UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


x ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2019~~2020


o ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35565

AbbVie Inc.



(Exact name of registrant as specified in its charter)
Delaware		32-0375147
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

1 North Waukegan Road

North Chicago, Illinois ~~60064~~60064-6400

Telephone: ~~(847)~~ (847) 932-7900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesx☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filerx	☒	Accelerated Filer¨	☐
Non-Accelerated Filer¨	☐	Smaller reporting company¨	☐
		Emerging growth company¨	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ABBV	New York Stock Exchange
		Chicago Stock Exchange
1.375% Senior Notes due 2024	ABBV24	New York Stock Exchange
0.750% Senior Notes due 2027	ABBV27	New York Stock Exchange
2.125% Senior Notes due 2028	ABBV28	New York Stock Exchange
1.250% Senior Notes due 2031	ABBV31	New York Stock Exchange

As of April ~~26, 2019,~~30, 2020, AbbVie Inc. had ~~1,478,332,177~~1,476,742,215 shares of common stock at $0.01 par value outstanding.

AbbVie Inc. and Subsidiaries

Table of Contents



~~2019~~2020 Form 10-Q \|	1

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AbbVie Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings (unaudited)


	Three months ended March 31,					Three months ended March 31,
(in millions, except per share data)	2019		2018			2020		2019
Net revenues	$	7,828	$	7,934		$	8,619	$	7,828

Cost of products sold	1,694		1,927			1,942		1,694
Selling, general and administrative	1,680		1,791			1,695		1,680
Research and development	1,289		1,244			1,379		1,289
Acquired in-process research and development	155		69			—		155
Total operating costs and expenses	4,818		5,031			5,016		4,818
Operating earnings	3,010		2,903			3,603		3,010

Interest expense, net	325		251			428		325
Net foreign exchange loss	6		8			5		6
Other (income) expense, net	135		(153		)
Other expense, net						72		135
Earnings before income tax expense	2,544		2,797			3,098		2,544
Income tax expense	88		14			88		88
Net earnings	$	2,456	$	2,783		$	3,010	$	2,456

Per share data
Basic earnings per share	$	1.65	$	1.74		$	2.02	$	1.65
Diluted earnings per share	$	1.65	$	1.74		$	2.02	$	1.65

Weighted-average basic shares outstanding	1,480		1,591			1,481		1,480
Weighted-average diluted shares outstanding	1,483		1,596			1,484		1,483

The accompanying notes are an integral part of these condensed consolidated financial statements.



~~2019~~2020 Form 10-Q \|	2

AbbVie Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)

Three months ended
March 31,
(in millions) 2019 2018
Net earnings $ 2,456
$ 2,783

Foreign currency translation adjustments, net of tax expense (benefit) of $1 for the three months ended March 31, 2019 and $(3) for the three months ended March 31, 2018 (103 ) 189
Net investment hedging activities, net of tax expense (benefit) of $19 for the three months ended March 31, 2019 and $(30) for the three months ended March 31, 2018 65
(104 )
Pension and post-employment benefits, net of tax expense (benefit) of $6 for the three months ended March 31, 2019 and $9 for the three months ended March 31, 2018 25
22
Marketable security activities, net of tax expense (benefit) of $— for the three months ended March 31, 2019 and $— for the three months ended March 31, 2018 7
(7 )
Cash flow hedging activities, net of tax expense (benefit) of $(7) for the three months ended March 31, 2019 and $(1) for the three months ended March 31, 2018 (30 ) (3 )
Other comprehensive income (loss) (36 ) 97
Comprehensive income $ 2,420
$ 2,880



	Three months ended March 31,
(in millions)	2020			2019
Net earnings	$	3,010		$	2,456

Foreign currency translation adjustments, net of tax expense (benefit) of $(8) for the three months ended March 31, 2020 and $1 for the three months ended March 31, 2019	(227		)	(103		)
Net investment hedging activities, net of tax expense (benefit) of $20 for the three months ended March 31, 2020 and $19 for the three months ended March 31, 2019	72			65
Pension and post-employment benefits, net of tax expense (benefit) of $15 for the three months ended March 31, 2020 and $6 for the three months ended March 31, 2019	56			25
Marketable security activities, net of tax expense (benefit) of $— for the three months ended March 31, 2020 and $— for the three months ended March 31, 2019	—			7
Cash flow hedging activities, net of tax expense (benefit) of $(2) for the three months ended March 31, 2020 and $(7) for the three months ended March 31, 2019	(2		)	(30		)
Other comprehensive loss	(101		)	(36		)
Comprehensive income	$	2,909		$	2,420

The accompanying notes are an integral part of these condensed consolidated financial statements.



~~2019~~2020 Form 10-Q \|	3

AbbVie Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


(in millions, except share data)	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(unaudited)						(unaudited)
Assets
Current assets
Cash and equivalents	$	4,897		$	7,289		$	41,142		$	39,924
Short-term investments	331			772
Accounts receivable, net	5,680			5,384			6,362			5,428
Inventories	1,702			1,605			1,844			1,813
Prepaid expenses and other	1,803			1,895			2,410			2,354
Total current assets	14,413			16,945			51,758			49,519

Investments	1,477			1,420			78			93
Property and equipment, net	2,860			2,883			2,961			2,962
Intangible assets, net	20,846			21,233			18,203			18,649
Goodwill	15,606			15,663			15,561			15,604
Other assets	1,567			1,208			2,638			2,288
Total assets	$	56,769		$	59,352		$	91,199		$	89,115

Liabilities and Equity
Current liabilities
Short-term borrowings	$	499		$	3,699		$	6		$	—
Current portion of long-term debt and finance lease obligations	1,579			1,609			3,756			3,753
Accounts payable and accrued liabilities	11,826			11,931			12,709			11,832
Total current liabilities	13,904			17,239			16,471			15,585

Long-term debt and finance lease obligations	35,066			35,002			63,284			62,975
Deferred income taxes	1,116			1,067			959			1,130
Other long-term liabilities	14,509			14,490			17,900			17,597

Commitments and contingencies

Stockholders’ equity (deficit)
Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,780,885,882 shares issued as of March 31, 2019 and 1,776,510,871 as of December 31, 2018	18			18
Common stock held in treasury, at cost, 302,648,065 shares as of March 31, 2019 and 297,686,473 as of December 31, 2018	(24,502		)	(24,108		)
Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,786,240,964 shares issued as of March 31, 2020 and 1,781,582,608 as of December 31, 2019							18			18
Common stock held in treasury, at cost, 309,566,303 shares as of March 31, 2020 and 302,671,146 as of December 31, 2019							(25,110		)	(24,504		)
Additional paid-in capital	14,940			14,756			15,401			15,193
Retained earnings	4,234			3,368			5,973			4,717
Accumulated other comprehensive loss	(2,516		)	(2,480		)	(3,697		)	(3,596		)
Total stockholders’ equity (deficit)	(7,826		)	(8,446		)	(7,415		)	(8,172		)

Total liabilities and equity	$	56,769		$	59,352		$	91,199		$	89,115

The accompanying notes are an integral part of these condensed consolidated financial statements.



~~2019~~2020 Form 10-Q \|	4

AbbVie Inc. and Subsidiaries

Condensed Consolidated Statements of Equity (unaudited)


(in millions)	Common shares outstanding		Common stock		Treasury stock			Additional paid-in capital		Retained earnings			Accumulated other comprehensive loss			Total			Common shares outstanding		Common stock		Treasury stock			Additional paid-in capital		Retained earnings			Accumulated other comprehensive loss			Total
Balance at December 31, 2017	1,592		$	18	$	(11,923	)	$	14,270	$	5,459		$	(2,727	)	$	5,097
Adoption of new accounting standards	—		—		—			—		(1,733		)	—			(1,733		)
Net earnings	—		—		—			—		2,783			—			2,783
Other comprehensive income, net of tax	—		—		—			—		—			97			97
Dividends declared	—		—		—			—		(1,532		)	—			(1,532		)
Purchases of treasury stock	(12	)	—		(1,431		)	—		—			—			(1,431		)
Stock-based compensation plans and other	7		—		23			249		—			—			272
Balance at March 31, 2018	1,587		$	18	$	(13,331	)	$	14,519	$	4,977		$	(2,630	)	$	3,553

Balance at December 31, 2018	1,479		$	18	$	(24,108	)	$	14,756	$	3,368		$	(2,480	)	$	(8,446	)	1,479		$	18	$	(24,108	)	$	14,756	$	3,368		$	(2,480	)	$	(8,446	)
Net earnings	—		—		—			—		2,456			—			2,456			—		—		—			—		2,456			—			2,456
Other comprehensive loss, net of tax	—		—		—			—		—			(36		)	(36		)	—		—		—			—		—			(36		)	(36		)
Dividends declared	—		—		—			—		(1,590		)	—			(1,590		)	—		—		—			—		(1,590		)	—			(1,590		)
Purchases of treasury stock	(5	)	—		(419		)	—		—			—			(419		)	(5	)	—		(419		)	—		—			—			(419		)
Stock-based compensation plans and other	4		—		25			184		—			—			209			4		—		25			184		—			—			209
Balance at March 31, 2019	1,478		$	18	$	(24,502	)	$	14,940	$	4,234		$	(2,516	)	$	(7,826	)	1,478		$	18	$	(24,502	)	$	14,940	$	4,234		$	(2,516	)	$	(7,826	)

Balance at December 31, 2019																			1,479		$	18	$	(24,504	)	$	15,193	$	4,717		$	(3,596	)	$	(8,172	)
Net earnings																			—		—		—			—		3,010			—			3,010
Other comprehensive loss, net of tax																			—		—		—			—		—			(101		)	(101		)
Dividends declared																			—		—		—			—		(1,754		)	—			(1,754		)
Purchases of treasury stock																			(7	)	—		(643		)	—		—			—			(643		)
Stock-based compensation plans and other																			5		—		37			208		—			—			245
Balance at March 31, 2020																			1,477		$	18	$	(25,110	)	$	15,401	$	5,973		$	(3,697	)	$	(7,415	)

The accompanying notes are an integral part of these condensed consolidated financial statements.



~~2019~~2020 Form 10-Q \|	5

AbbVie Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)


	Three months ended March 31,						Three months ended March 31,
(in millions) (brackets denote cash outflows)	2019			2018			2020			2019
Cash flows from operating activities
Net earnings	$	2,456		$	2,783		$	3,010		$	2,456
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation	118			115			115			118
Amortization of intangible assets	385			330			444			385
Change in fair value of contingent consideration liabilities	169			(148		)	72			169
Stock-based compensation	189			191			219			189
Upfront costs and milestones related to collaborations	195			101			40			195
Other, net	(33		)	101			1			(33		)
Changes in operating assets and liabilities:
Accounts receivable	(316		)	(681		)	(1,025		)	(316		)
Inventories	(128		)	(71		)	(107		)	(128		)
Prepaid expenses and other assets	(112		)	(267		)	(19		)	(112		)
Accounts payable and other liabilities	94			191			1,065			94
Cash flows from operating activities	3,017			2,645			3,815			3,017

Cash flows from investing activities
Acquisitions and investments	(320		)	(372		)	(12		)	(320		)
Acquisitions of property and equipment	(107		)	(119		)	(125		)	(107		)
Purchases of investment securities	(194		)	(267		)	(13		)	(194		)
Sales and maturities of investment securities	594			311			26			594
Other							(5		)	—
Cash flows from investing activities	(27		)	(447		)	(129		)	(27		)

Cash flows from financing activities
Net change in commercial paper borrowings	(200		)	(33		)	—			(200		)
Repayments of other short-term borrowings	(3,000		)	—			—			(3,000		)
Repayments of long-term debt and lease obligations	—			(7		)
Dividends paid	(1,588		)	(1,137		)	(1,763		)	(1,588		)
Purchases of treasury stock	(620		)	(1,431		)	(643		)	(620		)
Proceeds from the exercise of stock options	4			62			12			4
Payments of contingent consideration liabilities							(53		)	—
Other, net	21			37			25			21
Cash flows from financing activities	(5,383		)	(2,509		)	(2,422		)	(5,383		)
Effect of exchange rate changes on cash and equivalents	1			15			(46		)	1
Net change in cash and equivalents	(2,392		)	(296		)	1,218			(2,392		)
Cash and equivalents, beginning of period	7,289			9,303			39,924			7,289

Cash and equivalents, end of period	$	4,897		$	9,007		$	41,142		$	4,897

The accompanying notes are an integral part of these condensed consolidated financial statements.



~~2019~~2020 Form 10-Q \|	6

AbbVie Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 Basis of Presentation

Basis of Historical Presentation

The unaudited interim condensed consolidated financial statements of AbbVie Inc. (AbbVie or the company) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the company’s audited consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the company’s financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results. Certain reclassifications were made to conform the prior period interim condensed consolidated financial statements to the current period presentation.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

ASU No. ~~2016-02~~2016-13

In ~~February~~June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. ~~2016-02,~~ ~~Leases (Topic 842)~~. The standard outlines a comprehensive lease accounting model that supersedes the previous lease guidance and requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months. The guidance also changes the definition of a lease and expands the disclosure requirements of lease arrangements. AbbVie adopted the standard in the first quarter of 2019 using the modified retrospective method. Results for reporting periods beginning after December 31, 2018 have been presented in accordance with the standard, while results for prior periods have not been adjusted and continue to be reported in accordance with AbbVie's historical accounting. The cumulative effect of initially applying the new leases standard was recognized as an adjustment to the opening condensed consolidated balance sheet as of January 1, 2019.

The company elected a package of practical expedients for leases that commenced prior to January 1, 2019 and did not reassess historical conclusions on: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs capitalization for any existing leases.

Under the new standard, on January 1, 2019, the company recognized a cumulative-effect adjustment to its condensed consolidated balance sheet primarily related to the recognition of liabilities and corresponding right-of-use assets for operating leases. The adjustment to the condensed consolidated balance sheet included: (i) a $405 million increase to other assets; (ii) a $115 million increase to accounts payable and accrued liabilities; and (iii) a $290 million increase to other long-term liabilities. Other cumulative-effect adjustments to the condensed consolidated balance sheet were insignificant.

~~Adoption of the standard did not have a significant impact on AbbVie's condensed consolidated statement of earnings for the three months ended March 31, 2019.~~

~~ASU No. 2018-02~~

~~In February 2018, the FASB issued ASU No. 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,~~ which allows a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects related to adjustments to deferred taxes resulting from the December 2017 enactment of the Tax Cuts and Jobs Act (the Act). AbbVie adopted the standard in the first quarter of 2019. Upon adoption, the company made an election to not reclassify the income tax effects of the Act from AOCI to retained earnings. Therefore, the adoption of the standard had no impact on AbbVie's consolidated financial statements.



~~2019 Form 10-Q~~ \|	7

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~ASU No. 2016-13~~

~~In June 2016, the FASB issued ASU No.~~ 2016-13, Financial Instruments - Credit Losses (Topic 326). The standard changes how credit losses are measured for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, the standard requires the use of a new forward-looking "expected credit loss" model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. ~~Additionally,~~AbbVie adopted the standard ~~requires new disclosures~~in the first quarter of 2020. The adoption did not have a material impact on the company's consolidated financial statements.

Upon adoption of the standard, accounts receivable are stated at amortized cost less allowance for credit losses. The allowance for credit losses reflects the best estimate of future losses over the contractual life of outstanding accounts receivable and is determined on the basis of historical experience, specific allowances for known troubled accounts, other currently available information including customer financial condition, and both current and forecasted economic conditions. The allowance for credit losses was $46 million at March 31, 2020. There were no significant changes in credit loss risk factors that impacted the company's recorded allowance during the three months ended March 31, 2020.

Recent Accounting Pronouncements Not Yet Adopted

ASU No. 2019-12

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740). The standard includes simplifications related to accounting for income taxes including removing certain exceptions related to the approach for intraperiod tax allocation and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard will be effective for AbbVie starting with the first quarter of 2020. With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact to retained earnings as of the beginning of the fiscal year of adoption.2021. AbbVie is currently assessing the impact of ~~adopting~~ this guidance on its consolidated financial statements.



2020 Form 10-Q \|	7

Note 2 Supplemental Financial Information

Interest Expense, Net



	Three months ended March 31,
(in millions)	2020			2019
Interest expense	$	563		$	387
Interest income	(135		)	(62		)
Interest expense, net	$	428		$	325

Three months ended
March 31,
(in millions) 2019 2018
Interest expense $ 387
$ 309
Interest income (62 ) (58 )
Interest expense, net $ 325
$ 251
Inventories



(in millions)	March 31, 2020		December 31, 2019
Finished goods	$	546	$	485
Work-in-process	932		942
Raw materials	366		386
Inventories	$	1,844	$	1,813

~~Inventories~~

(in millions) March 31, 2019 December 31, 2018
Finished goods $ 583
$ 473
Work-in-process 880
862
Raw materials 239
270
Inventories $ 1,702
$ 1,605

Property and Equipment



(in millions)	March 31, 2020			December 31, 2019
Property and equipment, gross	$	8,250		$	8,188
Accumulated depreciation	(5,289		)	(5,226		)
Property and equipment, net	$	2,961		$	2,962

(in millions) March 31, 2019 December 31, 2018
Property and equipment, gross $ 8,370
$ 8,396
Accumulated depreciation (5,510 ) (5,513 )
Property and equipment, net $ 2,860
$ 2,883

Depreciation expense was $115 million for the three months ended March 31, 2020 and $118 million for the three months ended March 31, ~~2019 and $115 million for the three months ended March 31, 2018.~~2019.



2020 Form 10-Q \|	8

Note 3 Earnings Per Share

AbbVie grants certain restricted stock units (RSUs) that are considered to be participating securities. Due to the presence of participating securities, AbbVie calculates earnings per share (EPS) using the more dilutive of the treasury stock or the two-class method. For all periods presented, the two-class method was more dilutive.



~~2019 Form 10-Q~~ \|	8

The following table summarizes the impact of the two-class method:



	Three months ended March 31,
(in millions, except per share data)	2020		2019
Basic EPS
Net earnings	$	3,010	$	2,456
Earnings allocated to participating securities	14		12
Earnings available to common shareholders	$	2,996	$	2,444
Weighted-average basic shares outstanding	1,481		1,480
Basic earnings per share	$	2.02	$	1.65

Diluted EPS
Net earnings	$	3,010	$	2,456
Earnings allocated to participating securities	14		12
Earnings available to common shareholders	$	2,996	$	2,444
Weighted-average shares of common stock outstanding	1,481		1,480
Effect of dilutive securities	3		3
Weighted-average diluted shares outstanding	1,484		1,483
Diluted earnings per share	$	2.02	$	1.65

Three months ended
March 31,
(in millions, except per share data) 2019 2018
Basic EPS
Net earnings $ 2,456
$ 2,783
Earnings allocated to participating securities 12
12
Earnings available to common shareholders $ 2,444
$ 2,771
Weighted-average basic shares outstanding 1,480
1,591
Basic earnings per share $ 1.65
$ 1.74

Diluted EPS
Net earnings $ 2,456
$ 2,783
Earnings allocated to participating securities 12
12
Earnings available to common shareholders $ 2,444
$ 2,771
Weighted-average shares of common stock outstanding 1,480
1,591
Effect of dilutive securities 3
5
Weighted-average diluted shares outstanding 1,483
1,596
Diluted earnings per share $ 1.65
$ 1.74

Certain shares issuable under stock-based compensation plans were excluded from the computation of EPS because the effect would have been antidilutive. The number of common shares excluded was insignificant for all periods presented.

Note 4Licensing, Acquisitions and Other Arrangements

Proposed Acquisition of Allergan plc

On June 25, 2019, AbbVie announced that it entered into a definitive transaction agreement under which AbbVie will acquire Allergan plc (Allergan) in a cash and stock transaction for a transaction equity value of approximately $63 billion, based on the closing price of AbbVie’s common stock of $78.45 on June 24, 2019. Under the terms of the transaction agreement, Allergan shareholders will receive 0.8660 AbbVie shares and $120.30 in cash for each Allergan share. On October 14, 2019, Allergan shareholders approved the proposed transaction.

Allergan is a global pharmaceutical leader focused on developing, manufacturing and commercializing branded pharmaceutical, device, biologic, surgical and regenerative medicine products for patients around the world. Allergan markets a portfolio of brands and products primarily focused on key therapeutic areas including aesthetics, eye care, neuroscience, gastroenterology and women's health.

The transaction is subject to customary closing conditions and regulatory approvals. In March 2020, AbbVie and Allergan signed a consent decree agreement with the staff of the U.S. Federal Trade Commission (FTC) regarding the proposed acquisition. Under the terms of the consent decree, the companies have agreed to divest brazikumab, Allergan's IL-23 inhibitor pipeline product, to AstraZeneca and Zenpep, a treatment for exocrine pancreatic insufficiency, to Nestle. Nestle will also acquire Viokace, another pancreatic enzyme preparation, as part of the same transaction. In March 2020, AbbVie and Allergan received final approval from the European Commission to close the pending transaction which was conditional upon the divestiture of brazikumab. In May 2020, AbbVie and Allergan received final approval from the FTC and the Irish High Court to close the transaction. The transaction is expected to close in May 2020.



2020 Form 10-Q \|	9

In anticipation of the proposed acquisition, AbbVie entered into several debt and financing arrangements. See Note 8 for additional information.

Other Licensing & Acquisitions Activity

Cash outflows related to other acquisitions and investments totaled $12 million for the three months ended March 31, 2020 and $320 million for the three months ended March 31, ~~2019~~2019. AbbVie recorded 0 acquired in-process research and ~~$372 million~~development (IPR&D) charges for the three months ended March 31, ~~2018. AbbVie~~2020 and recorded acquired ~~in-process research and development (IPR&D)~~IPR&D charges of $155 million for the three months ended March 31, ~~2019 and $69 million for the three months ended March 31, 2018.~~2019.

Note 5Collaboration with Janssen Biotech, Inc.

In December 2011, Pharmacyclics, a wholly-owned subsidiary of AbbVie, entered into a worldwide collaboration and license agreement with Janssen Biotech, Inc. and its affiliates (Janssen), one of the Janssen Pharmaceutical companies of Johnson & Johnson, for the joint development and commercialization of IMBRUVICA, a novel, orally active, selective covalent inhibitor of Bruton's tyrosine kinase (BTK) and certain compounds structurally related to IMBRUVICA, for oncology and other indications, excluding all immune and inflammatory mediated diseases or conditions and all psychiatric or psychological diseases or conditions, in the United States and outside the United States.

The collaboration provides Janssen with an exclusive license to commercialize IMBRUVICA outside of the United States and co-exclusively with AbbVie in the United States. Both parties are responsible for the development, manufacturing and marketing of any products generated as a result of the collaboration. The collaboration has no set duration or specific expiration date and provides for potential future development, regulatory and approval milestone payments of up to $200 million to AbbVie. The collaboration also includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, Janssen is responsible for approximately 60% of collaboration development costs and AbbVie is responsible for the remaining 40% of collaboration development costs.

In the United States, both parties have co-exclusive rights to commercialize the products; however, AbbVie is the principal in the end-customer product sales. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. Sales of



~~2019 Form 10-Q~~ \|	9

IMBRUVICA are included in AbbVie's net revenues. Janssen's share of profits is included in AbbVie's cost of products sold. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share.

Outside the United States, Janssen is responsible for and has exclusive rights to commercialize IMBRUVICA. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. AbbVie's share of profits is included in AbbVie's net revenues. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share.

The following table shows the profit and cost sharing relationship between Janssen and AbbVie:



	Three months ended March 31,
(in millions)	2020		2019
United States - Janssen's share of profits (included in cost of products sold)	$	450	$	386
International - AbbVie's share of profits (included in net revenues)	266		193
Global - AbbVie's share of other costs (included in respective line items)	70		72

Three months ended
March 31,
(in millions) 2019 2018
United States - Janssen's share of profits (included in cost of products sold) $ 386
$ 276
International - AbbVie's share of profits (included in net revenues) 193
138
Global - AbbVie's share of other costs (included in respective line items) 72
71

AbbVie’s receivable from Janssen, included in accounts receivable, net, was ~~$218~~$298 million at March 31, ~~2019~~2020 and ~~$177~~$235 million at December 31, ~~2018~~.2019. AbbVie’s payable to Janssen, included in accounts payable and accrued liabilities, was ~~$373~~$445 million at March 31, ~~2019~~2020 and ~~$376~~$455 million at December 31, ~~2018~~.2019.



2020 Form 10-Q \|	10

Note 6 Goodwill and Intangible Assets

Goodwill

The following table summarizes the changes in the carrying amount of goodwill:



(in millions)
Balance as of December 31, 2019	$	15,604
Foreign currency translation adjustments	(43		)
Balance as of March 31, 2020	$	15,561

(in millions)
Balance as of December 31, 2018 $ 15,663
Foreign currency translation adjustments (57 )
Balance as of March 31, 2019 $ 15,606

The company performs its annual goodwill impairment assessment in the third quarter, or earlier if impairment indicators exist. As of March 31, ~~2019,~~2020, there were no0 accumulated goodwill impairment losses.

Intangible Assets, Net

The following table summarizes intangible assets:



	March 31, 2020							December 31, 2019
(in millions)	Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount
Definite-lived intangible assets
Developed product rights	$	19,538	$	(6,687	)	$	12,851	$	19,547	$	(6,405	)	$	13,142
License agreements	7,798		(2,446		)	5,352		7,798		(2,291		)	5,507
Total intangible assets, net	$	27,336	$	(9,133	)	$	18,203	$	27,345	$	(8,696	)	$	18,649

March 31, 2019 December 31, 2018
(in millions) Gross
carrying
amount Accumulated
amortization Net
carrying
amount Gross
carrying
amount Accumulated
amortization Net
carrying
amount
Definite-lived intangible assets
Developed product rights $ 15,865
$ (5,857 ) $ 10,008
$ 15,872
$ (5,614 ) $ 10,258
License agreements 7,865
(1,947 ) 5,918
7,865
(1,810 ) 6,055
Total definite-lived intangible assets 23,730
(7,804 ) 15,926
23,737
(7,424 ) 16,313
Indefinite-lived research and development 4,920
—
4,920
4,920
—
4,920
Total intangible assets, net $ 28,650
$ (7,804 ) $ 20,846
$ 28,657
$ (7,424 ) $ 21,233

~~Indefinite-Lived Intangible Assets~~

Indefinite-lived intangible assets represent acquired IPR&D associated with products that have not yet received regulatory approval. Indefinite-lived intangible assets as of March 31, 2019 and December 31, 2018 relate to the 2016 acquisitions of Boehringer



~~2019 Form 10-Q~~ \|	10

Ingelheim compounds and Stemcentrx. The company performs its annual impairment assessment of indefinite-lived intangible assets in the third quarter, or earlier if impairment indicators exist. No indefinite-lived intangible asset impairment charges were recordedAmortization expense was $444 million for the three months ended March 31, ~~2019~~2020 and ~~2018.~~

In the fourth quarter of 2018, the company recorded an impairment charge of $5.1 billion related to IPR&D acquired as part of the 2016 Stemcentrx acquisition following the decision to stop enrollment in the TAHOE trial. AbbVie continues to evaluate information as it becomes available with respect to the Stemcentrx-related clinical development programs and will monitor the remaining $1.0 billion of IPR&D assets for further impairment.

~~Definite-Lived Intangible Assets~~

~~Amortization expense was~~ $385 million for the three months ended March 31, ~~2019 and $330 million for the three months ended March 31, 2018.~~2019. Amortization expense was included in cost of products sold in the condensed consolidated statements of earnings. ~~No definite-lived~~NaN intangible asset impairment charges were recorded for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

Note 7 Restructuring Plans

AbbVie recorded restructuring charges of $17 million for the three months ended March 31, 2020 and $167 million for the three months ended March 31, ~~2019 and $22 million for the three months ended March 31, 2018. Restructuring charges for the three months ended March 31, 2019 primarily related to severance costs.~~

2019.

The following table summarizes the cash activity in the restructuring reserve for the three months ended March 31, ~~2019:~~2020:



(in millions)
Accrued balance as of December 31, 2019	$	140
Restructuring charges	17
Payments and other adjustments	(38		)
Accrued balance as of March 31, 2020	$	119



2020 Form 10-Q \|	11

(in millions)
Accrued balance as of December 31, 2018 $ 99
Restructuring charges 154
Payments and other adjustments (44 )
Accrued balance as of March 31, 2019 $ 209

Note 8 ~~Leases~~ Financial Instruments and Fair Value Measures

AbbVie's lease portfolio primarily consists of real estate properties, vehicles and equipment. Short-term leases with a term of 12 months or less are not recorded on the balance sheet. For leases commencing or modified in 2019 or later, AbbVie does not separate lease components from non-lease components.

The company records lease liabilities based on the present value of lease payments over the lease term. AbbVie generally uses an incremental borrowing rate to discount its lease liabilities, as the rate implicit in the lease is typically not readily determinable. Certain lease agreements include renewal options that are under the company's control. AbbVie includes optional renewal periods in the lease term only when it is reasonably certain that AbbVie will exercise its option.

Variable lease payments include payments to lessors for taxes, maintenance, insurance and other operating costs as well as payments that are adjusted based on an index or rate. The company's lease agreements do not contain any significant residual value guarantees or restrictive covenants.



~~2019 Form 10-Q~~ \|	11

~~The following table summarizes the amounts and location of operating and finance leases on the condensed consolidated balance sheet:~~

(in millions) Balance sheet caption March 31,
2019
Assets
Operating Other assets $ 405
Finance Property and equipment, net 28
Total lease assets $ 433
Liabilities
Operating
Current Accounts payable and accrued liabilities $ 110
Noncurrent Other long-term liabilities 307
Finance
Current Current portion of long-term debt and finance lease obligations 10
Noncurrent Long-term debt and finance lease obligations 23
Total lease liabilities $ 450

~~The following table summarizes the lease costs recognized in the condensed consolidated statement of earnings:~~

Three months ended
March 31,
(in millions) 2019
Operating lease cost $ 32
Finance lease cost
Amortization of right-of-use assets 2
Interest on lease liabilities —
Short-term lease cost 6
Variable lease cost 15
Total lease cost $ 55

~~Sublease income was insignificant for the three months ended March 31, 2019.~~

~~The following table presents the weighted-average remaining lease term and weighted-average discount rate for operating and finance leases:~~



	~~Three months ended~~ ~~March 31,~~
	~~2019~~
~~Weighted-average remaining lease term (in years)~~
~~Operating~~	6
~~Finance~~	3
~~Weighted-average discount rate~~
~~Operating~~	~~4.0~~	%
~~Finance~~	~~4.5~~	%



~~2019 Form 10-Q~~ \|	12

~~The following table presents supplementary cash flow information regarding the company's operating and finance leases:~~

Three months ended
March 31,
(in millions) 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 26
Operating cash flows from finance leases —
Financing cash flows from finance leases 2
Right-of-use assets obtained in exchange for new finance lease liabilities —
Right-of-use assets obtained in exchange for new operating lease liabilities 8

~~The following table summarizes the future maturities of AbbVie's operating and finance lease liabilities as of March 31, 2019:~~

(in millions)
Operating
leases

Finance
leases

Total ^(a)(b)
2019 $ 93
$ 10
$ 103
2020 117
11
128
2021 97
10
107
2022 52
2
54
2023 34
1
35
Thereafter 78
—
78
Total lease payments 471
34
505
Less: Interest 54
1
55
Present value of lease liabilities $ 417
$ 33
$ 450

(a) Total lease payments exclude approximately $350 million of contractual minimum lease payments for leases executed but not yet commenced. These leases will commence between years 2019 and 2020 with lease terms of approximately 11 years.

~~(b) Lease payments recognized as part of lease liabilities for optional renewal periods are insignificant.~~

~~Note 9 Financial Instruments and Fair Value Measures~~

Risk Management Policy

See Note 1011 to the company's Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for a summary of AbbVie's risk management policy and use of derivative instruments.

Financial Instruments

Various AbbVie foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany transactions denominated in a currency other than the functional currency of the local entity. These contracts, with notional amounts totaling ~~$802~~$842 million at March 31, ~~2019~~2020 and ~~$1.4 billion~~$957 million at December 31, ~~2018,~~2019, are designated as cash flow hedges and are recorded at fair value. The durations of these forward exchange contracts were generally less than 18 months. Accumulated gains and losses as of March 31, ~~2019 will be~~2020 are reclassified from ~~AOCI~~accumulated other comprehensive income (AOCI) and included in cost of products sold at the time the products are sold, generally not exceeding six months from the date of settlement.

In the third quarter of 2019, the company entered into treasury rate lock agreements with notional amounts totaling $10.0 billion to hedge exposure to variability in future cash flows resulting from changes in interest rates related to the issuance of long-term debt in connection with the proposed acquisition of Allergan. The treasury rate lock agreements were designated as cash flow hedges and recorded at fair value. The agreements were net settled upon issuance of the senior notes in November 2019 and the resulting net gain was recognized in other comprehensive income (loss). This gain is reclassified to interest expense, net over the term of the related debt.

In the fourth quarter of 2019, the company entered into interest rate swap contracts with notional amounts totaling $2.3 billion at March 31, 2020 and December 31, 2019. The effect of the hedge contracts is to change a floating-rate interest obligation to a fixed rate for that portion of the floating-rate debt. The contracts were designated as cash flow hedges and are recorded at fair value. Realized and unrealized gains or losses are included in AOCI and are reclassified to interest expense, net over the lives of the floating-rate debt.

The company also enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated trade payables and receivables and intercompany loans. These contracts are not designated as hedges and are recorded at fair value. Resulting gains or losses are reflected in net foreign exchange gain or loss in the condensed consolidated statements of earnings and are generally offset by losses or gains on the foreign currency exposure being managed. These contracts had notional amounts totaling ~~$9.9~~$8.2 billion at March 31, ~~2019~~2020 and ~~$8.6~~$7.1 billion at December 31, ~~2018.~~



~~2019 Form 10-Q~~ \|	13

2019.

The company also uses foreign currency forward exchange contracts or foreign currency denominated debt to hedge its net investments in certain foreign subsidiaries and affiliates. The company ~~designated~~had foreign currency forward exchange contracts with notional amounts totaling €971 million, £204 million and CHF62 million as well as €3.6 billion aggregate principal amount of senior Euro notes designated as net investment hedges at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. The company uses the spot method of assessing hedge effectiveness for derivative instruments designated as net investment hedges. Realized and unrealized gains and losses from these hedges are included in ~~AOCI.~~

AOCI and the initial fair value of hedge components excluded from the assessment of effectiveness is recognized in interest expense, net over the life of the hedging instrument.

AbbVie is a party to interest rate ~~hedge~~swap contracts designated as fair value hedges with notional amounts totaling ~~$10.8~~$6.3 billion at March 31, ~~2019~~2020 and $10.8 billion at December 31, ~~2018.~~2019. The effect of the hedge contracts is to change a fixed-rate interest obligation to a floating rate for that portion of the debt. AbbVie records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount.

No amounts are excluded from the assessment of effectiveness for cash flow hedges ~~net investment hedges~~ or fair value hedges.



2020 Form 10-Q \|	12

The following table summarizes the amounts and location of AbbVie’s derivative instruments on the condensed consolidated balance sheets:


	Fair value – Derivatives in asset position					Fair value – Derivatives in liability position					Fair value – Derivatives in asset position					Fair value – Derivatives in liability position
(in millions)	Balance sheet caption	March 31, 2019		December 31, 2018		Balance sheet caption	March 31, 2019		December 31, 2018		Balance sheet caption	March 31, 2020		December 31, 2019		Balance sheet caption	March 31, 2020		December 31, 2019
Foreign currency forward exchange contracts
Designated as cash flow hedges	Prepaid expenses and other	$	69	$	113	Accounts payable and accrued liabilities	$	—	$	—	Prepaid expenses and other	$	35	$	3	Accounts payable and accrued liabilities	$	—	$	14
Designated as cash flow hedges											Other assets	2		—		Other long-term liabilities	—		—
Designated as net investment hedges											Prepaid expenses and other	22		—		Accounts payable and accrued liabilities	1		24
Not designated as hedges	Prepaid expenses and other	42		19		Accounts payable and accrued liabilities	47		26		Prepaid expenses and other	43		19		Accounts payable and accrued liabilities	12		18
Interest rate swaps designated as fair value hedges	Other assets	—		—		Other long-term liabilities	354		466
Interest rate swap contracts
Designated as cash flow hedges											Other assets	—		3		Other long-term liabilities	44		—
Designated as fair value hedges											Prepaid expenses and other	—		—		Accounts payable and accrued liabilities	—		2
Designated as fair value hedges											Other assets	133		28		Other long-term liabilities	—		74
Total derivatives		$	111	$	132		$	401	$	492		$	235	$	53		$	57	$	132

While certain derivatives are subject to netting arrangements with the company’s counterparties, the company does not offset derivative assets and liabilities within the condensed consolidated balance sheets.

The following table presents the pre-tax amounts of gains (losses) from derivative instruments recognized in other comprehensive income (loss):



	Three months ended March 31,
(in millions)	2020			2019
Foreign currency forward exchange contracts
Designated as cash flow hedges	$	49		$	3
Designated as net investment hedges	40			—
Interest rate swap contracts designated as cash flow hedges	(46		)	—

Three months ended
March 31,
(in millions) 2019 2018
Foreign currency forward exchange contracts designated as cash flow hedges $ 3
$ (48 )

Assuming market rates remain constant through contract maturities, the company expects to ~~transfer~~reclassify pre-tax gains of ~~$126~~$34 million into cost of products sold for foreign currency cash flow hedges, pre-tax losses of $2 million into interest expense, net for interest rate swap cash flow hedges and pre-tax gains of $24 million into interest expense, net for treasury rate lock agreement cash flow hedges during the next 12 months.

Related to AbbVie’s non-derivative, foreign currency denominated debt designated as net investment hedges, the company recognized ~~a pre-tax gain~~ in other comprehensive income (loss) pre-tax gains of $60 million for the three months ended March 31, 2020 and $84 million for the three months ended March 31, ~~2019 and recognized a pre-tax loss in other comprehensive income (loss) of $134 million for the three months ended March 31, 2018.~~2019.



~~2019~~2020 Form 10-Q \|	1413

The following table summarizes the pre-tax amounts and location of derivative instrument net gains (losses) recognized in the condensed consolidated statements of earnings, including the net gains (losses) reclassified out of AOCI into net earnings. See Note 1110 for the amount of net gains (losses) reclassified out of AOCI.



		Three months ended March 31,
(in millions)	Statement of earnings caption	2020			2019
Foreign currency forward exchange contracts
Designated as cash flow hedges	Cost of products sold	$	—		$	40
Designated as net investment hedges	Interest expense, net	8			—
Not designated as hedges	Net foreign exchange loss	2			15
Treasury rate lock agreements designated as cash flow hedges	Interest expense, net	6			—
Interest rate swap contracts
Designated as cash flow hedges	Interest expense, net	1			—
Designated as fair value hedges	Interest expense, net	360			112
Debt designated as hedged item in fair value hedges	Interest expense, net	(360		)	(112		)

Three months ended
March 31,
(in millions) Statement of earnings caption 2019 2018
Foreign currency forward exchange contracts
Designated as cash flow hedges Cost of products sold $ 40
$ (44 )
Not designated as hedges Net foreign exchange loss 15
(59 )
Interest rate swaps designated as fair value hedges Interest expense, net 112
(184 )
Debt designated as hedged item in fair value hedges Interest expense, net (112 ) 184

Fair Value Measures

The fair value hierarchy consists of the following three levels:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets that the company has the ability to access;

Level 2 – Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations in which all significant inputs are observable in the market; and

Level 3 – Valuations using significant inputs that are unobservable in the market and include the use of judgment by the company’s management about the assumptions market participants would use in pricing the asset or liability.

The following table summarizes the bases used to measure certain assets and liabilities carried at fair value on a recurring basis on the condensed consolidated balance sheet as of March 31, ~~2019:~~2020:


			Basis of fair value measurement								Basis of fair value measurement
(in millions)	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets															��
Cash and equivalents	$	4,897	$	1,264	$	3,633	$	—	$	41,142	$	1,272	$	39,870	$	—
Time deposits	68		—		68		—
Debt securities	1,611		—		1,611		—		3		—		3		—
Equity securities	52		52		—		—
Interest rate swap contracts									133		—		133		—
Foreign currency contracts	111		—		111		—		102		—		102		—
Total assets	$	6,739	$	1,316	$	5,423	$	—	$	41,380	$	1,272	$	40,108	$	—
Liabilities
Interest rate hedges	$	354	$	—	$	354	$	—
Interest rate swap contracts									$	44	$	—	$	44	$	—
Foreign currency contracts	47		—		47		—		13		—		13		—
Contingent consideration	4,652		—		—		4,652		7,359		—		—		7,359
Total liabilities	$	5,053	$	—	$	401	$	4,652	$	7,416	$	—	$	57	$	7,359



~~2019~~2020 Form 10-Q \|	1514



			Basis of fair value measurement
(in millions)	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets
Cash and equivalents	$	39,924	$	1,542	$	38,382	$	—
Debt securities	3		—		3		—
Equity securities	24		24		—		—
Interest rate swap contracts	31		—		31		—
Foreign currency contracts	22		—		22		—
Total assets	$	40,004	$	1,566	$	38,438	$	—
Liabilities
Interest rate swap contracts	$	76	$	—	$	76	$	—
Foreign currency contracts	56		—		56		—
Contingent consideration	7,340		—		—		7,340
Total liabilities	$	7,472	$	—	$	132	$	7,340

Basis of fair value measurement
(in millions) Total
Quoted prices in active markets for
identical assets
(Level 1)

Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Assets
Cash and equivalents $ 7,289
$ 1,209
$ 6,080
$ —
Time deposits 568
—
568
—
Debt securities 1,536
—
1,536
—
Equity securities 4
4
��
—
Foreign currency contracts 132
—
132
—
Total assets $ 9,529
$ 1,213
$ 8,316
$ —
Liabilities
Interest rate hedges $ 466
$ —
$ 466
$ —
Foreign currency contracts 26
—
26
—
Contingent consideration 4,483
—
—
4,483
Total liabilities $ 4,975
$ —
$ 492
$ 4,483

The fair values of time deposits approximate their amortized cost due to the short maturities of these instruments. The fair values of available-for-sale debt securities were determined based on prices obtained from commercial pricing services. Equity securities consist of investments for which the fair values were determined by using the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The derivatives entered into by the company were valued using observable market inputs including published ~~spot curves for~~ interest rate ~~hedges~~curves and ~~published~~both forward ~~curves~~and spot prices for foreign ~~currency contracts.~~ currencies.

The fair value measurements of the contingent consideration liabilities were determined based on significant unobservable inputs, including the discount rate, estimated probabilities and timing of achieving specified development, regulatory and commercial milestones and the estimated amount of future sales of the acquired ~~products still in development.~~products. The potential contingent consideration payments are estimated by applying a probability-weighted expected payment model for contingent milestone payments and a Monte Carlo simulation model for contingent royalty payments, which are then discounted to present value. Changes to the fair value of the contingent consideration liabilities can result from changes to one or a number of inputs, including discount rates, the probabilities of achieving the milestones, the time required to achieve the milestones and estimated future sales. Significant judgment is employed in determining the appropriateness of certain of these inputs. Changes to the inputs described above could have a material impact on the company's financial position and results of operations in any given period. At

The fair value of the company's contingent consideration liabilities as of March 31, ~~2019, a 50 basis point increase/decrease in~~2020 was calculated using the ~~assumed discount rate would have decreased/increased~~following significant unobservable inputs:



	Range	Weighted average^(a)
Discount rate	2.2% - 3.5%	2.8	%
Probability of payment for unachieved milestones	16% - 57%	54	%
Probability of payment for royalties by indication^(b)	16% - 100%	89	%
Projected year of payments	2020 - 2034	2027

(a) Unobservable inputs were weighted by the relative fair value of the contingent consideration ~~liabilities by approximately $170 million. Additionally,~~liabilities.

(b) Excludes early stage indications with 0% estimated probability of payment and includes approved indications with 100% probability of payment. Excluding approved indications, the estimated probability of payment ranged from 16% to 56% at March 31, 2019, a five percentage point increase/decrease in the assumed probability of success across all potential indications would have increased/decreased the value of the contingent consideration liabilities by approximately $410 million.2020.



2020 Form 10-Q \|	15

There have been no0 transfers of assets or liabilities ~~between~~into or out of Level 3 of the fair value ~~measurement levels.~~hierarchy. The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs:



	Three months ended March 31,
(in millions)	2020			2019
Beginning balance	$	7,340		$	4,483
Change in fair value recognized in net earnings	72			169
Payments	(53		)	—
Ending balance	$	7,359		$	4,652

Three months ended
March 31,
(in millions) 2019 2018
Beginning balance $ 4,483
$ 4,534
Change in fair value recognized in net earnings 169
(148 )
Ending balance $ 4,652
$ 4,386

The change in fair value recognized in net earnings is recorded in other ~~(income)~~ expense, net in the condensed consolidated statements of earnings. AbbVie expects the fair value of its contingent consideration liabilities to increase in the second quarter of 2019 as a result of the April 2019 regulatory approvals of SKYRIZI (risankizumab) for the treatment of moderate to severe plaque psoriasis. The company is in the process of evaluating the impact of the regulatory approvals on the fair value, which includes an increase in the probabilities of success assumptions.



~~2019 Form 10-Q~~ \|	16

Certain financial instruments are carried at historical cost or some basis other than fair value. The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of March 31, ~~2019~~2020 are shown in the table below:



					Basis of fair value measurement
(in millions)	Book value		Approximate fair value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Liabilities
Short-term borrowings	$	6	$	6	$	—	$	6	$	—
Current portion of long-term debt and finance lease obligations, excluding fair value hedges	3,756		3,757		3,750		7		—
Long-term debt and finance lease obligations, excluding fair value hedges	62,974		66,176		66,157		19		—
Total liabilities	$	66,736	$	69,939	$	69,907	$	32	$	—

Basis of fair value measurement
(in millions) Book value Approximate fair value
Quoted prices
in active markets for
identical assets
(Level 1)

Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Liabilities
Short-term borrowings $ 499
$ 499
$ —
$ 499
$ —
Current portion of long-term debt and finance lease obligations, excluding fair value hedges 1,579
1,586
1,576
10
—
Long-term debt and finance lease obligations, excluding fair value hedges 35,420
35,362
35,339
23
—
Total liabilities $ 37,498
$ 37,447
$ 36,915
$ 532
$ —

The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of December 31, ~~2018~~2019 are shown in the table below:



					Basis of fair value measurement
(in millions)	Book value		Approximate fair value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Liabilities
Current portion of long-term debt and finance lease obligations, excluding fair value hedges	$	3,755	$	3,760	$	3,753	$	7	$	—
Long-term debt and finance lease obligations, excluding fair value hedges	63,021		66,651		66,631		20		—
Total liabilities	$	66,776	$	70,411	$	70,384	$	27	$	—

Basis of fair value measurement
(in millions) Book value Approximate fair value
Quoted prices
in active markets for
identical assets
(Level 1)

Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Liabilities
Short-term borrowings $ 3,699
$ 3,693
$ —
$ 3,693
$ —
Current portion of long-term debt and finance lease obligations, excluding fair value hedges 1,609
1,617
1,609
8
—
Long-term debt and finance lease obligations, excluding fair value hedges 35,468
34,052
34,024
28
—
Total liabilities $ 40,776
$ 39,362
$ 35,633
$ 3,729
$ —

AbbVie also holds investments in equity securities that do not have readily determinable fair values. The company records these investments at cost and remeasures them to fair value based on certain observable price changes or impairment events as they occur. The carrying amount of these investments was ~~$77~~$75 million as of March 31, ~~2019~~2020 and ~~$84~~$66 million as of December 31, ~~2018.~~2019. No significant cumulative upward or downward adjustments have been recorded for these investments as of March 31, ~~2019.~~

~~Available-for-sale Securities~~

Substantially all of the company’s investments in debt securities were classified as available-for-sale with changes in fair value recognized in other comprehensive income. Debt securities classified as short-term were $263 million as of March 31, 2019 and $204 million as of December 31, 2018. Long-term debt securities mature primarily within five years. Estimated fair values of available-for-sale debt securities were generally determined based on prices obtained from commercial pricing services.

~~The following table summarizes available-for-sale securities by type as of March 31, 2019:~~

Amortized cost Gross unrealized Fair value
(in millions) Gains Losses
Asset backed securities $ 425
$ —
$ (2 ) $ 423
Corporate debt securities 1,069
3
(4 ) 1,068
Other debt securities 120
—
—
120
Total $ 1,614
$ 3
$ (6 ) $ 1,611



~~2019 Form 10-Q~~ \|	17

~~The following table summarizes available-for-sale securities by type as of December 31, 2018:~~

Amortized cost Gross unrealized Fair value
(in millions) Gains Losses
Asset backed securities $ 423
$ —
$ (2 ) $ 421
Corporate debt securities 1,042
1
(9 ) 1,034
Other debt securities 81
—
—
81
Total $ 1,546
$ 1
$ (11 ) $ 1,536

~~AbbVie had no other-than-temporary impairments as of March 31, 2019. Net realized gains and losses were insignificant for the three months ended March 31, 2019 and 2018.~~2020.

Concentrations of Risk

Of total net accounts receivable, ~~three~~3 U.S. wholesalers accounted for ~~63%~~70% as of March 31, ~~2019~~2020 and 68% as of December 31, ~~2018,~~2019, and substantially all of AbbVie’s net revenues in the United States were to these ~~three~~3 wholesalers.



2020 Form 10-Q \|	16

HUMIRA (adalimumab) is AbbVie’s single largest product and accounted for approximately ~~57%~~55% of AbbVie’s total net revenues for the three months ended March 31, ~~2019~~2020 and ~~59%~~57% for the three months ended March 31, ~~2018.~~2019.

Debt and Credit Facilities

Allergan-Related Financing

In connection with the proposed acquisition of Allergan, in November 2019, the company issued $30.0 billion aggregate principal amount of unsecured senior notes. Additional information on the terms of these notes is included in the company’s Annual Report on Form 10-K for the year ended December 31, 2019. AbbVie expects to use the net proceeds to fund a portion of the aggregate cash consideration due to Allergan shareholders in connection with the proposed acquisition described in Note 4 and to pay related fees and expenses. Pending the consummation of the proposed Allergan acquisition, the net proceeds from the offering are permitted to be invested temporarily in short-term investments. All of the notes are subject to special mandatory redemption at a redemption price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest if the proposed acquisition of Allergan is not completed by January 30, 2021 or the company notifies the trustee in respect of the notes that it will not pursue the consummation of the proposed Allergan acquisition.

In July 2019, AbbVie entered into a term loan credit agreement with an aggregate principal amount of $6.0 billion consisting of a $1.5 billion 364-day term loan tranche, a $2.5 billion three-year term loan tranche and a $2.0 billion five-year term loan tranche. NaN amounts were drawn under the term loan credit agreement at March 31, 2020.

In October 2019, AbbVie commenced offers to exchange any and all outstanding notes of certain series issued by Allergan for up to $15.5 billion aggregate principal amount and €3.7 billion aggregate principal amount of new notes to be issued by AbbVie and cash, subject to conditions including the closing of the pending acquisition of Allergan. Concurrently with the offers to exchange the Allergan notes for AbbVie notes, the company solicited consents to adopt certain proposed amendments to each of the indentures governing the Allergan notes to, among other things, eliminate substantially all of the restrictive covenants in such indentures. In November 2019, the company announced that the requisite number of consents had been received to adopt the proposed amendments with respect to all Allergan notes and that Allergan executed a supplemental indenture with respect to each Allergan indenture implementing the amendments, which will become operative only upon settlement of the exchange offers. The expiration of the exchange offers is expected to occur on or about the closing date of AbbVie’s acquisition of Allergan.

Short-Term Borrowings

~~Short-term borrowings included~~There were 0 commercial paper borrowings ~~of $499 million~~outstanding as of March 31, ~~2019~~2020 and ~~$699 million as of~~ December 31, ~~2018.~~2019. There were 0 commercial paper borrowings issued during the three months ended March 31, 2020. The weighted-average interest rate on commercial paper borrowings was 2.8% for the three months ended March 31, ~~2019 and 1.8% for the three months ended March 31, 2018.~~2019.

In March 2019, AbbVie repaid its $3.0 billion 364-day term loan credit agreement that was scheduled to mature in June 2019.

Note 109Post-Employment Benefits

The following table summarizes net periodic benefit cost relating to the company’s defined benefit and other post-employment plans:



	Defined benefit plans						Other post- employment plans
	Three months ended March 31,						Three months ended March 31,
(in millions)	2020			2019			2020		2019
Service cost	$	92		$	67		$	12	$	6
Interest cost	61			64			9		6
Expected return on plan assets	(135		)	(119		)	—		—
Amortization of actuarial losses and prior service cost (credit)	55			26			6		(1		)
Net periodic benefit cost	$	73		$	38		$	27	$	11

Defined
benefit plans Other post-
employment plans
Three months ended
March 31, Three months ended
March 31,
(in millions) 2019 2018 2019 2018
Service cost $ 67
$ 72
$ 6
$ 8
Interest cost 64
57
6
8
Expected return on plan assets (119 ) (111 ) —
—
Amortization of actuarial losses and prior service cost (credit) 26
37
(1 ) 4
Net periodic benefit cost $ 38
$ 55
$ 11
$ 20

The components of net periodic benefit cost other than service cost are included in other ~~(income)~~ expense, net in the condensed consolidated statements of earnings.



~~2019~~2020 Form 10-Q \|	1817

Note 1110 Equity

Stock-Based Compensation

Stock-based compensation expense is principally related to awards issued pursuant to the AbbVie 2013 Incentive Stock Program and is summarized as follows:



	Three months ended March 31,
(in millions)	2020		2019
Cost of products sold	$	15	$	15
Research and development	92		72
Selling, general and administrative	112		102
Pre-tax compensation expense	219		189
Tax benefit	39		33
After-tax compensation expense	$	180	$	156

Three months ended
March 31,
(in millions) 2019 2018
Cost of products sold $ 15
$ 4
Research and development 72
72
Selling, general and administrative 102
115
Pre-tax compensation expense 189
191
Tax benefit 33
29
After-tax compensation expense $ 156
$ 162

Stock Options

During the three months ended March 31, ~~2019,~~2020, primarily in connection with the company's annual grant, AbbVie granted ~~1.0~~2.0 million stock options with a weighted-average grant-date fair value of ~~$12.54.~~$12.14. As of March 31, ~~2019, $10~~2020, $16 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next two years.

RSUs and Performance Shares

During the three months ended March 31, ~~2019,~~2020, primarily in connection with the company's annual grant, AbbVie granted ~~5.2~~5.0 million RSUs and performance shares with a weighted-average grant-date fair value of ~~$79.07.~~$94.29. As of March 31, ~~2019, $489~~2020, $548 million of unrecognized compensation cost related to RSUs and performance shares is expected to be recognized as expense over approximately the next two years.

Cash Dividends

The following table summarizes quarterly cash dividends declared during ~~2019~~2020 and ~~2018:~~2019:



2020				2019
Date Declared	Payment Date	Dividend Per Share		Date Declared	Payment Date	Dividend Per Share
02/20/20	05/15/20	$	1.18	11/01/19	02/14/20	$	1.18
				09/06/19	11/15/19	$	1.07
				06/20/19	08/15/19	$	1.07
				02/21/19	05/15/19	$	1.07

2019 2018
Date Declared Payment Date Dividend Per Share Date Declared Payment Date Dividend Per Share
02/21/19 05/15/19 $ 1.07
11/02/18 02/15/19 $ 1.07

09/07/18 11/15/18 $ 0.96

06/14/18 08/15/18 $ 0.96

02/15/18 05/15/18 $ 0.96



~~2019~~2020 Form 10-Q \|	1918

Stock Repurchase Program

The company's stock repurchase authorization permits purchases of AbbVie shares from time to time in open-market or private transactions at management's discretion. The program has no time limit and can be discontinued at any time. Shares repurchased under ~~these programs~~this program are recorded at acquisition cost, including related expenses, and are available for general corporate purposes.

Under this authorization, AbbVie repurchased 6 million shares for $500 million during the three months ended March 31, 2020 and 4 million shares for $300 million during the three months ended March 31, ~~2019 and 11 million shares for $1.3 billion during the three months ended March 31, 2018.~~2019. AbbVie's remaining stock repurchase authorization was approximately ~~$4.0~~$3.5 billion as of March 31, ~~2019.~~2020.

Accumulated Other Comprehensive Loss

The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2020:



(in millions)	Foreign currency translation adjustments			Net investment hedging activities			Pension and post-employment benefits			Cash flow hedging activities			Total
Balance as of December 31, 2019	$	(928	)	$	9		$	(2,965	)	$	288		$	(3,596	)
Other comprehensive income (loss) before reclassifications	(227		)	78			8			4			(137		)
Net losses (gains) reclassified from accumulated other comprehensive loss	—			(6		)	48			(6		)	36
Net current-period other comprehensive income (loss)	(227		)	72			56			(2		)	(101		)
Balance as of March 31, 2020	$	(1,155	)	$	81		$	(2,909	)	$	286		$	(3,697	)

Other comprehensive loss for the three months ended March 31, 2020 included foreign currency translation adjustments totaling a loss of $227 million, which was principally due to the impact of the weakening of the Euro on the translation of the company’s Euro-denominated assets.

The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2019:



(in millions)	Foreign currency translation adjustments			Net investment hedging activities			Pension and post- employment benefits			Marketable security activities			Cash flow hedging activities			Total
Balance as of December 31, 2018	$	(830	)	$	(65	)	$	(1,722	)	$	(10	)	$	147		$	(2,480	)
Other comprehensive income (loss) before reclassifications	(103		)	65			5			7			5			(21		)
Net losses (gains) reclassified from accumulated other comprehensive loss	—			—			20			—			(35		)	(15		)
Net current-period other comprehensive income (loss)	(103		)	65			25			7			(30		)	(36		)
Balance as of March 31, 2019	$	(933	)	$	—		$	(1,697	)	$	(3	)	$	117		$	(2,516	)

(in millions) Foreign
currency
translation
adjustments Net investment hedging activities
Pension
and post-
employment
benefits

Marketable
security activities
Cash flow hedging
activities Total
Balance as of December 31, 2018 $ (830 ) $ (65 ) $ (1,722 ) $ (10 ) $ 147
$ (2,480 )
Other comprehensive income (loss) before reclassifications (103 ) 65
5
7
5
(21 )
Net losses (gains) reclassified from accumulated other comprehensive loss —
—
20
—
(35 ) (15 )
Net current-period other comprehensive income (loss) (103 ) 65
25
7
(30 ) (36 )
Balance as of March 31, 2019 $ (933 ) $ —
$ (1,697 ) $ (3 ) $ 117
$ (2,516 )

Other comprehensive loss for the three months ended March 31, 2019 included foreign currency translation adjustments totaling a loss of $103 million, which was principally due to the impact of the weakening of the Euro ~~in the three months ended March 31, 2019~~ on the translation of the company’s ~~assets denominated in the Euro.~~Euro-denominated assets.

~~The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2018:~~

(in millions) Foreign
currency
translation
adjustments Net investment hedging activities
Pension
and post-
employment
benefits

Marketable
security activities
Cash flow hedging
activities Total
Balance as of December 31, 2017 $ (439 ) $ (203 ) $ (1,919 ) $ —
$ (166 ) $ (2,727 )
Other comprehensive income (loss) before reclassifications 189
(104 ) (11 ) (7 ) (45 ) 22
Net losses reclassified from accumulated other comprehensive loss —
—
33
—
42
75
Net current-period other comprehensive income (loss) 189
(104 ) 22
(7 ) (3 ) 97
Balance as of March 31, 2018 $ (250 ) $ (307 ) $ (1,897 ) $ (7 ) $ (169 ) $ (2,630 )

Other comprehensive income for the three months ended March 31, 2018 included foreign currency translation adjustments totaling a gain of $189 million, which was principally due to the impact of the improvement in the Euro in the three months ended March 31, 2018 on the translation of the company’s assets denominated in the Euro.



~~2019~~2020 Form 10-Q \|	2019

The following table presents the impact on AbbVie’s condensed consolidated statements of earnings for significant amounts reclassified out of each component of accumulated other comprehensive loss:


	Three months ended March 31,						Three months ended March 31,
(in millions) (brackets denote gains)	2019			2018			2020			2019
Net investment hedging activities
Gains on derivative amount excluded from effectiveness testing^(a)							$	(8	)	$	—
Tax expense							2			—
Total reclassifications, net of tax							$	(6	)	$	—
Pension and post-employment benefits
Amortization of actuarial losses and other^(a)	$	25		$	41
Amortization of actuarial losses and other^(b)							$	61		$	25
Tax benefit	(5		)	(8		)	(13		)	(5		)
Total reclassifications, net of tax	$	20		$	33		$	48		$	20
Cash flow hedging activities
Losses (gains) on designated cash flow hedges^(b)	$	(40	)	$	44
Tax expense (benefit)	5			(2		)
Gains on foreign currency forward exchange contracts^(c)							$	—		$	(40	)
Gains on treasury rate lock agreements and interest rate swap contracts^(a)							(7		)	—
Tax expense							1			5
Total reclassifications, net of tax	$	(35	)	$	42		$	(6	)	$	(35	)

(a) Amounts are included in interest expense, net (see Note 8).

(b) Amounts are included in the computation of net periodic benefit cost (see Note ~~10)~~9).

~~(b)~~(c) Amounts are included in cost of products sold (see Note 9)8).

Note 1211 Income Taxes

The effective tax rate was 3% for the three months ended March 31, ~~2019~~2020 and ~~1% for the three months ended March 31, 2018.~~2019. 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 ~~increase~~effective tax rate for the three months ended March 31, 2020 included the beneficial tax impact of a change in tax rate in a foreign jurisdiction, while the effective tax rate for the three months ended March 31, 2019 ~~over the prior year was principally due to the beneficial impact of the timing of provisions of the Act~~included a tax benefit related to ~~earnings from certain foreign subsidiaries in prior year. Additionally, the 2019 effective tax rate reflected~~ the favorable resolution of various tax ~~positions and lower excess tax benefits from stock-based compensation compared to the prior year.~~

positions.

Due to the potential for resolution of federal, state and foreign examinations and the expiration of various statutes of limitations, it is reasonably possible that the company’s gross unrecognized tax benefits balance may change within the next ~~twelve~~12 months by up to ~~$311~~$50 million.

Note 1312 Legal Proceedings and Contingencies

AbbVie is subject to contingencies, such as various claims, legal proceedings and investigations regarding product liability, intellectual property, commercial, securities and other matters that arise in the normal course of business. Loss contingency provisions are recorded for probable losses at management’s best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount within a probable range is recorded. The recorded accrual balance for litigation was approximately ~~$345~~$300 million as of March 31, ~~2019~~2020 and ~~$350~~$290 million as of December 31, ~~2018.~~2019. Initiation of new legal proceedings or a change in the status of existing proceedings may result in a change in the estimated loss accrued by AbbVie. While it is not feasible to predict the outcome of all proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on AbbVie’s consolidated financial position, results of operations or cash flows.

Subject to certain exceptions specified in the separation agreement by and between Abbott Laboratories (Abbott) and AbbVie, AbbVie assumed the liability for, and control of, all pending and threatened legal matters related to its business, including liabilities for any claims or legal proceedings related to products that had been part of its business, but were discontinued prior to the



2020 Form 10-Q \|	20

distribution, as well as assumed or retained liabilities, and will indemnify Abbott for any liability arising out of or resulting from such assumed legal matters.

~~Several pending lawsuits filed~~One lawsuit against Unimed Pharmaceuticals, ~~Inc.,~~LLC, Solvay Pharmaceuticals, Inc. (a company Abbott acquired in February 2010 and now known as AbbVie Products LLC) and others ~~are consolidated for pre-trial purposes~~remains pending in the United States District Court for the Northern District of Georgia for pre-trial purposes under the Multi-District Litigation (MDL) Rules as In re: AndroGel Antitrust Litigation, MDL No. 2084. ~~These cases,~~This case, brought by ~~private plaintiffs and the Federal Trade Commission (FTC),~~a direct AndroGel purchaser, generally ~~allege~~alleges Solvay's



~~2019 Form 10-Q~~ \|	21

~~patent litigation involving AndroGel was sham litigation and the~~ 2006 patent litigation settlement agreements and related agreements with ~~three~~3 generic companies violate federal antitrust laws. ~~Plaintiffs generally seek~~The plaintiff seeks monetary damages ~~and/or injunctive relief~~ and attorneys' fees. ~~These cases include: (a) four individual plaintiff lawsuits; (b) three purported class actions; and (c)~~ ~~Federal Trade Commission v. Actavis, Inc. et al.~~ Following the district court's dismissal of all plaintiffs' claims, appellate proceedings led to the reinstatement of the claims regarding the patent litigation settlements, which are proceeding in the district court. In July 2018, the court denied the private plaintiffs' motion for class certification. In February 2019, AbbVie and the FTC reached a settlement that applies certain conditions on future patent settlements involving former Solvay products, as part of which the FTC’s claims were dismissed with prejudice. In April 2019, AbbVie settled with the plaintiffs in three of the individual lawsuits, which will be dismissed with prejudice.

Lawsuits are pending against AbbVie and others generally alleging that the 2005 patent litigation settlement involving Niaspan entered into between Kos Pharmaceuticals, Inc. (a company acquired by Abbott in 2006 and presently a subsidiary of AbbVie) and a generic company violates federal and state antitrust laws and state unfair and deceptive trade practices and unjust enrichment laws. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys' fees. The lawsuits, including a putative end-payer class action filed in December 2018, consist of four individual plaintiff lawsuits and three consolidated purported class actions: one brought by Niaspan direct purchasers and two brought by Niaspan end-payers. The cases are pending in the United States District Court for the Eastern District of Pennsylvania for coordinated or consolidated pre-trial proceedings under the MDL Rules as ~~In re: Niaspan Antitrust Litigation~~, MDL No. 2460. In October 2016, the Orange County, California District Attorney’s Office filed a lawsuit on behalf of the State of California regarding the Niaspan patent litigation settlement in Orange County Superior Court, asserting a claim under the unfair competition provision of the California Business and Professions Code seeking injunctive relief, restitution, civil penalties and attorneys’ fees. In May 2018, the California Court of Appeals ruled that the District Attorney’s Office may not bring monetary claims beyond the scope of Orange County.

In September 2014, the FTC filed a lawsuit,FTC v. AbbVie Inc., et al., against AbbVie and others in the United States District Court for the Eastern District of Pennsylvania, alleging that the 2011 patent litigation with ~~two~~2 generic companies regarding AndroGel was sham litigation and the settlements of that litigation violated federal antitrust law. In May 2015, the court dismissed the FTC’s settlement-related claim. In June 2018, following a bench trial, the court found for the FTC on its sham litigation claim and ordered a disgorgement remedy of $448 million, plus prejudgment interest. The court denied the FTC’s request for injunctive relief. AbbVie is appealing the court’s liability and disgorgement rulings and, based on an assessment of the merits of that appeal, no0 liability has been accrued for this matter. The FTC is also appealing aspects of the court’s trial ruling and the dismissal of its settlement-related claim. In July ~~and August~~ 2018, ~~several direct AndroGel purchasers brought two individual and one~~a purported class action ~~cases~~was filed in the United States District Court for the Eastern District of Pennsylvania ~~alleging sham litigation~~on behalf of direct AndroGel purchasers based on the trial court’s ~~trial~~ ruling in the FTC’s case. In ~~April~~September 2019, ~~AbbVie settled with~~2 individual direct AndroGel purchasers substituted in as the plaintiffs in that lawsuit and withdrew the ~~two individual cases. The remaining private plaintiff~~class allegations. That case, ~~is stayed~~which was pending ~~the appeals~~as Rochester Drug Co-Operative, Inc., et al. v. AbbVie Inc., et al., was settled in ~~the FTC’s case.~~December 2019 and will be dismissed.

In ~~March 2015, the State~~August 2019, direct purchasers of ~~Louisiana~~AndroGel filed a lawsuit, ~~State~~King Drug Co. of ~~Louisiana~~Florence, Inc., et al. v. ~~Fournier Industrie~~AbbVie Inc., et ~~Sante, et~~ al., against AbbVie ~~Abbott~~ and affiliated Abbott entities in Louisiana state court. Plaintiff alleges that patent applications and patent litigation filed and other alleged conduct from the early 2000's and before related to the drug TriCor violated Louisiana State antitrust and unfair trade practices laws. The lawsuit seeks monetary damages and attorneys' fees. In April 2019, the Louisiana Supreme Court denied the plaintiff’s petition seeking to appeal the August 2018 dismissal of this lawsuit by the Louisiana Court of Appeal.

~~In January and February 2019, two shareholder derivative lawsuits,~~ ~~Brown v. Gonzalez, et al.,~~ ~~and~~ ~~Elfers v. Gonzalez, et al., were filed~~others in the United States District Court for the ~~Northern~~Eastern District of ~~Illinois,~~Pennsylvania, making allegations similar to those in In re: AndroGel Antitrust Litigation (No. II), MDL No. 2084 (above) and FTC v. AbbVie Inc. (above).

Lawsuits are pending against AbbVie and others generally alleging that ~~certain AbbVie directors~~the 2005 patent litigation settlement involving Niaspan entered into between Kos Pharmaceuticals, Inc. (a company acquired by Abbott in 2006 and ~~officers breached their fiduciary duties in connection with HUMIRA patient~~presently a subsidiary of AbbVie) and ~~reimbursement support services~~a generic company violates federal and ~~other services~~state antitrust laws and ~~items~~state unfair and deceptive trade practices and unjust enrichment laws. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys' fees. The lawsuits consist of ~~value, as alleged~~4 individual plaintiff lawsuits and 2 consolidated purported class actions: 1 brought by Niaspan direct purchasers and 1 brought by Niaspan end-payers. The cases are pending in the United States District Court for the Eastern District of Pennsylvania for coordinated or consolidated pre-trial proceedings under the MDL Rules as In re: Niaspan Antitrust Litigation, MDL No. 2460. In August 2019, the court certified a class of direct purchasers of Niaspan. In October 2016, the Orange County, California District Attorney’s Office filed a lawsuit on behalf of the State of California ~~case discussed below.~~ regarding the Niaspan patent litigation settlement in Orange County Superior Court, asserting a claim under the unfair competition provision of the California Business and Professions Code seeking injunctive relief, restitution, civil penalties and attorneys’ fees. In May 2018, the California Court of Appeal ruled that the District Attorney’s Office may not bring monetary claims beyond the scope of Orange County, which the District Attorney’s Office is appealing.

InBetween March and ~~April~~May 2019, 1012 putative class action lawsuits were filed in the United States District Court for the Northern District of Illinois by indirect HUMIRA purchasers, alleging that AbbVie’s settlements with biosimilar manufacturers and AbbVie’s HUMIRA patent portfolio violate state and federal antitrust laws. The court consolidated these lawsuits as In re: Humira (Adalimumab) Antitrust Litigation.

In ~~November 2014,~~July 2019, the New Mexico Attorney General filed a ~~putative class action~~ lawsuit, ~~Medical Mutual~~State of ~~Ohio~~New Mexico ex rel. Balderas v. AbbVie Inc., et al., ~~was filed against several manufacturers of testosterone replacement therapies (TRTs), including AbbVie,~~ in ~~the United States~~New Mexico District Court for ~~the Northern District of Illinois on behalf of all insurance companies, health benefit providers,~~Santa Fe County against AbbVie and other ~~third party payers who paid for TRTs, including AndroGel. The claims asserted include violations~~companies alleging their marketing of the federal RICO Act and state consumer fraud and deceptive trade practices laws. The complaint seeks monetary damages and injunctive relief. In July 2018, the court denied the plaintiff’s motion for class certification. In February 2019, the court granted the defendants’ summary judgment motion.AndroGel violated New Mexico’s Unfair Practices Act.



~~2019 Form 10-Q~~ \|	22

In September 2018, the Commissioner of the California Department of Insurance intervened in a qui tam lawsuit, State of California and Lazaro Suarez v. AbbVie Inc., et al., brought under the California Insurance Frauds Prevention Act, in California Superior Court for Alameda County. The Department of Insurance’s complaint alleges that, through patient and reimbursement support services and other services and items of value provided in connection with HUMIRA, AbbVie caused the submission of fraudulent commercial insurance claims for HUMIRA in violation of the California statute. The complaint seeks injunctive relief, an assessment of up to three times the amount of the claims at issue, and civil penalties. In addition, ~~two~~a federal securities ~~lawsuits were filed in September~~lawsuit (~~Pippins v. AbbVie Inc., et al., in the United States District Court for the Central District of California) and October (~~Holwill v. AbbVie Inc., et al.,) is pending in the United States District Court for the Northern District of Illinois) against AbbVie, its chief executive officer and ~~then-chief~~former chief financial officer, alleging that reasons stated for HUMIRA sales growth in financial filings between 2013 and 2017 were misleading because they omitted the conduct alleged in the Department of Insurance’s complaint.



2020 Form 10-Q \|	21

In ~~November 2018, the~~ ~~Pippins~~ ~~case was voluntarily dismissed.~~

~~In November 2014, five individuals~~February 2020, a shareholder derivative lawsuit that had previously been filed ~~a putative class action lawsuit,~~ ~~Rubinstein, et al. v Gonzalez, et al.,~~ ~~on behalf of purchasers and sellers of certain Shire plc (Shire) securities between June 20 and October 14, 2014, against AbbVie and its chief executive officer~~ in the United States District Court for the Northern District of Illinois ~~alleging~~and then voluntarily dismissed was refiled in the United States District Court for the District of Delaware. The lawsuit, Elfers v. Gonzalez, et al., alleges that ~~the defendants made and/or are responsible for material misstatements in violation of federal securities laws~~certain AbbVie directors and officers breached their fiduciary duties in connection with ~~AbbVie's proposed transaction~~HUMIRA patient and reimbursement support services and other services and items of value, as alleged in the State of California case discussed above, and in connection with ~~Shire. In April 2019,~~ the ~~parties reached an agreement in principle to settle this lawsuit.~~announcements of results of AbbVie’s 2018 Dutch auction tender offer.

In June 2016, a lawsuit, Elliott Associates, L.P., et al. v. AbbVie Inc., was filed by ~~five~~5 investment funds against AbbVie in the Cook County, Illinois Circuit Court alleging that AbbVie made misrepresentations and omissions in connection with its proposed transaction with Shire. Similar lawsuits were filed between July 2017 and October ~~2018~~2019 against AbbVie and in some instances its chief executive officer in the same court by additional investment funds. Plaintiffs seek compensatory and punitive damages.

~~In May 2017, a shareholder derivative lawsuit,~~ ~~Ellis v. Gonzalez, et al.~~, was filed in Delaware Chancery Court, alleging that AbbVie's directors breached their fiduciary duties in connection with statements made regarding the Shire transaction. The lawsuit sought unspecified compensatory damages for AbbVie, among other relief. In July 2018, the court dismissed this case with prejudice. In March 2019, the Delaware Supreme Court affirmed that dismissal.

Product liability cases were filed in which plaintiffs generally allege that AbbVie and other manufacturers of TRTs did not adequately warn about risks of certain injuries, primarily heart attacks, strokes and blood clots. Approximately ~~3,900~~3,500 claims against AbbVie are consolidated for pre-trial purposes in the United States District Court for the Northern District of Illinois under the MDL Rules as In re: Testosterone Replacement Therapy Products Liability Litigation, MDL No. 2545. Approximately ~~200~~175 claims against AbbVie are pending in various state courts. Plaintiffs generally seek compensatory and punitive damages. In November 2018, AbbVie entered into a Master Settlement Agreement with the Plaintiffs’ Steering Committee in the MDL encompassing existing claims in all courts. All proceedings in pending cases are effectively stayed during the settlement administration process.

Product liability cases are pending in which plaintiffs generally allege that AbbVie did not adequately warn about risk of certain injuries, primarily various birth defects, arising from use of Depakote. Approximately ~~170~~100 cases are pending in the United States District Court for the Southern District of Illinois, and approximately ~~four~~14 others are pending in various federal and state courts. Plaintiffs generally seek compensatory and punitive damages. ~~Over ninety~~Approximately 80 percent of these pending cases, plus other unfiled claims, are subject to confidential settlement agreements and are expected to be dismissed with prejudice.

Beginning in May 2016, the Patent Trial & Appeal Board of the U.S. Patent & Trademark Office (PTO) instituted five inter partes review proceedings brought by Coherus Biosciences and Boehringer Ingelheim related to three AbbVie patents covering methods of treatment of rheumatoid arthritis using adalimumab. In these proceedings, the PTO reviewed the validity of the patents and issued decisions of invalidity in May, June and July of 2017. AbbVie’s appeal of the decisions is pending in the Court of Appeals for the Federal Circuit.

In March 2017, AbbVie filed a lawsuit, AbbVie Inc. v. Novartis Vaccines and Diagnostics, Inc. and Grifols Worldwide Operations Ltd., in the United States District Court for the Northern District of California against Novartis Vaccines and Grifols Worldwide seeking a declaratory judgment that ~~eleven~~11 HCV-related patents licensed to AbbVie in 2002 are invalid.

AbbVie is seeking to enforce certain patent rights related to adalimumab (a drug AbbVie sells under the trademark HUMIRA®). In a case filed in United States District Court for the District of Delaware in August 2017, AbbVie alleges that Boehringer Ingelheim International GmbH’s, Boehringer Ingelheim Pharmaceutical, Inc.’s, and Boehringer Ingelheim Fremont, Inc.’s proposed biosimilar adalimumab product infringes certain AbbVie patents. AbbVie seeks declaratory and injunctive relief.



~~2019 Form 10-Q~~ \|	23

Pharmacyclics LLC, a wholly owned subsidiary of AbbVie, is seeking to enforce its patent rights relating to ibrutinib capsules (a drug Pharmacyclics sells under the trademark IMBRUVICA®). In February 2018 and March 2020, cases were filed in the United States District Court for the District of Delaware against the following defendants: ~~Fresenius Kabi USA, LLC, Fresenius Kabi USA, Inc., and Fresenius Kabi Oncology Limited;~~ Sun Pharma Global FZE and Sun Pharmaceutical Industries Ltd.; ~~Cipla Limited and Cipla USA Inc.; and~~ Zydus Worldwide DMCC and Cadila Healthcare ~~Limited,~~Limited; and Sandoz Inc., and Lek Pharmaceuticals D.D. In each case, Pharmacyclics alleges the defendant’s proposed generic ibrutinib product infringes certain Pharmacyclics patents and seeks declaratory and injunctive relief. Janssen Biotech, Inc. which is in a global collaboration with Pharmacyclics concerning the development and marketing of IMBRUVICA, is the co-plaintiff in these suits.

Pharmacyclics LLC, a wholly owned subsidiary of AbbVie, is seeking to enforce its patent rights relating to ibrutinib tablets (a drug Pharmacyclics sells under the trademark IMBRUVICA®). ~~In a case~~Cases were filed in the United States District Court for the District of Delaware in March 2019 ~~Pharmacyclics alleges that~~and March 2020 against Alvogen Pine Brook ~~LLC’s~~LLC and Natco Pharma Ltd.’s, and in April 2020 against Zydus Worldwide DMCC and Cadila Healthcare Limited. In each case, Pharmacyclics alleges defendants’ proposed generic ibrutinib tablet product infringes certain Pharmacyclics patents. Pharmacyclics seeks declaratory and injunctive relief. Janssen Biotech, Inc. which is in a global collaboration with Pharmacyclics concerning the development and marketing of IMBRUVICA, is the co-plaintiff in this suit.



~~2019~~2020 Form 10-Q \|	2422

Note 1413 Segment Information

AbbVie operates in ~~one~~1 business segment—pharmaceutical products. The following table details AbbVie’s worldwide net revenues:



		Three months ended March 31,
		Three months ended March 31,
(in millions)		2020		2019
Immunology
HUMIRA	United States	$	3,656	$	3,215
	International	1,047		1,231
	Total	$	4,703	$	4,446
SKYRIZI	United States	$	266	$	—
	International	34		—
	Total	$	300	$	—
RINVOQ	United States	$	82	$	—
	International	4		—
	Total	$	86	$	—
Hematologic Oncology
IMBRUVICA	United States	$	966	$	829
	Collaboration revenues	266		193
	Total	$	1,232	$	1,022
VENCLEXTA	United States	$	201	$	105
	International	116		46
	Total	$	317	$	151
HCV
MAVYRET	United States	$	234	$	403
	International	325		387
	Total	$	559	$	790
VIEKIRA	International	$	5	$	25
Other Key Products
Creon	United States	$	276	$	227
Lupron	United States	$	195	$	191
	International	38		38
	Total	$	233	$	229
Synthroid	United States	$	205	$	182
Synagis	International	$	270	$	287
Duodopa	United States	$	25	$	22
	International	99		89
	Total	$	124	$	111
Sevoflurane	United States	$	16	$	17
	International	63		75
	Total	$	79	$	92
Kaletra	United States	$	14	$	13
	International	72		65
	Total	$	86	$	78
ORILISSA	United States	$	30	$	13
	International	1		—
	Total	$	31	$	13
AndroGel	United States	$	8	$	74
All other		$	105	$	101
Total net revenues		$	8,619	$	7,828

Three months ended
March 31,

(in millions) 2019 2018
Immunology
HUMIRA
United States $ 3,215
$ 3,003
International 1,231
1,706
Total $ 4,446
$ 4,709
Hematologic Oncology
IMBRUVICA
United States $ 829
$ 624
Collaboration revenues 193
138
Total $ 1,022
$ 762
VENCLEXTA
United States $ 105
$ 41
International 46
18
Total $ 151
$ 59
HCV
MAVYRET
United States $ 403
$ 340
International 387
508
Total $ 790
$ 848
VIEKIRA
United States $ —
$ 3
International 25
68
Total $ 25
$ 71
Other Key Products
Creon
United States $ 227
$ 209
Lupron
United States $ 191
$ 177
International 38
42
Total $ 229
$ 219
Synthroid
United States $ 182
$ 182
Synagis
International $ 287
$ 321
Duodopa
United States $ 22
$ 18
International 89
85
Total $ 111
$ 103
Sevoflurane
United States $ 17
$ 17
International 75
89
Total $ 92
$ 106
Kaletra
United States $ 13
$ 13
International 65
60
Total $ 78
$ 73
AndroGel
United States $ 74
$ 130
All other $ 114
$ 142
Total net revenues $ 7,828
$ 7,934



~~2019~~2020 Form 10-Q \|	2523

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 March 31, ~~2019~~2020 and December 31, ~~2018~~2019 and the results of operations for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. This commentary should be read in conjunction with the ~~condensed consolidated financial statements~~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 formed in 2013 following separation from Abbott Laboratories (Abbott).~~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. AbbVie’s products are focused on treating conditions such as chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including hepatitis C virus (HCV) and human immunodeficiency virus (HIV); neurological disorders, such as Parkinson’s disease; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis; pain associated with endometriosis; as well as other serious health conditions. AbbVie also has a pipeline of promising new medicines in clinical development across such important medical specialties as immunology, oncology and neuroscience, with additional targeted investment in cystic fibrosis and women’s health.

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. 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 ~~are sold~~ 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 30,000 employees. AbbVie operates in one business segment—pharmaceutical products.

On June 25, 2019, AbbVie announced that it entered into a definitive transaction agreement under which AbbVie will acquire Allergan plc (Allergan). See Note 4 to the Condensed Consolidated Financial Statements for additional information on the proposed acquisition.

2020 Strategic Objectives

AbbVie's mission is to be an innovation-driven, patient-focused specialty biopharmaceutical company capable of achieving top-tier financial performance through outstanding execution and a consistent stream of innovative new medicines. AbbVie intends to continue to advance its mission in a number of ways, including: (i) growing revenues by diversifying revenue streams, ~~driving late-stage pipeline assets to the market and~~ ensuring strong commercial execution of new product ~~launches;~~launches and driving late-stage pipeline assets to the market; (ii) ~~continued investment~~continuing to invest and ~~expansion in~~expand its pipeline in support of opportunities in immunology, oncology and neuroscience, with additional targeted investment in cystic fibrosis and women's health as well as continued investment in key on-market products; (iii) expanding operating margins; and (iv) returning cash to shareholders via ~~dividends~~a strong and ~~share repurchases.~~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 ~~twelve~~12 months.

The combination of AbbVie and Allergan will create a diverse entity with leadership positions across immunology, hematologic oncology, aesthetics, neuroscience, women's health, eye care and virology. AbbVie's existing product portfolio and pipeline will be enhanced with numerous Allergan assets and Allergan's product portfolio will benefit from AbbVie's commercial strength, expertise and international infrastructure.

Financial Results

The company's financial performance for the three months ended March 31, ~~2019~~2020 included delivering worldwide net revenues of ~~$7.8~~$8.6 billion, operating earnings of ~~$3.0~~$3.6 billion, diluted earnings per share of ~~$1.65~~$2.02 and cash flows from operations of ~~$3.0~~$3.8 billion. Worldwide net revenues ~~decreased~~grew by ~~1.3% and increased 0.4%~~11% on a constant currency basis ~~primarily driven by revenue~~and reflected growth ~~related to IMBRUVICA~~in the immunology portfolio from SKYRIZI, RINVOQ and ~~VENCLEXTA as well as~~ the continued strength of HUMIRA in the U.S. ~~HUMIRA~~as well as revenue growth from IMBRUVICA and VENCLEXTA. Additionally, net revenues ~~offset by international HUMIRA biosimilar competition.~~included an inventory stocking benefit related to the COVID-19 pandemic. This stocking benefit is expected to reverse in the second quarter of 2020.

Diluted earnings per share was ~~$1.65~~$2.02 for the three months ended March 31, ~~2019~~2020 and included the following after-tax costs: (i) ~~$318~~$371 million related to the amortization of intangible assets; (ii) ~~$171~~$158 million of expenses related to the proposed Allergan



2020 Form 10-Q \|	24

acquisition; (iii) $115 million for milestones and other research and development (R&D) expenses; and (iv) $72 million for the change in fair value of contingent consideration liabilities; (iii) $155 million for acquired in-process research and development (IPR&D); (iv) $133 million of restructuring charges; and (v) $40 million for milestone payments. These costs were partially offset by an after-tax benefit of ~~$89 million~~ ~~due to the favorable resolution of various tax positions.~~liabilities. Additionally, financial results reflected continued funding to support all stages of AbbVie’s ~~emerging~~ pipeline assets and continued investment in AbbVie’s on-market brands.

In addition to these financial results, AbbVie continued to advance and augment its pipeline as further described below under the heading “Research and Development.”

Impact of the Coronavirus Disease 2019 (COVID-19)



~~2019 Form 10-Q~~ \| 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 the HIV medicine Kaletra/Aluvia (lopinavir/ritonavir) to determine its efficacy in the treatment of COVID-19. Additionally, AbbVie announced a donation of $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 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 is uncertain.	26

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 pharmaceutical products and acquire or collaborate on compounds currently in development by other biotechnology or pharmaceutical companies.

AbbVie’s pipeline currently includes approximately 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 and neuroscience along with targeted investments in cystic fibrosis and women’s health. Of these programs, ~~more than~~approximately 30 are in mid- and late-stage development.

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 ~~twelve~~12 months.

Significant Programs and Developments

Immunology

~~Upadacitinib~~RINVOQ

In February ~~2019,~~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.

Oncology

IMBRUVICA

In April 2020, AbbVie received U.S. Food and Drug Administration (FDA) ~~accepted~~approval for ~~priority review AbbVie's New Drug Application (NDA) for upadacitinib, an investigational oral JAK1-selective inhibitor,~~the use of IMBRUVICA in combination with rituximab for the treatment of ~~adult~~previously untreated patients with ~~moderate to severe rheumatoid arthritis (RA).~~

~~In February 2019, AbbVie initiated a Phase 3 clinical trial to evaluate the efficacy and safety of upadacitinib in subjects with giant cell arteritis.~~

~~SKYRIZI~~

In March 2019, AbbVie initiated two Phase 3 clinical trials to evaluate the efficacy and safety of risankizumab, an investigational interleukin-23 (IL-23) inhibitor, in subjects with psoriatic arthritis.

~~In April 2019, the FDA approved SKYRIZI (risankizumab) for the treatment of moderate to severe plaque psoriasis in adults who are candidates for systemic therapy or phototherapy.~~

~~In April 2019, the European Commission granted marketing authorization for SKYRIZI for the treatment of moderate to severe plaque psoriasis in adult patients who are candidates for systemic therapy.~~

~~Oncology~~

~~IMBRUVICA~~

~~In January 2019, the FDA approved IMBRUVICA, in combination with GAZYVA, for adult patients with previously untreated~~ chronic lymphocytic leukemia (CLL)/ or small lymphocytic lymphoma (SLL).

~~VENCLEXTA~~

In February 2019, the FDA granted a fifth breakthrough therapy designation to VENCLEXTA, for use in combination with obinutuzumab as a fixed duration investigational combination, for untreated adult patients with CLL. This designation coincides with the completion of the supplemental New Drug Application (sNDA) submission to the FDA in previously-untreated CLL patients. In March, the sNDA was granted priority review by the FDA.

In March 2019, AbbVie announced that the FDA placed a partial clinical hold on all clinical trials evaluating VENCLEXTA for the investigational treatment of multiple myeloma. The partial clinical hold follows a review of data from the ongoing Phase 3 BELLINI trial, a study in relapsed/refractory multiple myeloma, in which a higher proportion of deaths was observed in the VENCLEXTA arm compared to the control arm of the trial. This action does not impact any of the approved indications for VENCLEXTA, such as CLL or acute myeloid leukemia (AML), and is limited to investigational clinical trials in multiple myeloma.



~~2019~~2020 Form 10-Q \|	2725

~~Neuroscience~~VENCLEXTA

In ~~May 2019,~~February 2020, AbbVie ~~initiated a~~announced that the Phase 3 ~~clinical~~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.

Virology/Liver Disease

MAVYRET

In March 2020, AbbVie announced that the EC granted marketing authorization for MAVIRET to ~~evaluate the safety and tolerability of ABBV-951, a subcutaneous levodopa/carbidopa delivery system,~~shorten once-daily treatment duration from 12 to 8 weeks in ~~subjects~~treatment-naïve, compensated cirrhotic, chronic HCV patients with ~~Parkinson's disease.~~genotype 3 infection.

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, ~~2018.~~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 March 31,					Percent change						Three months ended March 31,							Percent change
					At actual currency rates			At constant currency rates				Three months ended March 31,						At actual currency rates			At constant currency rates
(dollars in millions)	Three months ended March 31,	2019		2018				At constant currency rates				2020			2019			At actual currency rates			At constant currency rates
United States	$	5,270	$	4,790	At actual currency rates		10.0	%		10.0	%		$	6,158		$	5,270			16.8	%		16.8	%
International	2,558		3,144			(18.6	)%		(14.2	)%		2,461			2,558				(3.8	)%		(2.0	)%
Net revenues	$	7,828	$	7,934		(1.3	)%		0.4	%		$	8,619		$	7,828			10.1	%		10.7	%



~~2019~~2020 Form 10-Q \|	2826

The following table details AbbVie’s worldwide net revenues:

Three months ended
March 31, Percent change
At actual
currency rates At constant
currency rates
(dollars in millions) 2019 2018
Immunology
HUMIRA
United States $ 3,215
$ 3,003
7.1 % 7.1 %
International 1,231
1,706
(27.9 )% (23.0 )%
Total $ 4,446
$ 4,709
(5.6 )% (3.8 )%
Hematologic Oncology
IMBRUVICA
United States $ 829
$ 624
32.8 % 32.8 %
Collaboration revenues 193
138
39.6 % 39.6 %
Total $ 1,022
$ 762
34.0 % 34.0 %
VENCLEXTA
United States $ 105
$ 41
>100.0%
>100.0%
International 46
18
>100.0%
>100.0%
Total $ 151
$ 59
>100.0%
>100.0%
HCV
MAVYRET
United States $ 403
$ 340
18.3 % 18.3 %
International 387
508
(23.8 )% (20.4 )%
Total $ 790
$ 848
(6.9 )% (4.9 )%
VIEKIRA
United States $ —
$ 3
(100.0 )% (100.0 )%
International 25
68
(62.9 )% (58.5 )%
Total $ 25
$ 71
(64.7 )% (60.4 )%
Other Key Products
Creon
United States $ 227
$ 209
8.6 % 8.6 %
Lupron
United States $ 191
$ 177
7.4 % 7.4 %
International 38
42
(9.0 )% (1.4 )%
Total $ 229
$ 219
4.2 % 5.7 %
Synthroid
United States $ 182
$ 182
0.3 % 0.3 %
Synagis
International $ 287
$ 321
(10.8 )% (7.0 )%
Duodopa
United States $ 22
$ 18
28.5 % 28.5 %
International 89
85
4.2 % 11.6 %
Total $ 111
$ 103
8.3 % 14.4 %
Sevoflurane
United States $ 17
$ 17
(0.6 )% (0.6 )%
International 75
89
(16.2 )% (10.1 )%
Total $ 92
$ 106
(13.6 )% (8.5 )%
Kaletra
United States $ 13
$ 13
3.4 % 3.4 %
International 65
60
7.7 % 12.6 %
Total $ 78
$ 73
6.9 % 10.9 %
AndroGel
United States $ 74
$ 130
(42.9 )% (42.9 )%
All other $ 114
$ 142
(19.5 )% (17.2 )%
Total net revenues $ 7,828
$ 7,934
(1.3 )% 0.4 %



		Three months ended March 31,				Percent change
		Three months ended March 31,				At actual currency rates		At constant currency rates
(dollars in millions)		2020		2019		At actual currency rates		At constant currency rates
Immunology
HUMIRA	United States	$	3,656	$	3,215	13.7	%	13.7	%
	International	1,047		1,231		(14.9	)%	(12.8	)%
	Total	$	4,703	$	4,446	5.8	%	6.4	%
SKYRIZI	United States	$	266	$	—	n/m		n/m
	International	34		—		n/m		n/m
	Total	$	300	$	—	n/m		n/m
RINVOQ	United States	$	82	$	—	n/m		n/m
	International	4		—		n/m		n/m
	Total	$	86	$	—	n/m		n/m
Hematologic Oncology
IMBRUVICA	United States	$	966	$	829	16.6	%	16.6	%
	Collaboration revenues	266		193		37.9	%	37.9	%
	Total	$	1,232	$	1,022	20.6	%	20.6	%
VENCLEXTA	United States	$	201	$	105	91.5	%	91.5	%
	International	116		46		>100.0		>100.0
	Total	$	317	$	151	>100.0		>100.0
HCV
MAVYRET	United States	$	234	$	403	(42.0	)%	(42.0	)%
	International	325		387		(16.0	)%	(14.7	)%
	Total	$	559	$	790	(29.2	)%	(28.6	)%
VIEKIRA	International	$	5	$	25	(81.2	)%	(80.6	)%
Other Key Products
Creon	United States	$	276	$	227	21.9	%	21.9	%
Lupron	United States	$	195	$	191	2.1	%	2.1	%
	International	38		38		(0.3	)%	2.1	%
	Total	$	233	$	229	1.7	%	2.1	%
Synthroid	United States	$	205	$	182	12.3	%	12.3	%
Synagis	International	$	270	$	287	(5.6	)%	(4.1	)%
Duodopa	United States	$	25	$	22	10.2	%	10.2	%
	International	99		89		12.0	%	14.9	%
	Total	$	124	$	111	11.7	%	14.0	%
Sevoflurane	United States	$	16	$	17	(6.1	)%	(6.1	)%
	International	63		75		(15.8	)%	(13.5	)%
	Total	$	79	$	92	(14.0	)%	(12.2	)%
Kaletra	United States	$	14	$	13	3.2	%	3.2	%
	International	72		65		10.8	%	13.1	%
	Total	$	86	$	78	9.5	%	11.4	%
ORILISSA	United States	$	30	$	13	>100.0		>100.0
	International	1		—		>100.0		>100.0
	Total	$	31	$	13	>100.0		>100.0
AndroGel	United States	$	8	$	74	(89.1	)%	(89.1	)%
All other		$	105	$	101	2.8	%	4.4	%
Total net revenues		$	8,619	$	7,828	10.1	%	10.7	%



~~2019 Form 10-Q~~ \|	29

n/m – Not meaningful

The following discussion and analysis of AbbVie’s net revenues by product is presented on a constant currency basis.

Global HUMIRA sales ~~decreased 4%~~increased 6% for the three months ended March 31, ~~2019~~2020 primarily ~~as a result~~driven by market growth across therapeutic categories and the timing of COVID-19 inventory stocking impacts, offset by direct biosimilar competition in certain international markets. In the United States, HUMIRA sales increased 14% for the three months ended March 31, 2020 driven by market growth across all indications. Additionally, U.S. HUMIRA sales in the first quarter included approximately $65 million of



2020 Form 10-Q \|	27

COVID-19 inventory stocking. Internationally, HUMIRA revenues decreased 13% for the three months ended March 31, 2020 primarily driven by direct biosimilar competition in certain international markets, partially offset by ~~market growth across therapeutic categories. In the United States, HUMIRA sales increased 7%~~approximately $35 million of COVID-19 inventory stocking.

Net revenues for SKYRIZI were $300 million for the three months ended March 31, 2020 following the April 2019 ~~driven by market growth across all indications. Internationally, HUMIRA sales decreased 23%~~regulatory approvals for the treatment of moderate to severe plaque psoriasis.

Net revenues for RINVOQ were $86 million for the three months ended March 31, ~~2019 primarily driven by direct biosimilar competition in certain international markets~~2020 following the ~~expiration~~August 2019 FDA approval and December 2019 EC approval for the treatment of ~~the European Union composition of matter patent for adalimumab in October 2018. Biosimilar competition for HUMIRA is not expected in the United States until 2023. AbbVie continues~~moderate to ~~pursue strategies intended to further differentiate HUMIRA from competing products and add to the sustainability of HUMIRA.~~

severe rheumatoid arthritis.

Net revenues for IMBRUVICA represent product ~~sales~~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 ~~34%~~21% for the three months ended March 31, ~~2019~~2020 as a result of continued penetration of IMBRUVICA for patients with CLL as well as ~~favorable pricing.~~

approximately $45 million of COVID-19 inventory stocking.

Net revenues for VENCLEXTA increased by more than 100% for the three months ended March 31, ~~2019~~2020 primarily due to ~~market share gains following additional regulatory approvals~~continued expansion of VENCLEXTA for the treatment of patients with ~~relapsed/refractory~~first-line CLL and ~~AML in 2018.~~

relapsed/refractory CLL.

Global MAVYRET sales decreased by 5%29% for the three months ended March 31, ~~2019~~2020 primarily ~~as a result of declining markets and pricing in certain international geographies, partially offset~~driven by ~~positive share~~competitive dynamics in the U.S. and lower patient volumes in certain international markets.

Net revenues for Creon increased 9%22% for the three months ended March 31, ~~2019~~2020 primarily driven by continued market growth ~~and higher market share.~~as well as approximately $11 million of COVID-19 inventory stocking. Creon maintains market leadership in the pancreatic enzyme market.

~~Net revenues for Duodopa increased 14% for the three months ended March 31, 2019 primarily driven by increased market penetration.~~

Gross Margin


	Three months ended March 31,								Three months ended March 31,
(dollars in millions)	2019			2018			% change		2020			2019			% change
Gross margin	$	6,134		$	6,007		2	%	$	6,677		$	6,134		9	%
as a % of net revenues	78		%	76		%			77		%	78		%

Gross margin as a percentage of net revenues ~~increased~~decreased for the three months ended March 31, ~~2019~~2020 compared to the prior year. Gross margin percentage for the three months ended March 31, ~~2019~~2020 was ~~favorably~~unfavorably impacted ~~primarily~~ by ~~the expiration of HUMIRA royalties.~~collaboration profit sharing arrangements for IMBRUVICA and VENCLEXTA as well as higher intangible asset amortization.

Selling, General and Administrative


	Three months ended March 31,								Three months ended March 31,
(dollars in millions)	2019			2018			% change		2020			2019			% change
Selling, general and administrative	$	1,680		$	1,791		(6	)%	$	1,695		$	1,680		1	%
as a % of net revenues	21		%	23		%			20		%	21		%

Selling, general and administrative (SG&A) expenses as a percentage of net revenues decreased for the three months ended March 31, ~~2019~~2020 compared to the prior year. SG&A expense percentage for the three months ended March 31, ~~2019~~2020 was favorably impacted by leverage from revenue growth and lower ~~litigation reserve charges that decreased by $108 million as well as lower administrative costs. SG&A expense percentage was unfavorably impacted by~~ restructuring charges ~~for~~compared to the ~~three months ended March 31, 2019.~~prior year. These impacts were partially offset by higher product launch expenses, transaction costs associated with the proposed Allergan acquisition and charitable contributions to support COVID-19 global pandemic relief efforts.



~~2019~~2020 Form 10-Q \|	3028

Research and Development and Acquired In-Process Research and Development


	Three months ended March 31,								Three months ended March 31,
(dollars in millions)	2019			2018			% change		2020			2019			% change
Research and development	$	1,289		$	1,244		4	%	$	1,379		$	1,289		7	%
as a % of net revenues	16		%	16		%			16		%	16		%
Acquired in-process research and development	$	155		$	69		>100%		$	—		$	155		(100	)%

~~Research and Development(R&D)~~R&D expenses as a percentage of net revenues were flat for the three months ended March 31, ~~2019 increased~~2020 compared to the prior ~~year principally due to restructuring charges and increased~~year. R&D expenses included continued funding to support all stages of the company's emerging ~~early and mid-stage~~ pipeline ~~assets, partially offset by the favorable impact of foreign exchange.~~

assets.

Acquired ~~IPR&D~~in-process research and development (IPR&D) expenses reflect upfront payments related to various collaborations. There were no individually significant transactions during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

Other Non-Operating Expenses


	Three months ended March 31,						Three months ended March 31,
(in millions)	2019			2018			2020			2019
Interest expense	$	387		$	309		$	563		$	387
Interest income	(62		)	(58		)	(135		)	(62		)
Interest expense, net	$	325		$	251		$	428		$	325

Net foreign exchange loss	$	6		$	8		$	5		$	6
Other (income) expense, net	135			(153		)
Other expense, net							72			135

Interest expense ~~net~~ increased for the three months ended March 31, ~~2019~~2020 compared to the prior year primarily due to incremental interest and debt issuance costs associated with financing the proposed Allergan acquisition partially offset by the favorable impact of lower interest rates on the company’s debt obligations.

Interest income increased for the three months ended March 31, 2020 compared to the prior year primarily due to a higher average cash and cash equivalents balance partially offset by the unfavorable impact of ~~higher~~lower interest ~~rates on the company's debt obligations and a higher average outstanding debt balance.~~

rates.

Other ~~(income)~~ expense, net included ~~a $169 million charge~~charges related to changes in fair value of contingent consideration liabilities ~~for the three months ended March 31, 2019 compared to a benefit~~ of ~~$148~~$72 million for the three months ended March 31, ~~2018.~~2020 and $169 million for the three months ended March 31, 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 ~~still in development~~ and other market-based factors. For the three months ended March 31, 2020, the change in fair value represented the passage of time partially offset by higher discount rates. For the three months ended March 31, 2019, the change in fair value represented ~~the effect of~~ lower ~~interest~~discount rates and the passage of time. For the three months ended March 31, 2018, the change in fair value represented the effect of rising interest rates partially offset by the passage of time. AbbVie expects the fair value of its contingent consideration liabilities to increase in the second quarter of 2019 as a result of the April 2019 regulatory approvals of SKYRIZI for the treatment of moderate to severe plaque psoriasis. The company is in the process of evaluating the impact of the regulatory approvals on the fair value, which includes an increase in the probabilities of success assumptions.

Income Tax Expense

The effective tax rate was 3% for the three months ended March 31, ~~2019~~2020 and ~~1% for the three months ended March 31, 2018.~~2019. 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 ~~increase~~effective tax rate for the three months ended March 31, 2020 included the beneficial tax impact of a change in tax rate in a foreign jurisdiction, while the effective tax rate for the three months ended March 31, 2019 ~~over the prior year was principally due to the beneficial impact of the timing of provisions of the Tax Cuts and Jobs Act (the Act)~~included a tax benefit related to ~~earnings from certain foreign subsidiaries in prior year. Additionally, the 2019 effective tax rate reflected~~ the favorable resolution of various tax ~~positions and lower excess tax benefits from stock-based compensation compared to the prior year.~~positions.



~~2019~~2020 Form 10-Q \|	3129

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES


	Three months ended March 31,						Three months ended March 31,
(in millions)	2019			2018			2020			2019
Cash flows provided by (used in):
Operating activities	$	3,017		$	2,645		$	3,815		$	3,017
Investing activities	(27		)	(447		)	(129		)	(27		)
Financing activities	(5,383		)	(2,509		)	(2,422		)	(5,383		)

Operating cash flows for the three months ended March 31, ~~2019~~2020 increased ~~from~~compared to the prior year due to ~~improved results of operations resulting from an improvement in operating~~ earnings growth and the timing of working capital cash flows. ~~Operating~~

Investing cash flows ~~also reflected AbbVie’s contributions to its defined benefit plans of $182 million~~ for the three months ended March 31, ~~2019~~2020 included capital expenditures of $125 million, net sales and ~~$203~~maturities of investment securities totaling $13 million and payments made for ~~the three months ended March 31, 2018.~~

acquisitions and investments of $12 million. Investing cash flows for the three months ended March 31, 2019 included net sales and maturities of investment securities totaling $400 million, payments made for acquisitions and investments of $320 million and capital expenditures of $107 million. ~~Investing~~

Financing cash flows included cash dividend payments of $1.8 billion for the three months ended March 31, ~~2018 included payments made for acquisitions~~2020 and ~~investments of $372 million, capital expenditures of $119 million and net sales and maturities of investment securities totaling $44 million.~~

~~Financing cash flows for the three months ended March 31, 2019 included the repayment of AbbVie's $3.0 billion 364-day term loan credit agreement that was scheduled to mature in June 2019.~~

~~The company made cash dividend payments of~~ $1.6 billion for the three months ended March 31, ~~2019 and $1.1 billion for the three months ended March 31, 2018.~~2019. The increase in cash dividend payments was driven by an increase in the quarterly dividend rate. On February ~~21, 2019,~~20, 2020, the board of directors declared a quarterly cash dividend of ~~$1.07~~$1.18 per share for stockholders of record at the close of business on April 15, ~~2019,~~2020, payable on May 15, ~~2019.~~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 three months ended March 31, 2020 and 4 million shares for $300 million during the three months ended March 31, ~~2019 and 11 million shares for $1.3 billion during the three months ended March 31, 2018.~~2019. AbbVie cash-settled $201 million of its December 2018 ~~open-market~~open market purchases in January 2019.

~~During the three months ended March 31, 2019 and 2018, the company issued and redeemed commercial paper. The balance of~~There were no commercial paper borrowings outstanding ~~was $499 million~~ as of March 31, ~~2019~~2020 and ~~$699 million as of~~ December 31, ~~2018.~~2019. AbbVie may issue additional commercial paper or retire commercial paper to meet liquidity requirements as needed.

In connection with the proposed acquisition of Allergan, in July 2019, AbbVie entered into a $6.0 billion term loan credit agreement. In October 2019, AbbVie commenced offers to exchange any and all outstanding notes of certain series issued by Allergan for up to $15.5 billion aggregate principal amount and €3.7 billion aggregate principal amount of new notes to be issued by AbbVie and cash, subject to conditions including the closing of the proposed acquisition. See Note 8 to the Condensed Consolidated Financial Statements for additional information.

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 ~~against~~for credit losses equal to the estimate of future losses over the contractual life of outstanding accounts ~~receivable when it is probable they will not be collected.~~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 March 31, 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.



~~2019~~2020 Form 10-Q \|	3230

Credit Facility, Access to Capital and Credit Ratings

Credit Facility

AbbVie currently has a ~~$3.0~~$4.0 billion five-year revolving credit facility ~~which~~that matures in August ~~2023. The revolving~~2024. This credit facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants. At March 31, ~~2019,~~2020, the company was in compliance with all ~~its credit facility covenants. Commitment~~covenants, and commitment fees under the credit facility were insignificant. No amounts were outstanding under the company's credit facility as of March 31, ~~2019~~2020 and December 31, ~~2018.~~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 by issuing 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

~~There were no changes in~~Following the ~~company’s~~announcement of the proposed acquisition of Allergan and the $30.0 billion senior notes issuance, Moody's Investor Service affirmed its Baa2 senior unsecured long-term rating and Prime-2 short-term rating with a stable outlook. S&P Global Ratings revised its ratings outlook to negative from stable and expects to lower the issuer credit ~~ratings during~~rating by one notch to BBB+ from A- and the ~~three months ended March 31, 2019.~~ short-term rating to A-2 from A-1 when the acquisition is complete.

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, ~~2018. Significant~~2019. There have been no significant changes in the company’s application of its critical accounting policies ~~include~~during the ~~adoption of a new accounting standard that establishes a new lease accounting framework. See Notes 1 and 8 to the condensed consolidated financial statements for additional information.~~three months ended March 31, 2020.

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, 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, ~~2018,~~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.

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, ~~2018.~~2019.



~~2019~~2020 Form 10-Q \|	3331

ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. The Chief Executive Officer, Richard A. Gonzalez, and the Chief Financial Officer, Robert A. Michael, evaluated the effectiveness of AbbVie’s disclosure controls and procedures as of the end of the period covered by this report, and concluded that AbbVie’s disclosure controls and procedures were effective to ensure that information AbbVie is required to disclose in the reports that it files or submits with the Securities and Exchange Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by AbbVie in the reports that it files or submits under the Exchange Act is accumulated and communicated to AbbVie’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Changes in internal control over financial reporting. There were no changes in AbbVie’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, AbbVie’s internal control over financial reporting during the quarter ended March 31, ~~2019.~~2020.

Inherent Limitations on Effectiveness of Controls. AbbVie’s management, including its Chief Executive Officer and its Chief Financial Officer, do not expect that AbbVie’s disclosure controls or internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.



~~2019~~2020 Form 10-Q \|	3432

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information pertaining to legal proceedings is provided in Note 1312 to the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements and is incorporated by reference herein.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in AbbVie’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except for the following:

Public health outbreaks, epidemics or pandemics, such as the coronavirus (COVID-19), could adversely impact AbbVie's operations and financial condition.

Public health outbreaks, epidemics or pandemics could adversely impact AbbVie's operations and financial condition. In March 2020, a novel strain of coronavirus (COVID-19) was designated a global pandemic and many countries, including the United States, declared national emergencies and implemented preventive measures such as travel bans and shelter in place or total lock-down orders. The spread of COVID-19 has caused AbbVie to modify its business practices (including instituting remote work for many of AbbVie's employees), and AbbVie may take further actions as may be required by government authorities or as AbbVie determines are in the best interests of AbbVie's employees, patients, customers and business partners.

The impact of COVID-19 on AbbVie's operations, including, among others, its manufacturing and supply chain, sales and marketing, commercial and clinical trial operations, to-date has not been material, but over the long-term is uncertain and cannot be predicted with confidence. The extent of the adverse impact of COVID-19 on AbbVie's operations will depend on the extent and severity of the continued spread of COVID-19 globally, the timing and nature of actions taken to respond to COVID-19 and the resulting economic consequences. Ultimately, the outbreak could have a material adverse impact on AbbVie's operations and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Period
(a) Total
Number of
Shares
(or Units)
Purchased
(b) Average
Price Paid
per Share
(or Unit) (c) Total Number
of Shares (or
Units) Purchased
as Part of Publicly
Announced Plans
or Programs

(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs

January 1, 2019 – January 31, 2019 2,748,105
⁽¹⁾
$78.71
⁽¹⁾
2,746,958
$4,033,821,066
February 1, 2019 – February 28, 2019 1,046,709
⁽¹⁾
$80.16
⁽¹⁾
1,045,340
$3,950,021,071
March 1, 2019 – March 31, 2019 42,743
⁽¹⁾
$80.55
⁽¹⁾
—
$3,950,021,071
Total 3,837,557
⁽¹⁾
$79.13
⁽¹⁾
3,792,298
$3,950,021,071



Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2020 – January 31, 2020	973	⁽¹⁾	$89.80	⁽¹⁾	—	$3,950,021,071
February 1, 2020 – February 29, 2020	2,453,899	⁽¹⁾	$83.66	⁽¹⁾	2,452,782	$3,744,836,046
March 1, 2020 – March 31, 2020	3,391,136	⁽¹⁾	$88.02	⁽¹⁾	3,341,886	$3,450,069,690
Total	5,846,008	⁽¹⁾	$86.19	⁽¹⁾	5,794,668	$3,450,069,690


1.	In addition to AbbVie shares repurchased on the open market under a publicly announced program, if any, these shares also included the shares purchased on the open market for the benefit of participants in the AbbVie Employee Stock Purchase Plan – ~~1,147~~973 in January; ~~1,369~~1,117 in February; and ~~42,743~~49,250 in ~~March.~~March.

These shares do not include the shares surrendered to AbbVie to satisfy minimum tax withholding obligations in connection with the vesting or exercise of stock-based awards.



~~2019~~2020 Form 10-Q \|	3533

ITEM 6. EXHIBITS

Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be “filed” under the Securities Exchange Act of 1934.



Exhibit No.		Exhibit Description

~~10.1~~2.1		~~Form~~Amendment to the Transaction Agreement, dated as of May 5, 2020, between AbbVie Inc. Performance-Vested Restricted Stock Unit Agreement*, Allergan plc and Venice Subsidiary, LLC.

~~10.2~~10.1		Form of AbbVie Inc. ~~Performance Share Award~~Performance-Vested Restricted Stock Unit Agreement*

~~10.3~~10.2		Form of AbbVie Inc. Non-Employee Director RSU Agreement (US)Performance Share Award Agreement

~~10.4~~10.3		Form of AbbVie Inc. Non-Qualified Stock Option AgreementNon-Employee Director RSU Agreement (US)

~~10.5~~10.4		Form of AbbVie Inc. ~~Non-Employee Director~~ Non-Qualified Stock Option Agreement*

~~31.1~~10.5		Form of AbbVie Inc. Retention RSU Agreement - Ratable Vesting*

10.6		AbbVie Non-Employee Directors' Fee Plan, as amended and restated.*

31.1		Certification of Chief Executive Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).

31.2		Certification of Chief Financial Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following financial statements and notes from the AbbVie Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019,~~2020, filed on May ~~3, 2019,~~8, 2020, formatted in ~~XBRL:~~iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Earnings; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements.

104		Cover Page Interactive Data File (the cover page from the AbbVie Inc. Quarterly Report on Form 10-Q formatted as Inline XBRL and contained in Exhibit 101).

* Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.



~~2019~~2020 Form 10-Q \|	3634

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		ABBVIE INC.


	By:	/s/ Robert A. Michael
		Robert A. Michael
		~~Senior~~Executive Vice President,
		Chief Financial Officer

Date: May ~~3, 2019~~8, 2020



~~2019~~2020 Form 10-Q \|	3735



PART I.	FINANCIAL INFORMATION
		Page

Item 1.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	2
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2624
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3331
Item 4.	CONTROLS AND PROCEDURES	3432

PART II.	OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	3533
Item 1A.	RISK FACTORS	33
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3533
Item 6.	EXHIBITS	3634



(in millions)	March 31, 2019		December 31, 2018
Finished goods	$	583	$	473
Work-in-process	880		862
Raw materials	239		270
Inventories	$	1,702	$	1,605



(in millions)
Accrued balance as of December 31, 2018	$	99
Restructuring charges	154
Payments and other adjustments	(44		)
Accrued balance as of March 31, 2019	$	209



(in millions)	Operating leases		Finance leases		Total ^(a)(b)
2019	$	93	$	10	$	103
2020	117		11		128
2021	97		10		107
2022	52		2		54
2023	34		1		35
Thereafter	78		—		78
Total lease payments	471		34		505
Less: Interest	54		1		55
Present value of lease liabilities	$	417	$	33	$	450



	Amortized cost		Gross unrealized					Fair value
(in millions)	Amortized cost		Gains		Losses			Fair value
Asset backed securities	$	425	$	—	$	(2	)	$	423
Corporate debt securities	1,069		3		(4		)	1,068
Other debt securities	120		—		—			120
Total	$	1,614	$	3	$	(6	)	$	1,611



(in millions)	Foreign currency translation adjustments			Net investment hedging activities			Pension and post- employment benefits			Marketable security activities			Cash flow hedging activities			Total
Balance as of December 31, 2018	$	(830	)	$	(65	)	$	(1,722	)	$	(10	)	$	147		$	(2,480	)
Other comprehensive income (loss) before reclassifications	(103		)	65			5			7			5			(21		)
Net losses (gains) reclassified from accumulated other comprehensive loss	—			—			20			—			(35		)	(15		)
Net current-period other comprehensive income (loss)	(103		)	65			25			7			(30		)	(36		)
Balance as of March 31, 2019	$	(933	)	$	—		$	(1,697	)	$	(3	)	$	117		$	(2,516	)