinvoq demonstrated superiority to dupilumab on the primary endpoint and all ranked secondary endpoints. • In June 2024, AbbVie announced that the U.S. Food and Drug Administration (FDA) has approved Rinvoq for the treatment of pediatric patients two years of age and older with active polyarticular juvenile idiopathic arthritis (pJIA) as well as psoriatic arthritis (PsA), provided they have had an inadequate response or intolerance to one or more tumor necrosis factor (TNF) blockers. • In July 2024, AbbVie announced that it has submitted applications for a new indication to the FDA and European Medicines Agency (EMA) for Rinvoq for the treatment of adult patients with GCA. Skyrizi • In June 2024, AbbVie announced that the FDA has approved Skyrizi for adults with moderately to severely active ulcerative colitis (UC). • In July 2024, AbbVie announced that the European Commission (EC) has approved Skyrizi for the treatment of adult patients with moderately to severely active UC who have had an inadequate response to, lost response to, or were intolerant to conventional therapy or a biologic therapy. Lutikizumab • In January 2024, AbbVie announced Phase 2 results showing adults with moderate to severe hidradenitis suppurativa (HS) who had previously failed anti-TNF therapy who received lutikizumab achieved higher response rates than placebo in the primary endpoint of achieving HS Clinical Response at week 16. 2024 Form 10-Q | 32 • In July 2024, AbbVie initiated a Phase 3 clinical trial to evaluate lutikizumab in adult and adolescent patients with moderate to severe HS. Oncology Epkinly • In March 2024, AbbVie initiated a Phase 3 clinical trial to evaluate Epkinly in combination with rituximab and lenalidomide in patients with previously untreated follicular lymphoma (FL). • In June 2024, AbbVie announced that the FDA has approved Epkinly for the treatment of adults with relapsed or refractory (R/R) FL after two or more lines of prior therapy. This indication is approved under the FDA's Accelerated Approval program based on overall response rate (ORR) and durability of response. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial. • In June 2024, AbbVie announced that the EMA Committee for Medicinal Products for Human Use has adopted a positive opinion recommending the conditional marketing authorization of Tepkinly as a monotherapy for the treatment of adult patients with R/R FL after two or more prior therapies. • In August 2024, AbbVie announced that the EC has granted conditional marketing authorization for Tepkinly as a monotherapy for the treatment of adult patients with R/R FL after two or more lines of prior therapy. Elahere • In March 2024, AbbVie announced that the FDA granted full approval for Elahere for the treatment of folate receptor alpha (FRα)-positive, platinum-resistant epithelial ovarian, fallopian tube or primary peritoneal adult cancer patients treated with up to three prior therapies. • In June 2024, AbbVie announced positive topline results from the Phase 2 PICCOLO trial evaluating Elahere monotherapy in heavily pre-treated patients with FRα-positive, platinum-sensitive ovarian cancer. The study met its primary endpoint and no new safety concerns were identified. • In September 2024, AbbVie announced that the EMA Committee for Medicinal Products for Human Use has adopted a positive opinion recommending the marketing authorization of Elahere for the treatment of adult patients with FRα-positive, platinum-resistant and high-grade serous epithelial ovarian, fallopian tube or primary peritoneal cancer who have received one to three prior treatment regimens. Navitoclax • In April 2024, AbbVie announced its decision to discontinue the Phase 3 TRANSFORM-2 study evaluating navitoclax, a BCL-XL/BCL-2 inhibitor, plus ruxolitinib in patients with R/R myelofibrosis following evaluation of the totality of data from the Phase 3 TRANSFORM-1 trial and feedback from regulators. ABBV-383 • In June 2024, AbbVie initiated the CERVINO Phase 3 clinical trial to evaluate ABBV-383 monotherapy compared with standard available therapies in adult patients with R/R multiple myeloma who have received at least two lines of prior therapy. Teliso-V • In September 2024, AbbVie announced submission of a Biologics License Application to the FDA for accelerated approval of Teliso-V in adult patients with previously treated, locally advanced or metastatic epidermal growth factor receptor (EGFR) wild type, nonsquamous non-small cell lung cancer (NSCLC) with c-Met protein overexpression. Aesthetics Juvederm Collection • In March 2024, AbbVie announced the FDA approval of Juvederm Voluma XC for injection in the temple region to improve moderate to severe temple hollowing in adults over the age of 21. 2024 Form 10-Q | 33 Botox Cosmetic • In September 2024, AbbVie announced that Botox Cosmetic is now available for the treatment of masseter muscle prominence (MMP) in China. • In October 2024, AbbVie announced that the FDA has approved Botox Cosmetic for temporary improvement in the appearance of moderate to severe vertical bands connecting the jaw and neck (platysma bands) in adults . Neuroscience Vyalev • In January 2024, AbbVie announced the launch of Produodopa (ABBV-951) in the European Union for the treatment of advanced Parkinson's disease with severe motor fluctuations and hyperkinesia (excessive movement) or dyskinesia (involuntary movement), and when available combinations of Parkinson's medicinal products have not given satisfactory results. • In June 2024, AbbVie announced it received a Complete Response Letter (CRL) from the FDA for the New Drug Application (NDA) for ABBV-951 for the treatment of motor fluctuations in adults with advanced Parkinson's disease. In its letter, the FDA cited observations that were identified during inspection of a third-party manufacturer listed in the NDA. The CRL did not identify any issues related to the safety, efficacy or labeling of ABBV-951, including the device, and does not request that AbbVie conduct additional efficacy or safety trials related to the drug or device-related testing. • In October 2024, AbbVie announced that the FDA has approved Vyalev (ABBV-951) as the first and only subcutaneous 24-hour infusion of levodopa-based therapy for the treatment of motor fluctuations in adults with advanced Parkinson's disease. Tavapadon • In September 2024, AbbVie announced positive topline results from its Phase 3 TEMPO-1 trial for Tavapadon as a monotherapy in early Parkinson's disease. 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, 2023. 2024 Form 10-Q | 34 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 September 30, Percent change Nine months ended September 30, Percent change At actual currency rates At constant currency rates At actual currency rates At constant currency rates (dollars in millions) 2024 2023 2024 2023 United States $ 11,148 $ 10,852 2.7 % 2.7 % $ 31,295 $ 30,773 1.7 % 1.7 % International 3,312 3,075 7.7 % 12.4 % 9,937 9,244 7.5 % 12.2 % Net revenues $ 14,460 $ 13,927 3.8 % 4.9 % $ 41,232 $ 40,017 3.0 % 4.1 % 2024 Form 10-Q | 35 The following table details AbbVie’s worldwide net revenues: Three months ended September 30, Percent change Nine months ended September 30, Percent change At actual currency rates At constant currency rates At actual currency rates At constant currency rates (dollars in millions) 2024 2023 2024 2023 Immunology Humira United States $ 1,765 $ 3,020 (41.6) % (41.6) % $ 5,896 $ 9,420 (37.4) % (37.4) % International 462 527 (12.4) % (7.8) % 1,415 1,680 (15.8) % (10.8) % Total $ 2,227 $ 3,547 (37.2) % (36.5) % $ 7,311 $ 11,100 (34.1) % (33.3) % Skyrizi United States $ 2,778 $ 1,875 48.3 % 48.3 % $ 6,774 $ 4,648 45.8 % 45.8 % International 427 251 70.0 % 75.7 % 1,166 721 61.8 % 66.6 % Total $ 3,205 $ 2,126 50.8 % 51.5 % $ 7,940 $ 5,369 47.9 % 48.5 % Rinvoq United States $ 1,170 $ 801 45.9 % 45.9 % $ 2,912 $ 1,895 53.6 % 53.6 % International 444 309 44.0 % 51.6 % 1,225 819 49.6 % 58.5 % Total $ 1,614 $ 1,110 45.3 % 47.4 % $ 4,137 $ 2,714 52.4 % 55.1 % Oncology Imbruvica United States $ 618 $ 678 (8.9) % (8.9) % $ 1,823 $ 1,982 (8.0) % (8.0) % Collaboration revenues 210 230 (8.4) % (8.4) % 676 711 (4.9) % (4.9) % Total $ 828 $ 908 (8.8) % (8.8) % $ 2,499 $ 2,693 (7.2) % (7.2) % Venclexta United States $ 340 $ 281 21.5 % 21.5 % $ 921 $ 811 13.6 % 13.6 % International 337 309 8.9 % 15.4 % 1,007 888 13.4 % 19.7 % Total $ 677 $ 590 14.8 % 18.2 % $ 1,928 $ 1,699 13.5 % 16.8 % Elahere (a) United States $ 139 $ — n/m n/m $ 331 $ — n/m n/m Epkinly Collaboration revenues $ 31 $ 14 >100.0 % >100.0 % $ 82 $ 14 >100.0 % >100.0 % International 12 — >100.0 % >100.0 % 24 — >100.0 % >100.0 % Total $ 43 $ 14 >100.0 % >100.0 % $ 106 $ 14 >100.0 % >100.0 % Aesthetics Botox Cosmetic United States $ 414 $ 388 6.5 % 6.5 % $ 1,253 $ 1,217 2.9 % 2.9 % International 257 232 10.9 % 15.5 % 780 747 4.5 % 9.1 % Total $ 671 $ 620 8.2 % 9.9 % $ 2,033 $ 1,964 3.5 % 5.3 % Juvederm Collection United States $ 105 $ 116 (10.2) % (10.2) % $ 349 $ 363 (4.1) % (4.1) % International 153 205 (25.1) % (20.8) % 549 681 (19.3) % (14.6) % Total $ 258 $ 321 (19.7) % (16.9) % $ 898 $ 1,044 (14.0) % (10.9) % Other Aesthetics United States $ 272 $ 255 6.4 % 6.4 % $ 828 $ 785 5.6 % 5.6 % International 38 43 (10.0) % (2.0) % 119 130 (8.7) % (1.8) % Total $ 310 $ 298 4.0 % 5.1 % $ 947 $ 915 3.5 % 4.5 % Neuroscience Botox Therapeutic United States $ 708 $ 626 13.1 % 13.1 % $ 1,988 $ 1,827 8.8 % 8.8 % International 140 122 14.6 % 20.7 % 422 388 8.6 % 13.1 % Total $ 848 $ 748 13.4 % 14.4 % $ 2,410 $ 2,215 8.8 % 9.6 % Vraylar United States $ 873 $ 750 16.5 % 16.5 % $ 2,338 $ 1,967 18.9 % 18.9 % International 2 1 49.3 % 51.9 % 5 3 76.0 % 76.9 % Total $ 875 $ 751 16.6 % 16.6 % $ 2,343 $ 1,970 18.9 % 18.9 % Duodopa United States $ 24 $ 25 (4.7) % (4.7) % $ 72 $ 74 (3.3) % (3.3) % International 87 93 (7.1) % (6.4) % 267 279 (4.4) % (4.0) % Total $ 111 $ 118 (6.6) % (6.0) % $ 339 $ 353 (4.1) % (3.8) % Ubrelvy United States $ 261 $ 230 13.6 % 13.6 % $ 685 $ 574 19.3 % 19.3 % International 8 3 >100.0 % >100.0 % 18 7 >100.0 % >100.0 % Total $ 269 $ 233 15.3 % 15.3 % $ 703 $ 581 20.9 % 20.9 % Qulipta United States $ 168 $ 131 28.3 % 28.3 % $ 442 $ 292 51.3 % 51.3 % International 8 1 >100.0 % >100.0 % 15 2 >100.0 % >100.0 % Total $ 176 $ 132 33.6 % 33.6 % $ 457 $ 294 55.5 % 55.5 % 2024 Form 10-Q | 36 Three months ended September 30, Percent change Nine months ended September 30, Percent change At actual currency rates At constant currency rates At actual currency rates At constant currency rates (dollars in millions) 2024 2023 2024 2023 Other Neuroscience United States $ 54 $ 55 (4.1) % (4.1) % $ 172 $ 195 (11.6) % (11.6) % International 30 6 >100.0 % >100.0 % 66 15 >100.0 % >100.0 % Total $ 84 $ 61 36.4 % 37.1 % $ 238 $ 210 13.5 % 14.1 % Eye Care Ozurdex United States $ 33 $ 34 (2.3) % (2.3) % $ 102 $ 107 (4.4) % (4.4) % International 86 86 (0.3) % 2.5 % 272 247 10.0 % 13.1 % Total $ 119 $ 120 (0.9) % 1.1 % $ 374 $ 354 5.7 % 7.8 % Lumigan/Ganfort United States $ 58 $ 28 >100.0 % >100.0 % $ 129 $ 142 (9.5) % (9.5) % International 58 63 (7.0) % (2.7) % 181 198 (8.7) % (5.9) % Total $ 116 $ 91 27.2 % 30.2 % $ 310 $ 340 (9.0) % (7.4) % Alphagan/Combigan United States $ 26 $ 30 (15.3) % (15.3) % $ 54 $ 90 (40.3) % (40.3) % International 36 40 (10.0) % (4.5) % 116 116 (0.1) % 6.9 % Total $ 62 $ 70 (12.3) % (9.2) % $ 170 $ 206 (17.7) % (13.8) % Restasis United States $ 8 $ 104 (92.5) % (92.5) % $ 70 $ 265 (73.4) % (73.4) % International 13 13 2.1 % 8.1 % 40 43 (7.4) % (2.2) % Total $ 21 $ 117 (82.2) % (81.5) % $ 110 $ 308 (64.2) % (63.5) % Other Eye Care United States $ 115 $ 114 1.7 % 1.7 % $ 351 $ 334 5.3 % 5.3 % International 92 93 (2.0) % 4.2 % 281 288 (2.4) % 2.1 % Total $ 207 $ 207 — % 2.8 % $ 632 $ 622 1.7 % 3.8 % Other Key Products Mavyret United States $ 147 $ 167 (12.7) % (12.7) % $ 458 $ 531 (13.9) % (13.9) % International 155 203 (23.1) % (20.5) % 562 590 (4.6) % (1.2) % Total $ 302 $ 370 (18.4) % (17.0) % $ 1,020 $ 1,121 (9.0) % (7.2) % Creon United States $ 338 $ 305 10.6 % 10.6 % $ 995 $ 892 11.5 % 11.5 % Linzess/Constella United States $ 225 $ 279 (19.2) % (19.2) % $ 693 $ 799 (13.2) % (13.2) % International 9 9 0.4 % 2.0 % 28 26 6.2 % 6.0 % Total $ 234 $ 288 (18.6) % (18.6) % $ 721 $ 825 (12.6) % (12.6) % All other $ 726 $ 782 (6.8) % (5.5) % $ 2,280 $ 2,214 3.0 % 4.6 % Total net revenues $ 14,460 $ 13,927 3.8 % 4.9 % $ 41,232 $ 40,017 3.0 % 4.1 % n/m – Not meaningful (a) Net revenues include ImmunoGen product revenues after the acquisition closing date of February 12, 2024. The following discussion and analysis of AbbVie’s net revenues by product is presented on a constant currency basis. Global Humira sales decreased 37% for the three months and 33% for the nine months ended September 30, 2024. In the United States, Humira sales decreased by 42% for the three months and 37% for the nine months ended September 30, 2024 primarily driven by direct biosimilar competition following the loss of exclusivity on January 31, 2023. Internationally, Humira revenues decreased 8% for the three months and 11% for the nine months ended September 30, 2024 primarily driven by the continued impact of direct biosimilar competition. AbbVie continues to pursue strategies to maintain broad formulary access of Humira and manage the impact of biosimilar erosion. Net revenues for Skyrizi increased 51% for the three months and 49% for the nine months ended September 30, 2024 primarily driven by continued strong market share uptake as well as market growth across all indications. Net revenues for Rinvoq increased 47% for the three months and 55% for the nine months ended September 30, 2024 primarily driven by continued strong market share uptake as well as market growth across all indications. 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 decreased 9% for the three months and 7% for the nine months ended September 30, 2024 primarily driven by decreased demand and lower market share in the United States as well as decreased collaboration revenues. Net revenues for Venclexta increased 18% for the three months and 17% for the nine months ended September 30, 2024 primarily driven by continued market share uptake and market growth across all indications. 2024 Form 10-Q | 37 Net revenues for Elahere were $139 million for the three months and $331 million for the nine months ended September 30, 2024 for the period subsequent to the completion of the ImmunoGen acquisition. Net revenues for Botox Cosmetic increased 10% for the three months and 5% for the nine months ended September 30, 2024 primarily driven by favorable pricing. Net revenues for the nine months ended September 30, 2024 were also partially offset by the unfavorable impact of customer inventory destocking in the United States. Net revenues for Juvederm Collection decreased 17% for the three months and 11% for the nine months ended September 30, 2024 primarily driven by decreased consumer demand across international markets. Net revenues for the nine months ended September 30, 2024 were also unfavorably impacted by customer inventory destocking in the United States. Net revenues for Botox Therapeutic increased 14% for the three months and 10% for the nine months ended September 30, 2024 primarily driven by continued market share uptake as well as market growth. Net revenues for Vraylar increased 17% for the three months and 19% for the nine months ended September 30, 2024 primarily driven by continued market share uptake as well as market growth. Net revenues for Ubrelvy increased 15% for the three months and 21% for the nine months ended September 30, 2024 primarily driven by continued market share uptake as well as market growth. Net revenues for Qulipta increased 34% for the three months and 56% for the nine months ended September 30, 2024 primarily driven by continued strong market share uptake as well as market growth. Gross Margin Three months ended September 30, Nine months ended September 30, (dollars in millions) 2024 2023 % change 2024 2023 % change Gross margin $ 10,248 $ 7,442 38 % $ 28,724 $ 25,306 14 % as a % of net revenues 71 % 53 % 70 % 63 % Gross margin as a percentage of net revenues increased for the three and nine months ended September 30, 2024 compared to the prior year. Gross margin percentage for the three and nine months ended September 30, 2024 was favorably impacted by lower amortization of intangibles and lower intangible asset impairment charges. The three months ended September 30, 2023 included intangible asset impairment charges of $2.1 billion. Selling, General and Administrative Three months ended September 30, Nine months ended September 30, (dollars in millions) 2024 2023 % change 2024 2023 % change Selling, general and administrative $ 4,205 $ 3,372 25 % $ 10,897 $ 9,679 13 % as a % of net revenues 29 % 24 % 26 % 24 % Selling, general and administrative (SG&A) expenses as a percentage of net revenues increased for the three and nine months ended September 30, 2024 compared to the prior year. SG&A expense was unfavorably impacted by higher litigation reserve charges and acquisition and integration costs incurred in connection with the ImmunoGen and Cerevel Therapeutics acquisitions including cash-settled, post-closing expense for both ImmunoGen and Cerevel Therapeutics employee incentive awards, partially offset by the favorable impact of leverage from revenue growth . See Note 4 to the Condensed Consolidated Financial Statements for additional information. 2024 Form 10-Q | 38 Research and Development Three months ended September 30, Nine months ended September 30, (dollars in millions) 2024 2023 % change 2024 2023 % change Research and development $ 2,130 $ 1,723 24 % $ 6,017 $ 5,748 5 % as a % of net revenues 15 % 12 % 15 % 14 % Research and development (R&D) expenses as a percentage of net revenues increased for the three and nine months ended September 30, 2024 compared to the prior year. R&D expense percentage for the three and nine months ended September 30, 2024 was unfavorably impacted by increased funding to support all stages of the company’s pipeline assets as well as acquisition and integration costs incurred in connection with the ImmunoGen and Cerevel Therapeutics acquisitions including cash-settled, post-closing expense for employee incentive awards . See Note 4 to the Condensed Consolidated Financial Statements for additional information. R&D expense percentage increase for the nine months ended September 30, 2024 was partially offset by lower intangible asset impairment charges. The nine months ended September 30, 2023 included an intangible asset impairment charge of $630 million. Acquired IPR&D and Milestones Three months ended September 30, Nine months ended September 30, (dollars in millions) 2024 2023 2024 2023 Upfront charges $ 82 $ 44 $ 1,088 $ 396 Development milestones — 22 95 100 Acquired IPR&D and milestones $ 82 $ 66 $ 1,183 $ 496 Acquired IPR&D and milestones expense for the nine months ended September 30, 2024 included a charge related to the upfront payment of $250 million to acquire Celsius Therapeutics. See Note 4 to the Condensed Consolidated Financial Statements for additional information. Other Non-Operating Expenses (Income) Three months ended September 30, Nine months ended September 30, (in millions) 2024 2023 2024 2023 Interest expense $ 720 $ 555 $ 2,106 $ 1,660 Interest income (129) (157) (556) (354) Interest expense, net $ 591 $ 398 $ 1,550 $ 1,306 Net foreign exchange loss (gain) $ (3) $ 25 $ 2 $ 97 Other expense (income), net 1,159 (95) 3,090 3,121 Interest expense increased for the three and nine months ended September 30, 2024 compared to the prior year primarily due to the incremental interest associated with financing the ImmunoGen and Cerevel Therapeutics acquisitions. See Note 8 to the Condensed Consolidated Financial Statements for additional information related to debt issued to finance the ImmunoGen and Cerevel Therapeutics acquisitions. Interest income decreased for the three months ended September 30, 2024 compared to the prior year primarily due to a lower average cash and cash equivalents balance. Interest income increased for the nine months ended September 30, 2024 compared to the prior year primarily due to a higher average cash and cash equivalents balance and the impact of higher interest rates. Other expense (income), net included charges related to changes in fair value of contingent consideration liabilities of $1.4 billion for the three months and $3.5 billion for the nine months ended September 30, 2024 and $8 million for the three months and $3.4 billion for the nine months ended September 30, 2023. 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 milestones, discount rates, the estimated amount of future sales of the acquired products and other market-based factors. For the three and nine months ended September 30, 2024, the change in fair value reflected higher estimated Skyrizi sales and the passage of time. For the three months ended September 30, 2024, the change in fair value also reflected the impact of lower discount rates. For the three months ended September 30, 2023, the change in fair value reflected the passage of time offset by higher discount rates. For the nine months 2024 Form 10-Q | 39 ended September 30, 2023, the change in fair value reflected higher Skyrizi sales driven by stronger market share uptake and the passage of time, partially offset by higher discount rates. Income Tax Expense The effective tax rate was 25% for the three months and 28% for the nine months ended September 30, 2024 compared to 9% for the three months and 20% for the nine months ended September 30, 2023. 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, including ImmunoGen and Cerevel Therapeutics acquisition-related costs. The increase in the effective tax rate for the three months ended September 30, 2024 over the prior year was primarily due to changes in fair value of contingent consideration, impact of foreign operations and business development activities. The increase in the effective tax rate for the nine months ended September 30, 2024 over the prior year was primarily due to the impact of foreign operations and business development activities. Subsequent to September 30, 2024, the company was notified that the administrative proceeding related to its U.S. federal income tax examination for certain tax years was substantially completed. Final resolution of examination of such years may occur in the fourth quarter of 2024. The company anticipates that final resolution will result in a decrease in the gross amount of unrecognized tax benefits on the condensed consolidated balance sheets and recognition of an income tax benefit in the condensed consolidated statement of earnings, which could be material. The Company does not anticipate that such resolution will have a significant impact on its cash flows. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Nine months ended September 30, (in millions) 2024 2023 Cash flows provided by (used in): Operating activities $ 11,758 $ 18,086 Investing activities (18,946) (1,209) Financing activities 1,650 (12,773) Operating cash flows for the nine months ended September 30, 2024 decreased compared to the prior year primarily due to the timing of working capital, higher contingent consideration payments classified as operating cash flows and decreased results from operations driven by ImmunoGen and Cerevel Therapeutics acquisition-related cash expenses. Investing cash flows for the nine months ended September 30, 2024 included $18.5 billion cash consideration paid to acquire ImmunoGen and Cerevel Therapeutics offset by cash acquired of $952 million, net sales and maturities of investment securities of $470 million, payments made for other acquisitions and investments of $1.2 billion and capital expenditures of $683 million. Investing cash flows for the nine months ended September 30, 2023 included payments made for other acquisitions and investments of $670 million and capital expenditures of $572 million. Financing cash flows for the nine months ended September 30, 2024 included the issuance of unsecured senior notes totaling $15.0 billion aggregate principal which were used to finance the acquisitions of ImmunoGen and Cerevel Therapeutics. Additionally, financing cash flows included the issuance and repayment of $5.0 billion under the term loan credit agreement and repayments of €1.5 billion aggregate principal amount of 1.38% senior euro notes, €700 million aggregate principal amount of 1.25% senior euro notes, $1.0 billion aggregate principal amount of 3.85% senior notes, $99 million of secured term notes assumed from ImmunoGen in conjunction with the acquisition and the settlement of $400 million aggregate amount of 2.5% convertible senior notes assumed from Cerevel Therapeutics. Financing cash flows for the nine months ended September 30, 2023 included repayments of $1.0 billion floating rate term loan, $1.0 billion aggregate principal amount of 2.85% senior notes and $350 million aggregate principal amount of the company’s 2.80% senior notes. Subsequent to September 30, 2024, the company refinanced its $2.0 billion floating rate three-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 due April 2027. Financing cash flows also included cash dividend payments of $8.3 billion for the nine months ended September 30, 2024 and $7.9 billion for the nine months ended September 30, 2023. The increase in cash dividend payments was primarily driven by the increase in the quarterly dividend rate. 2024 Form 10-Q | 40 On September 6, 2024, the company announced that its board of directors declared a quarterly cash dividend of $1.55 per share for stockholders of record at the close of business on October 15, 2024, payable on November 15, 2024. On October 30, 2024, the board of directors declared an increase in the company’s quarterly dividend from $1.55 per share to $1.64 per share beginning with the dividend payable on February 14, 2025 to stockholders of record as of January 15, 2025. This reflects an increase of approximately 5.8% over the previous quarterly rate. 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. On February 16, 2023, AbbVie’s board of directors authorized a $5.0 billion increase to the existing stock repurchase authorization. AbbVie repurchased 5 million shares for $959 million during the nine months ended September 30, 2024 and 10 million shares for $1.6 billion during the nine months ended September 30, 2023. Financing cash flows also included contingent consideration payments of $735 million for the nine months ended September 30, 2023. There were no contingent consideration payments classified as financing cash flows for the nine months ended September 30, 2024. During the nine months ended September 30, 2024, the company issued and redeemed $1.7 billion of commercial paper. There were no commercial paper borrowings outstanding as of September 30, 2024 and December 31, 2023. AbbVie may issue additional commercial paper or retire commercial paper to meet liquidity requirements as needed. 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. Credit Facility, Access to Capital and Credit Ratings Credit Facility In December 2023, in connection with the acquisitions of ImmunoGen and Cerevel Therapeutics, AbbVie entered into a $9.0 billion 364-day bridge credit agreement and $5.0 billion 364-day term loan credit agreement. In February, 2024, AbbVie borrowed and repaid $5.0 billion under the term loan credit agreement. Subsequent to the $15.0 billion issuance of senior notes, AbbVie terminated both the bridge and term loan credit agreements in the first quarter of 2024. 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 credit facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants. At September 30, 2024, 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 September 30, 2024 and December 31, 2023. 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. 2024 Form 10-Q | 41 Credit Ratings In August 2024, Moody’s Investors Service (Moody’s) affirmed its A3 senior unsecured long-term rating. At the same time, Moody’s revised its outlook to positive from stable. There were no other changes in the company’s credit ratings during the nine months ended September 30, 2024. 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, 2023. There have been no significant changes in the company’s application of its critical accounting policies during the nine months ended September 30, 2024. FORWARD-LOOKING STATEMENTS Some statements in this quarterly report on Form 10-Q are, or may be considered, forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “project,” and similar expressions and uses of future or conditional verbs, 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 expressed or implied in the forward-looking statements. Such risks and uncertainties include, but are not limited to challenges to intellectual property, competition from other products, difficulties inherent in the research and development process, adverse litigation or government action and changes to laws and regulations applicable to our industry. 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, 2023, 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, and specifically declines, to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a discussion of the company's market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" in AbbVie's Annual Report on Form 10-K for the year ended December 31, 2023.