2016 annual report
on form 10-k
2017 notice of
annual meeting
& proxy statement
AbbVie 1 North Waukegan Road, North Chicago, IL 60064 U.S.A. abbvie.com
Copyright© 2017 AbbVie. All rights reserved.
7188_AbbvieCover.indd 1
2/7/17 7:49 PM
about abbvie
AbbVie is a global, research-based
biopharmaceutical company formed
in 2013 following separation from
Abbott Laboratories. The company’s
mission is to use 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. Together
with its wholly-owned subsidiary,
Pharmacyclics, AbbVie employs approximately
29,000 people worldwide and markets
medicines in more than 170 countries.
For further information on the company
and its people, portfolio and commitments,
please visit www.abbvie.com.
13NOV201221365766
Dear AbbVie Stockholder,
When AbbVie launched in 2013, we began our journey with a commitment. A commitment to
all stakeholders to build an innovation-driven biopharmaceutical company capable of achieving
sustainable top-tier performance with a consistent stream of innovative new medicines. Through
our first four years, we’ve made great strides on that mission and are well positioned to continue
our record of performance and progress.
By nearly any measure, our results over our first four years place us solidly in the top tier of
our peer group. Since inception, we’ve delivered compounded annual revenue and adjusted
earnings per share (EPS) growth of 11 percent and 15 percent, respectively. Over the same period,
our dividend has grown 60 percent, contributing to a total shareholder return of 111 percent, the
highest among our peer group. In addition, we’ve launched more than a dozen new products or
expanded indications and built one of the strongest pipelines in the industry with the potential for
leadership across many therapeutic areas.
In 2016, AbbVie delivered its best year yet, with strong growth performance, new product
launches and the addition of Stemcentrx to advance our work within oncology. AbbVie delivered
revenue growth of more than 13 percent to $25.6 billion and adjusted EPS growth of more than
12 percent to $4.82, placing AbbVie’s performance in the top tier of the industry peer group. We
delivered this level of performance while achieving continued improvements in operating margin
amid record levels of investment in research and development. As a result of our confidence in our
strong long-term outlook, we increased our dividend by 12 percent to $0.64 per share, the third
consecutive annual dividend increase since inception.
In addition to financial results, AbbVie continues to deliver on its mission to develop innovative
medicines. In 2016, we launched several new products or expanded indications across immunology,
oncology, virology and neuroscience, many of which are expected to be significant long-term
growth drivers. We also advanced our research in oncology with Stemcentrx and its novel
compound, rovalpituzumab tesirine (Rova-T), which is currently in late-stage clinical trials for solid
tumor cancers. The addition of the Stemcentrx team and expertise complement our oncology
development program of more than 200 clinical trials across more than 20 tumor types.
AbbVie’s investment in our pipeline began to reap significant dividends in 2016. We added an
important new immunology program, risankizumab, to late-stage development, enrolled several
Phase 3 clinical trials and advanced several early- and mid-stage clinical programs with compelling
data that will support regulatory submissions over the coming years.
Despite significant change across our industry, our approximately 29,000 employees remain
united in our mission and we will continue to strive to increase options and access for patients to
elevate the standard of care in many challenging diseases. We’re committed to achieving these
goals while operating responsibly and continuing to deliver a meaningful contribution in the
communities where we operate. We thank you for your continued support in our company.
Sincerely,
4DEC201212233206
Richard A. Gonzalez
Chairman and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
(cid:2) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Commission file number 001-35565
13NOV201221343408
AbbVie Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1 North Waukegan Road
North Chicago, Illinois 60064-6400
(Address of principal executive offices) (Zip Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
32-0375147
(I.R.S. employer
identification number)
(847) 932-7900
(Telephone number)
Name of Each Exchange on Which Registered
New York Stock Exchange
Chicago Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:1)
No (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes (cid:2)
No (cid:1)
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.
Yes (cid:1)
No (cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes (cid:1)
No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting
company’’ in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer (cid:1)
Accelerated Filer (cid:2)
Smaller Reporting Company (cid:2)
Non-accelerated Filer (cid:2)
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes (cid:2)
No (cid:1)
The aggregate market value of the 1,610,874,586 shares of voting stock held by non-affiliates of the registrant,
computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of
AbbVie Inc.’s most recently completed second fiscal quarter (June 30, 2016), was $99,729,245,619. AbbVie has no non-voting
common equity.
Number of common shares outstanding as of January 31, 2017: 1,593,920,285
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2017 AbbVie Inc. Proxy Statement are incorporated by reference into Part III. The Definitive Proxy
Statement will be filed on or about March 20, 2017.
ABBVIE INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS
BUSINESS
RISK FACTORS
PART I
Item 1.
Item 1A.
Item 1B. UNRESOLVED STAFF COMMENTS
Item 2.
Item 3.
Item 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Item 6.
Item 7.
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
Item 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
CONTROLS AND PROCEDURES
Item 9A.
Item 9B. OTHER INFORMATION
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
Page
No.
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PART I
ITEM 1. BUSINESS
.....................................................................................................................................................................................................................................................................................................................................................
Overview
AbbVie(1) is a global, research-based biopharmaceutical company. AbbVie develops and markets
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 (HCV) and human
immunodeficiency virus (HIV); neurological disorders, such as Parkinson’s disease and multiple sclerosis;
metabolic diseases, including thyroid disease and complications associated with cystic fibrosis; as well as
other serious health conditions. AbbVie also has a pipeline of promising new medicines, including more
than 50 investigational programs in clinical development across such important medical specialties as
immunology, virology, oncology and neurology, with additional targeted investment in cystic fibrosis and
women’s health.
AbbVie was incorporated in Delaware on April 10, 2012. On January 1, 2013, AbbVie became an
independent company as a result of the distribution by Abbott Laboratories (Abbott) of 100% of the
outstanding common stock of AbbVie to Abbott’s shareholders.
On June 1, 2016, AbbVie acquired all of the outstanding equity interests in Stemcentrx, Inc.
(Stemcentrx), a privately held biotechnology company. The aggregate upfront consideration paid by AbbVie
in connection with the acquisition was approximately $5.8 billion. The transaction expands AbbVie’s
oncology pipeline by adding the late-stage asset rovalpituzumab tesirine (Rova-T), four additional early-stage
clinical compounds in solid tumor indications and a significant portfolio of pre-clinical assets. Rova-T is
currently in registrational trials for small cell lung cancer and in early-stage clinical development for other
solid tumors.
Segments
AbbVie operates in one business segment—pharmaceutical products. See Note 15 to the Consolidated
Financial Statements and the sales information related to HUMIRA included under Item 7, ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.’’
Products
AbbVie’s portfolio of products includes a broad line of therapies that address some of the world’s most
complex and serious diseases.
(1) As used throughout the text of this report on Form 10-K, the terms ‘‘AbbVie’’ or ‘‘the company’’ refer
to AbbVie Inc., a Delaware corporation, or AbbVie Inc. and its consolidated subsidiaries, as the context
requires.
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HUMIRA.
HUMIRA (adalimumab) is a biologic therapy administered as a subcutaneous injection. It is
approved to treat the following autoimmune diseases in the United States, Canada and Mexico (collectively,
North America) and in the European Union:
Condition
Rheumatoid arthritis (moderate to severe)
Psoriatic arthritis
Ankylosing spondylitis
Adult Crohn’s disease (moderate to severe)
Plaque psoriasis (moderate to severe chronic)
Juvenile idiopathic arthritis (moderate to severe polyarticular)
Ulcerative colitis (moderate to severe)
Axial spondyloarthropathy
Pediatric Crohn’s disease (moderate to severe)
Hidradenitis Suppurativa (moderate to severe)
Pediatric enthesitis-related arthritis
Non-infectious intermediate, posterior and panuveitis
Principal Markets
North America, European Union
North America, European Union
North America, European Union
North America, European Union
North America, European Union
North America, European Union
North America, European Union
European Union
North America, European Union
North America, European Union
European Union
North America, European Union
HUMIRA is also approved in Japan for the treatment of intestinal Beh¸cet’s disease.
HUMIRA is sold in numerous other markets worldwide, including Japan, China, Brazil and Australia, and
accounted for approximately 63% of AbbVie’s total net revenues in 2016.
AbbVie continues to dedicate substantial research and development efforts to expanding indications for
HUMIRA, including in the fields of rheumatology, gastroenterology (pediatric ulcerative colitis), and
dermatology (pediatric psoriasis). The indication for non-infectious intermediate, posterior, and panuveitis
was approved by the United States Food and Drug Administration on June 2016. AbbVie continues to work
on HUMIRA formulation and delivery enhancements to improve convenience and the overall patient
experience.
Oncology products.
AbbVie’s oncology products target some of the most complex and
difficult-to-treat cancers, including hematologic and solid cancers.
IMBRUVICA.
IMBRUVICA (ibrutinib) is a first-in-class, oral, once-daily therapy that inhibits a
protein called Bruton’s tyrosine kinase (BTK). IMBRUVICA is currently approved for the treatment of
patients with chronic lymphocytic leukemia (CLL), CLL patients who have del 17p and patients with
Waldenstr¨om’s macroglobulinemia. IMBRUVICA is also approved for the treatment of patients with
mantle cell lymphoma (MCL) who have received at least one prior therapy. Accelerated approval was
granted for the MCL indication based on overall response rate. Continued approval for this indication
may be contingent upon verification of clinical benefit in confirmatory trials. In January 2017, the FDA
also approved IMBRUVICA for the treatment of patients with relapsed/refractory marginal zone
lymphoma (MZL) who require systemic therapy and have received at least one prior anti-CD20-based
therapy. IMBRUVICA was one of the first medicines to receive a U.S. Food and Drug Administration
(FDA) approval after being granted a Breakthrough Therapy Designation and IMBRUVICA is one of the
few therapies to receive four separate designations.
Venclexta. Venclexta (venetoclax) is approved to treat people with chronic lymphocytic leukemia
(CLL) with 17p deletion, who have received at least one prior treatment. Venclexta is the first
FDA-approved treatment that targets the B-cell lymphoma 2 (BCL-2) protein, which supports cancer cell
growth and is overexpressed in many patients with CLL. Venclexta has recently been approved in the
EU for the treatment of chronic lymphocytic leukemia (CLL) in patients with 17p deletion or TP53
mutation and are unsuitable for or have failed a B-cell receptor pathway inhibitor and for the
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treatment of CLL in absence of 17p deletion or TP53 mutation who have failed both
chemoimmunotherapy and a B-cell receptor pathway inhibitor.
Virology Products.
hepatitis C virus and HIV-1.
AbbVie’s virology products address unmet needs for patients living with the
HCV products. VIEKIRA PAK (ombitasvir, paritaprevir and ritonavir tablets; dasabuvir tablets) is an
all-oral, short-course, interferon-free therapy, with or without ribavirin, for the treatment of adult
patients with genotype 1 chronic HCV, including those with compensated cirrhosis. In Europe, AbbVie’s
HCV treatment is marketed as VIEKIRAX + EXVIERA and is approved for use in patients with genotype 1
and genotype 4 HCV. In July 2015, the FDA approved AbbVie’s TECHNIVIE (ombitasvir, paritaprevir and
ritonavir) for use in combination with ribavirin for the treatment of adults with genotype 4 HCV
infection in the United States.
Additional Virology products.
AbbVie’s additional virology products include:
Kaletra. Kaletra (lopinavir/ritonavir), which is also marketed as Aluvia in emerging markets, is a
prescription anti-HIV-1 medicine that contains two protease inhibitors: lopinavir and ritonavir. Kaletra is
used with other anti-HIV-1 medications as a treatment that maintains viral suppression in people with
HIV-1.
Norvir. Norvir (ritonavir) is a protease inhibitor that is indicated in combination with other
antiretroviral agents for the treatment of HIV-1 infection.
Synagis.
Synagis (palivizumab) is a product marketed by AbbVie outside of the United States that
protects at-risk infants from severe respiratory disease caused by RSV.
Metabolics/Hormones products.
Metabolic and hormone products target a number of conditions,
including testosterone deficiency due to certain underlying conditions, exocrine pancreatic insufficiency and
hypothyroidism. These products include:
AndroGel. AndroGel (testosterone gel) is a testosterone replacement therapy for males diagnosed
with symptomatic low testosterone due to certain underlying conditions that is available in two
strengths: 1 percent and 1.62 percent.
Creon. Creon (pancrelipase) is a pancreatic enzyme therapy for exocrine pancreatic insufficiency,
a condition that occurs in patients with cystic fibrosis, chronic pancreatitis and several other
conditions.
Synthroid.
hypothyroidism.
Synthroid (levothyroxine sodium tablets, USP) is used in the treatment of
AbbVie has the rights to sell AndroGel, Creon and Synthroid only in the United States.
Endocrinology products.
Lupron (leuprolide acetate), which is also marketed as Lucrin and Lupron
Depot, is a product for the palliative treatment of advanced prostate cancer, treatment of endometriosis
and central precocious puberty and for the preoperative treatment of patients with anemia caused by
uterine fibroids. Lupron is approved for daily subcutaneous injection and one-month, three-month,
four-month and six-month intramuscular injection.
Other products.
AbbVie’s other products include:
Duopa and Duodopa (carbidopa and levodopa). AbbVie’s levodopa-carbidopa intestinal gel for
the treatment of advanced Parkinson’s disease is marketed as Duopa in the United States and as
Duodopa outside of the United States.
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Anesthesia products.
Sevoflurane (sold under the trademarks Ultane and Sevorane) is an
anesthesia product that AbbVie sells worldwide for human use.
ZINBRYTA.
ZINBRYTA (daclizumab) is a once-monthly, self-administered, subcutaneous treatment
for relapsing forms of multiple sclerosis (MS), which was approved by the FDA in May 2016. Because
of its safety profile, the use of ZINBRYTA is generally reserved for patients who have had an
inadequate response to two or more therapies indicated for the treatment of MS. The European
Commission granted marketing authorization for ZINBRYTA in July 2016.
Marketing, Sales and Distribution Capabilities
AbbVie utilizes a combination of dedicated commercial resources, regional commercial resources and
distributorships to market, sell and distribute its products worldwide.
AbbVie directs its primary marketing efforts toward securing the prescription, or recommendation, of
its brand of products by physicians, key opinion leaders and other health care providers. Managed care
providers (for example, health maintenance organizations and pharmacy benefit managers), hospitals and
state and federal government agencies (for example, the United States Department of Veterans Affairs and
the United States Department of Defense) are also important customers. AbbVie also markets directly to
consumers themselves, although in the United States all of the company’s products must be sold pursuant
to a prescription. Outside of the United States, AbbVie focuses its marketing efforts on key opinion leaders,
payors, physicians and country regulatory bodies. AbbVie also provides patient support programs closely
related to its products.
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. Although AbbVie’s business does not have significant
seasonality, AbbVie’s product revenues may be affected by end customer and retail buying patterns,
fluctuations in wholesaler inventory levels and other factors.
In the United States, AbbVie distributes pharmaceutical products principally through independent
wholesale distributors, with some sales directly to pharmacies and patients. In 2016, three wholesale
distributors (McKesson Corporation, Cardinal Health, Inc. and AmerisourceBergen Corporation) accounted for
substantially all of AbbVie’s sales in the United States. No individual wholesaler accounted for greater than
41% of AbbVie’s 2016 gross revenues in the United States. Outside the United States, sales are made either
directly to customers or through distributors, depending on the market served. These wholesalers purchase
product from AbbVie under standard terms and conditions of sale.
Certain products are co-marketed or co-promoted with other companies. AbbVie has no single
customer that, if the customer were lost, would have a material adverse effect on the company’s business.
No material portion of AbbVie’s business is subject to renegotiation of profits or termination of
contracts at the election of the government.
Orders are generally filled on a current basis and order backlog is not material to AbbVie’s business.
Competition
The markets for AbbVie’s products are highly competitive. AbbVie competes with other research-based
pharmaceuticals and biotechnology companies that discover, manufacture, market and sell proprietary
pharmaceutical products and biologics. For example, HUMIRA competes with anti-TNF products and other
competitive products intended to treat a number of disease states and AbbVie’s virology products compete
with other available hepatitis C treatment options. The search for technological innovations in
pharmaceutical products is a significant aspect of competition. The introduction of new products by
competitors and changes in medical practices and procedures can result in product obsolescence. Price is
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also a competitive factor. In addition, the substitution of generic pharmaceutical products for branded
pharmaceutical products creates competitive pressures on AbbVie’s products that do not have patent
protection. New products or treatments brought to market by AbbVie’s competitors could cause revenues
for AbbVie’s products to decrease due to price reductions and sales volume decreases.
Biosimilars.
Competition for AbbVie’s biologic products is affected by the approval of follow-on
biologics, also known as ‘‘biosimilars.’’ For example, the FDA has approved a biosimilar of HUMIRA in the
United States and final approval of a biosimilar of HUMIRA in the EU is imminent. Biologics have added
major therapeutic options for the treatment of many diseases, including some for which therapies were
unavailable or inadequate. The advent of biologics has also raised complex regulatory issues and significant
pharmacoeconomic concerns because the cost of developing and producing biologic therapies is typically
dramatically higher than for conventional (small molecule) medications, and because many expensive
biologic medications are used for ongoing treatment of chronic diseases, such as rheumatoid arthritis or
inflammatory bowel disease, or for the treatment of previously untreatable cancer. Significant investments
in biologics infrastructure and manufacturing are necessary to produce biologic products, as are significant
investments in marketing, distribution, and sales organization activities, which may limit the number of
biosimilar competitors.
In the United States, the FDA regulates biologics under the Federal Food, Drug and Cosmetic Act, the
Public Health Service Act and implementing regulations. The enactment of federal health care reform
legislation in March 2010 provided a pathway for approval of biosimilars under the Public Health Service
Act, but the approval process for, and science behind, biosimilars is more complex than the approval
process for, and science behind, generic or other follow-on versions of small molecule products. This added
complexity is due to steps needed to ensure that the safety and efficacy of biosimilars is highly similar to
that of an original biologic, such as HUMIRA. Ultimate approval by the FDA is dependent upon many
factors, including a showing that the biosimilar is ‘‘highly similar’’ to the original product and has no
clinically meaningful differences from the original product in terms of safety, purity and potency. The types
of data that could ordinarily be required in an application to show similarity may include analytical data
and studies to demonstrate chemical similarity, animal studies (including toxicity studies) and clinical
studies. The law also requires that the biosimilar must be for a condition of use approved for the original
biologic and that the manufacturing facility meets the standards necessary to assure that the biosimilar is
safe, pure and potent.
Furthermore, the law provides that only a biosimilar product that is determined to be
‘‘interchangeable’’ will be considered substitutable for the original biologic product without the intervention
of the health care provider who prescribed the original biologic product. To prove that a biosimilar product
is interchangeable, the applicant must demonstrate that the product can be expected to produce the same
clinical results as the original biologic product in any given patient, and if the product is administered more
than once in a patient, that safety risks and potential for diminished efficacy of alternating or switching
between the use of the interchangeable biosimilar biologic product and the original biologic product is no
greater than the risk of using the original biologic product without switching. The law continues to be
interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning
remains subject to substantial uncertainty.
In the European Union, while a pathway for the approval of biosimilars has existed since 2005, the
products that have come to market to date have had a mixed impact on the market share of incumbent
products, with significant variation by product.
Other Competitive Products.
Although a number of competitive biologic branded products have been
approved since HUMIRA was first introduced in 2003, most have gained only a modest share of the
worldwide market. AbbVie will continue to face competitive pressure from these biologics and from orally
administered products.
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Intellectual Property Protection and Regulatory Exclusivity
Generally, upon approval, products may be entitled to certain kinds of exclusivity under applicable
intellectual property and regulatory regimes. AbbVie’s intellectual property is materially valuable to the
company and AbbVie seeks patent protection, where available, in all significant markets and/or countries
for each product in development. In the United States, the expiration date for patents is 20 years after the
filing date. Given that patents relating to pharmaceutical products are often obtained early in the
development process, and given the amount of time needed to complete clinical trials and other
development activities required for regulatory approval, the length of time between product launch and
patent expiration is significantly less than 20 years. The Drug Price Competition and Patent Term
Restoration Act of 1984 (commonly known as the Hatch-Waxman Act) permits a patent holder to seek a
patent extension, commonly called a ‘‘patent term restoration,’’ for patents on products (or processes for
making the product) regulated by the Federal Food, Drug, and Cosmetic Act. The length of the patent
extension is roughly based on 50 percent of the period of time from the filing of an Investigational New
Drug Application for a compound to the submission of the NDA for such compound, plus 100 percent of
the time period from NDA submission to regulatory approval. The extension, however, cannot exceed five
years and the patent term remaining after regulatory approval cannot exceed 14 years. Biological products
licensed under the Public Health Service Act are similarly eligible for terms of patent restoration.
Pharmaceutical products may be entitled to other forms of legal or regulatory exclusivity upon
approval. The scope, length, and requirements for each of these exclusivities vary both in the United States
and in other jurisdictions. In the United States, if the FDA approves a drug product that contains an active
ingredient not previously approved, the product is typically entitled to five years of non-patent regulatory
exclusivity. Other products may be entitled to three years of exclusivity if approval was based on the FDA’s
reliance on new clinical studies essential to approval submitted by the NDA applicant. If the NDA applicant
studies the product for use by children, the FDA may grant pediatric exclusivity, which extends by 180 days
the longest existing exclusivity (patent or regulatory) related to the product. For products that are either
used to treat conditions that afflict a relatively small population or for which there is not a reasonable
expectation that the research and development costs will be recovered, the FDA may designate the
pharmaceutical as an orphan drug and grant it seven years of market exclusivity.
Applicable laws and regulations dictate the scope of any exclusivity to which a product is entitled upon
its approval in any particular country. In certain instances, regulatory exclusivity may protect a product
where patent protection is no longer available or for a period of time in excess of patent protection. It is
not possible to estimate for each product in development the total period and scope of exclusivity to which
it may become entitled until regulatory approval is obtained. However, given the length of time required to
complete clinical development of a pharmaceutical product, the periods of exclusivity that might be
achieved in any individual case would not be expected to exceed a minimum of three years and a
maximum of 14 years. These estimates do not consider other factors, such as the difficulty of recreating
the manufacturing process for a particular product or other proprietary knowledge that may delay the
introduction of a generic or other follow-on product after the expiration of applicable patent and other
regulatory exclusivity periods.
Biologics may be entitled to exclusivity under the Biologics Price Competition and Innovation Act,
which was passed on March 23, 2010 as Title VII to the Patient Protection and Affordable Care Act. The
law provides a pathway for approval of biosimilars following the expiration of 12 years of exclusivity for the
innovator biologic and a potential additional 180 day-extension term for conducting pediatric studies.
Biologics are also eligible for orphan drug exclusivity, as discussed above. The law also includes an extensive
process for the innovator biologic and biosimilar manufacturer to litigate patent infringement, validity, and
enforceability prior to the approval of the biosimilar. The European Union has also created a pathway for
approval of biosimilars and has published guidelines for approval of certain biosimilar products. The more
complex nature of biologics and biosimilar products has led to greater regulatory scrutiny and more
rigorous requirements for approval of follow-on biosimilar products than for small molecule generic
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pharmaceutical products, which can reduce the effect of biosimilars on sales of the innovator biologic as
compared to the sales erosion caused by generic versions of small molecule pharmaceutical products.
AbbVie owns or has licensed rights to a substantial number of patents and patent applications. AbbVie
licenses or owns a patent portfolio of thousands of patent families, each of which includes United States
patent applications and/or issued patents, and may also contain the non-United States counterparts to
these patents and applications.
These patents and applications, including various patents that expire during the period 2017 to the late
2030s, in aggregate are believed to be of material importance in the operation of AbbVie’s business.
However, AbbVie believes that no single patent, license, trademark (or related group of patents, licenses, or
trademarks), except for those related to adalimumab (which is sold under the trademark HUMIRA), are
material in relation to the company’s business as a whole. The United States composition of matter (that is,
compound) patent covering adalimumab expired in December 2016, and the equivalent European Union
patent is expected to expire in the majority of European Union countries in October 2018. In the United
States, non-composition of matter patents covering adalimumab expire no earlier than 2022.
In addition, the following patents, licenses, and trademarks are significant: those related to ibrutinib
(which is sold under the trademark IMBRUVICA), those related to ombitasvir/paritaprevir/ritonavir and
dasabuvir (which are sold under the trademarks VIEKIRA PAK, VIEKIRAX, EXVIERA, and HOLKIRA PAK), and
those related to testosterone (which is sold under the trademark AndroGel). The United States composition
of matter patent covering ibrutinib is expected to expire in 2027. The United States composition of matter
patents covering ombitasvir, paritaprevir and dasabuvir are expected to expire in 2032, 2031 and 2029,
respectively.
AbbVie may rely, in some circumstances, on trade secrets to protect its technology. However, trade
secrets are difficult to protect. AbbVie seeks to protect its technology and product candidates, in part, by
confidentiality agreements with its employees, consultants, advisors, contractors, and collaborators. These
agreements may be breached and AbbVie may not have adequate remedies for any breach. In addition,
AbbVie’s trade secrets may otherwise become known or be independently discovered by competitors. To
the extent that AbbVie’s employees, consultants, advisors, contractors, and collaborators use intellectual
property owned by others in their work for the company, disputes may arise as to the rights in related or
resulting know-how and inventions.
Licensing and Other Arrangements
In addition to its independent efforts to develop and market products, AbbVie enters into
arrangements such as licensing arrangements, strategic alliances, co-promotion arrangements,
co-development and co-marketing agreements, and joint ventures. These licensing and other arrangements
typically include, among other terms and conditions, non-refundable upfront license fees and milestone
payments. See Note 5 to the Consolidated Financial Statements for additional information on AbbVie’s
licensing and other agreements.
Third Party Agreements
AbbVie has agreements with third parties for process development, analytical services and
manufacturing of certain products. AbbVie procures certain products and services from a limited number of
suppliers and, in some cases, a single supply source. For example, the filling and packaging of HUMIRA
syringes to be sold outside of the United States and Puerto Rico is performed by a single supplier at its two
different facilities. AbbVie does not currently believe that this agreement is material because AbbVie’s
business is not substantially at risk without access to these facilities. AbbVie maintains significant inventory
of HUMIRA syringes to reduce the risk of any supply disruption and its own syringe-filling and packaging
facility in the United States is approved to supply syringes to primary markets outside of the United States
and Puerto Rico. In addition, AbbVie has agreements with third parties for active pharmaceutical ingredient
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and product manufacturing, formulation and development services, fill, finish and packaging services,
transportation and distribution and logistics services for certain products. AbbVie does not believe that
these manufacturing related agreements are material because AbbVie’s business is not substantially
dependent on any individual agreement. In most cases, AbbVie maintains alternate supply relationships that
it can utilize without undue disruption of its manufacturing processes if a third party fails to perform its
contractual obligations. AbbVie also maintains sufficient inventory of product to minimize the impact of any
supply disruption.
AbbVie is also party to certain collaborations and other arrangements, as discussed in Note 5,
‘‘Licensing, Acquisitions and Other Arrangements—Other Licensing & Acquisitions Activity,’’ to the
Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and Supplementary Data.’’
Sources and Availability of Raw Materials
AbbVie purchases, in the ordinary course of business, raw materials and supplies essential to its
operations from numerous suppliers around the world. In addition, certain medical devices and components
necessary for the manufacture of AbbVie products are provided by unaffiliated third party suppliers. AbbVie
has not experienced any recent significant availability problems or supply shortages that impacted
fulfillment of product demand.
Research and Development Activities
AbbVie makes a significant investment in research and development and has numerous compounds in
clinical development, including potential treatments for complex, life-threatening diseases. AbbVie’s ability
to discover and develop new compounds is enhanced by the company’s use of integrated discovery and
development project teams, which include chemists, biologists, physicians and pharmacologists who work
on the same compounds as a team. AbbVie also partners with third parties, such as biotechnology
companies, other pharmaceutical companies and academic institutions to identify and prioritize promising
new treatments that complement and enhance AbbVie’s existing portfolio.
The research and development process generally begins with discovery research which focuses on the
identification of a molecule that has a desired effect against a given disease. If preclinical testing of an
identified compound proves successful, the compound moves into clinical development which generally
includes the following phases:
• Phase 1—involves the first human tests in a small number of healthy volunteers or patients to
assess safety, tolerability and potential dosing.
• Phase 2—tests the drug’s efficacy against the disease in a relatively small group of patients.
• Phase 3—tests a drug that demonstrates favorable results in the earlier phases in a significantly
larger patient population to further demonstrate efficacy and safety based on regulatory criteria.
The clinical trials from all of the development phases provide the data required to prepare and submit
a New Drug Application (NDA), a Biological License Application (BLA) or other submission for regulatory
approval to the FDA or similar government agencies outside the United States. The specific requirements
(e.g., scope of clinical trials) for obtaining regulatory approval vary across different countries and geographic
regions.
The research and development process from discovery through a new drug launch typically takes 8 to
12 years and can be even longer. The research and development of new pharmaceutical products has a
significant amount of inherent uncertainty. There is no guarantee when, or if, a molecule will receive the
regulatory approval required to launch a new drug or indication.
In addition to the development of new products and new formulations, research and development
projects also may include Phase 4 trials, sometimes called post-marketing studies. For such projects, clinical
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trials are designed and conducted to collect additional data regarding, among other parameters, the
benefits and risks of an approved drug.
AbbVie spent approximately $4.4 billion in 2016, $4.3 billion in 2015 and $3.3 billion in 2014 on
research to discover and develop new products, indications and processes and to improve existing products
and processes. These expenses consisted primarily of salaries and related expenses for personnel, license
fees, consulting payments, contract research, clinical drug supply manufacturing, the costs of laboratory
equipment and facilities, clinical trial costs and collaboration fees and expenses.
Regulation—Discovery and Clinical Development
United States.
Securing approval to market a new pharmaceutical product in the United States
requires substantial effort and financial resources and takes several years to complete. The applicant must
complete preclinical tests and submit protocols to the FDA before commencing clinical trials. Clinical trials
are intended to establish the safety and efficacy of the pharmaceutical product and typically are conducted
in sequential phases, although the phases may overlap or be combined. If the required clinical testing is
successful, the results are submitted to the FDA in the form of an NDA or BLA requesting approval to
market the product for one or more indications. The FDA reviews an NDA or BLA to determine whether a
product is safe and effective for its intended use and whether its manufacturing is compliant with current
Good Manufacturing Practices (cGMP).
Even if an NDA or a BLA receives approval, the applicant must comply with post-approval
requirements. For example, holders of an approval must report adverse reactions, provide updated safety
and efficacy information and comply with requirements concerning advertising and promotional materials
and activities. Also, quality control and manufacturing procedures must continue to conform to cGMP after
approval, and certain changes to the manufacturing procedures and finished product must be included in
the NDA or BLA, and approved by the FDA. The FDA periodically inspects manufacturing facilities to assess
compliance with cGMP, which imposes extensive procedural and record keeping requirements. In addition,
as a condition of approval, the FDA may require post-marketing testing and surveillance to further assess
and monitor the product’s safety or efficacy after commercialization, which may require additional clinical
trials or patient registries, or additional work on chemistry, manufacturing and controls. Any post-approval
regulatory obligations, and the cost of complying with such obligations, could expand in the future.
Outside the United States.
AbbVie is subject to similar regulatory requirements outside the United
States. AbbVie must obtain approval of a clinical trial application or product from the applicable regulatory
authorities before it can commence clinical trials or marketing of the product. The approval requirements
and process for each country can vary, and the time required to obtain approval may be longer or shorter
than that required for FDA approval in the United States. For example, AbbVie may submit marketing
authorizations in the European Union under either a centralized or decentralized procedure. The centralized
procedure is mandatory for the approval of biotechnology products and many pharmaceutical products and
provides for a single marketing authorization that is valid for all European Union member states. Under the
centralized procedure, a single marketing authorization application is submitted to the European Medicines
Agency. After the agency evaluates the application, it makes a recommendation to the European
Commission, which then makes the final determination on whether to approve the application. The
decentralized procedure provides for mutual recognition of individual national approval decisions and is
available for products that are not subject to the centralized procedure.
In Japan, applications for approval of a new product are made through the Pharmaceutical and
Medical Devices Agency (PMDA). Bridging studies to demonstrate that the non-Japanese clinical data applies
to Japanese patients may be required. After completing a comprehensive review, the PMDA reports to the
Ministry of Health, Labour and Welfare, which then approves or denies the application.
The regulatory process in many emerging markets continues to evolve. Many emerging markets,
including those in Asia, generally require regulatory approval to have been obtained in a large developed
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market (such as the United States or Europe) before the country will begin or complete its regulatory
review process. Some countries also require that local clinical studies be conducted in order to obtain
regulatory approval in the country.
The requirements governing the conduct of clinical trials and product licensing also vary. In addition,
post-approval regulatory obligations such as adverse event reporting and cGMP compliance generally apply
and may vary by country. For example, after a marketing authorization has been granted in the European
Union, periodic safety reports must be submitted and other pharmacovigilance measures may be required
(such as Risk Management Plans).
Regulation—Commercialization, Distribution and Manufacturing
The manufacture, marketing, sale, promotion and distribution of AbbVie’s products are subject to
comprehensive government regulation. Government regulation by various national, regional, federal, state
and local agencies, both in the United States and other countries, addresses (among other matters)
inspection of, and controls over, research and laboratory procedures, clinical investigations, product
approvals and manufacturing, labeling, packaging, marketing and promotion, pricing and reimbursement,
sampling, distribution, quality control, post-marketing surveillance, record keeping, storage and disposal
practices. AbbVie’s operations are also affected by trade regulations in many countries that limit the import
of raw materials and finished products and by laws and regulations that seek to prevent corruption and
bribery in the marketplace (including the United States Foreign Corrupt Practices Act and the United
Kingdom Bribery Act, which provide guidance on corporate interactions with government officials) and
require safeguards for the protection of personal data. In addition, AbbVie is subject to laws and
regulations pertaining to health care fraud and abuse, including state and federal anti-kickback and false
claims laws in the United States. Prescription drug manufacturers such as AbbVie are also subject to taxes,
as well as application, product, user, establishment and other fees.
Compliance with these laws and regulations is costly and materially affects AbbVie’s business. Among
other effects, health care regulations substantially increase the time, difficulty and costs incurred in
obtaining and maintaining approval to market newly developed and existing products. AbbVie expects
compliance with these regulations to continue to require significant technical expertise and capital
investment to ensure compliance. Failure to comply can delay the release of a new product or result in
regulatory and enforcement actions, the seizure or recall of a product, the suspension or revocation of the
authority necessary for a product’s production and sale and other civil or criminal sanctions, including fines
and penalties.
In addition to regulatory initiatives, AbbVie’s business can be affected by ongoing studies of the
utilization, safety, efficacy and outcomes of health care products and their components that are regularly
conducted by industry participants, government agencies and others. These studies can call into question
the utilization, safety and efficacy of previously marketed products. In some cases, these studies have
resulted, and may in the future result, in the discontinuance of, or limitations on, marketing of such
products domestically or worldwide, and may give rise to claims for damages from persons who believe
they have been injured as a result of their use.
Access to human health care products continues to be a subject of investigation and action by
governmental agencies, legislative bodies and private organizations in the United States and other countries.
A major focus is cost containment. Efforts to reduce health care costs are also being made in the private
sector, notably by health care payors and providers, which have instituted various cost reduction and
containment measures. AbbVie expects insurers and providers to continue attempts to reduce the cost of
health care products. Outside the United States, many countries control the price of health care products
directly or indirectly, through reimbursement, payment, pricing, coverage limitations, or compulsory
licensing. Budgetary pressures in the United States and in other countries may also heighten the scope and
severity of pricing pressures on AbbVie’s products for the foreseeable future.
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United States.
Specifically, U.S. federal laws require pharmaceutical manufacturers to pay certain
statutorily-prescribed rebates to state Medicaid programs on prescription drugs reimbursed under state
Medicaid plans, and the efforts by states to seek additional rebates affect AbbVie’s business. Similarly, the
Veterans Health Care Act of 1992, as a prerequisite to participation in Medicaid and other federal health
care programs, requires that manufacturers extend additional discounts on pharmaceutical products to
various federal agencies, including the United States Department of Veterans Affairs, Department of Defense
and Public Health Service entities and institutions. In addition, recent legislative changes would require
similarly discounted prices to be offered to TRICARE program beneficiaries. The Veterans Health Care Act of
1992 also established the 340B drug discount program, which requires pharmaceutical manufacturers to
provide products at reduced prices to various designated health care entities and facilities.
In the United States, most states also have generic substitution legislation requiring or permitting a
dispensing pharmacist to substitute a different manufacturer’s generic version of a pharmaceutical product
for the one prescribed. In addition, the federal government follows a diagnosis-related group (DRG)
payment system for certain institutional services provided under Medicare or Medicaid and has
implemented a prospective payment system (PPS) for services delivered in hospital outpatient, nursing
home and home health settings. DRG and PPS entitle a health care facility to a fixed reimbursement based
on the diagnosis and/or procedure rather than actual costs incurred in patient treatment, thereby
increasing the incentive for the facility to limit or control expenditures for many health care products.
Medicare reimburses Part B drugs based on average sales price plus a certain percentage to account for
physician administration costs, which have been reduced in the hospital outpatient setting. Medicare enters
into contracts with private plans to negotiate prices for most patient-administered medicine delivered under
Part D.
Under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation
Act (together, the Affordable Care Act), AbbVie pays a fee related to its pharmaceuticals sales to
government programs. In addition, AbbVie provides a discount of 50% for branded prescription drugs sold
to patients who fall into the Medicare Part D coverage gap, or ‘‘donut hole.’’
The Affordable Care Act also includes provisions known as the Physician Payments Sunshine Act, which
require manufacturers of drugs and biologics covered under Medicare and Medicaid to record any transfers
of value to physicians and teaching hospitals and to report this data to the Centers for Medicare and
Medicaid Services for subsequent public disclosure. Similar reporting requirements have also been enacted
on the state level in the United States, and an increasing number of countries worldwide either have
adopted or are considering similar laws requiring disclosure of interactions with health care professionals.
Failure to report appropriate data may result in civil or criminal fines and/or penalties.
AbbVie expects debate to continue during 2017 at all government levels worldwide over the
marketing, availability, method of delivery and payment for health care products and services. AbbVie
believes that future legislation and regulation in the markets it serves could affect access to health care
products and services, increase rebates, reduce prices or the rate of price increases for health care
products and services, change health care delivery systems, create new fees and obligations for the
pharmaceuticals industry, or require additional reporting and disclosure. It is not possible to predict the
extent to which AbbVie or the health care industry in general might be affected by the matters discussed
above.
AbbVie is subject to a Corporate Integrity Agreement (CIA) entered into by Abbott on May 7, 2012
that requires enhancements to AbbVie’s compliance program and contains reporting obligations, including
disclosure of financial payments to doctors. If AbbVie fails to comply with the CIA, the Office of Inspector
General for the United States Department of Health and Human Services may impose monetary penalties
or exclude AbbVie from federal health care programs, including Medicare and Medicaid.
European Union.
The European Union has adopted directives and other legislation governing labeling,
advertising, distribution, supply, pharmacovigilance and marketing of pharmaceutical products. Such
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legislation provides mandatory standards throughout the European Union and permits member states to
supplement these standards with additional regulations. European governments also regulate
pharmaceutical product prices through their control of national health care systems that fund a large part
of the cost of such products to consumers. As a result, patients are unlikely to use a pharmaceutical
product that is not reimbursed by the government. In many European countries, the government either
regulates the pricing of a new product at launch or subsequent to launch through direct price controls or
reference pricing. In recent years, many countries have also imposed new or additional cost containment
measures on pharmaceutical products. Differences between national pricing regimes create price
differentials within the European Union that can lead to significant parallel trade in pharmaceutical
products.
Most governments also promote generic substitution by mandating or permitting a pharmacist to
substitute a different manufacturer’s generic version of a pharmaceutical product for the one prescribed
and by permitting or mandating that health care professionals prescribe generic versions in certain
circumstances. In addition, governments use reimbursement lists to limit the pharmaceutical products that
are eligible for reimbursement by national health care systems.
Japan.
In Japan, the National Health Insurance system maintains a Drug Price List specifying which
pharmaceutical products are eligible for reimbursement, and the Ministry of Health, Labour and Welfare
sets the prices of the products on this list. The government generally introduces price cut rounds every
other year and also mandates price decreases for specific products. New products judged innovative or
useful, that are indicated for pediatric use, or that target orphan or small population diseases, however,
may be eligible for a pricing premium. The government has also promoted the use of generics, where
available.
Emerging Markets.
Many emerging markets take steps to reduce pharmaceutical product prices, in
some cases through direct price controls and in others through the promotion of generic alternatives to
branded pharmaceuticals.
Since AbbVie markets its products worldwide, certain products of a local nature and variations of
product lines must also meet other local regulatory requirements. Certain additional risks are inherent in
conducting business outside the United States, including price and currency exchange controls, changes in
currency exchange rates, limitations on participation in local enterprises, expropriation, nationalization and
other governmental action.
Environmental Matters
AbbVie believes that its operations comply in all material respects with applicable laws and regulations
concerning environmental protection. Regulations under federal and state environmental laws impose
stringent limitations on emissions and discharges to the environment from various manufacturing
operations. AbbVie’s capital expenditures for pollution control in 2016 were approximately $5 million and
operating expenditures were $28 million. In 2017, capital expenditures for pollution control are estimated
to be $15 million and operating expenditures are estimated to be approximately $30 million.
Abbott was identified as one of many potentially responsible parties in investigations and/or
remediations at several locations in the United States, including Puerto Rico, under the Comprehensive
Environmental Response, Compensation and Liability Act, commonly known as Superfund. Some of these
locations were transferred to AbbVie in connection with the separation and distribution, and AbbVie has
become a party to these investigations and remediations. Abbott was also engaged in remediation at
several other sites, some of which have been transferred to AbbVie in connection with the separation and
distribution, in cooperation with the Environmental Protection Agency or similar agencies. While it is not
feasible to predict with certainty the final costs related to those investigations and remediation activities,
AbbVie believes that such costs, together with other expenditures to maintain compliance with applicable
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laws and regulations concerning environmental protection, should not have a material adverse effect on the
company’s financial position, cash flows, or results of operations.
Employees
AbbVie employed approximately 30,000 persons as of January 31, 2017. Outside the United States,
some of AbbVie’s employees are represented by unions or works councils. AbbVie believes that it has good
relations with its employees.
Internet Information
Copies of AbbVie’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available free of charge through AbbVie’s investor relations website
(www.abbvieinvestor.com) as soon as reasonably practicable after AbbVie electronically files the material
with, or furnishes it to, the Securities and Exchange Commission (SEC).
AbbVie’s corporate governance guidelines, outline of directorship qualifications, code of business
conduct and the charters of AbbVie’s audit committee, compensation committee, nominations and
governance committee and public policy committee are all available on AbbVie’s investor relations website
(www.abbvieinvestor.com).
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ITEM 1A. RISK FACTORS
.....................................................................................................................................................................................................................................................................................................................................................
You should carefully consider the following risks and other information in this Form 10-K in evaluating
AbbVie and AbbVie’s common stock. Any of the following risks could materially and adversely affect
AbbVie’s results of operations, financial condition or cash flows. The risk factors generally have been
separated into two groups: risks related to AbbVie’s business and risks related to AbbVie’s common stock.
Based on the information currently known to it, AbbVie believes that the following information identifies the
most significant risk factors affecting it in each of these categories of risks. However, the risks and
uncertainties AbbVie faces are not limited to those set forth in the risk factors described below and may not
be in order of importance or probability of occurrence. Additional risks and uncertainties not presently
known to AbbVie or that AbbVie currently believes to be immaterial may also adversely affect its business.
In addition, past financial performance may not be a reliable indicator of future performance and historical
trends should not be used to anticipate results or trends in future periods.
If any of the following risks and uncertainties develops into actual events, these events could have a
material adverse effect on AbbVie’s business, results of operations, financial condition or cash flows. In such
case, the trading price of AbbVie’s common stock could decline.
Risks Related to AbbVie’s Business
The expiration or loss of patent protection and licenses may adversely affect AbbVie’s future
revenues and operating earnings.
AbbVie relies on patent, trademark and other intellectual property protection in the discovery,
development, manufacturing and sale of its products. In particular, patent protection is, in the aggregate,
important in AbbVie’s marketing of pharmaceutical products in the United States and most major markets
outside of the United States. Patents covering AbbVie products normally provide market exclusivity, which is
important for the profitability of many of AbbVie’s products.
As patents for certain of its products expire, AbbVie will or could face competition from lower priced
generic products. The expiration or loss of patent protection for a product typically is followed promptly by
substitutes that may significantly reduce sales for that product in a short amount of time. If AbbVie’s
competitive position is compromised because of generics or otherwise, it could have a material adverse
effect on AbbVie’s business and results of operations. In addition, proposals emerge from time to time for
legislation to further encourage the early and rapid approval of generic drugs. Any such proposals that are
enacted into law could increase the impact of generic competition.
AbbVie’s principal patents and trademarks are described in greater detail in Item 1, ‘‘Business—
Intellectual Property Protection and Regulatory Exclusivity’’ and Item 7, ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Results of Operations,’’ and litigation regarding
these patents is described in Item 3, ‘‘Legal Proceedings.’’ The United States composition of matter patent
for HUMIRA, which is AbbVie’s largest product and had worldwide net revenues of approximately
$16.1 billion in 2016, expired in December 2016, and the equivalent European Union patent is expected to
expire in the majority of European Union countries in October 2018. Because HUMIRA is a biologic and
biologics cannot be readily substituted, it is uncertain what impact the loss of patent protection would have
on the sales of HUMIRA.
AbbVie’s major products could lose patent protection earlier than expected, which could adversely
affect AbbVie’s future revenues and operating earnings.
Third parties or government authorities may challenge or seek to invalidate or circumvent AbbVie’s
patents and patent applications. For example, manufacturers of generic pharmaceutical products file, and
may continue to file, Abbreviated New Drug Applications with the FDA seeking to market generic forms of
AbbVie’s products prior to the expiration of relevant patents owned or licensed by AbbVie by asserting that
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the patents are invalid, unenforceable and/or not infringed. In addition, petitioners have filed, and may
continue to file, challenges to the validity of AbbVie patents under the 2011 Leahy-Smith America Invents
Act, which created inter partes review and post grant review procedures for challenging patent validity in
administrative proceedings at the United States Patent and Trademark Office.
Although most of the challenges to AbbVie’s intellectual property have come from other businesses,
governments may also challenge intellectual property rights. For example, court decisions and potential
legislation relating to patents, such as legislation regarding biosimilars, and other regulatory initiatives may
result in further erosion of intellectual property protection. In addition, certain governments outside the
United States have indicated that compulsory licenses to patents may be sought to further their domestic
policies or on the basis of national emergencies, such as HIV/AIDS. If triggered, compulsory licenses could
diminish or eliminate sales and profits from those jurisdictions and negatively affect AbbVie’s results of
operations.
AbbVie normally responds to challenges by vigorously defending its patents, including by filing patent
infringement lawsuits. Patent litigation, administrative proceedings and other challenges to AbbVie’s patents
are costly and unpredictable and may deprive AbbVie of market exclusivity for a patented product. To the
extent AbbVie’s intellectual property is successfully challenged or circumvented or to the extent such
intellectual property does not allow AbbVie to compete effectively, AbbVie’s business will suffer. To the
extent that countries do not enforce AbbVie’s intellectual property rights or require compulsory licensing of
AbbVie’s intellectual property, AbbVie’s future revenues and operating earnings will be reduced.
A third party’s intellectual property may prevent AbbVie from selling its products or have a material
adverse effect on AbbVie’s future profitability and financial condition.
Third parties may claim that an AbbVie product infringes upon their intellectual property. Resolving an
intellectual property infringement claim can be costly and time consuming and may require AbbVie to enter
into license agreements. AbbVie cannot guarantee that it would be able to obtain license agreements on
commercially reasonable terms. A successful claim of patent or other intellectual property infringement
could subject AbbVie to significant damages or an injunction preventing the manufacture, sale, or use of
the affected AbbVie product or products. Any of these events could have a material adverse effect on
AbbVie’s profitability and financial condition.
Any significant event that adversely affects HUMIRA revenues could have a material and negative
impact on AbbVie’s results of operations and cash flows.
HUMIRA accounted for approximately 63% of AbbVie’s total net revenues in 2016. Any significant event
that adversely affects HUMIRA’s revenues could have a material adverse impact on AbbVie’s results of
operations and cash flows. These events could include loss of patent protection for HUMIRA, the approval
of biosimilars of HUMIRA, the discovery of previously unknown side effects or impaired efficacy, increased
competition from the introduction of new, more effective or less expensive treatments and discontinuation
or removal from the market of HUMIRA for any reason.
AbbVie’s research and development efforts may not succeed in developing and marketing
commercially successful products and technologies, which may cause its revenues and profitability to
decline.
To remain competitive, AbbVie must continue to launch new products and new indications and/or
brand extensions for existing products, and such launches must generate revenue sufficient both to cover
its substantial research and development costs and to replace revenues of profitable products that are lost
to or displaced by competing products or therapies. Failure to do so would have a material adverse effect
on AbbVie’s revenue and profitability. Accordingly, AbbVie commits substantial effort, funds, and other
resources to research and development and must make ongoing substantial expenditures without any
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assurance that its efforts will be commercially successful. A high rate of failure in the biopharmaceutical
industry is inherent in the research and development of new products, and failure can occur at any point in
the research and development process, including after significant funds have been invested. Products that
appear promising in development may fail to reach the market for numerous reasons, including failure to
demonstrate effectiveness, safety concerns, superior safety or efficacy of competing therapies, failure to
achieve positive clinical or pre-clinical outcomes beyond the current standards of care, inability to obtain
necessary regulatory approvals or delays in the approval of new products and new indications, limited
scope of approved uses, excessive costs to manufacture, the failure to obtain or maintain intellectual
property rights, or infringement of the intellectual property rights of others.
Decisions about research studies made early in the development process of a pharmaceutical product
candidate can affect the marketing strategy once such candidate receives approval. More detailed studies
may demonstrate additional benefits that can help in the marketing, but they also consume time and
resources and may delay submitting the pharmaceutical product candidate for approval. AbbVie cannot
guarantee that a proper balance of speed and testing will be made with respect to each pharmaceutical
product candidate or that decisions in this area would not adversely affect AbbVie’s future results of
operations.
Even if AbbVie successfully develops and markets new products or enhancements to its existing
products, they may be quickly rendered obsolete by changing clinical preferences, changing industry
standards, or competitors’ innovations. AbbVie’s innovations may not be accepted quickly in the
marketplace because of existing clinical practices or uncertainty over third-party reimbursement. AbbVie
cannot state with certainty when or whether any of its products under development will be launched,
whether it will be able to develop, license, or otherwise acquire compounds or products, or whether any
products will be commercially successful. Failure to launch successful new products or new indications for
existing products may cause AbbVie’s products to become obsolete, causing AbbVie’s revenues and
operating results to suffer.
A portion of AbbVie’s near-term pharmaceutical pipeline relies on collaborations with third parties,
which may adversely affect the development and sale of its products.
AbbVie depends on alliances with pharmaceutical and biotechnology companies for a portion of the
products in its near-term pharmaceutical pipeline. For example, AbbVie is collaborating with Roche Holding
AG to develop and commercialize a next-generation Bcl-2 inhibitor, Venclexta (venetoclax), for patients with
relapsed/refractory chronic lymphocytic leukemia and AbbVie is investigating its efficacy for additional
indications.
Failures by these parties to meet their contractual, regulatory, or other obligations to AbbVie, or any
disruption in the relationships between AbbVie and these third parties, could have an adverse effect on
AbbVie’s pharmaceutical pipeline and business. In addition, AbbVie’s collaborative relationships for research
and development extend for many years and may give rise to disputes regarding the relative rights,
obligations and revenues of AbbVie and its collaboration partners, including the ownership of intellectual
property and associated rights and obligations. This could result in the loss of intellectual property rights or
protection, delay the development and sale of potential pharmaceutical products and lead to lengthy and
expensive litigation, administrative proceedings or arbitration.
Biologics carry unique risks and uncertainties, which could have a negative impact on future results
of operations.
The successful discovery, development, manufacturing and sale of biologics is a long, expensive and
uncertain process. There are unique risks and uncertainties with biologics. For example, access to and
supply of necessary biological materials, such as cell lines, may be limited and governmental regulations
restrict access to and regulate the transport and use of such materials. In addition, the development,
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manufacturing and sale of biologics is subject to regulations that are often more complex and extensive
than the regulations applicable to other pharmaceutical products. Manufacturing biologics, especially in
large quantities, is often complex and may require the use of innovative technologies. Such manufacturing
also requires facilities specifically designed and validated for this purpose and sophisticated quality
assurance and quality control procedures. Biologics are also frequently costly to manufacture because
production inputs are derived from living animal or plant material, and some biologics cannot be made
synthetically. Failure to successfully discover, develop, manufacture and sell biologics—including HUMIRA—
could adversely impact AbbVie’s business and results of operations.
AbbVie’s biologic products are subject to competition from biosimilars.
The Biologics Price Competition and Innovation Act creates a framework for the approval of biosimilars
in the United States and could allow competitors to reference data from biologic products already
approved. In Europe, the European Commission has granted marketing authorizations for several biosimilars
pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the
past few years. In addition, companies are developing biosimilars in other countries that could compete
with AbbVie’s biologic products. For example, the FDA has approved a biosimilar of HUMIRA in the United
States and final approval of a biosimilar of HUMIRA in the EU is imminent, and Boehringer Ingelheim’s
marketing authorization application to the EMA and its application to the United States FDA have been
accepted for review. As competitors are able to obtain marketing approval for biosimilars referencing
AbbVie’s biologic products, AbbVie’s products may become subject to competition from such biosimilars,
with the attendant competitive pressure and consequences. Expiration or successful challenge of AbbVie’s
applicable patent rights could also trigger competition from other products, assuming any relevant
exclusivity period has expired. As a result, AbbVie could face more litigation and administrative proceedings
with respect to the validity and/or scope of patents relating to its biologic products.
New products and technological advances by AbbVie’s competitors may negatively affect AbbVie’s
results of operations.
AbbVie competes with other research-based pharmaceutical and biotechnology companies that
discover, manufacture, market, and sell proprietary pharmaceutical products and biologics. For example,
HUMIRA competes with anti-TNF products and other competitive products intended to treat a number of
disease states and AbbVie’s virology products compete with other available hepatitis C treatment options.
These competitors may introduce new products or develop technological advances that compete with
AbbVie’s products in therapeutic areas such as immunology, virology/liver disease, oncology and
neuroscience. AbbVie cannot predict with certainty the timing or impact of the introduction by competitors
of new products or technological advances. Such competing products may be safer, more effective, more
effectively marketed or sold, or have lower prices or superior performance features than AbbVie’s products,
and this could negatively impact AbbVie’s business and results of operations.
The manufacture of many of AbbVie’s products is a highly exacting and complex process, and if
AbbVie or one of its suppliers encounters problems manufacturing AbbVie’s products, AbbVie’s business
could suffer.
The manufacture of many of AbbVie’s products is a highly exacting and complex process, due in part
to strict regulatory requirements. Problems may arise during manufacturing for a variety of reasons,
including equipment malfunction, failure to follow specific protocols and procedures, problems with raw
materials, delays related to the construction of new facilities or the expansion of existing facilities, including
those intended to support future demand for AbbVie’s products, changes in manufacturing production sites
and limits to manufacturing capacity due to regulatory requirements, changes in the types of products
produced, physical limitations that could inhibit continuous supply, man-made or natural disasters and
environmental factors. If problems arise during the production of a batch of product, that batch of product
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may have to be discarded and AbbVie may experience product shortages or incur added expenses. This
could, among other things, lead to increased costs, lost revenue, damage to customer relations, time and
expense spent investigating the cause and, depending on the cause, similar losses with respect to other
batches or products. If problems are not discovered before the product is released to the market, recall
and product liability costs may also be incurred.
AbbVie uses a number of products in its pharmaceutical and biologic manufacturing processes that
are sourced from single suppliers, and an interruption in the supply of those products could adversely
affect AbbVie’s business and results of operations.
AbbVie uses a number of products in its pharmaceutical and biologic manufacturing processes that are
sourced from single suppliers. The failure of these single-source suppliers to fulfill their contractual
obligations in a timely manner or as a result of regulatory noncompliance or physical disruption at a
manufacturing site may impair AbbVie’s ability to deliver its products to customers on a timely and
competitive basis, which could adversely affect AbbVie’s business and results of operations. Finding an
alternative supplier could take a significant amount of time and involve significant expense due to the
nature of the products and the need to obtain regulatory approvals. AbbVie cannot guarantee that it will
be able to reach agreement with alternative providers or that regulatory authorities would approve
AbbVie’s use of such alternatives. AbbVie does, however, carry business interruption insurance, which
provides a degree of protection in the case of a failure by a single-source supplier.
Significant safety or efficacy issues could arise for AbbVie’s products, which could have a material
adverse effect on AbbVie’s revenues and financial condition.
Pharmaceutical products receive regulatory approval based on data obtained in controlled clinical trials
of limited duration. Following regulatory approval, these products will be used over longer periods of time
in many patients. Investigators may also conduct additional, and perhaps more extensive, studies. If new
safety or efficacy issues are reported or if new scientific information becomes available (including results of
post-marketing Phase 4 trials), or if governments change standards regarding safety, efficacy or labeling,
AbbVie may be required to amend the conditions of use for a product. For example, AbbVie may
voluntarily provide or be required to provide updated information on a product’s label or narrow its
approved indication, either of which could reduce the product’s market acceptance. If safety or efficacy
issues with an AbbVie product arise, sales of the product could be halted by AbbVie or by regulatory
authorities. Safety or efficacy issues affecting suppliers’ or competitors’ products also may reduce the
market acceptance of AbbVie’s products.
New data about AbbVie’s products, or products similar to its products, could negatively impact demand
for AbbVie’s products due to real or perceived safety issues or uncertainty regarding efficacy and, in some
cases, could result in product withdrawal. Furthermore, new data and information, including information
about product misuse, may lead government agencies, professional societies, practice management groups
or organizations involved with various diseases to publish guidelines or recommendations related to the use
of AbbVie’s products or the use of related therapies or place restrictions on sales. Such guidelines or
recommendations may lead to lower sales of AbbVie’s products.
AbbVie is subject to product liability claims and lawsuits that may adversely affect its business and
results of operations.
In the ordinary course of business, AbbVie is the subject of product liability claims and lawsuits
alleging that AbbVie’s products or the products of other companies that it promotes have resulted or could
result in an unsafe condition for or injury to patients. Product liability claims and lawsuits and safety alerts
or product recalls, regardless of their ultimate outcome, may have a material adverse effect on AbbVie’s
business, results of operations and reputation and on its ability to attract and retain customers.
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Consequences may also include additional costs, a decrease in market share for the product in question,
lower income and exposure to other claims. Product liability losses are self-insured.
AbbVie is subject to cost-containment efforts and pricing pressures that could cause a reduction in
future revenues and operating earnings, and changes in the terms of rebate and chargeback programs,
which are common in the pharmaceuticals industry, could have a material adverse effect on AbbVie’s
operations.
Cost-containment efforts by governments and private organizations are described in greater detail in
Item 1, ‘‘Business—Regulation—Commercialization, Distribution and Manufacturing.’’ To the extent these
cost containment efforts are not offset by greater demand, increased patient access to health care, or other
factors, AbbVie’s future revenues and operating earnings will be reduced. In the United States, the
European Union and other countries, AbbVie’s business has experienced downward pressure on product
pricing, and this pressure could increase in the future.
AbbVie is subject to increasing public and legislative pressure with respect to pharmaceutical pricing. In
the United States, practices of managed care groups, and institutional and governmental purchasers, and
United States federal laws and regulations related to Medicare and Medicaid, including the Medicare
Prescription Drug Improvement and Modernization Act of 2003 and the Patient Protection and Affordable
Care Act, contribute to pricing pressures. The potential for continuing changes to the health care system in
the United States and the increased purchasing power of entities that negotiate on behalf of Medicare,
Medicaid and private sector beneficiaries could result in additional pricing pressures.
In numerous major markets worldwide, the government plays a significant role in funding health care
services and determining the pricing and reimbursement of pharmaceutical products. Consequently, in those
markets, AbbVie is subject to government decision-making and budgetary actions with respect to its
products. In particular, many European countries have ongoing government-mandated price reductions for
many pharmaceutical products, and AbbVie anticipates continuing pricing pressures in Europe. Differences
between countries in pricing regulations could lead to third-party cross-border trading in AbbVie’s products
that results in a reduction in future revenues and operating earnings.
Rebates related to government programs, such as fee-for-service Medicaid or Medicaid managed care
programs, arise from laws and regulations. AbbVie cannot predict if additional government initiatives to
contain health care costs or other factors could lead to new or modified regulatory requirements that
include higher or incremental rebates or discounts. Other rebate and discount programs arise from
contractual agreements with private payers. Various factors, including market factors and the ability of
private payers to control patient access to products, may provide payers the leverage to negotiate higher or
additional rebates or discounts that could have a material adverse effect on AbbVie’s operations.
AbbVie is subject to numerous governmental regulations, and it can be costly to comply with these
regulations and to develop compliant products and processes.
AbbVie’s products are subject to rigorous regulation by numerous international, supranational, federal
and state authorities, as described in Item 1, ‘‘Business—Regulation—Discovery and Clinical Development.’’
The process of obtaining regulatory approvals to market a pharmaceutical product can be costly and time
consuming, and approvals might not be granted for future products, or additional indications or uses of
existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for,
future products, or new indications and uses, could result in delayed realization of product revenues,
reduction in revenues and substantial additional costs.
In addition, AbbVie cannot guarantee that it will remain compliant with applicable regulatory
requirements once approval has been obtained for a product. These requirements include, among other
things, regulations regarding manufacturing practices, product labeling and advertising and post-marketing
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reporting, including adverse event reports and field alerts due to manufacturing quality concerns. AbbVie
must incur expense and spend time and effort to ensure compliance with these complex regulations.
Possible regulatory actions could result in substantial modifications to AbbVie’s business practices and
operations; refunds, recalls, or seizures of AbbVie’s products; a total or partial shutdown of production in
one or more of AbbVie’s or its suppliers’ facilities while AbbVie or its supplier remedies the alleged
violation; the inability to obtain future approvals; and withdrawals or suspensions of current products from
the market. Any of these events could disrupt AbbVie’s business and have a material adverse effect on its
business and results of operations.
Laws and regulations affecting government benefit programs could impose new obligations on
AbbVie, require it to change its business practices, and restrict its operations in the future.
The health care industry is subject to various federal, state and international laws and regulations
pertaining to government benefit programs reimbursement, rebates, price reporting and regulation and
health care fraud and abuse. In the United States, these laws include anti-kickback and false claims laws,
the Medicaid Rebate Statute, the Veterans Health Care Act and individual state laws relating to pricing and
sales and marketing practices. Violations of these laws may be punishable by criminal and/or civil sanctions,
including, in some instances, substantial fines, imprisonment and exclusion from participation in federal and
state health care programs, including Medicare, Medicaid and Veterans Administration health programs.
These laws and regulations are broad in scope and they are subject to change and evolving interpretations,
which could require AbbVie to incur substantial costs associated with compliance or to alter one or more of
its sales or marketing practices. In addition, violations of these laws, or allegations of such violations, could
disrupt AbbVie’s business and result in a material adverse effect on its business and results of operations.
AbbVie could be subject to increased monetary penalties and/or other sanctions, including exclusion
from federal health care programs, if it fails to comply with the terms of the May 7, 2012 resolution of
the Department of Justice’s investigation into sales and marketing activities for Depakote.
On May 7, 2012, Abbott settled United States federal and 49 state investigations into its sales and
marketing activities for Depakote by pleading guilty to a misdemeanor violation of the Food, Drug and
Cosmetic Act, agreeing to pay approximately $700 million in criminal fines and forfeitures and
approximately $900 million to resolve civil claims, and submitting to a term of probation. The term of
probation ended January 1, 2016 upon AbbVie satisfying all of the probation conditions. However, if AbbVie
violates any remaining terms of the plea agreement, it may face additional monetary sanctions and other
such remedies as the court deems appropriate.
In addition, Abbott entered into a five-year CIA with the Office of Inspector General for the United
States Department of Health and Human Services (OIG). The effective date of the CIA is October 11, 2012.
The obligations of the CIA have transferred to and become fully binding on AbbVie. The CIA requires
enhancements to AbbVie’s compliance program, fulfillment of reporting and monitoring obligations,
management certifications and resolutions from AbbVie’s board of directors, among other requirements.
Compliance with the requirements of the settlement will impose additional costs and burdens on AbbVie,
including in the form of employee training, third party reviews, compliance monitoring, reporting
obligations and management attention. If AbbVie fails to comply with the CIA, the OIG may impose
monetary penalties or exclude AbbVie from federal health care programs, including Medicare and Medicaid.
AbbVie and Abbott may be subject to third party claims and shareholder lawsuits in connection with the
settlement, and AbbVie may be required to indemnify all or a portion of Abbott’s costs.
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The international nature of AbbVie’s business subjects it to additional business risks that may cause
its revenue and profitability to decline.
AbbVie’s business is subject to risks associated with doing business internationally, including in
emerging markets. Net revenues outside of the United States make up approximately 38% of AbbVie’s total
net revenues in 2016. The risks associated with AbbVie’s operations outside the United States include:
• fluctuations in currency exchange rates;
• changes in medical reimbursement policies and programs;
• multiple legal and regulatory requirements that are subject to change and that could restrict
AbbVie’s ability to manufacture, market and sell its products;
• differing local product preferences and product requirements;
• trade protection measures and import or export licensing requirements;
• difficulty in establishing, staffing and managing operations;
• differing labor regulations;
• potentially negative consequences from changes in or interpretations of tax laws;
• political and economic instability, including sovereign debt issues;
• price and currency exchange controls, limitations on participation in local enterprises, expropriation,
nationalization and other governmental action;
• inflation, recession and fluctuations in interest rates;
• potential deterioration in the economic position and credit quality of certain non-U.S. countries,
including in Europe and Latin America; and
• potential penalties or other adverse consequences for violations of anti-corruption, anti-bribery and
other similar laws and regulations, including the United States Foreign Corrupt Practices Act and the
United Kingdom Bribery Act.
Events contemplated by these risks may, individually or in the aggregate, have a material adverse effect
on AbbVie’s revenues and profitability.
AbbVie’s ability to realize the anticipated benefits of its merger with Pharmacyclics will depend on
its ability to effectively and profitably commercialize IMBRUVICA(cid:3) (ibrutinib).
The anticipated benefits of AbbVie’s merger with Pharmacyclics will depend on AbbVie’s ability to:
effectively and profitably commercialize IMBRUVICA, including AbbVie’s ability to create and meet continued
market demand, achieve market acceptance and generate product sales; ensure that the active
pharmaceutical ingredient for IMBRUVICA and the finished product are manufactured in sufficient quantities
and in compliance with requirements of the FDA and similar foreign regulatory agencies and with
acceptable quality and pricing to meet commercial demand; and ensure that the entire supply chain
efficiently and consistently delivers IMBRUVICA to AbbVie’s customers. The commercialization of IMBRUVICA
may not be successful due to, among other things, unexpected challenges from competitors, new safety
issues or concerns being reported that may impact or narrow the approved indications, the relative price of
IMBRUVICA as compared to alternative treatment options, and changes to the label for IMBRUVICA that
further restrict its marketing. If the commercialization of IMBRUVICA is unsuccessful, AbbVie’s ability to
generate revenue from product sales and realize the anticipated benefits of the merger will be adversely
affected.
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AbbVie may acquire other businesses, license rights to technologies or products, form alliances, or
dispose of assets, which could cause it to incur significant expenses and could negatively affect
profitability.
AbbVie may pursue acquisitions, technology licensing arrangements, and strategic alliances, or dispose
of some of its assets, as part of its business strategy. AbbVie may not complete these transactions in a
timely manner, on a cost-effective basis, or at all, and may not realize the expected benefits. If AbbVie is
successful in making an acquisition, the products and technologies that are acquired may not be successful
or may require significantly greater resources and investments than originally anticipated. AbbVie may not
be able to integrate acquisitions successfully into its existing business and could incur or assume significant
debt and unknown or contingent liabilities. AbbVie could also experience negative effects on its reported
results of operations from acquisition or disposition-related charges, amortization of expenses related to
intangibles and charges for impairment of long-term assets. These effects could cause a deterioration of
AbbVie’s credit rating and result in increased borrowing costs and interest expense.
Additionally, changes in AbbVie’s structure, operations, revenues, costs, or efficiency resulting from
major transactions such as acquisitions, divestitures, mergers, alliances, restructurings or other strategic
initiatives, may result in greater than expected costs, may take longer than expected to complete or
encounter other difficulties, including the need for regulatory approval where appropriate.
AbbVie is dependent on wholesale distributors for distribution of its products in the United States
and, accordingly, its results of operations could be adversely affected if they encounter financial
difficulties.
In 2016, three wholesale distributors—AmerisourceBergen Corporation, Cardinal Health, Inc. and
McKesson Corporation—accounted for substantially all of AbbVie’s net revenues in the United States. If one
of its significant wholesale distributors encounters financial or other difficulties, such distributor may
decrease the amount of business that it does with AbbVie, and AbbVie may be unable to collect all the
amounts that the distributor owes it on a timely basis or at all, which could negatively impact AbbVie’s
business and results of operations.
AbbVie has debt obligations that could adversely affect its business and its ability to meet its
obligations.
The amount of debt that AbbVie has incurred and intends to incur could have important consequences
to AbbVie and its investors. These consequences include, among other things, requiring a portion of
AbbVie’s cash flow from operations to make interest payments on this debt and reducing the cash flow
available to fund capital expenditures and other corporate purposes and to grow AbbVie’s business. To the
extent AbbVie incurs additional indebtedness, these risks could increase. In addition, AbbVie’s cash flow
from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and AbbVie
may not be able to borrow money, sell assets, or otherwise raise funds on acceptable terms, or at all, to
refinance its debt.
AbbVie may need additional financing in the future to meet its capital needs or to make
opportunistic acquisitions, and such financing may not be available on favorable terms, if at all.
AbbVie may need to seek additional financing for its general corporate purposes. For example, it may
need to increase its investment in research and development activities or need funds to make acquisitions.
AbbVie may be unable to obtain any desired additional financing on terms favorable to it, if at all. If
AbbVie loses its investment grade credit rating or adequate funds are not available on acceptable terms,
AbbVie may be unable to fund its expansion, successfully develop or enhance products, or respond to
competitive pressures, any of which could negatively affect AbbVie’s business. If AbbVie raises additional
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funds by issuing debt or entering into credit facilities, it may be subject to limitations on its operations due
to restrictive covenants. Failure to comply with these covenants could adversely affect AbbVie’s business.
AbbVie depends on information technology and a failure of those systems could adversely affect
AbbVie’s business.
AbbVie relies on sophisticated information technology systems to operate its business. These systems
are potentially vulnerable to malicious intrusion, random attack, loss of data privacy, or breakdown. Data
privacy or security breaches by employees or others may cause sensitive data, including intellectual
property, trade secrets or personal information belonging to AbbVie, its patients, customers or business
partners, to be exposed to unauthorized persons or to the public. Although AbbVie has invested in the
protection of its data and information technology and also monitors its systems on an ongoing basis, there
can be no assurance that these efforts will prevent breakdowns or breaches in AbbVie’s information
technology systems that could adversely affect AbbVie’s business.
Other factors can have a material adverse effect on AbbVie’s profitability and financial condition.
Many other factors can affect AbbVie’s results of operations, cash flows and financial condition,
including:
• changes in or interpretations of laws and regulations, including changes in accounting standards,
taxation requirements, product marketing application standards and environmental laws;
• differences between the fair value measurement of assets and liabilities and their actual value,
particularly for pension and post-employment benefits, stock-based compensation, intangibles and
goodwill; and for contingent liabilities such as litigation and contingent consideration, the absence of
a recorded amount, or an amount recorded at the minimum, compared to the actual amount;
• changes in the rate of inflation (including the cost of raw materials, commodities and supplies),
interest rates, market value of AbbVie’s equity investments and the performance of investments held
by it or its employee benefit trusts;
• changes in the creditworthiness of counterparties that transact business with or provide services to
AbbVie or its employee benefit trusts;
• changes in the ability of third parties that provide information technology, accounting, human
resources, payroll and other outsourced services to AbbVie to meet their contractual obligations to
AbbVie; and
• changes in business, economic and political conditions, including: war, political instability, terrorist
attacks, the threat of future terrorist activity and related military action; natural disasters; the cost
and availability of insurance due to any of the foregoing events; labor disputes, strikes, slow-downs,
or other forms of labor or union activity; and pressure from third-party interest groups.
Risks Related to AbbVie’s Common Stock
AbbVie cannot guarantee the timing, amount, or payment of dividends on its common stock.
Although AbbVie expects to pay regular cash dividends, the timing, declaration, amount and payment
of future dividends to stockholders will fall within the discretion of AbbVie’s board of directors. The board’s
decisions regarding the payment of dividends will depend on many factors, such as AbbVie’s financial
condition, earnings, capital requirements, debt service obligations, industry practice, legal requirements,
regulatory constraints and other factors that the board deems relevant. For more information, see Item 5,
‘‘Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.’’ AbbVie’s ability to pay dividends will depend on its ongoing ability to generate cash from
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operations and access capital markets. AbbVie cannot guarantee that it will continue to pay a dividend in
the future.
An AbbVie stockholder’s percentage of ownership in AbbVie may be diluted in the future.
In the future, a stockholder’s percentage ownership in AbbVie may be diluted because of equity
issuances for capital market transactions, equity awards that AbbVie will be granting to AbbVie’s directors,
officers and employees, acquisitions, or other purposes. AbbVie’s employees have options to purchase
shares of its common stock as a result of conversion of their Abbott stock options (in whole or in part) to
AbbVie stock options. AbbVie anticipates its compensation committee will grant additional stock options or
other stock-based awards to its employees. Such awards will have a dilutive effect on AbbVie’s earnings per
share, which could adversely affect the market price of AbbVie’s common stock. From time to time, AbbVie
will issue additional options or other stock-based awards to its employees under AbbVie’s employee
benefits plans.
In addition, AbbVie’s amended and restated certificate of incorporation authorizes AbbVie to issue,
without the approval of AbbVie’s stockholders, one or more classes or series of preferred stock having such
designation, powers, preferences and relative, participating, optional and other special rights, including
preferences over AbbVie’s common stock respecting dividends and distributions, as AbbVie’s board of
directors generally may determine. The terms of one or more classes or series of preferred stock could
dilute the voting power or reduce the value of AbbVie’s common stock. For example, AbbVie could grant
the holders of preferred stock the right to elect some number of AbbVie’s directors in all events or on the
happening of specified events or the right to veto specified transactions. Similarly, the repurchase or
redemption rights or liquidation preferences AbbVie could assign to holders of preferred stock could affect
the residual value of the common stock.
Certain provisions in AbbVie’s amended and restated certificate of incorporation and amended and
restated by-laws, and of Delaware law, may prevent or delay an acquisition of AbbVie, which could
decrease the trading price of AbbVie’s common stock.
AbbVie’s amended and restated certificate of incorporation and amended and restated by-laws contain,
and Delaware law contains, provisions that are intended to deter coercive takeover practices and
inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to
encourage prospective acquirors to negotiate with AbbVie’s board of directors rather than to attempt a
hostile takeover. These provisions include, among others:
• the inability of AbbVie’s stockholders to call a special meeting;
• the division of AbbVie’s board of directors into three classes of directors, with each class serving a
staggered three-year term;
• a provision that stockholders may only remove directors for cause;
• the ability of AbbVie’s directors, and not stockholders, to fill vacancies on AbbVie’s board of
directors; and
• the requirement that the affirmative vote of stockholders holding at least 80% of AbbVie’s voting
stock is required to amend certain provisions in AbbVie’s amended and restated certificate of
incorporation and AbbVie’s amended and restated by-laws relating to the number, term and election
of AbbVie’s directors, the filling of board vacancies, the calling of special meetings of stockholders
and director and officer indemnification provisions.
In addition, Section 203 of the Delaware General Corporation Law provides that, subject to limited
exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the
outstanding voting stock of a Delaware corporation shall not engage in any business combination with that
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corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period
following the date on which that person or its affiliates becomes the holder of more than 15% of the
corporation’s outstanding voting stock.
AbbVie believes these provisions protect its stockholders from coercive or otherwise unfair takeover
tactics by requiring potential acquirors to negotiate with AbbVie’s board of directors and by providing
AbbVie’s board of directors with more time to assess any acquisition proposal. These provisions are not
intended to make the company immune from takeovers. However, these provisions apply even if the offer
may be considered beneficial by some stockholders and could delay or prevent an acquisition that AbbVie’s
board of directors determines is not in the best interests of AbbVie and AbbVie’s stockholders. These
provisions may also prevent or discourage attempts to remove and replace incumbent directors.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward looking statements regarding business
strategies, market potential, future financial performance and other matters. The words ‘‘believe,’’ ‘‘expect,’’
‘‘anticipate,’’ ‘‘project’’ and similar expressions, among others, generally identify ‘‘forward looking
statements,’’ which speak only as of the date the statements were made. The matters discussed in these
forward looking statements are subject to risks, uncertainties and other factors that could cause actual
results to differ materially from those projected, anticipated or implied in the forward looking statements.
In particular, information included under Item 1, ‘‘Business,’’ Item 1A, ‘‘Risk Factors,’’ and Item 7,
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ contain forward
looking statements. Where, in any forward looking statement, an expectation or belief as to future results
or events is expressed, such expectation or belief is based on the current plans and expectations of AbbVie
management and expressed in good faith and believed to have a reasonable basis, but there can be no
assurance that the expectation or belief will result or be achieved or accomplished. Factors that could cause
actual results or events to differ materially from those anticipated include the matters described under
Item 1A, ‘‘Risk Factors’’ and Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and
Results of Operations.’’ AbbVie does not undertake any obligation to update the forward-looking statements
included in this Annual Report on Form 10-K to reflect events or circumstances after the date hereof,
unless AbbVie is required by applicable securities law to do so.
ITEM 1B. UNRESOLVED STAFF COMMENTS
.....................................................................................................................................................................................................................................................................................................................................................
None.
ITEM 2. PROPERTIES
.....................................................................................................................................................................................................................................................................................................................................................
AbbVie’s corporate offices are located at 1 North Waukegan Road, North Chicago, Illinois 60064-6400.
AbbVie’s manufacturing plants are in the following locations:
United States
Abbott Park, Illinois*
Barceloneta, Puerto Rico
Jayuya, Puerto Rico
North Chicago, Illinois
South San Francisco, California
Worcester, Massachusetts*
Wyandotte, Michigan*
*
Leased property.
Outside the United States
Campoverde di Aprilia, Italy
Cork, Ireland
Ludwigshafen, Germany
Singapore*
Sligo, Ireland
In addition to the above, AbbVie has other manufacturing facilities worldwide. AbbVie believes its
facilities are suitable and provide adequate production capacity.
In the United States, including Puerto Rico, AbbVie has one distribution center. AbbVie also has
research and development facilities in the United States located at: Abbott Park, Illinois; North Chicago,
Illinois; Redwood City, California; South San Francisco, California; Sunnyvale, California; Cambridge,
Massachusetts; and Worcester, Massachusetts. Outside the United States, AbbVie’s principal research and
development facilities are located in Ludwigshafen, Germany.
Except as noted, the plants in the United States listed above are owned by AbbVie or subsidiaries of
AbbVie. The remaining manufacturing plants and all other facilities are owned or leased by AbbVie or
subsidiaries of AbbVie.
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ITEM 3. LEGAL PROCEEDINGS
.....................................................................................................................................................................................................................................................................................................................................................
Information pertaining to legal proceedings is provided in Note 14, ‘‘Legal Proceedings and
Contingencies’’ to the Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and
Supplementary Data,’’ and is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
.....................................................................................................................................................................................................................................................................................................................................................
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists AbbVie’s executive officers, each of whom was first appointed as an AbbVie
corporate officer in December 2012, except as otherwise indicated:
Name
Age
Position
Richard A. Gonzalez
Carlos Alban
William J. Chase
Henry O. Gosebruch*
Laura J. Schumacher
63
54
49
44
53
Chairman of the Board and Chief Executive Officer
Executive Vice President, Commercial Operations
Executive Vice President, Chief Financial Officer
Executive Vice President and Chief Strategy Officer
Executive Vice President, External Affairs, General Counsel and
Corporate Secretary
Michael E. Severino, M.D.*
51
Executive Vice President, Research and Development and Chief
Timothy J. Richmond
Azita Saleki-Gerhardt, Ph.D.
Thomas A. Hurwich**
50
53
56
Senior Vice President, Human Resources
Senior Vice President, Operations
Vice President, Controller
Scientific Officer
* Mr. Gosebruch was first appointed as a corporate officer in December 2015 and Dr. Severino was first
appointed as a corporate officer in June 2014.
** As previously announced, Mr. Hurwich will resign as AbbVie’s Vice President, Controller, effective
February 28, 2017.
Mr. Gonzalez is AbbVie’s Chairman of the Board and Chief Executive Officer. He served as Abbott’s
Executive Vice President, Pharmaceutical Products Group from 2010 to 2012, and was responsible for
Abbott’s worldwide pharmaceutical business, including commercial operations, research and development,
and manufacturing. He has also served as President, Abbott Ventures Inc., Abbott’s medical technology
investment arm, from 2009 to 2011. Mr. Gonzalez joined Abbott in 1977 and held various management
positions before briefly retiring in 2007, including Abbott’s President and Chief Operating Officer, President,
Chief Operating Officer of Abbott’s Medical Products Group, Senior Vice President and President of Abbott’s
former Hospital Products Division, Vice President and President of Abbott’s Health Systems Division, and
Divisional Vice President and General Manager for Abbott’s Diagnostics Operations in the United States and
Canada.
Mr. Alban is AbbVie’s Executive Vice President, Commercial Operations. He served as Abbott’s Senior
Vice President, Proprietary Pharmaceutical Products, Global Commercial Operations from 2011 to 2012, as
Senior Vice President, International Pharmaceuticals from 2009 to 2011, as Vice President, Western Europe
and Canada from 2007 to 2009, and as Vice President, European Operations from 2006 to 2007. Mr. Alban
joined Abbott in 1986.
Mr. Chase is AbbVie’s Executive Vice President, Chief Financial Officer. He served as Abbott’s Vice
President, Licensing and Acquisitions from 2010 to 2012, as Vice President, Treasurer from 2007 to 2010,
and as Divisional Vice President, Controller of Abbott International from 2004 to 2007. Mr. Chase joined
Abbott in 1989.
Mr. Gosebruch is AbbVie’s Executive Vice President and Chief Strategy Officer. He worked for more
than 20 years in the Mergers & Acquisitions Group at J.P. Morgan Securities LLC, serving as Managing
Director since 2007 and as Co-Head of M&A North America during 2015. Mr. Gosebruch joined AbbVie in
2015.
Ms. Schumacher is AbbVie’s Executive Vice President, External Affairs, General Counsel and Corporate
Secretary, responsible for AbbVie’s externally-facing functions of Health Economics Outcomes Research,
Government Affairs, Corporate Responsibility, Brand and Communications. She also leads all legal functions
and biotherapeutics strategy. Prior to AbbVie’s separation from Abbott, Ms. Schumacher served as Executive
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Vice President, General Counsel and Corporate Secretary from 2007 to 2012, and as Senior Vice President,
Corporate Secretary and General Counsel from 2005 to 2007. Both at Abbott and AbbVie, Ms. Schumacher
also led Licensing and Acquisition and Ventures and Early Stage Collaborations. At Abbott, Ms. Schumacher
was also responsible for its Office of Ethics and Compliance. Ms. Schumacher joined Abbott in 1990. She
serves on the board of General Dynamics Corporation.
Dr. Severino is AbbVie’s Executive Vice President, Research and Development and Chief Scientific
Officer. Dr. Severino served at Amgen Inc. as Senior Vice President, Global Development and Corporate
Chief Medical Officer from 2012 to 2014, as Vice President, Global Development from 2010 to 2012 and as
Vice President, Therapeutic Area Head, General Medicine and Inflammation Global Clinical Development
from 2007 to 2012. He joined AbbVie in 2014.
Mr. Richmond is AbbVie’s Senior Vice President, Human Resources. He served as Abbott’s Divisional
Vice President of Compensation & Benefits from 2008 to 2012, as Group Vice President of Talent and
Rewards from 2007 to 2008, and as Divisional Vice President of Talent Acquisition from 2006 to 2007.
Mr. Richmond joined Abbott in 2006.
Dr. Saleki-Gerhardt is AbbVie’s Senior Vice President, Operations. She served as Abbott’s Vice President,
Pharmaceuticals Manufacturing and Supply from 2011 to 2012, and as Divisional Vice President, Quality
Assurance, Global Pharmaceutical Operations from 2008 to 2011. Dr. Saleki-Gerhardt joined Abbott in 1993.
Mr. Hurwich is AbbVie’s Vice President, Controller. He served as Abbott’s Vice President, Internal Audit
from 2009 to 2012, and as Divisional Vice President, Controller, Abbott Diagnostics Division from 2003 to
2009. Mr. Hurwich joined Abbott in 1983.
The executive officers of AbbVie are elected annually by the board of directors. All other officers are
elected by the board or appointed by the Chairman of the Board. All officers are either elected at the first
meeting of the board of directors held after the annual stockholder meeting or appointed by the Chairman
of the Board after that board meeting. Each officer holds office until a successor has been duly elected or
appointed and qualified or until the officer’s death, resignation, or removal. There are no family
relationships between any of the executive officers listed above.
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PART II
ITEM 5. MARKET FOR REGISTRANT’s COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
.....................................................................................................................................................................................................................................................................................................................................................
Principal Market
The principal market for AbbVie’s common stock is the New York Stock Exchange (NYSE). AbbVie’s
common stock is also listed on the Chicago Stock Exchange and traded on various regional and electronic
exchanges. Outside the United States, AbbVie’s common stock is listed on NYSE Euronext Paris and the SIX
Swiss Exchange.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stockholders
Market Price Per Share
2016
2015
High
Low
High
Low
$59.81
$65.37
$68.12
$65.05
$50.71
$56.36
$61.77
$55.06
$68.29
$70.75
$71.60
$64.30
$54.78
$56.33
$51.88
$45.45
There were 52,270 stockholders of record of AbbVie common stock as of January 31, 2017.
Dividends
The following table summarizes quarterly cash dividends for the years ended December 31, 2016 and
2015:
Payment Date
Date Declared
Dividend Per Share
Payment Date
Date Declared
Dividend Per Share
2016
2015
11/15/16
08/15/16
05/16/16
02/16/16
09/09/16
06/16/16
02/18/16
10/30/15
$0.57
$0.57
$0.57
$0.57
11/16/15
08/14/15
05/15/15
02/13/15
09/11/15
06/18/15
02/19/15
10/20/14
$0.51
$0.51
$0.51
$0.49
On October 28, 2016, AbbVie’s board of directors declared an increase in the quarterly cash dividend
from $0.57 per share to $0.64 per share, payable on February 15, 2017 to stockholders of record as of
January 13, 2017. 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. Moreover, if AbbVie determines to pay any dividend in the future, there can be no assurance that
it will continue to pay such dividends or the amount of such dividends.
Performance Graph
The following graph compares the cumulative total returns of AbbVie, the S&P 500 Index and the NYSE
Arca Pharmaceuticals Index. This graph covers the period from January 2, 2013 (the first day AbbVie’s
common stock began ‘‘regular-way’’ trading on the NYSE) through December 31, 2016. This graph assumes
$100 was invested in AbbVie common stock and each index on January 2, 2013 and also assumes the
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reinvestment of dividends. The stock price performance on the following graph is not necessarily indicative
of future stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
$225
$200
$175
$150
$125
$100
1/2/2013
12/31/2013
12/31/2014
12/31/2015
12/31/2016
AbbVie Inc.
S&P 500 Index
NYSE Arca Pharmaceutical Index
24FEB201717512546
This performance graph is furnished and shall not be deemed ‘‘filed’’ with the SEC or subject to
Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any
of AbbVie’s filings under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
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
October 1, 2016 - October 31, 2016
November 1, 2016 - November 30, 2016
December 1, 2016 - December 31, 2016
1,206,700(1) $56.03
17,083,128(1) $60.07
16,231,850(1) $61.56
1,197,847
17,080,029
16,205,010
$2,059,934,326(2)
$1,033,906,665(2)
36,288,894(2)
$
Total
34,521,678(1) $60.63
34,482,886
$
36,288,898(2)
1.
These shares represent:
(i)
in addition to AbbVie shares repurchased on the open market under a publicly announced
program, if any, these shares included the shares deemed surrendered to AbbVie to pay the
exercise price in connection with the exercise of employee stock options—8,853 in October; 3,099
in November; and 6,512 in December, with average exercise prices of $43.87 in October; $43.60
in November; and $44.32 in December.
(ii)
the shares purchased on the open market for the benefit of participants in the AbbVie Employee
Stock Purchase Plan—zero in October and November; and 20,328 in December.
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These shares do not include the shares surrendered to AbbVie to satisfy minimum tax withholding
obligations in connection with the vesting of restricted stock or restricted stock units.
2. On October 20, 2014, AbbVie announced that its board of directors authorized the purchase of up to
$5.0 billion of its common stock. The board of directors authorized increases to this repurchase
program of $5.0 billion in March 2015 and $4.0 billion in April 2016 in anticipation of executing
accelerated share repurchase agreements (ASRs) in connection with the acquisitions of Pharmacyclics
and Stemcentrx. Purchases of AbbVie shares under this program may be made from time to time at
management’s discretion. The program has no time limit and can be discontinued at any time.
On February 16, 2017, AbbVie’s board of directors authorized a $5.0 billion increase to AbbVie’s
existing stock repurchase program. The stock repurchase authorization permits shares to be repurchased in
open market or private transactions, has no time limit and may be discontinued at any time.
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ITEM 6. SELECTED FINANCIAL DATA
.....................................................................................................................................................................................................................................................................................................................................................
The following table sets forth AbbVie’s selected financial information derived from its (i) audited
consolidated financial statements as of and for the years ended December 31, 2016, 2015, 2014 and 2013;
and (ii) audited combined financial statements as of and for the year ended December 31, 2012. The
historical financial statements for periods prior to January 1, 2013 were prepared on a stand-alone basis
and were derived from Abbott’s consolidated financial statements and accounting records as if the former
research-based pharmaceutical business of Abbott had been part of AbbVie for all periods presented.
Accordingly, AbbVie’s financial statements for periods prior to January 1, 2013 are presented on a combined
basis and reflect AbbVie’s financial position, results of operations and cash flows as its business was
operated as part of Abbott prior to the separation, in conformity with generally accepted accounting
principles (GAAP) in the United States.
The selected financial information should be read in conjunction with the financial statements and
accompanying notes included under Item 8, ‘‘Financial Statements and Supplementary Data’’ and Item 7,
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’
as of and for the years ended December 31
(in millions, except per share data)
Statement of earnings data
Net revenues
Net earnings(a)(b)
Basic earnings per share(a)(b)
Diluted earnings per share(a)(b)
Cash dividends declared per common share
Weighted-average basic shares outstanding(d)
Weighted-average diluted shares outstanding(d)
Balance sheet data
Total assets(e)(f)
Long-term debt and lease obligations(e)(f)(g)
n/a—Not applicable.
2016
2015
2014
2013
2012
$25,638
5,953
$ 3.65
$ 3.63
$ 2.35
1,622
1,631
$22,859
5,144
$ 3.15
$ 3.13
$ 2.10
1,625
1,637
$19,960
1,774
$ 1.11
$ 1.10
$ 1.75
1,595
1,610
$18,790
4,128
$ 2.58
$ 2.56
$ 2.00(c)
1,589
1,604
$18,380
5,275
$ 3.35
$ 3.35
n/a
1,577
1,577
$66,099
36,465
$53,050
31,265
$27,513
14,552
$29,241
14,353
$27,058
14,702
(a) AbbVie’s historical financial statements for periods prior to January 1, 2013 reflected an allocation of
expenses related to certain Abbott corporate functions, including senior management, legal, human
resources, finance, information technology and quality assurance. These expenses were allocated to
AbbVie based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata
basis of revenues, headcount, square footage, number of transactions or other measures. AbbVie
considers the expense allocation methodology and results to be reasonable. However, the allocations
may not be indicative of the actual expenses that would have been incurred had AbbVie operated as
an independent, stand-alone, publicly-traded company for the periods presented. Accordingly, the
historical financial information presented for periods prior to January 1, 2013 may not be indicative of
the results of operations or financial position that would have been achieved if AbbVie had been an
independent, stand-alone, publicly-traded company during the periods shown or of AbbVie’s
performance for periods subsequent to December 31, 2012.
(b) Results for 2016, 2015, 2014 and 2013 included higher expenses associated with operating as an
independent, stand-alone, publicly-traded company than the historically derived financial statements for
periods prior to January 1, 2013. The increases include the impact of interest expense on debt issued
as a stand-alone company, a higher tax rate and other incremental costs of operating as an
independent company. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Results of Operations’’ for a discussion of other items that affected the comparability
of financial results for 2016, 2015 and 2014, and the 2013 Form 10-K for 2013 and 2012 financial
statements.
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(c) AbbVie declared regular quarterly cash dividends in 2013 aggregating $1.60 per share of common
stock. In addition, a cash dividend of $0.40 per share of common stock was declared from
pre-separation earnings on January 4, 2013 and was recorded as a reduction of additional paid-in
capital.
(d) On January 1, 2013, Abbott distributed 1,577 million shares of AbbVie common stock to shareholders
of Abbott common stock. For periods prior to the separation, the weighted-average basic and diluted
shares outstanding were based on the number of shares of AbbVie common stock outstanding on the
distribution date. See Note 4 to the Consolidated Financial Statements for information regarding the
calculation of basic and diluted earnings per common share for 2016, 2015 and 2014 and the 2013
Form 10-K for 2013 and 2012.
(e) On May 26, 2015, AbbVie acquired Pharmacyclics for approximately $20.8 billion, including cash
consideration of $12.4 billion and equity consideration of approximately 128 million shares of AbbVie
common stock valued at $8.4 billion. In connection with the acquisition, AbbVie issued $16.7 billion
aggregate principal amount of unsecured senior notes, of which approximately $11.5 billion was used
to finance the acquisition and approximately $5.0 billion was used to finance an accelerated share
repurchase (ASR) program. See Note 5 to the Consolidated Financial Statements for information
regarding the acquisition of Pharmacyclics, Note 9 for information on the senior notes and Note 12 for
information on the ASR.
(f)
In June 2016, AbbVie acquired Stemcentrx for approximately $6.4 billion, including cash consideration
of $1.9 billion, equity consideration of approximately 62.4 million shares of AbbVie common stock
valued at $3.9 billion and contingent consideration of approximately $620 million. In connection with
the acquisition AbbVie issued $7.8 billion aggregate principal amount of unsecured senior notes. Of the
$7.7 billion net proceeds, approximately $1.9 billion was used to finance the acquisition, approximately
$3.8 billion was used to finance an ASR and approximately $2.0 billion was used to repay the
company’s outstanding term loan that was due to mature in November 2016. See Note 5 to the
Consolidated Financial Statements for information regarding the acquisition of Stemcentrx, Note 9 for
information on the senior notes and Note 12 for information on the ASR.
(g)
Includes current portion of both long-term debt and lease obligations.
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ITEM 7. 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 December 31, 2016 and 2015 and results of operations for each of the three years in the
period ended December 31, 2016. This commentary should be read in conjunction with the consolidated
financial statements and accompanying notes appearing in Item 8, ‘‘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). AbbVie’s mission is to use 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 (HCV) and human immunodeficiency virus (HIV); neurological
disorders, such as Parkinson’s disease and multiple sclerosis; metabolic diseases, including thyroid disease
and complications associated with cystic fibrosis; as well as other serious health conditions. AbbVie also has
a pipeline of promising new medicines across such important medical specialties as immunology, virology,
oncology and neurology, 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, sales are made either directly 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.
2016 Financial Results
AbbVie’s strategy has focused on delivering strong financial results, advancing and investing in its
pipeline and returning value to shareholders while ensuring a strong, sustainable growth business over the
long term. In 2016, AbbVie’s worldwide net revenues grew by 12% to $25.6 billion, driven primarily by the
continued strength of HUMIRA, post-acquisition revenue growth related to IMBRUVICA and revenue growth
in other key products including Creon and Duodopa. These increases were partially offset by a decline in
net revenues of Kaletra and VIEKIRA.
The company’s financial performance in 2016 included delivering diluted earnings per share of $3.63.
2016 results included the following after-tax costs: (i) $615 million related to the amortization of intangible
assets; (ii) a $298 million currency devaluation loss related to Venezuela; (iii) $273 million related to the
acquisition of Stemcentrx and Boehringer Ingelheim (BI) compounds; (iv) $228 million for changes in
contingent consideration; (v) $200 million for acquired in-process research and development (IPR&D);
(vi) $187 million associated with a tax law change for regulations issued in the fourth quarter of 2016 that
revised the treatment of foreign currency translation gains and losses for certain operations; and
(vii) milestone payments of $80 million. Additionally, 2016 financial results reflected added funding to
support AbbVie’s emerging mid- and late-stage pipeline assets and continued investment in AbbVie’s growth
brands.
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In 2016, the company generated cash flows from operations of $7.0 billion, which AbbVie utilized to
continue to enhance its pipeline through licensing and collaboration activities, pay cash dividends to
stockholders of $3.7 billion and repurchase approximately 34 million shares for $2.1 billion in the open
market (excluding the shares repurchased under an accelerated repurchase agreement). In October 2016,
AbbVie’s board of directors declared a quarterly cash dividend of $0.64 per share of common stock payable
in February 2017. This reflects an increase of approximately 12% over the previous quarterly rate of
$0.57 per share of common stock.
In April 2016, AbbVie acquired all rights to risankizumab (BI 655066), an anti-IL-23 monoclonal biologic
antibody, from BI pursuant to a global collaboration agreement. In June 2016, AbbVie acquired Stemcentrx,
a privately held biotechnology company. The transaction expands AbbVie’s oncology pipeline by adding the
late-stage asset rovalpituzumab tesirine (Rova-T), four additional early-stage clinical compounds in solid
tumor indications and a significant portfolio of pre-clinical assets. Rova-T is currently in registrational trials
for small cell lung cancer and in early-stage clinical development for other solid tumors. In connection with
the Stemcentrx acquisition, AbbVie’s board of directors authorized a $4.0 billion increase to AbbVie’s
existing share repurchase program. Promptly following the closing of the Stemcentrx transaction, AbbVie
entered into and executed a $3.8 billion accelerated share repurchase agreement (ASR) with a third party
financial institution to reacquire nearly all of the newly-issued equity. In May 2016, AbbVie issued
$7.8 billion aggregate principal amount of unsecured senior notes. Of the $7.7 billion net proceeds,
$2.0 billion was used to repay the company’s outstanding term loan that was due to mature in November
2016, approximately $1.9 billion was used to finance the acquisition of Stemcentrx and approximately
$3.8 billion was used to finance the ASR. In November 2016, the company issued e3.6 billion aggregate
principal amount of unsecured senior Euro notes and repaid the company’s outstanding 1.75% senior notes
that were due to mature in November 2017. See Note 5 to the Consolidated Financial Statements for
additional information related to the acquisition of Stemcentrx and BI compounds, Note 9 for additional
information related to the senior Euro notes and Note 12 for additional information related to the ASR.
2017 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 through continued strong performance from its existing portfolio of
on-market products, including its flagship brands, HUMIRA and IMBRUVICA as well as growth from pipeline
products; (ii) expanding operating margins; (iii) continued investment in its pipeline in support of
opportunities in immunology, oncology, virology and neurology as well as continued investment in key
on-market products; (iv) augmentation of its pipeline through concerted focus on strategic licensing,
acquisition and partnering activity with a focus on identifying compelling programs that fit AbbVie’s
strategic criteria; and (v) returning cash to shareholders via dividends and share repurchases. In addition,
AbbVie anticipates several regulatory submissions and key data readouts from key clinical trials in the next
twelve months.
AbbVie expects to achieve its strategic objectives as follows:
• HUMIRA sales growth by driving biologic penetration across disease categories, increasing market
leadership and strong commercial execution.
• IMBRUVICA revenue growth driven by increasing market share within its five currently approved
indications.
• The favorable impact of pipeline products approved in 2016 or currently under regulatory review
where approval is expected in 2017. These products are described in greater detail in the section
labeled ‘‘Research and Development’’ included as part of this Item 7.
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AbbVie remains committed to driving continued expansion of operating margins and expects to achieve
this objective through productivity initiatives in supply chain, ongoing efficiency programs to optimize
manufacturing, commercial infrastructure, administrative costs and general corporate expenses and
continued leverage from revenue growth. AbbVie also remains committed to returning cash to shareholders
via dividends and share repurchases.
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 more than 50 compounds or indications in clinical development
individually or under collaboration or license agreements and is focused on such important medical
specialties as immunology, oncology, virology and neurology along with targeted investments in cystic
fibrosis and women’s health. Of these programs, more than 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 months.
Significant Programs and Developments
Immunology
HUMIRA
• In May 2016, the European Medicines Agency (EMA) granted approval for HUMIRA for the treatment
of pediatric patients aged six years or older, with moderate to severely active Crohn’s disease.
• In June 2016, HUMIRA received both U.S. Food and Drug Administration (FDA) and EMA approval to
treat adults with non-infectious intermediate, posterior and panuveitis. HUMIRA is now the first and
only FDA-approved non-corticosteroid therapy available for adults with non-infectious intermediate,
posterior and panuveitis. This approval marks the 10th approved indication for HUMIRA in the United
States for immune-mediated disease and the 14th approved indication in all geographies.
• In November 2016, AbbVie announced that that the Committee for Medicinal Products for Human
Use (CHMP) granted a positive opinion for HUMIRA to treat adolescents with hidradenitis
suppurativa (HS). If future approval is granted by the European Commission, HUMIRA will be the
first and only treatment option for patients aged 12 and older with HS. HUMIRA was approved for
adults with moderate to severe HS by the European Commission in July 2015.
Risankizumab
• In April 2016, AbbVie acquired all rights to risankizumab (BI 655066), an anti-IL-23 monoclonal
biologic antibody in Phase 3 development for psoriasis, from BI pursuant to a global collaboration
agreement. AbbVie is also evaluating the potential of this biologic therapy in Crohn’s disease,
psoriatic arthritis and asthma. In addition to risankizumab, AbbVie also gained rights to an anti-CD40
antibody, BI 655064, currently in Phase 1 development.
• In November 2016, AbbVie announced that the U.S. Food and Drug Administration (FDA) granted
risankizumab orphan drug designation for the treatment of pediatric patients with Crohn’s disease.
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ABT-494
• AbbVie continued to make progress with ABT-494, the company’s selective JAK-1 inhibitor currently
in late-stage development for rheumatoid arthritis. In first quarter of 2016, AbbVie initiated three
Phase 3 studies in the registrational program. In the fourth quarter of 2016, the company started a
fifth pivotal trial.
Other
• In July 2016, following an evaluation of data for the development of ABT-122, a dual-variable domain
(DVD) immunoglobulin targeting TNF and IL-17 in Phase 2 trials for rheumatoid arthritis and psoriatic
arthritis, AbbVie determined that further development of ABT-122 will not be pursued. While the
trial data demonstrated that the DVD platform worked well, with clear evidence of biologic activity,
the decision was based on a lack a differentiation from other candidates in AbbVie’s development
pipeline.
• In October 2016, AbbVie opted not to exercise an option to license vobarilizumab, an anti-IL-6R
Nanobody, from Ablynx NV based on results of a Phase 2 study in rheumatoid arthritis. AbbVie
retains an option to license vobarilizumab based on results of an on-going Phase 2 study in systemic
lupus erythematosus.
Oncology
IMBRUVICA
• In March 2016, AbbVie announced that the FDA approved IMBRUVICA as a first-line treatment for
patients with CLL. The approval was based on data from the Phase 3 RESONATE-2 trial, which
evaluated efficacy and safety of IMBRUVICA versus traditional chemotherapy, chlorambucil, in
treatment-na¨ıve patients with CLL or small lymphocytic leukemia. This is the first FDA-approved
chemotherapy-free treatment option for first-line CLL patients. In May 2016, AbbVie announced that
the EMA approved IMBRUVICA as a first-line treatment option for adult patients with CLL.
IMBRUVICA is now available to treat all lines of CLL in the European Union (EU). This is the fifth
treatment indication in the EU for IMBRUVICA.
• In May 2016, AbbVie announced that the FDA updated the IMBRUVICA Prescribing Information to
include new data from two Phase 3 trials supporting expanded use in patients with CLL and small
lymphocytic lymphoma. The label now includes overall survival results in previously-untreated CLL/
small lymphocytic lymphoma patients from the Phase 3 RESONATE-2 trial. The IMBRUVICA label has
also been updated with safety and efficacy data from the Phase 3 HELIOS trial assessing the use of
IMBRUVICA in combination with bendamustine and rituximab versus placebo plus rituximab in
relapsed/refractory patients with CLL/small lymphocytic lymphoma. Additionally, the FDA approved a
new IMBRUVICA indication to include the treatment of patients with small lymphocytic lymphoma
with or without the deletion of chromosome 17p.
• In June 2016, AbbVie announced that the FDA granted IMBRUVICA breakthrough therapy designation
for chronic graft-versus-host-disease after failure of one or more lines of systemic therapy, a rare
condition with limited treatment options. This is the fourth breakthrough therapy designation for
IMBRUVICA.
• In January 2017, AbbVie announced that the FDA approved IMBRUVICA for the treatment of
patients with relapsed/refractory marginal zone lymphoma (MZL) who require systemic therapy and
have received at least one prior anti-CD20-based therapy. This indication is approved under
accelerated approval based on overall response rate (ORR) and continued approval may be
contingent upon verification and description of clinical benefit in a confirmatory trial. MZL is a
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slow-growing form of non-Hodgkin’s lymphoma. This marks the seventh FDA approval and fifth
disease indication for IMBRUVICA since the medication’s initial approval in 2013.
Venetoclax
• In April 2016, the FDA granted accelerated approval of Venclexta (venetoclax) tablets for patients
diagnosed with chronic lymphocytic leukemia (CLL) with 17p deletion who have received at least one
prior therapy. Additionally, in January 2016, the FDA granted two additional breakthrough therapy
designations for venetoclax: (i) in combination with rituximab for the treatment of patients with
relapsed/refractory CLL, including patients with chromosome 17p deletion; and (ii) in combination
with hypomethylating agents for the treatment of patients with untreated (treatment-na¨ıve) acute
myeloid leukemia (AML) who are ineligible to receive standard induction therapy (high-dose
chemotherapy). A Phase 3 clinical trial was recently initiated to study the safety and efficacy of
venetoclax in combination with azacitidine in treatment na¨ıve elderly subjects with AML who are
ineligible for standard induction therapy.
• In July 2016, AbbVie announced the initiation of a Phase 3 clinical trial to study the safety and
efficacy of venetoclax in combination with bortezomib and dexamethasone in patients with relapsed
or refractory multiple myeloma who are considered sensitive or naive to proteasome inhibitors and
have received one to three prior lines of therapy. The combination of venetoclax, bortezomib and
dexamethasone will be compared to treatment with bortezomib, dexamethasone and placebo.
• In December 2016, AbbVie announced that the European Commission (EC) has granted conditional
marketing authorization for VENCLYXTO (venetoclax) monotherapy for the treatment of CLL in the
presence of 17p deletion or TP53 mutation in adult patients who are unsuitable for or have failed a
B-cell receptor pathway inhibitor; and for the treatment of CLL in the absence of 17p deletion or
TP53 mutation in adult patients who have failed both chemoimmunotherapy and a B-cell receptor
pathway inhibitor. Conditional marketing authorization is granted to medicines that address an
unmet medical need, where the benefit of its immediate availability to patients outweighs the risk
of limited data availability and where comprehensive data will be provided. VENCLYXTO is a
fist-in-class, oral, once-daily medicine that selectively inhibits the function of the BCL-2 protein.
VENCLYXTO is being developed by AbbVie and Genentech, a member of the Roche Group. It is
jointly commercialized by the companies in the U.S. and by AbbVie outside of the U.S.
Rova-T
• In June 2016, AbbVie acquired Stemcentrx and its lead late-stage asset Rova-T currently in
registrational trials for small cell lung cancer (SCLC). Rova-T is a novel bio-marker-specific therapy
that is derived from cancer stem cells and targets delta-like protein 3 (DLL3) that is expressed in
more than 80% of SCLC patient tumors and is not present in healthy tissue. Registrational trials for
third-line SCLC are expected to complete enrollment by the end of 2016. AbbVie recently began
enrollment of a Phase 1 eight-arm ‘‘basket study’’ in neuroendocrine tumors and a Phase 1/2
regimen selection study as a first-line treatment for SCLC. Beyond Rova-T, Stemcentrx has four novel
compounds in clinical trials across several solid tumor indications and has additional pre-clinical
compounds.
• In July 2016, BMS and AbbVie announced a clinical trial collaboration to evaluate the safety,
tolerability and efficacy of Rova-T in combination with BMS’ Opdivo (nivolumab) and
Opdivo + Yervoy (ipilimumab) regimen as a treatment for relapsed extensive stage SCLC. The
Phase 1/2 clinical program will explore the potential of combining BMS’ immune-oncology agents in
conjunction with Rova-T to drive improved and sustained efficacy and tolerability above the current
standard of care.
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Other
• In May 2016, Bristol-Myers Squibb Company (BMS) and AbbVie announced that the EMA approved
Empliciti (elotuzumab) for the treatment of multiple myeloma as combination therapy with
Revlimid(cid:3) (lenalidomide) and dexamethasone in adult patients who have received at least one prior
therapy. Empliciti is now the first and only immunostimulatory antibody approved for multiple
myeloma in the EU.
• In June 2016, AbbVie exercised its right to end its global collaboration with Infinity
Pharmaceuticals, Inc. (Infinity), which it entered into in September 2014 to develop and
commercialize duvelisib (IPI-145) for the treatment of patients with cancer. Pursuant to the terms of
the global collaboration agreement, the worldwide rights to duvelisib reverted to Infinity.
Virology/Liver Disease
• In February 2016, AbbVie announced that CHMP granted a positive opinion for the use of VIEKIRA
(ombitasvir/paritaprevir/ritonavir tablets) + EXVIERA (dasabuvir tablets) without ribavirin (RBV) in
chronic HCV infected genotype 1b (GT1b) patients with compensated cirrhosis (Child-Pugh A). In
April 2016, AbbVie announced that the FDA approved VIEKIRA PAK (ombitasvir, paritaprevir, ritonavir
tablets; dasabuvir tablets) without RBV in patients with GT1b chronic HCV infection and
compensated cirrhosis. In July 2016, AbbVie announced that the FDA approved a New Drug
Application (NDA) for VIEKIRA XR (dasabuvir, ombitasvir, paritaprevir and ritonavir) extended-release
tablets. VIEKIRA XR is a once-daily, extended-release co-formulation of the active ingredients in
VIEKIRA PAK (ombitasvir, paritaprevir and ritonavir tablets; dasabuvir tablets) and is for the
treatment of patients with chronic genotype 1 (GT1) HCV, including those with compensated
cirrhosis (Child-Pugh A).
• In October 2016, AbbVie announced that the FDA granted breakthrough therapy designation for the
investigational, pan-genotypic regimen of glecaprevir (ABT-493)/pibrentasvir (ABT-530) for the
treatment of patients with HCV who failed previous therapy with direct-acting antivirals in
genotype 1, including therapy with an NS5A inhibitor and/or protease inhibitor.
• In January 2017, AbbVie announced that its marketing authorization application (MAA) has been
validated and is now under accelerated assessment by the EMA for the company’s investigational,
pan-genotypic regimen of G/P for the treatment of all major chronic HCV genotypes. G/P is also
intended to address the needs of patients with specific treatment challenges, including those with
severe chronic kidney disease (CKD) and those not cured with previous direct-acting antiviral (DAA)
treatment. In February 2017, AbbVie announced that the FDA accepted its New Drug Application
(NDA) and granted priority review for the company’s investigational, pan-genotypic regimen of G/P
for the treatment of all major chronic HCV genotypes.
Neurology
• In May 2016, Biogen and AbbVie announced that the FDA approved ZINBRYTA (daclizumab) for the
treatment of adult patients with relapsing forms of multiple sclerosis (RMS). ZINBRYTA is a
once-monthly, self-administered, subcutaneous injection. Biogen and AbbVie will co-promote
ZINBRYTA in the United States. In July 2016, Biogen and AbbVie announced that the EMA granted a
marketing authorization for ZINBRYTA for the treatment of adult patients with RMS. ZINBRYTA
launched in the third quarter of 2016.
Other
• In January 2016, AbbVie announced the initiation of the first of two planned Phase 3 studies
evaluating the safety and efficacy of Elagolix in the treatment of patients with uterine fibroids.
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AbbVie made a milestone payment of $15 million to Neurocrine Biosciences, Inc., AbbVie’s
collaboration partner, upon enrollment of the first patient. Elagolix is also in Phase 3 development
for endometriosis.
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 the
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.
for the years ended (dollars in millions)
2016
2015
2014
2016
2015
2016
2015
United States
International
Net revenues
$15,947
9,691
$13,561
9,298
$10,845
9,115
17.6% 25.0% 17.6% 25.0%
4.2% 2.0% 7.3% 17.9%
$25,638
$22,859
$19,960
12.2% 14.5% 13.5% 21.7%
Percent change
At actual
currency
rates
At constant
currency
rates
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The following table details AbbVie’s worldwide net revenues:
years ended December 31 (in millions)
2016
2015
2014
2016
2015
2016
2015
Percent change
At actual
currency
rates
At constant
currency
rates
HUMIRA
United States
International
Total
IMBRUVICA
United States
Collaboration revenues
Total
VIEKIRA
United States
International
Total
Lupron
United States
International
Total
Synagis
International
Synthroid
United States
Creon
United States
AndroGel
United States
Kaletra
United States
International
Total
Sevoflurane
United States
International
Total
Duodopa
United States
International
Total
All other
Total net revenues
n/a—Not applicable.
$10,432
5,646
$ 8,405
5,607
$ 6,524
6,019
$16,078
$14,012
$12,543
24.1%
0.7%
14.7%
28.8%
(6.9)%
11.7%
24.1%
4.3%
16.1%
28.8%
8.6%
19.1%
$ 1,580
252
$ 1,832
$
342
1,180
$
$
$
659
95
754
804
835
$ 1,522
$ 1,639
$
$
$
$
$
$
$
$
$
$
$
$
663
158
821
730
763
730
675
116
433
549
80
348
428
37
256
293
$
$
$
$
$
$
$
$
$
$
$
$
653
173
826
740
755
632
694
163
537
700
81
393
474
12
219
231
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— >100.0%
— >100.0%
— >100.0%
n/a
n/a
n/a
>100.0%
>100.0%
>100.0%
n/a
n/a
n/a
48
—
48
580
198
778
(57.4)% >100.0%
41.3%
n/a
(57.4)% >100.0%
42.7%
n/a
(7.1)% >100.0%
(6.4)% >100.0%
1.5%
(8.5)%
(0.6)%
12.5%
(12.9)%
6.1%
1.5%
(5.2)%
0.1%
12.5%
(0.2)%
9.3%
835
(1.5)%
(11.3)%
(0.4)%
0.6%
709
1.1%
6.4%
1.1%
6.4%
516
15.5%
22.5%
15.5%
22.5%
934
(2.8)%
(25.7)%
(2.8)%
(25.7)%
213
657
870
83
467
550
(28.8)%
(19.3)%
(23.8)%
(18.2)%
(28.8)%
(13.3)%
(23.8)%
(4.9)%
(21.5)%
(19.6)%
(16.9)%
(9.6)%
(1.0)%
(11.4)%
(2.5)%
(15.9)%
(9.7)%
(13.9)%
(1.0)%
(6.9)%
(6.0)%
(2.5)%
(4.0)%
(3.8)%
— >100.0% >100.0% >100.0% >100.0%
18.1%
(0.6)%
16.9%
18.1%
220
220
26.9%
4.8%
28.1%
23.5%
$ 1,217
$ 1,402
$ 1,957
(13.2)%
(28.3)%
(12.3)%
(24.9)%
$25,638
$22,859
$19,960
12.2%
14.5%
13.5%
21.7%
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42
The following discussion and analysis of AbbVie’s net revenues by product is presented on a constant
currency basis.
Global HUMIRA sales increased 16% in 2016 and 19% in 2015. The sales increase in 2016 was driven
by market growth across therapeutic categories and geographies, favorable pricing in certain geographies
and approval of new indications. The sales increase in 2015 was primarily as a result of market growth
across therapeutic categories and geographies, higher market share, approval of new indications and
favorable pricing in certain geographies. In the United States, HUMIRA revenues increased 24% in 2016 and
29% in 2015, driven by prescription volume, favorable pricing, market growth across all indications and
higher market share. Internationally, HUMIRA revenues increased 4% in 2016 and 9% in 2015, driven
primarily by growth across indications. AbbVie continues to pursue strategies to help further differentiate
HUMIRA from competing products and add to the sustainability and future growth of HUMIRA.
Net revenues for IMBRUVICA represent product revenues in the United States and collaboration
revenues outside of the United States related to AbbVie’s 50% share of IMBRUVICA profit. Net revenues for
IMBRUVICA commenced following the completion of the Pharmacyclics acquisition on May 26, 2015. Global
IMBRUVICA sales increased more than 100% in 2016 as a result of market share gains following the FDA
and EMA approval of IMBRUVICA as a first-line treatment for patients with CLL as well as having a full year
of sales in 2016.
Global VIEKIRA sales decreased 6% in 2016, as a result of lower market share, primarily in the United
States, market contraction and price erosion. In the United States, sales decreased 57% in 2016, primarily
due to lower market share resulting from a new market entrant in the first quarter of 2016 and contraction
of the overall market. International revenues in 2016 reflected sales in additional geographies where the
product was approved subsequent to December 31, 2015. VIEKIRA was launched in 2015, revenues
increased during 2015 as the product was approved in additional geographies.
Synagis is a seasonal product with the majority of sales occurring in the first and fourth quarters. Net
revenues remained constant in 2016 and increased 1% in 2015.
Net revenues for Creon increased 15% in 2016 and 22% in 2015, driven primarily by continued market
growth and higher market share. Creon maintains market leadership in the pancreatic enzyme market.
Global Kaletra net revenues decreased 17% in 2016 and 10% in 2015, primarily due to lower market
share resulting from the impact of increasing competition in the HIV marketplace. AbbVie expects net
revenues for Kaletra to continue to decline in 2017.
Net revenues for Duodopa increased 28% in 2016 and 23% in 2015, primarily as a result of market
penetration and geographic expansion. Duopa was approved in the United States in January 2015. AbbVie
expects net revenues for Duopa in the United States will continue to gradually increase during 2017 as the
product gains acceptance in the marketplace.
Gross Margin
years ended December 31 (in millions)
2016
2015
2014
Gross margin
as a percent of net revenues
$19,805
$18,359
$15,534
77%
80%
78%
Percent
change
2016
8%
2015
18%
Gross margin as a percentage of net revenues decreased in 2016 due to the impact of unfavorable
foreign exchange rates, higher intangible asset amortization and the unfavorable impact related to the
Pharmacyclics acquisition, including the profit sharing arrangement and the amortization of the fair market
value step-up of acquisition-date inventory. These reductions were partially offset by the favorable impact
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of product mix across the portfolio and manufacturing efficiencies. Additionally, 2016 included a $39 million
charge related to the impairment of an intangible asset in the first quarter of 2016.
The gross margin for 2015 and 2014 reflected the favorable impact of product mix across the product
portfolio, including HUMIRA, operational efficiencies and price increases, partially offset by the effect of
unfavorable foreign exchange rates and the loss of exclusivity for the lipid franchise. Gross margin in 2015
also included milestone revenue of $40 million from a collaboration partner related the company’s oncology
program. Additionally, gross margin in 2014 included royalty income of $81 million relating to prior periods
as a result of the settlement of a licensing arrangement and lower amortization expense for intangible
assets, partially offset by a $37 million impairment charge for an intangible asset.
Selling, General and Administrative
years ended December 31 (in millions)
Selling, general and administrative
as a percent of net revenues
Percent
change
2016
2015
2014
2016
2015
$5,855
$6,387
$7,724
(8)% (17)%
23%
28%
39%
SG&A expenses as a percentage of net revenues decreased in 2016 due to continued leverage from
revenue growth and lower costs in 2016. 2015 SG&A expenses included costs associated with the
separation from Abbott of $265 million, Pharmacyclics acquisition and integration costs of $294 million and
litigation charges of $165 million. Additionally, SG&A expense in 2015 reflected marketing support for the
global launch of VIEKIRA.
SG&A expenses declined in 2015 compared to 2014, principally due to the absence of transaction-
related costs totaling $1.7 billion incurred in 2014 in connection with the termination of the proposed
combination with Shire, partially offset by the 2015 items discussed above. SG&A expenses in 2014 also
included a $129 million charge related to the Branded Prescription Drug Fee due to the issuance of final
rules which resulted in an additional year of expense in 2014.
Research and Development and Acquired In-Process Research and Development
Percent
change
years ended December 31 (in millions)
2016
2015
2014
2016
2015
Research and development
as a percent of net revenues
Acquired in-process research and development
$4,366
$4,285
$3,297
2%
30%
17%
19%
17%
$ 200
$ 150
$ 352
33% (57)%
Research and Development (R&D) expenses in 2016 increased compared to 2015 principally due to
increased funding to support the company’s emerging mid- and late-stage pipeline assets. These increases
were partially offset by the following factors: (i) 2015 R&D expenses included a $350 million charge related
to the purchase of a priority review voucher from a third party; (ii) development milestones decreased in
2016 to $80 million compared to $133 million in 2015; and (iii) 2015 results included restructuring charges
of $32 million. Acquisition costs decreased in 2016 to $140 million compared to $152 million in 2015. In
addition to the 2015 factors discussed above, R&D expense in 2014 included regulatory milestone payments
of $40 million made to a collaboration partner for regulatory milestones related to the company’s HCV
program.
Acquired IPR&D expense in 2016 included charges of $200 million as a result of entering into various
collaboration agreements. R&D expense in 2015 included a charge of $100 million as a result of entering
into an exclusive worldwide license agreement with C2N to develop and commercialize anti-tau antibodies
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for the treatment of Alzheimer’s disease and other neurological disorders. Acquired IPR&D expense in 2014
included a charge of $275 million as a result of entering into a global collaboration with Infinity to develop
and commercialize duvelisib, a treatment for patients with cancer. See Note 5 to the Consolidated Financial
Statements for additional information regarding the C2N and Infinity agreements.
Other Operating Expenses
Other operating expenses in 2014 included a $750 million charge related to an R&D collaboration
agreement entered into in September 2014 with Calico to discover, develop and commercialize new
therapies for patients with age-related diseases.
Other Non-Operating Expenses
(in millions)
Interest expense
Interest income
Interest expense, net
Net foreign exchange loss
Other expense (income), net
Years Ended December 31,
2016
2015
2014
$1,047
(82)
$719
(33)
$429
(38)
$ 965
$686
$391
$ 303
232
$193
13
$678
(27)
Interest expense in 2016 increased due to the May 2015 issuance of $16.7 billion aggregate principal
amount of senior notes, which were issued primarily to finance the acquisition of Pharmacyclics and the
May 2016 issuance of $7.8 billion aggregate principal amount of senior notes, which were issued primarily
to finance the acquisition of Stemcentrx and to repay an outstanding term loan. Additionally, interest
expense in 2016 included a debt extinguishment charge of $39 million related to the 1.75% senior notes
redemption. These increases were partially offset by the absence of bridge financing-related costs of
$86 million in 2015 incurred in connection with the acquisition of Pharmacyclics. Interest income in 2016
increased due to growth in the company’s investment securities. Interest expense, net in 2015 increased
due to the May 2015 issuance of $16.7 billion aggregate principal amount of senior notes. Interest expense,
net in 2014 included $141 million of financing related fees incurred in connection with the terminated
proposed combination with Shire.
Net foreign exchange loss in 2016 included losses totaling $298 million related to the devaluation of
AbbVie’s net monetary assets denominated in the Venezuelan bolivar. See Note 10 to the Consolidated
Financial Statements for additional information regarding the Venezuelan devaluation. Net foreign exchange
loss in 2015 included losses of $170 million to complete the liquidation of the company’s remaining foreign
currency positions related to the terminated proposed combination with Shire. In 2014, AbbVie entered into
certain undesignated forward contracts to hedge the then anticipated foreign currency cash outflows
associated with the then proposed combination with Shire. Net foreign exchange loss in 2014 included
losses of $666 million associated with the Shire-related forward contracts.
Other expense, net in 2016 included a charge of $228 million related to the change in fair value of the
BI and Stemcentrx contingent consideration liabilities. 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 and other market-based factors. In 2016, the change in
fair value represented mainly the passage of time, as increases to the BI contingent consideration liability
due to higher probabilities of success were fully offset by the effects of rising interest rates and changes in
other market-based assumptions. See Note 5 to the Consolidated Financial Statements for additional
information regarding the acquisitions of Stemcentrx and BI compounds. Other expense, net for 2015
included impairment charges totaling $36 million related to certain of the company’s equity investment
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securities. Other expense, net in 2014 primarily consisted of income of $34 million from the resolution of a
contractual agreement.
Income Tax Expense
The effective income tax rate was 24% in 2016, 23% in 2015 and 25% in 2014. The effective tax rate in
each period differed from the statutory tax rate principally due to the benefit from foreign operations
which reflects the impact of lower income tax rates in locations outside the United States, tax exemptions
and incentives in Puerto Rico and other foreign tax jurisdictions, business development activities and the
cost of repatriation decisions. The increase in the effective tax rate for 2016 over the prior year was
principally due to changes in the jurisdictional mix of earnings, as well as certain discrete factors and
events, including acquisitions and collaborations. The effective tax rate in 2016 included additional expense
of $187 million related to the recognition of the tax effect of regulations issued by the Internal Revenue
Service on December 7, 2016 that changed the determination of the U.S. taxability of foreign currency
gains and losses related to certain foreign operations. The effective income tax rate in 2015 included a tax
benefit of $103 million from a reduction of state valuation allowances. The effective income tax rate in
2014 included state valuation allowances of $129 million and additional expenses of $129 million related to
the Branded Prescription Drug Fee, which is non-deductible.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
years ended December 31 (in millions)
Cash flows provided by/(used in):
Operating activities
Investing activities
Financing activities
2016
2015
2014
$ 7,041
(6,074)
(3,928)
$ 7,535
(12,936)
5,752
$ 3,549
(926)
(3,293)
Cash flows provided by operations in 2016 was $7.0 billion compared to $7.5 billion in 2015. Operating
cash flows in 2016 reflected improved results of operations resulting from revenue growth and an
improvement in operating margin, offset by income tax payments. Cash provided by operating activities also
reflected AbbVie’s voluntary contributions, primarily to its domestic defined benefit plans of $150 million in
2016, $150 million in 2015 and $370 million in 2014. AbbVie also made a voluntary contribution of
$150 million to this plan subsequent to December 31, 2016. AbbVie paid $350 million to purchase a
priority review voucher from a third party in 2015. Cash flows provided by operations in 2015 was
$7.5 billion compared to $3.5 billion in 2014. The increase was primarily due to improved results of
operations due to revenue growth and an improvement in operating margin as well as the absence of
after-tax transaction and financing-related and other costs of $1.8 billion incurred in connection with the
termination of the proposed combination with Shire, including net foreign exchange losses related to the
settlement of undesignated forward contracts used to hedge anticipated foreign currency cash flows and
the exit of certain foreign currency positions. Realized excess tax benefits associated with stock-based
compensation totaled $55 million in 2016, $61 million in 2015 and $56 million in 2014 and were presented
in the Consolidated Statements of Cash Flows as an outflow within the operating section and an inflow
within the financing section.
Investing cash flows in 2016 primarily included $1.9 billion cash consideration paid to acquire
Stemcentrx in June 2016, $595 million upfront payment to acquire certain rights from BI in April 2016 and
net purchases of investment securities totaling $3.0 billion. Investing activities in 2015 primarily included
the $11.5 billion cash consideration paid to acquire Pharmacyclics in May 2015 (net of cash acquired of
$877 million). Investing activities in 2015 also included cash outflows related to other acquisitions and
investments of $964 million, including a $500 million payment to Calico, $100 million related to an exclusive
worldwide license agreement with C2N to develop and commercialize anti-tau antibodies for the treatment
of Alzheimer’s disease and other neurological disorders and $130 million paid to Infinity due to the
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achievement of a development milestone under the collaboration agreement. Investing activities in 2014
included cash outflows related to other acquisitions and investments totaling $622 million, including
$275 million paid to Infinity and $250 million paid to Calico. Cash flows from investing activities in 2016,
2015 and 2014 also reflected capital expenditures. AbbVie incurred additional expenditures in 2014 to
purchase a manufacturing facility and in 2015 to build a new biologics facility on that site.
In 2016 and 2015, the company issued and redeemed commercial paper. The balance of commercial
paper outstanding was $377 million as of December 31, 2016 and $400 million as of December 31, 2015.
AbbVie may issue additional commercial paper or retire commercial paper to meet liquidity requirements as
needed. In November 2016, the company issued e3.6 billion aggregate principal amount of unsecured
senior Euro notes. The company used the proceeds to redeem $4.0 billion aggregate principal amount of
1.75% senior notes due to mature in November 2017. In connection with the offering, AbbVie incurred
$17 million of issuance costs. In May 2016, the company issued $7.8 billion aggregate principal amount of
senior notes. Approximately $2.0 billion of the net proceeds were used to repay an outstanding term loan
that was due to mature in November 2016, approximately $1.9 billion of the net proceeds were used to
finance the acquisition of Stemcentrx and approximately $3.8 billion of the net proceeds were used to
finance an ASR. See Note 12 to the Consolidated Financial Statements for additional information on the
ASR transactions. In connection with the May 2016 issuance of senior notes, AbbVie incurred $52 million of
issuance costs.
In May 2015, the company issued $16.7 billion aggregate principal amount of unsecured senior notes.
Approximately $11.5 billion of the net proceeds were used to finance the acquisition of Pharmacyclics and
$5.0 billion of the net proceeds were used to finance an ASR. In 2015 the company paid $86 million of
costs relating to an $18.0 billion, 364-Day Bridge Term Loan Credit Agreement (the bridge loan) as well as
$93 million of costs relating to the May 2015 issuance of senior notes. No amounts were drawn under the
bridge loan, which was terminated as a result of the issuance of the senior notes. In September 2015,
AbbVie entered into a three-year $2.0 billion term loan credit facility and a 364-day $2.0 billion term loan
credit facility. In November 2015, AbbVie drew on these term facilities and used the proceeds to refinance
its $4.0 billion of senior notes that matured in 2015.
Cash dividend payments totaled $3.7 billion in 2016 and $3.3 billion in 2015. The increase in cash
dividend payments was primarily due to an increase in the dividend rate. On October 28, 2016, AbbVie
announced that its board of directors declared an increase in the company’s quarterly cash dividend from
$0.57 per share to $0.64 per share beginning with the dividend payable on February 15, 2017 to
stockholders of record as of January 13, 2017. This reflects an increase of approximately 12% over the
previous quarterly rate. The timing, declaration, amount of and payment of any dividends 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.
In addition to the ASRs, the company repurchased approximately 34 million shares for $2.1 billion in
the open market in 2016 and approximately 46 million shares for $2.8 billion in the open market in 2015.
Purchases of AbbVie shares under this program may be made from time to time at management’s
discretion. The program has no time limit and can be discontinued at any time. AbbVie’s remaining stock
repurchase authorization was $36 million as of December 31, 2016. See Note 12 to the Consolidated
Financial Statements for additional information related to the ASR. On February 16, 2017, AbbVie’s board of
directors authorized a $5.0 billion increase to AbbVie’s existing stock repurchase program. The stock
repurchase authorization permits shares to be repurchased in open market or private transactions, has no
time limit and may be discontinued at any time.
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Cash and equivalents were also negatively impacted by net unfavorable exchange rate changes totaling
$338 million in 2016 and $300 million in 2015. The unfavorable exchange rate changes in 2016 were
primarily due to the devaluation of AbbVie’s net monetary assets denominated in the Venezuelan bolivar.
The unfavorable exchange rate changes in 2015 were principally due to the weakening of the Euro and
other foreign currencies on the translation of the company’s Euro-denominated assets and cash
denominated in foreign currencies. While a significant portion of cash and equivalents at December 31,
2016 are considered reinvested indefinitely in foreign subsidiaries, AbbVie does not expect such
reinvestment to affect its liquidity and capital resources. If these funds were needed for operations in the
United States, AbbVie would be required to accrue and pay U.S. income taxes to repatriate these funds.
AbbVie believes that it has sufficient sources of liquidity to support its assumption that the disclosed
amount of undistributed earnings at December 31, 2016 has been reinvested indefinitely.
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 accounts receivable when it is probable
they will not be collected. AbbVie also monitors the potential for and periodically has utilized 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, including Greece,
Portugal, Italy and Spain, that have historically experienced challenges in credit and economic conditions.
Substantially all of AbbVie’s trade receivables in Greece, Portugal, Italy and Spain are with government
health systems. Outstanding net governmental receivables in these countries totaled $244 million as of
December 31, 2016 and $525 million at December 31, 2015. The company also continues to do business
with foreign governments in certain oil-exporting countries, which have recently experienced a deterioration
in economic conditions, including Saudi Arabia and Russia. Outstanding net governmental receivables were
$122 million related to Saudi Arabia and $110 million related to Russia as of December 31, 2016. Due to oil
market conditions in recent years, liquidity issues in certain countries may result in delays in the collection
of receivables. Global economic conditions and customer-specific factors may require the company to
periodically re-evaluate the collectability of its receivables and the company could potentially incur credit
losses.
Currently, AbbVie does not believe the economic conditions in oil-exporting 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 outstanding
as of December 31, 2016.
Credit Facility, Access to Capital and Credit Ratings
Credit Facility
AbbVie currently has a $3.0 billion five-year revolving credit facility, which matures in October 2019.
The revolving credit facility enables the company to borrow funds on an unsecured basis at variable interest
rates and contains various covenants. At December 31, 2016, the company was in compliance with all its
credit facility covenants. Commitment fees under the credit facility were insignificant. There were no
amounts outstanding under the credit facility as of December 31, 2016 and 2015.
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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
On April 28, 2016, following the announcement of the proposed acquisition of Stemcentrx, S&P Global
Ratings (S&P) lowered AbbVie’s corporate credit rating and senior unsecured debt rating to ‘‘A-’’ from ‘‘A’’.
AbbVie’s ‘‘A-1’’ short-term rating remained unchanged. S&P revised its ratings outlook to ‘‘stable’’ from
‘‘negative’’. On June 1, 2016, Moody’s Investor Service downgraded AbbVie’s senior unsecured long-term
rating to Baa2 from Baa1 and affirmed AbbVie’s Prime-2 short-term rating. There were no additional
changes in the company’s credit ratings in 2016.
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.
Contractual Obligations
The following table summarizes AbbVie’s estimated contractual obligations as of December 31, 2016:
(in millions)
Short-term borrowings
Long-term debt and capital lease obligations,
including current portion
Interest on long-term debt(a)
Future minimum non-cancelable operating lease
commitments
Purchase obligations and other(b)
Other long-term liabilities(c)(d)(e)
Total
(a)
Total
Less than
one year
One to
three years
Three to More than
five years
five years
$
377
$ 377
$
— $ — $
—
37,077
16,924
974
1,818
5,159
25
1,067
131
1,669
540
7,503
2,389
5,562
2,295
23,987
11,173
222
118
437
172
20
837
449
11
3,345
$62,329
$3,809
$10,669
$8,886
$38,965
Includes estimated future interest payments on long-term debt securities and capital lease obligations.
Interest payments on debt are calculated for future periods using forecasted interest rates in effect at
the end of 2016. Projected interest payments include the related effects of interest rate swap
agreements. Certain of these projected interest payments may differ in the future based on changes in
floating interest rates or other factors or events. The projected interest payments only pertain to
obligations and agreements outstanding at December 31, 2016. See Note 9 to the Consolidated
Financial Statements for additional information regarding the company’s debt instruments and Note 10
for additional information on the interest rate agreements outstanding at December 31, 2016.
(b)
Includes the company’s significant unconditional purchase obligations. These commitments do not
exceed the company’s projected requirements and are made in the normal course of business.
(c) Amounts less than one year includes a voluntary contribution of $150 million AbbVie made to its main
domestic defined benefit plan subsequent to December 31, 2016. Amounts otherwise exclude pension
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and other post-employment benefits and related deferred compensation cash outflows. Timing of
funding is uncertain and dependent on future movements in interest rates and investment returns,
changes in laws and regulations and other variables. Also included in this amount are components of
other long-term liabilities including restructuring. See Note 8 to the Consolidated Financial Statements
for additional information on restructuring and Note 11 for additional information on the pension plan.
(d) Excludes liabilities associated with the company’s unrecognized tax benefits as it is not possible to
reliably estimate the timing of the future cash outflows related to these liabilities. See Note 13 to the
Consolidated Financial Statements for additional information on these unrecognized tax benefits.
(e)
Includes $4.2 billion of contingent consideration liabilities related to the acquisitions of Stemcentrx and
BI compounds which are recorded at fair value on the consolidated balance sheet. Potential contingent
consideration payments that exceed the fair value recorded on the consolidated balance sheet are not
included in the table of contractual obligations. See Notes 5 and 10 to the Consolidated Financial
Statements for additional information regarding these liabilities.
AbbVie enters into R&D collaboration arrangements with third parties that may require future
milestone payments to third parties contingent upon the achievement of certain development, regulatory,
or commercial milestones. Individually, these arrangements are insignificant in any one annual reporting
period. However, if milestones for multiple products covered by these arrangements would happen to be
reached in the same reporting period, the aggregate charge to expense could be material to the results of
operations in that period. From a business perspective, the payments are viewed as positive because they
signify that the product is successfully moving through development and is now generating or is more likely
to generate cash flows from product sales. It is not possible to predict with reasonable certainty whether
these milestones will be achieved or the timing for achievement. As a result, these potential payments are
not included in the table of contractual obligations. See Note 5 to the Consolidated Financial Statements for
additional information on these collaboration arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with generally accepted accounting principles in
the United States requires the use of estimates and assumptions that affect the reported amounts of assets
and liabilities and the reported amounts of revenue and expenses. A summary of the company’s significant
accounting policies is included in Note 2 to the consolidated financial statements. Certain of these policies
are considered critical as these most significantly impact the company’s financial condition and results of
operations and require the most difficult, subjective, or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain. Actual results may vary from
these estimates.
Revenue Recognition
AbbVie recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred,
the sales price is fixed or determinable and collectability of the sales price is reasonably assured. Revenue
from product sales is recognized when title and risk of loss have passed to the customer.
Rebates
AbbVie provides rebates to pharmacy benefit managers, state government Medicaid programs,
insurance companies that administer Medicare drug plans, wholesalers, group purchasing organizations and
other government agencies and private entities.
Rebate and chargeback accruals are recorded as a reduction to revenue in the period the related
product is sold. Rebates and chargebacks totaled $10.8 billion in 2016, $8.6 billion in 2015 and $5.9 billion
in 2014. Rebate amounts are typically based upon the volume of purchases using contractual or statutory
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prices, which may vary by product and by payer. For each type of rebate, the factors used in the
calculations of the accrual for that rebate include the identification of the products subject to the rebate,
the applicable price terms and the estimated lag time between sale and payment of the rebate, which can
be significant.
In order to establish its rebate and chargeback accruals, the company uses both internal and external
data to estimate the level of inventory in the distribution channel and the rebate claims processing lag time
for each type of rebate. To estimate the rebate percentage or net price, the company tracks sales by
product and by customer or payer. The company evaluates inventory data reported by wholesalers, available
prescription volume information, product pricing, historical experience and other factors in order to
determine the adequacy of its reserves. AbbVie regularly monitors its reserves and records adjustments
when rebate trends, rebate programs and contract terms, legislative changes, or other significant events
indicate that a change in the reserve is appropriate. Historically, adjustments to rebate accruals have not
been material to net earnings.
The following table is an analysis of the three largest rebate accruals and chargeback allowances,
which comprise approximately 90% of the total consolidated rebate and chargebacks recorded as reductions
to revenues in 2016. Remaining rebate provisions charged against gross revenues are not significant in the
determination of operating earnings.
(in millions)
Balance at December 31, 2013
Provisions
Payments
Balance at December 31, 2014
Provisions
Payments
Balance at December 31, 2015
Provisions
Payments
Balance at December 31, 2016
Cash Discounts and Product Returns
Medicaid
and
Medicare
Rebates
$
667
1,015
(970)
712
1,716
(1,396)
1,032
2,606
(2,471)
Managed
Care
Rebates
$
459
970
(953)
476
2,215
(1,771)
920
3,146
(2,899)
Wholesaler
Chargebacks
$
212
2,825
(2,784)
253
3,866
(3,756)
363
3,987
(3,967)
$ 1,167
$ 1,167
$
383
Allowances for cash discounts and product returns, which totaled $964 million in 2016, $898 million in
2015 and $610 million in 2014, are recorded as a reduction to revenue in the same period the related
product is sold. The reserve for cash discounts is readily determinable because the company’s experience of
payment history is fairly consistent. Product returns can be reliably estimated based on the company’s
historical return experience.
Pension and Other Post-Employment Benefits
AbbVie engages outside actuaries to assist in the determination of the obligations and costs under the
plans that are direct obligations of AbbVie. The valuation of the funded status and the net periodic benefit
cost for these plans are calculated using actuarial assumptions. The significant assumptions, which are
reviewed annually, include the discount rate, the expected long-term rate of return on plan assets and the
health care cost trend rates. The significant assumptions used in determining these calculations are
disclosed in Note 11 to the consolidated financial statements.
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The discount rate is selected based on current market rates on high-quality, fixed-income investments
at December 31 each year. AbbVie employs a yield-curve approach for countries where a robust bond
market exists. The yield curve is developed using high-quality bonds. The yield curve approach reflects the
plans’ specific cash flows (i.e. duration) in calculating the benefit obligations by applying the corresponding
individual spot rates along the yield curve. Beginning in 2016, AbbVie also reflected the plans’ specific cash
flows and applied them to the corresponding individual spot rates along the yield curve in calculating the
service cost and interest cost portions of expense. For other countries, AbbVie reviews various indices such
as corporate bond and government bond benchmarks to estimate the discount rate. AbbVie’s assumed
discount rates have a significant effect on the amounts reported for defined benefit pension and other
post-employment plans as of December 31, 2016. A 50 basis point change in the assumed discount rate
would have had the following effects on AbbVie’s calculation of net periodic benefit costs in 2017 and
projected benefit obligations as of December 31, 2016:
(in millions) (brackets denote a reduction)
Defined benefit plans
Service and interest cost
Projected benefit obligation
Other post-employment plans
Service and interest cost
Projected benefit obligation
50 basis point
Increase
Decrease
$ (50)
(452)
$
(6)
(51)
$ 54
511
$
7
58
Effective December 31, 2015, AbbVie elected to change the method it uses to estimate the service and
interest cost components of net periodic benefit costs. Historically, AbbVie estimated these service and
interest cost components of this expense utilizing a single weighted-average discount rate derived from the
yield curve used to measure the benefit obligation at the beginning of the period. In late 2015, AbbVie
elected to utilize a full yield curve approach in the estimation of these components by applying the specific
spot rates along the yield curve used in the determination of the benefit obligation to the relevant
projected cash flows. AbbVie elected to make this change to provide a more precise measurement of
service and interest costs by improving the correlation between projected benefit cash flows to the
corresponding spot yield curve rates. AbbVie has accounted for this change prospectively as a change in
accounting estimate that is inseparable from a change in accounting principle. This change reduced AbbVie’s
net periodic benefit cost by approximately $41 million in 2016. This change had no effect on the 2015
expense and will not affect the measurement of AbbVie’s total benefit obligations.
The expected long-term rate of return is based on the asset allocation, historical performance and the
current view of expected future returns. AbbVie considers these inputs with a long-term focus to avoid
short-term market influences. The current long-term rate of return on plan assets is supported by the
historical performance of the trust’s actual and target asset allocation. AbbVie’s assumed expected
long-term rate of return has a significant effect on the amounts reported for defined benefit pension plans
as of December 31, 2016 and will be used in the calculation of net periodic benefit cost in 2017. A one
percentage point change in assumed expected long-term rate of return on plan assets would increase or
decrease the net period benefit cost of these plans in 2017 by $49 million.
The health care cost trend rate is selected by reviewing historical trends and current views on
projected future health care cost increases. The current health care cost trend rate is supported by the
historical trend experience of the plan. Assumed health care cost trend rates have a significant effect on
the amounts reported for health care plans as of December 31, 2016 and will be used in the calculation of
net periodic benefit cost in 2017. A one percentage point change in assumed health care cost trend rates
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would have the following effects on AbbVie’s calculation of net periodic benefit costs in 2017 and the
projected benefit obligation as of December 31, 2016:
(in millions) (brackets denote a reduction)
Service and interest cost
Projected benefit obligation
Income Taxes
One percentage
point
Increase
Decrease
$ 21
120
$(17)
(95)
AbbVie accounts for income taxes under the asset and liability method. Provisions for federal, state
and foreign income taxes are calculated on reported pretax earnings based on current tax laws. Deferred
taxes are provided using enacted tax rates on the future tax consequences of temporary differences, which
are the differences between the financial statement carrying amount of assets and liabilities and their
respective tax bases and the tax benefits of carryforwards. A valuation allowance is established or
maintained when, based on currently available information, it is more likely than not that all or a portion
of a deferred tax asset will not be realized.
Litigation
The company 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. See Note 14 to the Consolidated Financial Statements for additional information.
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. Accordingly, AbbVie is often initially unable to develop a best estimate of loss and therefore, the
minimum amount, which could be zero, is recorded. As information becomes known, either the minimum
loss amount is increased, resulting in additional loss provisions, or a best estimate can be made, also
resulting in additional loss provisions. Occasionally, a best estimate amount is changed to a lower amount
when events result in an expectation of a more favorable outcome than previously expected.
Valuation of Goodwill and Intangible Assets
AbbVie has acquired and may continue to acquire significant intangible assets in connection with
business combinations that AbbVie records at fair value. Transactions involving the purchase or sale of
intangible assets occur with some frequency between companies in the pharmaceuticals industry and
valuations are usually based on a discounted cash flow analysis incorporating the stage of completion. The
discounted cash flow model requires assumptions about the timing and amount of future net cash flows,
risk, cost of capital, terminal values and market participants. Each of these factors can significantly affect
the value of the intangible asset. IPR&D acquired in a business combination is capitalized as an indefinite-
lived intangible asset until regulatory approval is obtained, at which time it is accounted for as a definite-
lived asset and amortized over its estimated useful life, or discontinuation, at which point the intangible
asset will be written off. IPR&D acquired in transactions that are not business combinations is expensed
immediately, unless deemed to have an alternative future use. Payments made to third parties subsequent
to regulatory approval are capitalized and amortized over the remaining useful life.
AbbVie reviews the recoverability of definite-lived intangible assets whenever events or changes in
circumstances indicate the carrying value of an asset may not be recoverable. Goodwill and indefinite-lived
intangible assets, which relate to IPR&D, are reviewed for impairment annually or when an event occurs
that could result in an impairment. See Note 2 to the Consolidated Financial Statements for further
information.
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Annually, the company tests its goodwill for impairment by first assessing qualitative factors to
determine whether it is more likely than not that the fair value is less than its carrying amount. Some of
the factors considered in the assessment include general macro-economic conditions, conditions specific to
the industry and market, cost factors, which could have a significant effect on earnings or cash flows, the
overall financial performance and whether there have been sustained declines in the company’s share price.
If the company concludes it is more likely than not that the fair value of reporting unit is less than its
carrying amount, a quantitative impairment test is performed. AbbVie tests indefinite-lived intangible assets
using a quantitative impairment test.
For its quantitative impairment tests, the company uses an estimated future cash flow approach that
requires significant judgment with respect to future volume, revenue and expense growth rates, changes in
working capital use, foreign currency exchange rates, the selection of an appropriate discount rate, asset
groupings and other assumptions and estimates. The estimates and assumptions used are consistent with
the company’s business plans and a market participant’s views of a company and similar companies. The
use of alternative estimates and assumptions could increase or decrease the estimated fair value of the
assets and potentially result in different impacts to the company’s results of operations. Actual results may
differ from the company’s estimates.
Contingent Consideration
The fair value measurements of contingent consideration liabilities are determined as of the acquisition
date 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. 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. Contingent consideration liabilities are revalued to fair value at each subsequent
reporting date until the related contingency is resolved. Significant judgment is employed in determining
the appropriateness 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 December 31, 2016, a
50 basis point increase/decrease in the assumed discount rate would have decreased/increased the value of
the contingent consideration liabilities by approximately $180 million. Additionally, at December 31, 2016, 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 $360 million.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for additional information on recent accounting
pronouncements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
.....................................................................................................................................................................................................................................................................................................................................................
The company is exposed to risk that its earnings, cash flows and equity could be adversely impacted
by changes in foreign exchange rates and interest rates. Certain derivative instruments are used when
available on a cost-effective basis to hedge the company’s underlying economic exposures. See Note 10 to
the Consolidated Financial Statements for additional information regarding the company’s financial
instruments and hedging strategies.
Foreign Currency Risk
AbbVie’s primary net foreign currency exposures are the Euro, Japanese yen and British pound. The
following table reflects the total foreign currency forward exchange contracts outstanding at December 31,
2016 and 2015:
(in millions)
Receive primarily U.S. dollars in exchange for
the following currencies:
Euro
Japanese yen
British pound
All other currencies
Total
2016
Weighted
average
exchange
rate
Fair and
carrying
value
receivable
Contract
amount
Contract
amount
2015
Weighted
average
exchange
rate
Fair and
carrying
value
receivable/
(payable)
1.078
111.6
1.303
n/a
$5,544
935
611
1,693
$8,783
$102
39
35
11
$187
$5,880
853
163
1,387
$8,283
1.103
120.9
1.496
n/a
$34
(2)
1
8
$41
The company estimates that a 10% appreciation in the underlying currencies being hedged from their
levels against the U.S. dollar, with all other variables held constant, would decrease the fair value of foreign
exchange forward contracts by $854 million at December 31, 2016. If realized, this appreciation would
negatively affect earnings over the remaining life of the contracts, which would be offset by gains on the
underlying hedged items. A 10% appreciation is believed to be a reasonably possible near-term change in
foreign currencies. Gains and losses on the hedging instruments offset losses and gains on the hedged
transactions and reduce the earnings and stockholders’ equity volatility relating to foreign exchange.
In November 2016, the company issued e3.6 billion aggregate principal amount of unsecured senior
Euro notes, which are exposed to foreign currency risk. The company has designated these foreign currency
denominated notes as hedges of its net investments in certain foreign subsidiaries and affiliates. As a result,
any foreign currency translation gains or losses related to the Euro notes will be included in accumulated
other comprehensive income. See Note 9 to the Consolidated Financial Statements for additional
information related to the senior Euro note issuance and Note 10 to the Consolidated Financial Statements
for additional information related to the net investment hedging program.
The functional currency of the company’s Venezuela operations is the U.S. dollar due to the
hyperinflationary status of the Venezuelan economy. At December 31, 2015, there were three legal
exchange mechanisms administered by the Venezuelan government. These were the official rate of
6.3 Venezuelan bolivars (VEF) per U.S. dollar, the Supplementary System for the Administration of Foreign
Currency (SICAD) rate of approximately 13.5 VEF per U.S. dollar and the Foreign Exchange Marginal System
(SIMADI) rate of approximately 200. Effective March 10, 2016, the Venezuelan government devalued the
official rate of 6.3 to 10 VEF per U.S. dollar, eliminated the SICAD rate and replaced SIMADI with a new
exchange mechanism, Divisa Complementaria (DICOM). As of December 31, 2016, the DICOM rate was
approximately 673 VEF per U.S. dollar.
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During the first quarter of 2016, in consideration of declining economic conditions in Venezuela and a
decline in transactions settled at the official rate, AbbVie determined that its net monetary assets
denominated in the Venezuelan bolivar were no longer expected to be settled at the official rate of 10 VEF
per U.S. dollar, but rather at the DICOM rate. Therefore, during the first quarter of 2016, AbbVie recorded
a charge of $298 million to net foreign exchange loss to revalue its bolivar-denominated net monetary
assets using the DICOM rate then in effect of approximately 270 VEF per U.S. dollar. As of December 31,
2016, AbbVie’s net monetary assets in Venezuela were insignificant.
Interest Rate Risk
The company estimates that an increase in interest rates of 100 basis points would adversely impact
the fair value of AbbVie’s interest rate swap contracts by approximately $649 million at December 31, 2016.
If realized, the fair value reduction would affect earnings over the remaining life of the contracts. The
company estimates that an increase of 100 basis points in long-term interest rates would decrease the fair
value of long-term debt by $2.3 billion at December 31, 2016. A 100 basis point change is believed to be a
reasonably possible near-term change in interest rates.
Market Price Risk
AbbVie’s debt securities investment portfolio (the portfolio) is its main exposure to market price risk.
The portfolio is subject to changes in fair value as a result of interest rate fluctuations and other market
factors. It is AbbVie’s policy to mitigate market price risk by maintaining a diversified portfolio that limits
the amount of exposure to a particular issuer and security type while placing limits on the amount of time
to maturity. AbbVie’s investment policy limits investments to investment grade credit ratings. The company
estimates that an increase in interest rates of 100 basis points would decrease the fair value of the
portfolio by approximately $33 million as of December 31, 2016. If the portfolio were to be liquidated, the
fair value reduction would affect the income statement in the period sold.
AbbVie also holds equity securities in other pharmaceutical and biotechnology companies that are
traded on public stock exchanges. A hypothetical 20% decrease in the share prices of these investments
would decrease the fair value of these investments by $15 million as of December 31, 2016. A 20%
decrease is believed to be a reasonably possible near-term change in share prices.
Non-Publicly Traded Equity Securities
AbbVie holds equity securities in other pharmaceutical and biotechnology companies that are not
traded on public stock exchanges. The carrying value of these investments was $42 million as of
December 31, 2016 and $33 million as of December 31, 2015. AbbVie monitors these investments for other
than temporary declines in market value and charges impairment losses to net earnings when an other
than temporary decline in estimated value occurs. In 2016, impairment charges recorded were insignificant.
In 2015, AbbVie recorded impairment charges totaling $36 million related to certain of the company’s
investments in non-publicly traded equity securities.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
.....................................................................................................................................................................................................................................................................................................................................................
Consolidated Financial Statements
Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
58
59
60
61
62
63
109
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AbbVie Inc. and Subsidiaries
Consolidated Statements of Earnings
years ended December 31 (in millions, except per share data)
2016
2015
2014
Net revenues
Cost of products sold
Selling, general and administrative
Research and development
Acquired in-process research and development
Other expense
Total operating costs and expenses
Operating earnings
Interest expense, net
Net foreign exchange loss
Other expense (income), net
Earnings before income tax expense
Income tax expense
Net earnings
Per share data
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
Weighted-average basic shares outstanding
Weighted-average diluted shares outstanding
$25,638
$22,859
$19,960
5,833
5,855
4,366
200
—
4,500
6,387
4,285
150
—
4,426
7,724
3,297
352
750
16,254
15,322
16,549
9,384
7,537
3,411
965
303
232
7,884
1,931
686
193
13
6,645
1,501
391
678
(27)
2,369
595
$ 5,953
$ 5,144
$ 1,774
$ 3.65
$ 3.63
$ 2.35
$ 3.15
$ 3.13
$ 2.10
$ 1.11
$ 1.10
$ 1.75
1,622
1,631
1,625
1,637
1,595
1,610
The accompanying notes are an integral part of these consolidated financial statements.
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AbbVie Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
years ended December 31 (in millions)
Net earnings
Foreign currency translation adjustments, net of tax expense (benefit) of $(31)
in 2016, $(139) in 2015 and $(158) in 2014
Net investment hedging activities, net of tax expense (benefit) of $79 in
2016, $— in 2015 and $— in 2014
Pension and post-employment benefits, net of tax expense (benefit) of $(75) in
2016, $96 in 2015 and $(351) in 2014
Unrealized gains (losses) on marketable securities, net of tax expense (benefit)
of $(11) in 2016, $22 in 2015 and $1 in 2014
Cash flow hedging activities, net of tax expense (benefit) of $18 in 2016, $(6)
in 2015 and $8 in 2014
Other comprehensive loss
Comprehensive income
2016
2015
2014
$5,953
$5,144
$ 1,774
(165)
(667)
(1,073)
140
—
—
(135)
230
(781)
(1)
44
1
136
(25)
(137)
(530)
264
(1,589)
$5,928
$4,614
$
185
The accompanying notes are an integral part of these consolidated financial statements.
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AbbVie Inc. and Subsidiaries
Consolidated Balance Sheets
as of December 31 (in millions, except share data)
2016
2015
Assets
Current assets
Cash and equivalents
Short-term investments
Accounts receivable, net
Inventories
Prepaid expenses and other
Total current assets
Investments
Property and equipment, net
Intangible assets, net
Goodwill
Other assets
Total assets
Liabilities and Equity
Current liabilities
Short-term borrowings
Current portion of long-term debt and lease obligations
Accounts payable and accrued liabilities
Total current liabilities
Long-term debt and lease obligations
Deferred income taxes
Other long-term liabilities
Commitments and contingencies
Stockholders’ equity
Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,754,900,486
shares issued as of December 31, 2016 and 1,749,027,140 as of December 31,
2015.
Common stock held in treasury, at cost, 162,387,762 shares as of December 31, 2016
and 139,134,205 shares as of December 31, 2015.
Additional paid-in-capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and equity
$ 5,100
1,323
4,758
1,444
3,562
$ 8,399
8
4,730
1,719
1,458
16,187
16,314
1,783
2,604
28,897
15,416
1,212
145
2,565
19,709
13,168
1,149
$ 66,099
$53,050
$
377
25
9,379
9,781
36,440
6,890
8,352
$
406
2,025
8,463
10,894
29,240
5,276
3,695
18
17
(10,852)
13,678
4,378
(2,586)
(8,839)
13,080
2,248
(2,561)
4,636
3,945
$ 66,099
$53,050
The accompanying notes are an integral part of these consolidated financial statements.
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AbbVie Inc. and Subsidiaries
Consolidated Statements of Equity
years ended December 31 (in millions)
Balance at December 31, 2013
Net earnings
Other comprehensive loss, net of tax
Dividends declared
Purchases of treasury stock
Stock-based compensation plans and other
Balance at December 31, 2014
Net earnings
Other comprehensive loss, net of tax
Dividends declared
Common shares issued to Pharmacyclics
stockholders
Purchases of treasury stock
Stock-based compensation plans and other
Balance at December 31, 2015
Net earnings
Other comprehensive loss, net of tax
Dividends declared
Common shares issued to Stemcentrx stockholders
Purchases of treasury stock
Stock-based compensation plans and other
Balance at December 31, 2016
Common
shares
outstanding
Common Treasury
stock
stock
Additional
paid-in
capital
Accumulated
other
Retained comprehensive
earnings
loss
1,587
—
—
—
(9)
13
1,591
—
—
—
128
(119)
10
1,610
—
—
—
63
(94)
14
1,593
$16
—
—
—
—
—
16
—
—
—
1
—
—
17
—
—
—
—
—
1
$
(320) $ 3,671
—
—
—
—
523
—
—
—
(665)
13
(972)
—
—
—
—
(7,886)
19
(8,839)
—
—
—
3,958
(6,018)
47
4,194
—
—
—
8,404
—
482
13,080
—
—
—
(35)
—
633
$ 1,567
1,774
—
(2,806)
—
—
535
5,144
—
(3,431)
—
—
—
2,248
5,953
—
(3,823)
—
—
—
$ (442)
—
(1,589)
—
—
—
(2,031)
—
(530)
—
—
—
—
(2,561)
—
(25)
—
—
—
—
Total
$ 4,492
1,774
(1,589)
(2,806)
(665)
536
1,742
5,144
(530)
(3,431)
8,405
(7,886)
501
3,945
5,953
(25)
(3,823)
3,923
(6,018)
681
$18
$(10,852) $13,678
$ 4,378
$(2,586)
$ 4,636
The accompanying notes are an integral part of these consolidated financial statements.
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AbbVie Inc. and Subsidiaries
Consolidated Statements of Cash Flows
years ended December 31 (in millions) (brackets denote cash outflows)
2016
2015
2014
Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation
Amortization of intangible assets
Change in fair value of contingent consideration
Stock-based compensation
Upfront costs and milestones related to collaborations
Devaluation loss related to Venezuela
Other, net
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and other liabilities
Cash flows from operating activities
Cash flows from investing activities
Acquisition of businesses, net of cash acquired
Other acquisitions and investments
Acquisitions of property and equipment
Purchases of investment securities
Sales and maturities of investment securities
Other
Cash flows from investing activities
Cash flows from financing activities
Net change in short-term borrowings
Proceeds from issuance of long-term debt
Repayments of long-term debt and lease obligations
Debt issuance cost
Dividends paid
Purchases of treasury stock
Proceeds from the exercise of stock options
Other, net
Cash flows from financing activities
Effect of exchange rate changes on cash and equivalents
Net increase (decrease) in cash and equivalents
Cash and equivalents, beginning of year
Cash and equivalents, end of year
Other supplemental information
Interest paid, net of portion capitalized
Income taxes paid
Supplemental schedule of non-cash investing and financing activities
Issuance of common shares associated with acquisitions of businesses
$ 5,953
$ 5,144
$ 1,774
425
764
228
353
280
298
429
(71)
(38)
(393)
(1,187)
7,041
(2,495)
(262)
(479)
(5,315)
2,359
118
417
419
—
282
280
—
489
(1,076)
(434)
511
1,503
7,535
(11,488)
(964)
(532)
(851)
899
—
383
403
—
241
1,102
—
434
(172)
(203)
(220)
(193)
3,549(a)
—
(622)
(612)
(1,169)
1,477
—
(6,074)
(12,936)
(926)
(29)
11,627
(6,010)
(69)
(3,717)
(6,033)
268
35
(3,928)
(338)
(3,299)
8,399
(19)
20,660
(4,018)
(182)
(3,294)
(7,586)
155
36
5,752
12
—
(17)
(141)
(2,661)
(665)
232
(53)
(3,293)
(300)
(577)
51
8,348
(1,247)
9,595
$ 5,100
$ 8,399
$ 8,348
$
986
3,563
$
536
1,108
$
3,923
8,405
419
498
—
(a) Cash flows from operating activities included the impact of transaction and financing-related and other costs
incurred in connection with the terminated proposed combination with Shire plc. See Note 5 for additional
information.
The accompanying notes are an integral part of these consolidated financial statements.
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AbbVie Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 Background and Basis of Presentation
.....................................................................................................................................................................................................................................................................................................................................................
Background
The principal business of AbbVie Inc. (AbbVie or the company) is the discovery, development,
manufacture and sale of a broad line of pharmaceutical products. 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.
Substantially all of AbbVie’s net revenues in the United States are to three wholesalers. Outside the United
States, products are sold primarily to customers or through distributors, depending on the market served.
AbbVie was incorporated in Delaware on April 10, 2012. On January 1, 2013, AbbVie became an
independent, publicly-traded company as a result of the distribution by Abbott Laboratories (Abbott) of
100% of the outstanding common stock of AbbVie to Abbott’s shareholders. AbbVie incurred separation-
related expenses of $270 million in 2015 and $445 million in 2014, which were principally classified in
selling, general and administrative expenses (SG&A) in the consolidated statements of earnings. These
charges principally related to information technology, legal and regulatory fees.
Basis of Historical Presentation
For a certain portion of AbbVie’s operations, the legal transfer of AbbVie’s assets (net of liabilities) did
not occur with the separation of AbbVie on January 1, 2013 due to the time required to transfer marketing
authorizations and satisfy other regulatory requirements in certain countries. Under the terms of the
separation agreement with Abbott, AbbVie was responsible for the business activities conducted by Abbott
on its behalf and was subject to the risks and entitled to the benefits generated by these operations and
assets. As a result, the related assets and liabilities and results of operations have been reported in
AbbVie’s consolidated financial statements as of and for the years ended December 31, 2016, 2015 and
2014. Net revenues related to these operations were insignificant in 2016, $213 million in 2015 and
$282 million in 2014. All of these operations have been transferred to AbbVie as of December 31, 2016.
Note 2 Summary of Significant Accounting Policies
.....................................................................................................................................................................................................................................................................................................................................................
Use of Estimates
The financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (GAAP) and necessarily include amounts based on estimates and assumptions by management.
Actual results could differ from those amounts. Significant estimates include amounts for rebates, pension
and post-employment benefits, income taxes, litigation, valuation of intangible assets and goodwill,
contingent consideration liabilities, financial instruments and inventory and accounts receivable exposures.
Basis of Consolidation
The consolidated financial statements as of and for the years ended December 31, 2016 and 2015
include the accounts of AbbVie and all of its subsidiaries in which a controlling interest is maintained.
Controlling interest is determined by majority ownership interest and the absence of substantive third-party
participating rights or, in the case of variable interest entities, where AbbVie is determined to be the
primary beneficiary. Investments in companies over which AbbVie has a significant influence but not a
controlling interest are accounted for using the equity method with AbbVie’s share of earnings or losses
reported in other expense (income), net in the consolidated statements of earnings. All other investments
are generally accounted for using the cost method. Intercompany balances and transactions are eliminated.
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Certain reclassifications have been made to conform the prior period consolidated financial statements
to the current period presentation.
Revenue Recognition
AbbVie recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred,
the sales price is fixed or determinable and collectability of the sales price is reasonably assured. Revenue
from product sales is recognized when title and risk of loss have passed to the customer. Provisions for
discounts, rebates, sales incentives to customers, returns and other adjustments are provided for in the
period the related revenues are recorded. Rebate amounts are typically based upon the volume of
purchases using contractual or statutory prices, which may vary by product and by payer. For each type of
rebate, the factors used in the calculations of the accrual include the identification of the products subject
to the rebate, the applicable price terms and the estimated lag time between sale and payment of the
rebate, which can be significant. Sales incentives to customers are insignificant. Historical data is readily
available and reliable and is used for estimating the amount of the reduction in gross revenues. Revenue
from the launch of a new product, from an improved version of an existing product, or for shipments in
excess of a customer’s normal requirements are recorded when the conditions noted above are met. In
those situations, management records a returns reserve for such revenue, if necessary. Sales of product
rights for marketable products are recorded as revenue upon disposition of the rights.
Research and Development Expenses
Internal research and development (R&D) costs are expensed as incurred. Clinical trial costs incurred by
third parties are expensed as the contracted work is performed. Where contingent milestone payments are
due to third parties under research and development collaborations for pre-commercialization milestones,
the milestone payment obligations are expensed when the milestone results are achieved. Payments made
to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized to cost
of products sold over the remaining useful life of the related product.
Collaborations and Other Arrangements
The company enters into collaborative agreements with third parties to develop and commercialize
drug candidates. Collaborative activities may include joint research and development and commercialization
of new products. AbbVie generally receives certain licensing rights under these arrangements. These
collaborations often require upfront payments and may include additional milestone, research and
development cost sharing, royalty or profit share payments, contingent upon the occurrence of certain
future events linked to the success of the asset in development and commercialization. Upfront payments
associated with collaborative arrangements during the development stage are expensed to acquired
in-process research and development (IPR&D) expenses in the consolidated statements of earnings.
Subsequent payments made to the partner for the achievement of milestones during the development
stage are expensed to R&D expense in the consolidated statements of earnings when the milestone is
achieved. Milestone payments made to the partner subsequent to regulatory approval are capitalized as
intangible assets and amortized to cost of products sold over the estimated useful life of the related asset.
Royalties are expensed to cost of products sold in the consolidated statements of earnings when incurred.
Advertising
Costs associated with advertising are expensed as incurred and are included in SG&A expenses in the
consolidated statements of earnings. Advertising expenses were $764 million in 2016, $704 million in 2015
and $665 million in 2014.
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Pension and Other Post-Employment Benefits
AbbVie records annual expenses relating to its defined benefit pension and other post-employment
plans based on calculations which utilize various actuarial assumptions, including discount rates, rates of
return on assets, compensation increases, turnover rates and health care cost trend rates. AbbVie reviews
its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current
rates and trends. Actuarial gains and losses are deferred in accumulated other comprehensive loss (AOCI),
net of tax and are amortized over the remaining service attribution periods of the employees under the
corridor method. Differences between the expected long-term return on plan assets and the actual annual
return are amortized to net periodic benefit cost over a five-year period.
Income Taxes
Income taxes are accounted for under the asset and liability method. Provisions for federal, state and
foreign income taxes are calculated on reported pretax earnings based on current tax laws. Deferred taxes
are provided using enacted tax rates on the future tax consequences of temporary differences, which are
the differences between the financial statement carrying amounts of assets and liabilities and their
respective tax bases and the tax benefits of carryforwards. A valuation allowance is established or
maintained when, based on currently available information, it is more likely than not that all or a portion
of a deferred tax asset will not be realized.
Cash and Equivalents
Cash and equivalents include money market funds and time deposits with original maturities of three
months or less.
Investments
Investments consist primarily of time deposits, marketable debt securities, held-to-maturity debt
securities and equity securities. Investments in marketable securities are classified as available-for-sale and
are recorded at fair value with any unrealized holding gains or losses, net of tax, included in AOCI on the
consolidated balance sheets. Investments in equity securities that are not traded on public stock exchanges
and held-to-maturity debt securities are recorded at cost.
AbbVie periodically assesses its investment securities for other-than-temporary impairment losses. This
evaluation is based on a number of factors, including the length of time and the extent to which the fair
value has been below the cost basis and adverse conditions related specifically to the security, including
any changes to the credit rating of the security, intent to sell, or whether AbbVie will more likely than not
be required to sell the security before recovery of its amortized cost basis. AbbVie also considers industry
factors and general market trends. When AbbVie determines that an other than temporary decline has
occurred, a cost basis investment is written down with a charge to other expense (income), net in the
consolidated statements of earnings and an available-for-sale investment’s unrealized loss is reclassified
from AOCI to other expense (income), net in the consolidated statements of earnings. Realized gains and
losses on sales of investments are computed using the first-in, first-out method adjusted for any
other-than-temporary declines in fair value that were recorded in net earnings.
Accounts Receivable
Accounts receivable are stated at their net realizable value. The allowance against gross accounts
receivable reflects the best estimate of probable losses inherent in the receivables portfolio determined on
the basis of historical experience, specific allowances for known troubled accounts and other currently
available information. Accounts receivable are written off after all reasonable means to collect the full
amount (including litigation, where appropriate) have been exhausted. The allowance was $72 million at
December 31, 2016 and $78 million at December 31, 2015.
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Inventories
Inventories are valued at the lower of cost (first-in, first-out basis) or market. Cost includes material
and conversion costs. Inventories consisted of the following:
as of December 31 (in millions)
Finished goods
Work-in-process
Raw materials
Inventories
Property and Equipment
as of December 31 (in millions)
Land
Buildings
Equipment
Construction in progress
Property and equipment, gross
Less accumulated depreciation
Property and equipment, net
2016
2015
$ 223
1,080
141
$ 469
1,081
169
$1,444
$1,719
2016
2015
$
46
1,344
5,726
410
$
46
1,284
5,656
348
7,526
(4,922)
7,334
(4,769)
$ 2,604
$ 2,565
Depreciation for property and equipment is recorded on a straight-line basis over the estimated useful
lives of the assets. The estimated useful life for buildings ranges from 10 to 50 years. Buildings include
leasehold improvements which are amortized over the life of the related facility lease (including any
renewal periods, if appropriate) or the asset, whichever is shorter. The estimated useful life for equipment
ranges from 3 to 20 years. Equipment includes certain computer software and software development costs
incurred in connection with developing or obtaining software for internal use and is amortized over 3 to
10 years. Depreciation expense was $425 million in 2016, $417 million in 2015 and $383 million in 2014.
Assets related to capital leases were insignificant at December 31, 2016 and 2015.
Litigation and Contingencies
Loss contingency provisions are recorded when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated based on existing information. When a best estimate
cannot be made, the minimum loss contingency amount in a probable range is recorded. Legal fees are
expensed as incurred. AbbVie accrues for product liability claims, on an undiscounted basis. The liabilities
are evaluated quarterly and adjusted if necessary as additional information becomes available. Receivables
for insurance recoveries, if any, for product liability claims are recorded as assets, on an undiscounted basis,
when it is probable that a recovery will be realized.
Business Combinations
AbbVie utilizes the acquisition method of accounting for business combinations. This method requires,
among other things, that results of operations of acquired companies are included in AbbVie’s results of
operations beginning on the respective acquisition dates and that assets acquired and liabilities assumed
are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration
transferred over the fair values of the net assets acquired is recognized as goodwill. Contingent
consideration liabilities are recognized at the estimated fair value on the acquisition date. Subsequent
changes to the fair value of contingent consideration liabilities are recognized in other expense (income),
net in the consolidated statements of earnings. The fair value of assets acquired and liabilities assumed in
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certain cases may be subject to revision based on the final determination of fair value during a period of
time generally not to exceed twelve months from the acquisition date. Legal costs, due diligence costs,
business valuation costs and all other business acquisition costs are expensed when incurred.
Goodwill and Intangible Assets
Intangible assets acquired in a business combination are recorded at fair value using a discounted cash
flow model. The discounted cash flow model requires assumptions about the timing and amount of future
net cash flows, risk, the cost of capital and terminal values of market participants. Definite-lived intangibles
are amortized over their estimated useful lives using the estimated pattern of economic benefit. AbbVie
reviews the recoverability of definite-lived intangible assets whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable. AbbVie first compares the projected
undiscounted cash flows to be generated by the asset to its carrying value. If the undiscounted cash flows
of an intangible asset are less than the carrying value, the intangible asset is written down to its fair value.
Where cash flows cannot be identified for an individual asset, the review is applied at the lowest level for
which cash flows are largely independent of the cash flows of other assets and liabilities.
Goodwill and indefinite-lived assets are not amortized, but are subject to an impairment review
annually and more frequently when indicators of impairment exist. An impairment of goodwill could occur
if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. An impairment of
Indefinite-lived intangible assets, which consist of capitalized IPR&D, would occur if the fair value of the
IPR&D intangible asset is less than the carrying amount.
The company tests its goodwill for impairment by first assessing qualitative factors to determine
whether it is more likely than not that the fair value is less than its carrying amount. If the company
concludes it is more likely than not that the fair value of reporting unit is less than its carrying amount, a
quantitative impairment test is performed. AbbVie tests indefinite-lived intangible assets using a
quantitative impairment test. For its quantitative impairment tests, the company uses an estimated future
cash flow approach that requires significant judgment with respect to future volume, revenue and expense
growth rates, changes in working capital use, future foreign currency exchange rates, the selection of an
appropriate discount rate, asset groupings and other assumptions and estimates. The estimates and
assumptions used are consistent with the company’s business plans and a market participant’s views of a
company and similar companies. The use of alternative estimates and assumptions could increase or
decrease the estimated fair value of the assets and potentially result in different impacts to the company’s
results of operations. Actual results may differ from the company’s estimates.
Acquired In-Process Research and Development
In an asset acquisition, the initial costs of rights to IPR&D projects acquired are expensed as IPR&D in
the consolidated statements of earnings unless the project has an alternative future use. These costs
include initial payments incurred prior to regulatory approval in connection with research and development
collaboration agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical
products. In a business combination, the fair value of IPR&D projects acquired are capitalized and
accounted for as indefinite-lived intangible assets until the underlying project receives regulatory approval,
at which point the intangible asset will be accounted for as a definite-lived intangible asset, or
discontinuation, at which point the intangible asset will be written off. R&D costs incurred after the
acquisition are expensed as incurred.
Foreign Currency Translation
Foreign subsidiary earnings are translated into U.S. dollars using average exchange rates. The net assets
of foreign subsidiaries are translated into U.S. dollars using period-end exchange rates. The U.S. dollar
effects that arise from translating the net assets of these subsidiaries at changing rates are recognized in
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other comprehensive (loss) income (OCI) in the consolidated statements of comprehensive income. The net
assets of subsidiaries in highly inflationary economies are remeasured as if the functional currency were the
reporting currency. The remeasurement is recognized in net foreign exchange loss in the consolidated
statements of earnings.
Derivatives
All derivative instruments are recognized as either assets or liabilities at fair value on the consolidated
balance sheets and are classified as current or long-term based on the scheduled maturity of the
instrument.
For derivatives formally designated as hedges, the company assesses at inception and quarterly
thereafter, whether the hedging derivatives are highly effective in offsetting changes in the fair value or
cash flows of the hedged item. The changes in fair value of a derivative designated as a fair value hedge
and of the hedged item attributable to the hedged risk are recognized in earnings immediately. The
effective portions of changes in the fair value of a derivative designated as a cash flow hedge are reported
in AOCI and are subsequently recognized in earnings consistent with the underlying hedged item. If it is
determined that a derivative is no longer highly effective as a hedge, the company discontinues hedge
accounting prospectively. If a hedged forecasted transaction becomes probable of not occurring, any gains
or losses are reclassified from AOCI to earnings. Derivatives that are not designated as hedges are adjusted
to fair value through current earnings.
The company also uses derivative instruments or foreign currency denominated debt to hedge its net
investments in certain foreign subsidiaries and affiliates. Realized and unrealized gains and losses from these
hedges are included in AOCI.
Derivative cash flows, with the exception of net investment hedges, are principally classified in the
operating section of the consolidated statements of cash flows, consistent with the underlying hedged item.
Cash flows related to net investment hedges are classified in the investing section of the consolidated
statements of cash flows.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2014-9, Summary and Amendments That Create Revenue from Contracts with Customers
(Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The
amendments in this standard supersede most current revenue recognition requirements. The core principle
of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. AbbVie can apply the amendments using one of the
following two methods: (i) retrospectively to each prior reporting period presented, or (ii) modified
retrospectively with the cumulative effect of initially applying the amendments recognized at the date of
initial application. This standard will be effective for AbbVie starting with the first quarter of 2018. Early
application is permitted only for annual reporting periods beginning starting with the first quarter of 2017.
AbbVie will adopt the standard effective the first quarter of 2018 and apply the amendments using the
modified retrospective method. AbbVie’s revenues are primarily comprised of product sales. AbbVie is
currently assessing the impact of adopting this guidance on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires several
targeted changes including that equity investments (except those accounted for under the equity method of
accounting, or those that result in consolidation of the investee) be measured at fair value with changes in
fair value recognized in net earnings. These provisions will not impact the accounting for AbbVie’s
investments in debt securities. The new guidance also changes certain disclosure requirements and other
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aspects of current U.S. GAAP. Amendments are to be applied as a cumulative-effect adjustment to the
balance sheet as of the beginning of the fiscal year of adoption. This standard will be effective for AbbVie
starting with the first quarter of 2018. The standard does not permit early adoption with the exception of
certain targeted provisions. AbbVie is currently assessing the impact of adopting this guidance on its
consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 outlines a
comprehensive lease accounting model and supersedes the current lease guidance. The new standard
requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease
terms greater than 12 months. It also changes the definition of a lease and expands the disclosure
requirements of lease arrangements. The new standard must be adopted using the modified retrospective
approach and will be effective for AbbVie starting with the first quarter of 2019. Early adoption is
permitted. AbbVie is currently assessing the impact and timing of adopting this guidance on its
consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting. Under the new guidance, excess tax benefits
associated with share-based awards will be recognized in the statement of earnings when the awards vest
or settle, rather than in stockholders’ equity. The standard also permits entities to make a policy election to
account for forfeitures as they occur and clarifies the statement of cash flows presentation for certain
components of share-based awards. AbbVie will adopt the standard effective the first quarter of 2017 with
any adjustments reflected as of the beginning of the fiscal year of adoption. AbbVie cannot predict the
impact of adopting this standard as it will be dependent upon several unknown factors including when
employees exercise stock options and the company’s stock price at settlement date. However, based on
historical trends, AbbVie does not believe the adoption will have a material impact on the company’s
consolidated financial statements.
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 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.
The standard additionally requires new disclosures and will be effective for AbbVie starting with the first
quarter of 2020. Early adoption beginning in the first quarter of 2019 is permitted. 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. AbbVie is
currently assessing the impact and timing of adopting this guidance on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740). The new standard
requires entities to recognize the income tax consequences of an intercompany transfer of an asset other
than inventory when the transfer occurs. Under current U.S. GAAP, the income tax consequences of these
intercompany asset transfers are deferred until the asset is sold to a third party or otherwise recovered
through use. The standard will be effective for AbbVie starting with the first quarter of 2018. Early adoption
is permitted as of the beginning of an annual period. Adjustments for this update are to be applied on a
modified retrospective basis through a cumulative-effect adjustment directly to retained earnings with any
adjustments reflected as of the beginning of the fiscal year of adoption. AbbVie is currently assessing the
impact and timing of adopting this guidance on its consolidated financial statements. As of December 31,
2016, AbbVie had approximately $1.9 billion of prepaid income tax assets that will be affected by this
standard, of which $1.4 billion was included in prepaid expenses and other on the consolidated balance
sheet.
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In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business. The standard provides clarifying guidance to assist in the evaluation of whether
transactions are treated as business combinations or asset acquisitions. AbbVie will early adopt the
standard starting with the first quarter of 2017. The ASU will be applied prospectively to any transactions
occurring after adoption.
Note 3 Supplemental Financial Information
.....................................................................................................................................................................................................................................................................................................................................................
Interest Expense, Net
years ended December 31 (in millions)
Interest expense
Interest income
Interest expense, net
Accounts Payable and Accrued Liabilities
as of December 31 (in millions)
Sales rebates
Accounts payable
Dividends payable
Salaries, wages and commissions
Royalty and license arrangements
Other
Accounts payable and accrued liabilities
Other Long-Term Liabilities
as of December 31 (in millions)
Contingent consideration
Pension and other post-employment benefits
Liabilities for unrecognized tax benefits
Other
Other long-term liabilities
2016
2015
2014
$1,047
(82)
$719
(33)
$429
(38)
$ 965
$686
$391
2016
2015
$2,887
1,407
1,028
644
434
2,979
$2,355
1,597
924
632
411
2,544
$9,379
$8,463
2016
2015
$3,941
2,085
1,166
1,160
$ —
1,949
902
844
$8,352
$3,695
Note 4 Earnings Per Share
.....................................................................................................................................................................................................................................................................................................................................................
AbbVie grants certain shares of restricted stock awards (RSAs) and 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.
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The following table summarizes the impact of the two-class method:
(in millions, except per share information)
Basic EPS
Net earnings
Earnings allocated to participating securities
Earnings available to common shareholders
Weighted-average basic shares outstanding
Basic earnings per share
Diluted EPS
Net earnings
Earnings allocated to participating securities
Earnings available to common shareholders
Weighted-average shares of common stock outstanding
Effect of dilutive securities
Weighted-average diluted shares outstanding
Diluted earnings per share
Years ended December 31,
2016
2015
2014
$5,953
30
$5,144
26
$1,774
9
$5,923
$5,118
$1,765
1,622
1,625
1,595
$ 3.65
$ 3.15
$ 1.11
$5,953
30
$5,144
26
$1,774
9
$5,923
$5,118
$1,765
1,622
9
1,631
1,625
12
1,637
1,595
15
1,610
$ 3.63
$ 3.13
$ 1.10
As further described in Note 12, in both 2016 and 2015, AbbVie entered into and executed an
accelerated share repurchase agreement (ASR) with third party financial institutions. For purposes of
calculating EPS, AbbVie reflected the ASR as a repurchase of AbbVie common stock in the relevant periods.
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 5 Licensing, Acquisitions and Other Arrangements
.....................................................................................................................................................................................................................................................................................................................................................
Acquisition of Stemcentrx
On June 1, 2016, AbbVie acquired all of the outstanding equity interests in Stemcentrx, a privately-held
biotechnology company. The transaction expands AbbVie’s oncology pipeline by adding the late-stage asset
rovalpituzumab tesirine (Rova-T), four additional early-stage clinical compounds in solid tumor indications
and a significant portfolio of pre-clinical assets. Rova-T is currently in registrational trials for small cell lung
cancer.
The acquisition of Stemcentrx has been accounted for as a business combination using the acquisition
method of accounting. The aggregate upfront consideration for the acquisition of Stemcentrx consisted of
approximately 62.4 million shares of AbbVie common stock, issued from common stock held in treasury,
and cash. AbbVie may make up to $4.0 billion in additional payments upon the achievement of certain
development and regulatory milestones. The acquisition-date fair value of this contingent consideration
totaled $620 million and was estimated using a combination of probability-weighted discounted cash flow
models and Monte Carlo simulation models. The estimate was based on significant inputs that are not
observable in the market, referred to as Level 3 inputs, as described in more detail in Note 10. The
following table summarizes total consideration:
(in millions)
Cash
Fair value of AbbVie common stock
Contingent consideration
Total consideration
$1,883
3,923
620
$6,426
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The following table summarizes fair values of assets acquired and liabilities assumed as of the June 1,
2016 acquisition date:
(in millions)
Assets acquired and liabilities assumed
Accounts receivable
Prepaid expenses and other
Property and equipment
Intangible assets—Indefinite-lived research and development
Accounts payable and accrued liabilities
Deferred income taxes
Other long-term liabilities
Total identifiable net assets
Goodwill
Total assets acquired and liabilities assumed
$
1
7
17
6,100
(31)
(1,933)
(7)
4,154
2,272
$ 6,426
Intangible assets related to IPR&D for Rova-T, four additional early-stage clinical compounds in solid
tumor indications and several additional pre-clinical compounds. The estimated fair value of the acquired
IPR&D was determined using the multi-period excess earnings model of the ‘‘income approach,’’ which is a
valuation technique that provides an estimate of the fair value of an asset based on market participant
expectations of the cash flows an asset would generate over its remaining useful life. Some of the more
significant assumptions inherent in the development of those asset valuations include the estimated annual
cash flows for each asset or product (including net revenues, cost of sales, R&D costs, selling and marketing
costs and working capital/contributory asset charges), the appropriate discount rate to select in order to
measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, the
regulatory approval probabilities, commercial success risks, competitive landscape, as well as other factors.
The goodwill recognized from the acquisition of Stemcentrx represents expected synergies, including
the ability to: (i) leverage the respective strengths of each business; (ii) expand the combined company’s
product portfolio; (iii) accelerate AbbVie’s clinical and commercial presence in oncology; and (iv) establish a
strong leadership position in oncology and was impacted by the establishment of a deferred tax liability for
the acquired identifiable intangible assets which have no tax basis. The goodwill is not deductible for tax
purposes.
Subsequent to the acquisition date, the company made certain measurement period adjustments
including a refinement of the discount rate assumption, to increase the fair value of consideration
transferred by $273 million and made measurement period adjustments to the preliminary purchase price
allocation, including: (i) an increase to indefinite-lived research and development intangible assets of
$330 million; (ii) an increase to deferred income tax liabilities of $78 million; and (iii) an increase to
goodwill of $21 million. These measurement period adjustments have been reflected in the tables above.
The company made these measurement period adjustments to reflect facts and circumstances that existed
as of the acquisition date and did not result from intervening events subsequent to such date. These
adjustments did not have a significant impact on AbbVie’s results of operations. In the fourth quarter of
2016, the company finalized its valuation of the acquisition date assets acquired and liabilities assumed.
Following the acquisition date, the operating results of Stemcentrx have been included in the
company’s financial statements. AbbVie’s consolidated statement of earnings for the year ended
December 31, 2016 included no net revenues and an operating loss of $165 million associated with
Stemcentrx’s operations. This operating loss included $43 million of post-acquisition stock-based
compensation expense for Stemcentrx options and excluded interest expense and certain acquisition costs.
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Pro Forma Financial Information
The following table presents the unaudited pro forma combined results of operations of AbbVie and
Stemcentrx for the years ended December 31, 2016 and 2015 as if the acquisition of Stemcentrx had
occurred on January 1, 2015:
(in millions, except per share information)
Net revenues
Net earnings
Basic earnings per share
Diluted earnings per share
Years ended
December 31,
2016
2015
$25,641
5,907
$ 3.58
$ 3.56
$22,869
4,894
$ 2.90
$ 2.88
The unaudited pro forma financial information was prepared using the acquisition method of
accounting and was based on the historical financial information of AbbVie and Stemcentrx. In order to
reflect the occurrence of the acquisition on January 1, 2015 as required, the unaudited pro forma financial
information includes adjustments to reflect the additional interest expense associated with the issuance of
debt to finance the acquisition and the reclassification of acquisition, integration and financing-related costs
incurred during the year ended December 31, 2016 to the year ended December 31, 2015. The unaudited
pro forma financial information is not necessarily indicative of what the consolidated results of operations
would have been had the acquisition been completed on January 1, 2015. In addition, the unaudited pro
forma financial information is not a projection of the future results of operations of the combined company
nor does it reflect the expected realization of any cost savings or synergies associated with the acquisition.
Acquisition of BI 655066 and BI 655064 from Boehringer Ingelheim
On April 1, 2016, AbbVie acquired all rights to risankizumab (BI 655066), an anti-IL-23 monoclonal
biologic antibody in Phase 3 development for psoriasis, from Boehringer Ingelheim (BI) pursuant to a global
collaboration agreement. AbbVie is also evaluating the potential of this biologic therapy in Crohn’s disease,
psoriatic arthritis and asthma. In addition to risankizumab, AbbVie also gained rights to an anti-CD40
antibody, BI 655064, currently in Phase 1 development. BI will retain responsibility for further development
of BI 655064 and AbbVie may elect to advance the program after completion of certain clinical
achievements. The acquired assets include all patents, data, know-how, third-party agreements, regulatory
filings and manufacturing technology related to BI 655066 and BI 655064.
The company concluded that the acquired assets met the definition of a business and accounted for
the transaction as a business combination using the acquisition method of accounting. Under the terms of
the agreement, AbbVie made an upfront payment of $595 million. $18 million of additional payments to BI
pursuant to a contractual obligation to reimburse BI for certain development costs it incurred prior to the
acquisition date were deferred. In addition, AbbVie may make additional contingent payments upon the
achievement of defined development, regulatory and commercial milestones, as well as royalty payments
based on net revenues of licensed products. The maximum aggregate amount payable for development and
regulatory milestones is approximately $1.6 billion. The acquisition-date fair value of these milestones was
$606 million. In addition, the acquisition-date fair value of contingent royalty payments was $2.8 billion.
The potential contingent consideration payments were estimated by applying a probability-weighted
expected payment model for contingent milestone payments and a Monte Carlo simulation model for
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contingent royalty payments, which were then discounted to present value. The fair value measurements
were based on Level 3 inputs. The following table summarizes total consideration:
(in millions)
Cash
Deferred consideration payable
Contingent consideration
Total consideration
$ 595
18
3,365
$3,978
The following table summarizes fair values of assets acquired as of the April 1, 2016 acquisition date:
(in millions)
Assets acquired
Identifiable intangible assets—Indefinite-lived research and development
Goodwill
Total assets acquired
$3,890
88
$3,978
The estimated fair value of the acquired IPR&D was determined using the multi-period excess earnings
model of the ‘‘income approach.’’ The goodwill recognized from this acquisition includes expected synergies,
including an expansion of the combined company’s immunology product portfolio.
Subsequent to the acquisition date, the company made a measurement period adjustment to decrease
the fair value of consideration transferred by $397 million and made measurement period adjustments to
the preliminary purchase price allocation, including: (i) a decrease to indefinite-lived research and
development intangible assets of $460 million; and (ii) an increase to goodwill of $63 million. These
measurement period adjustments have been reflected in the tables above. The company made these
measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date
and did not result from intervening events subsequent to such date. In the fourth quarter of 2016, the
company finalized its valuation of the acquisition date assets acquired.
Pro forma results of operations for this acquisition have not been presented because this acquisition is
insignificant to AbbVie’s consolidated results of operations.
Acquisition of Pharmacyclics
On May 26, 2015, AbbVie acquired Pharmacyclics, a biopharmaceutical company that develops and
commercializes novel therapies for people impacted by cancer. Pharmacyclics markets IMBRUVICA(cid:3)
(ibrutinib), a Bruton’s tyrosine kinase (BTK) inhibitor, targeting B-cell malignancies.
The acquisition of Pharmacyclics was accounted for as a business combination using the acquisition
method of accounting. The total consideration for the acquisition of Pharmacyclics consisted of cash and
approximately 128 million shares of AbbVie common stock and is summarized as follows:
(in millions)
Cash
Fair value of AbbVie common stock
Total consideration
$12,365
8,405
$20,770
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The following table summarizes the fair values of assets acquired and liabilities assumed as of the
May 26, 2015 acquisition date:
(in millions)
Assets acquired and liabilities assumed
Cash and equivalents
Short-term investments
Accounts receivable
Inventories
Other assets
Intangible assets
Definite-lived developed product rights
Definite-lived license agreements
Indefinite-lived research and development
Accounts payable and accrued liabilities
Deferred income taxes
Other long-term liabilities
Total identifiable net assets
Goodwill
Total assets acquired and liabilities assumed
$
877
11
106
492
212
4,590
6,780
7,180
(381)
(6,453)
(254)
13,160
7,610
$20,770
The amortization of the fair market value step-up for acquired inventory was included in cost of
products sold and R&D in the consolidated statements of earnings. The related amortization was
$274 million in 2016 and $113 million in 2015.
Intangible assets relate to the IMBRUVICA developed product rights, IPR&D in the United States related
to additional indications for IMBRUVICA and the contractual rights to IMBRUVICA profits and losses outside
the United States as a result of the collaboration agreement with Janssen Biotech, Inc. and its affiliates
(Janssen), one of the Janssen Pharmaceutical companies of Johnson & Johnson. See Note 6 for additional
information regarding the collaboration with Janssen. The acquired definite-lived intangible assets are being
amortized over a weighted-average estimated useful life of 12 years using the estimated pattern of
economic benefit. The estimated fair value of the IPR&D and identifiable intangible assets was determined
using the ‘‘income approach.’’
The goodwill recognized from the acquisition of Pharmacyclics includes expected synergies, including
the ability to leverage the respective strengths of each business, expanding the combined company’s
product portfolio, acceleration of clinical and commercial presence in oncology and establishment of a
strong leadership position in hematological oncology. The goodwill is not deductible for tax purposes.
In the second quarter of 2016, the company finalized its valuation of the acquisition date assets
acquired and liabilities assumed. There were no measurement period adjustments in 2016.
From the acquisition date through December 31, 2015, AbbVie’s 2015 consolidated statement of
earnings included net revenues of $774 million and an operating loss of $519 million associated with
Pharmacyclics’ operations. The operating loss included $346 million of acquisition-related compensation
expense, $261 million of inventory step-up and intangible asset amortization and $100 million of
transaction and integration costs. Of these costs, $294 million was recorded within SG&A expenses,
$152 million within R&D expense and $261 million within cost of products sold in the 2015 consolidated
statement of earnings.
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Pro Forma Financial Information
The following table presents the unaudited pro forma combined results of operations of AbbVie and
Pharmacyclics for 2015 and 2014 as if the acquisition of Pharmacyclics had occurred on January 1, 2014:
years ended December 31 (in millions, except per share information)
Net revenues
Net earnings
Basic earnings per share
Diluted earnings per share
2015
2014
$23,215
5,345
$ 3.18
$ 3.16
$20,690
812
$ 0.47
$ 0.47
The unaudited pro forma financial information was prepared using the acquisition method of
accounting and was based on the historical financial information of AbbVie and Pharmacyclics. In order to
reflect the occurrence of the acquisition on January 1, 2014 as required, the unaudited pro forma financial
information includes adjustments to reflect the incremental amortization expense to be incurred based on
the fair values of the identifiable intangible assets acquired; the incremental cost of products sold related
to the fair value adjustments associated with the acquisition-date inventory; the additional interest expense
associated with the issuance of debt to finance the acquisition; and the reclassification of acquisition,
integration and financing-related costs incurred during the year ended December 31, 2015 to the year
ended December 31, 2014. The unaudited pro forma financial information is not necessarily indicative of
what the consolidated results of operations would have been had the acquisition been completed on
January 1, 2014. In addition, the unaudited pro forma financial information is not a projection of the future
results of operations of the combined company nor does it reflect the expected realization of any cost
savings or synergies associated with the acquisition.
Other Licensing & Acquisitions Activity
Excluding the acquisitions above, cash outflows related to other acquisitions and investments totaled
$262 million in 2016, $964 million in 2015 and $622 million in 2014. AbbVie recorded IPR&D charges of
$200 million in 2016, $150 million in 2015 and $352 million in 2014. In 2014, AbbVie also recorded other
operating expenses of $750 million related to the collaboration with Calico Life Sciences LLC (Calico).
Significant arrangements impacting 2016, 2015 and 2014, some of which require contingent milestone
payments, are summarized below.
C2N Diagnostics
In March 2015, AbbVie entered into an exclusive worldwide license agreement with C2N Diagnostics
(C2N) to develop and commercialize anti-tau antibodies for the treatment of Alzheimer’s disease and other
neurological disorders. As part of the agreement, AbbVie made an initial upfront payment of $100 million,
which was expensed to IPR&D in 2015. In 2016, AbbVie made an additional payment of $35 million, which
was recorded in R&D expense, due to the achievement of a development milestone under the license
agreement. Upon the achievement of certain development, regulatory and commercial milestones, AbbVie
could make additional payments of up to $650 million, as well as royalties on net revenues.
Calico Life Sciences LLC
In September 2014, AbbVie and Calico entered into a novel R&D collaboration agreement to discover,
develop and commercialize new therapies for patients with age-related diseases, including
neurodegeneration and cancer. In 2014, AbbVie recorded $750 million in other operating expense in the
consolidated statement of earnings related to its commitments under the agreement of which $250 million
was paid in 2014 and $500 million was paid in early 2015. Calico is responsible for research and early
development during the first five years and will continue to advance collaboration projects through
Phase 2a for a 10 year period. AbbVie will have the option to exclusively license collaboration compounds
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after completion of Phase 2a. AbbVie will support Calico in its early R&D efforts and, upon option exercise,
would be responsible for all late-stage development and commercial activities. Collaboration costs and
profits will be shared equally by both companies post option exercise.
Infinity Pharmaceuticals, Inc.
In September 2014, AbbVie entered into a global collaboration agreement with Infinity
Pharmaceuticals, Inc. (Infinity) to develop and commercialize duvelisib (IPI-145) for the treatment of
patients with cancer. As part of the agreement, AbbVie made an initial upfront payment of $275 million,
which was expensed to IPR&D in the third quarter of 2014. In 2015, AbbVie made an additional payment
of $130 million, which was recorded in R&D expense in the consolidated statement of earnings, due to the
achievement of a development milestone under the collaboration agreement. In June 2016, AbbVie
exercised its right to end its global collaboration with Infinity. Pursuant to the terms of the global
collaboration agreement, the worldwide rights to duvelisib reverted to Infinity.
Other Arrangements
In addition to the significant arrangements described above, AbbVie entered into several other
arrangements resulting in charges to IPR&D of $200 million in 2016, $50 million in 2015 and $77 million in
2014. In connection with the other individually insignificant early stage arrangements entered into in 2016,
AbbVie could make additional payments of up to $2.6 billion upon the achievement of certain
development, regulatory and commercial milestones.
Other Activity
Priority Review Voucher (PRV)
In August 2015, AbbVie entered into an agreement to purchase a rare pediatric disease PRV from a
third party. The PRV entitles AbbVie to receive an FDA priority review of a single New Drug Application or
Biologics License Application, which reduces the target review time and could lead to an expedited
approval. In exchange for the PRV, AbbVie made a payment of $350 million, which was recorded in R&D
expense in the consolidated statement of earnings and as an operating cash outflow in the consolidated
statement of cash flows for 2015. AbbVie intends to use the PRV for an existing R&D project.
Termination of Proposed Combination with Shire
On October 15, 2014, AbbVie’s board of directors withdrew its previous recommendation to AbbVie
stockholders in favor of a proposed combination with Shire and recommended stockholders vote against
the proposed combination. On October 20, 2014, AbbVie and Shire mutually agreed to terminate the
proposed combination. In 2014, the company incurred transaction and financing-related costs totaling
$1.8 billion, of which $1.7 billion was recorded in SG&A expenses and $141 million was recorded in interest
expense, net in the consolidated statement of earnings. Included in SG&A expenses was a break fee of
$1.6 billion, which was tax deductible, paid by AbbVie to Shire in October 2014 as a result of the
termination of the proposed combination. In addition, the company recorded $666 million of net foreign
exchange losses primarily due to undesignated forward contracts that were entered into to hedge
anticipated foreign currency cash outflows associated with the terminated proposed combination with Shire
and the exit of certain foreign currency positions. The forward contracts were settled in 2014. In the first
quarter of 2015, AbbVie recorded additional foreign exchange losses of $170 million to reflect the
completed liquidation of its remaining foreign currency positions.
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Note 6 Collaboration with Janssen Biotech, Inc.
.....................................................................................................................................................................................................................................................................................................................................................
In December 2011, Pharmacyclics entered into a worldwide collaboration and license agreement with
Janssen for the joint development and commercialization of IMBRUVICA, a novel, orally active, selective
covalent inhibitor of 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.
Janssen is responsible for and has exclusive rights to commercialize IMBRUVICA outside the United
States. While both parties have co-exclusive rights to commercialize the products in the United States,
AbbVie is the principal in the end customer product sales. For sales of IMBRUVICA in the United States,
revenues are included in net revenues. AbbVie and Janssen share pre-tax profits and losses equally from
the commercialization of products. Amounts payable to AbbVie by Janssen for IMBRUVICA collaboration
profits outside the United States are included in net revenues. Amounts payable to Janssen by AbbVie for
IMBRUVICA collaboration profits in the United States are included in cost of products sold. The
collaboration also includes a cost sharing arrangement for associated collaboration activities. Except in
certain cases, in general, Janssen is responsible for approximately 60% of collaboration development costs
and AbbVie is responsible for the remaining 40% of collaboration development costs. Operating expenses
for costs incurred under the collaboration are reported in their respective expense line items, net of any
payments due to or reimbursements due from Janssen.
The following table shows the profit and cost sharing relationship between Janssen and AbbVie:
(in millions)
Collaboration revenues—International
AbbVie profit share costs—United States
AbbVie’s share of cost sharing expenses
Twelve months
ended
December 31,
2016
2015
$252
735
262
$ 95
306
159
Note 7 Goodwill and Intangible Assets
.....................................................................................................................................................................................................................................................................................................................................................
Goodwill
The following table summarizes the changes in the carrying amount of goodwill:
(in millions)
Balance as of December 31, 2014
Additions (see Note 5)
Foreign currency translation and other adjustments
Balance as of December 31, 2015
Additions (see Note 5)
Foreign currency translation and other adjustments
Balance as of December 31, 2016
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$ 5,862
7,610
(304)
13,168
2,360
(112)
$15,416
The latest impairment assessment of goodwill was completed in the third quarter of 2016. As of
December 31, 2016, there were no accumulated goodwill impairment losses. Future impairment tests for
goodwill will be performed annually in the third quarter, or earlier if impairment indicators exist.
Intangible Assets, Net
The following table summarizes intangible assets:
as of December 31 (in millions)
Definite-lived intangible assets
Developed product rights
License agreements
Total definite-lived intangible assets
Indefinite-lived research and development
2016
2015
Gross
carrying Accumulated
amortization
amount
Net
carrying
amount
Gross
carrying Accumulated
amortization
amount
Net
carrying
amount
$16,464
7,809
24,273
9,990
$(4,256) $12,208 $ 9,103
8,000
(1,110)
6,699
$(3,944) $ 5,159
6,977
(1,023)
(5,366)
—
18,907
9,990
17,103
7,573
(4,967)
—
12,136
7,573
Total intangible assets, net
$34,263
$(5,366) $28,897 $24,676
$(4,967) $19,709
Intangible assets with finite useful lives are amortized over their estimated useful lives, which range
between 2 to 16 years with an average of 12 years for developed product rights and 11 years for license
agreements. In 2016, AbbVie reclassified an aggregate $7.6 billion of indefinite-lived research and
development intangible assets to developed product rights and license agreements intangible assets upon
receiving certain regulatory approvals related to IMBRUVICA and ZINBRYTA. These intangible assets will be
amortized over their estimated useful lives using the estimated pattern of economic benefit. Additionally, in
2016, AbbVie reduced both the gross carrying amount and accumulated amortization by $396 million for
certain developed product rights and license agreements that are fully amortized and no longer generating
cash flows.
Amortization expense was $764 million in 2016, $419 million in 2015 and $403 million in 2014 and
was included in cost of products sold in the consolidated statements of earnings. The anticipated annual
amortization expense for definite lived intangible assets recorded as of December 31, 2016 is as follows:
(in billions)
Anticipated annual amortization expense
2017
2018
2019
2020
2021
$1.1
$1.3
$1.6
$1.8
$2.0
In the first quarter of 2016, an impairment charge of $39 million was recorded related to certain
developed product rights in the United States due to a decline in the market for the product. In 2015, no
intangible asset impairment charges were recorded. In the third quarter of 2014, an impairment charge of
$37 million was recorded related to certain on-market product rights in Japan due to increased generic
competition. The 2016 and 2014 impairment charges were based on discounted cash flow analyses and
were included in cost of products sold in the consolidated statements of earnings.
The indefinite-lived intangible assets represent acquired IPR&D associated with products that have not
yet received regulatory approval. Indefinite-lived intangible assets as of December 31, 2016 primarily related
to the acquisition of Stemcentrx and BI compounds. Indefinite-lived intangible assets as of December 31,
2015 primarily related to the acquisition of Pharmacyclics. See Note 5 for additional information. The latest
impairment assessment of intangible assets not subject to amortization was completed in the third quarter
of 2016. No impairment charges were recorded in 2016 and 2015 and those recorded in 2014 were
insignificant. Future impairment tests for indefinite-lived intangible assets will be performed annually in the
third quarter, or earlier if impairment indicators exist.
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Note 8 Restructuring Plans
.....................................................................................................................................................................................................................................................................................................................................................
AbbVie continuously evaluates its operations to identify opportunities to optimize its manufacturing
and R&D operations, commercial infrastructure and administrative costs and to respond to changes in its
business environment, for example, in conjunction with the loss and expected loss of exclusivity of certain
products. As a result, AbbVie management periodically approves individual restructuring plans to achieve
these objectives. In 2016, 2015 and 2014, no such plans were individually significant. Restructuring charges
recorded were $52 million in 2016, $138 million in 2015 and $23 million in 2014 and were primarily related
to employee severance and contractual obligations. These charges were recorded in cost of products sold,
R&D expense and SG&A expenses in the consolidated statements of earnings based on classification of the
affected employees or operations.
The following summarizes the cash activity in the restructuring reserve for 2016, 2015 and 2014:
(in millions)
Accrued balance at December 31, 2013
2014 restructuring charges
Payments and other adjustments
Accrued balance at December 31, 2014
2015 restructuring charges
Payments and other adjustments
Accrued balance at December 31, 2015
2016 restructuring charges
Payments and other adjustments
Accrued balance at December 31, 2016
$ 191
16
(85)
122
126
(100)
148
52
(113)
$ 87
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Note 9 Debt, Credit Facilities and Commitments and Contingencies
.....................................................................................................................................................................................................................................................................................................................................................
The following is a summary of long-term debt:
as of December 31 (in millions)
Senior notes issued in 2012:
1.75% notes due 2017
2.00% notes due 2018
2.90% notes due 2022
4.40% notes due 2042
Senior notes issued in 2015:
1.80% notes due 2018
2.50% notes due 2020
3.20% notes due 2022
3.60% notes due 2025
4.50% notes due 2035
4.70% notes due 2045
Senior notes issued in 2016:
2.30% notes due 2021
2.85% notes due 2023
3.20% notes due 2026
4.30% notes due 2036
4.45% notes due 2046
Senior Euro notes issued in 2016:
0.38% notes due 2019 (e1,400 principal)
1.38% notes due 2024 (e1,450 principal)
2.13% notes due 2028 (e750 principal)
Term loan facilities:
Floating rate notes due 2016
Floating rate notes due 2018
Other
Fair value hedges
Unamortized bond discounts
Unamortized deferred financing costs
Total long-term debt and lease obligations
Current portion
Noncurrent portion
Effective
interest rate
in 2016(a)
2016
Effective
interest rate
in 2015(a)
1.86%
2.15%
2.97%
4.46%
1.92%
2.65%
3.28%
3.66%
4.58%
4.73%
—%
—%
—%
—%
—%
—%
—%
—%
1.23%
1.38%
—%
—%
—%
—%
1.86%
2.15%
2.97%
4.46%
1.92%
2.65%
3.28%
3.66%
4.58%
4.73%
2.40%
2.91%
3.28%
4.37%
4.50%
0.55%
1.46%
2.18%
—%
1.64%
—%
—%
—%
—%
$
—
1,000
3,100
2,600
3,000
3,750
1,000
3,750
2,500
2,700
1,800
1,000
2,000
1,000
2,000
1,464
1,516
784
—
2,000
113
(338)
(110)
(164)
36,465
25
$36,440
2015
$ 4,000
1,000
3,100
2,600
3,000
3,750
1,000
3,750
2,500
2,700
—
—
—
—
—
—
—
—
2,000
2,000
139
(72)
(85)
(117)
31,265
2,025
$29,240
(a) Excludes the effect of any related interest rate swaps.
In November 2016, the company issued e3.6 billion aggregate principal amount of unsecured senior
Euro notes. These senior notes rank equally with all other unsecured and unsubordinated indebtedness of
the company. AbbVie may redeem the senior notes prior to maturity at a redemption price equal to the
principal amount of the senior notes redeemed plus a make-whole premium. AbbVie may redeem the
senior notes at par between one and three months prior to maturity. In connection with the offering, debt
issuance costs totaled $17 million and debt discounts incurred totaled $9 million and are being amortized
over the respective terms of the notes to interest expense, net in the consolidated statements of earnings.
The company used the proceeds to redeem $4.0 billion aggregate principal amount of 1.75% senior notes
due to mature in November 2017. As a result of this redemption, the company incurred a charge of
$39 million ($25 million after tax) related to the make-whole premium, write-off of unamortized debt
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issuance costs and other expenses. The charge was recorded in interest expense, net in the consolidated
statement of earnings.
In May 2016, the company issued $7.8 billion aggregate principal amount of unsecured senior notes.
These senior notes rank equally with all other unsecured and unsubordinated indebtedness of the company.
AbbVie may redeem the senior notes prior to maturity at a redemption price equal to the principal amount
of the senior notes redeemed plus a make-whole premium. AbbVie may redeem the senior notes at par
between one and six months prior to maturity. In connection with the offering, debt issuance costs totaled
$52 million and debt discounts incurred totaled $29 million and are being amortized over the respective
terms of the notes to interest expense, net in the consolidated statements of earnings. Of the $7.7 billion
net proceeds, $2.0 billion was used to repay the company’s outstanding term loan that was due to mature
in November 2016, approximately $1.9 billion was used to finance the acquisition of Stemcentrx and
approximately $3.8 billion was used to finance an ASR with a third party financial institution. See Note 5
for additional information related to the acquisition of Stemcentrx and Note 12 for additional information
related to the ASR.
In September 2015, AbbVie entered into a $2.0 billion three-year term loan credit agreement and a
$2.0 billion 364-day term loan credit agreement (collectively, the term loan facilities). In November 2015,
AbbVie drew on these term loan facilities and used the proceeds to refinance its $4.0 billion of senior
notes that matured in November 2015. In connection with the May 2016 unsecured senior notes issuance,
AbbVie repaid the 364-day term loan credit agreement. The borrowings under the term loan facilities bear
interest at variable rates which are adjusted based on AbbVie’s public debt ratings.
In May 2015, the company issued $16.7 billion aggregate principal amount of unsecured senior notes.
The senior notes rank equally with all other unsecured and unsubordinated indebtedness of the company.
AbbVie may redeem the senior notes prior to maturity at a redemption price equal to the principal amount
of the senior notes redeemed plus a make-whole premium and, except for the 1.80% notes due 2018,
AbbVie may redeem the senior notes at par between one and six months prior to maturity. Debt issuance
costs incurred in connection with the offering totaled $93 million and are being amortized over the
respective terms of the senior notes to interest expense, net in the consolidated statements of earnings.
Approximately $11.5 billion of the net proceeds from the issuance of the senior notes were used to finance
the acquisition of Pharmacyclics and approximately $5.0 billion of the net proceeds were used to finance an
ASR with a third party financial institution. See Note 5 for additional information related to the acquisition
of Pharmacyclics and Note 12 for additional information related to the ASR.
In March 2015, AbbVie entered into an $18.0 billion bridge loan in support of the then planned
acquisition of Pharmacyclics. No amounts were drawn under the bridge loan, which was terminated as a
result of the company’s May 2015 senior notes issuance. Interest expense, net in 2015 includes $86 million
of costs related to the bridge loan.
AbbVie has outstanding $6.7 billion aggregate principal amount of unsecured senior notes which were
issued in 2012. AbbVie may redeem all of the senior notes of each series, at any time, or some of the
senior notes of each series, from time to time, at a redemption price equal to the principal amount of the
senior notes redeemed plus a make-whole premium.
At December 31, 2016, the company was in compliance with its senior note covenants and term loan
covenants.
Short-Term Borrowings
Short-term borrowings included commercial paper borrowings of $377 million at December 31, 2016
and $400 million at December 31, 2015. The weighted-average interest rate on short-term borrowings was
0.6% in 2016, 0.3% in 2015 and 0.2% in 2014.
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In October 2014, AbbVie entered into a $3.0 billion five-year revolving credit facility, which matures in
October 2019. The revolving credit facility enables the company to borrow funds on an unsecured basis at
variable interest rates and contains various covenants. At December 31, 2016, the company was in
compliance with all its credit facility covenants. Commitment fees under AbbVie’s revolving credit facilities
were insignificant in 2016, 2015 and 2014. No amounts were outstanding under the credit facility as of
December 31, 2016 and December 31, 2015.
Maturities of Long-Term Debt and Capital Lease Obligations
The following table summarizes AbbVie’s future minimum lease payments under non-cancelable
operating leases, debt maturities and future minimum lease payments for capital lease obligations as of
December 31, 2016:
as of and for the years ending December 31 (in millions)
2017
2018
2019
2020
2021
Thereafter
Total obligations and commitments
Fair value hedges, unamortized bond discounts and deferred financing costs
Total debt and lease obligations
Operating
leases
Debt maturities
and capital leases
$131
116
106
95
77
449
974
—
$974
$
25
6,023
1,480
3,760
1,802
23,987
37,077
(612)
$36,465
Lease expense was $159 million in 2016, $146 million in 2015 and $115 million in 2014. AbbVie’s
operating leases generally include renewal options and provide for the company to pay taxes, maintenance,
insurance and other operating costs of the leased property. As of December 31, 2016, annual future
minimum lease payments for capital lease obligations are insignificant.
Contingencies and Guarantees
In connection with the separation, AbbVie has indemnified Abbott for all liabilities resulting from the
operation of AbbVie’s business other than income tax liabilities with respect to periods prior to the
distribution date and other liabilities as agreed to by AbbVie and Abbott. AbbVie has no material exposures
to off-balance sheet arrangements and no special-purpose entities. In the ordinary course of business,
AbbVie has periodically entered into third-party agreements, such as the assignment of product rights,
which have resulted in AbbVie becoming secondarily liable for obligations for which AbbVie had previously
been primarily liable. Based upon past experience, the likelihood of payments under these agreements is
remote. AbbVie periodically acquires a business or product rights in which AbbVie agrees to pay contingent
consideration based on attaining certain thresholds or based on the occurrence of certain future events.
Note 10 Financial Instruments and Fair Value Measures
.....................................................................................................................................................................................................................................................................................................................................................
Risk Management Policy
The company is exposed to foreign currency exchange rate and interest rate risks related to its
business operations. AbbVie’s hedging policy attempts to manage these risks to an acceptable level based
on the company’s judgment of the appropriate trade-off between risk, opportunity and costs. The company
uses derivative and nonderivative instruments to reduce its exposure to foreign currency exchange rates.
AbbVie is also exposed to the risk that its earnings and cash flows could be adversely impacted by
fluctuations in interest rates and periodically enters into interest rate swaps, in which the company agrees
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to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by
reference to an agreed-upon notional amount. Derivative instruments are not used for trading purposes or
to manage exposure to changes in interest rates for investment securities and none of the company’s
outstanding derivative instruments contain credit risk related contingent features; collateral is generally not
required.
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 $2.2 billion at December 31, 2016 and $1.5 billion at December 31, 2015 are designated as cash
flow hedges and are recorded at fair value. The durations of these forward exchange contracts were
generally less than eighteen months. Accumulated gains and losses as of December 31, 2016 will be
reclassified from 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.
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 loss in the consolidated statements of earnings and are generally offset by losses or gains
on the foreign currency exposure being managed. AbbVie held notional amounts of $6.6 billion at
December 31, 2016 and $6.8 billion at December 31, 2015 of such undesignated foreign currency forward
exchange contracts.
In 2014, the company entered into undesignated forward exchange contracts with a total notional
amount of $16.9 billion to hedge anticipated foreign currency cash outflows associated with the terminated
proposed combination with Shire. A large portion of these contracts were originally due to mature in the
first quarter of 2015, but were net settled in the fourth quarter of 2014. In 2014, the company realized
$490 million in net foreign exchange losses associated with the Shire-related forward exchange contracts.
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. In the fourth quarter of
2016, the company issued e3.6 billion aggregate principal amount of senior Euro notes and designated the
principal amounts of this foreign denominated debt as net investment hedges. Concurrently, the company
settled foreign currency forward exchange contracts with aggregate notional amounts of e3.5 billion
($3.9 billion) that were designated as net investment hedges.
AbbVie is a party to interest rate hedge contracts, designated as fair value hedges, totaling
$11.8 billion at December 31, 2016 and $11.0 billion at December 31, 2015. 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.
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The following table summarizes the amounts and location of AbbVie’s derivative instruments on the
consolidated balance sheets:
as of December 31 (in millions)
Balance sheet caption
2016 2015
Balance sheet caption
2016 2015
Fair value—Derivatives in asset position
Fair value—Derivatives in liability
position
Foreign currency forward exchange
contracts—
Hedging instruments
Prepaid expenses and other $170 $33
Accounts payable $ 5 $ —
Others not designated as hedges
Prepaid expenses and other
55
28
and accrued liabilities
Accounts payable
and accrued liabilities
33
21
Interest rate swaps designated as fair
value hedges
Total derivatives
Other assets —
9
Other long-term 338
liabilities
81
$225 $70
$376 $102
While certain derivatives are subject to netting arrangements with the company’s counterparties, the
company does not offset derivative assets and liabilities within the consolidated balance sheets.
The following table presents the amounts of gains/ (losses) from derivative instruments recognized in
other comprehensive loss. The amount of hedge ineffectiveness was insignificant for all periods presented:
(in millions)
Foreign currency forward
exchange contracts
2016
Net
2015
Net
2014
Net
Cash Flow Investment
Cash Flow Investment
Cash Flow Investment
Hedges
Hedges
Total
Hedges
Hedges
Total
Hedges
Hedges
Total
$174
$118
$292
$122
$— $122
$193
$— $193
Assuming market rates remain constant through contract maturities, we expect to transfer pretax
unrealized gains of $194 million into cost of products sold for foreign currency 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 of $101 million in other comprehensive income (loss) in
2016.
The following table summarizes the pre-tax amounts and location of derivative instrument net gains/
(losses) recognized in the consolidated statements of earnings, including the effective portions of the net
gains/(losses) reclassified out of AOCI into net earnings. See Note 12 for the amount of net gains/(losses)
reclassified out of AOCI.
years ended December 31 (in millions)
Statement of earnings caption
2016
2015
2014
Foreign currency forward exchange contracts—
Designated as cash flow hedges
Not designated as hedges
Non-designated treasury rate lock agreements
Interest rate swaps designated as fair value hedges
Total
Cost of products sold $ 20 $ 265 $ (79)
(523)
—
252
Net foreign exchange loss
Other expense (income), net
Interest expense, net
6
(12)
(266)
(155)
—
108
$(252) $ 218 $(350)
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The gain/(loss) related to outstanding interest rate swaps designated as fair value hedges is recognized
in interest expense, net and directly offsets the (loss)/gain on the underlying hedged item, the fixed-rate
debt, resulting in no net impact to interest expense, net for all periods presented.
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 that were
carried at fair value on a recurring basis on the consolidated balance sheet as of December 31, 2016:
(in millions)
Assets
Cash and equivalents
Time deposits
Debt securities
Equity securities
Foreign currency contracts
Total assets
Liabilities
Interest rate hedges
Foreign currency contracts
Contingent consideration
Total liabilities
Basis of fair value measurement
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
Inputs
(Level 3)
$1,191
—
—
76
—
$1,267
$ —
—
—
$ —
$3,909
1,014
1,974
—
225
$7,122
$ 338
38
—
$ 376
$ —
—
—
—
—
$ —
$ —
—
4,213
$4,213
Total
$5,100
1,014
1,974
76
225
$8,389
$ 338
38
4,213
$4,589
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The following table summarizes the bases used to measure certain assets and liabilities that were
carried at fair value on a recurring basis on the consolidated balance sheet as of December 31, 2015:
(in millions)
Assets
Cash and equivalents
Time deposits
Equity securities
Interest rate hedges
Foreign currency contracts
Total assets
Liabilities
Interest rate hedges
Foreign currency contracts
Total liabilities
Basis of fair value measurement
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
Inputs
(Level 3)
$798
—
111
—
—
$909
$ —
—
$ —
$7,601
8
—
9
61
$7,679
$
81
21
$ 102
$—
—
—
—
—
$—
$—
—
$—
Total
$8,399
8
111
9
61
$8,588
$
81
21
$ 102
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 based on prices obtained from
commercial pricing services. Available-for-sale equity securities consists 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 publicized spot curves for interest rate hedges and publicized forward curves for foreign currency
contracts. 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. 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 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 December 31, 2016, a 50 basis point increase/decrease in the assumed discount
rate would have decreased/increased the value of the contingent consideration liabilities by approximately
$180 million. Additionally, at December 31, 2016, 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 $360 million.
There have been no transfers of assets or liabilities between the fair value measurement levels. The
following table is a reconciliation of the fair value measurements that use significant unobservable inputs
(Level 3), which consist of contingent consideration related to the acquisitions of Stemcentrx and BI
compounds. See Note 5 for additional information.
(in millions)
Fair value as of December 31, 2015
Additions
Change in fair value recognized in net earnings
Fair value as of December 31, 2016
$ —
3,985
228
$4,213
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The change in fair value recognized in net earnings was recorded in other expense (income), net in the
consolidated statement of net earnings for the twelve months ended December 31, 2016.
In addition to the financial instruments that the company is required to recognize at fair value on the
consolidated balance sheets, the company has certain financial instruments that were recognized 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 December 31, 2016 are shown
in the table below:
(in millions)
Assets
Investments
Total assets
Liabilities
Short-term borrowings
Current portion of long-term debt and
lease obligations
Long-term debt and lease obligations,
excluding fair value hedges
Total liabilities
Basis of fair value measurement
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
Inputs
(Level 3)
Book Value
Approximate
fair values
$
$
$
42
42
377
25
$
$
$
42
42
377
25
$
$
$
—
—
—
—
36,778
36,664
34,589
$37,180
$37,066
$34,589
$
$
5
5
$ 377
25
2,075
$2,477
$37
$37
$ —
—
—
$ —
The book values, approximate fair values and bases used to measure the approximate fair values of
certain financial instruments as of December 31, 2015 are shown in the table below:
(in millions)
Assets
Investments
Total assets
Liabilities
Short-term borrowings
Current portion of long-term debt and
lease obligations
Long-term debt and lease obligations,
excluding fair value hedges
Total liabilities
Basis of fair value measurement
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
Inputs
(Level 3)
Book Value
Approximate
fair values
$
$
$
34
34
406
$
$
$
37
37
406
2,025
2,016
$
$
$
—
—
—
—
29,312
29,143
27,061
$31,743
$31,565
$27,061
$ —
$ —
$ 406
2,016
2,082
$4,504
$37
$37
$ —
—
—
$ —
Investments primarily consist of cost method investments. To determine the fair values of other cost
method investments, the company takes into consideration recent transactions, as well as the financial
information of the investee, which represents a Level 3 basis of fair value measurement. The fair values of
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short-term and current borrowings approximate the carrying values due to the short maturities of these
instruments.
The fair values of long-term debt, excluding fair value hedges and the term loans, were determined by
using the published market price for the debt instruments, without consideration of transaction costs,
which represents a Level 1 basis of fair value measurement. The fair values of the term loans were
determined based on a discounted cash flow analysis using quoted market rates, which represents a Level 2
basis of fair value measurement. The counterparties to financial instruments consist of select major
international financial institutions.
Available-for-sale Securities
Substantially all of the company’s investments in debt and equity securities were classified as
available-for-sale. As of December 31, 2016, $309 million of debt securities were classified as short-term.
Long-term debt securities mature primarily within five years. There were no significant debt securities
outstanding as of December 31, 2015. Estimated fair values of available-for-sale debt securities were based
on prices obtained from commercial pricing services. The following table is a summary of available-for-sale
securities by type as of December 31, 2016:
(in millions)
Asset backed securities
Corporate debt securities
Other debt securities
Equity securities
Total
Amortized
Cost
$ 891
961
127
18
$1,997
Gross
unrealized
Gains
Losses
Fair Value
$ 1
1
—
60
$62
$(4)
(2)
(1)
(2)
$(9)
$ 888
960
126
76
$2,050
AbbVie had no other-than-temporary impairments as of December 31, 2016. For the years ended
December 31, 2016 and 2015, net realized gains were insignificant.
Concentrations of Risk
The company invests excess cash in time deposits, money market funds and debt securities to diversify
the concentration of cash among different financial institutions. The company has established credit
exposure limits and monitors concentrations of credit risk associated with financial institution deposits.
The functional currency of the company’s Venezuela operations is the U.S. dollar due to the
hyperinflationary status of the Venezuelan economy. At December 31, 2015, there were three legal
exchange mechanisms administered by the Venezuelan government. These were the official rate of
6.3 Venezuelan bolivars (VEF) per U.S. dollar, the Supplementary System for the Administration of Foreign
Currency (SICAD) rate of approximately 13.5 VEF per U.S. dollar and the Foreign Exchange Marginal System
(SIMADI) rate of approximately 200. Effective March 10, 2016, the Venezuelan government devalued the
official rate of 6.3 to 10 VEF per U.S. dollar, eliminated the SICAD rate and replaced SIMADI with a new
exchange mechanism, Divisa Complementaria (DICOM). As of December 31, 2016, the DICOM rate was
approximately 673 VEF per U.S. dollar.
During the first quarter of 2016, in consideration of declining economic conditions in Venezuela and a
decline in transactions settled at the official rate, AbbVie determined that its net monetary assets
denominated in the Venezuelan bolivar were no longer expected to be settled at the official rate of 10 VEF
per U.S. dollar, but rather at the DICOM rate. Therefore, during the first quarter of 2016, AbbVie recorded
a charge of $298 million to net foreign exchange loss to revalue its bolivar-denominated net monetary
assets using the DICOM rate then in effect of approximately 270 VEF per U.S. dollar. As of December 31,
2016, AbbVie’s net monetary assets in Venezuela were insignificant.
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AbbVie continues to do business with foreign governments in certain countries, including Greece,
Portugal, Italy and Spain, which have historically experienced challenges in credit and economic conditions.
Substantially all of AbbVie’s trade receivables in Greece, Portugal, Italy and Spain are with government
health systems. Outstanding net governmental receivables in these countries totaled $244 million at
December 31, 2016 and $525 million at December 31, 2015. The company also continues to do business
with foreign governments in certain oil-exporting countries which have recently experienced a deterioration
in economic conditions, including Saudi Arabia and Russia. Outstanding net governmental receivables were
$122 million related to Saudi Arabia and $110 million related to Russia as of December 31, 2016. Due to oil
market conditions in recent years, liquidity issues in certain countries may result in delays in the collection
of receivables. Global economic conditions and customer-specific factors may require the company to
periodically re-evaluate the collectability of its receivables and the company could potentially incur credit
losses.
Of total net accounts receivable, three U.S. wholesalers accounted for 51% as of December 31, 2016
and 51% as of December 31, 2015 and substantially all of AbbVie’s net revenues in the United States are to
these three wholesalers.
HUMIRA (adalimumab) is AbbVie’s single largest product and accounted for approximately 63% in 2016,
61% in 2015 and 63% in 2014 of AbbVie’s total net revenues.
Note 11 Post-Employment Benefits
.....................................................................................................................................................................................................................................................................................................................................................
AbbVie sponsors various pension and other post-employment benefit plans, including defined benefit,
defined contribution and termination indemnity plans, which cover most employees worldwide. In addition,
AbbVie provides medical benefits, primarily to eligible retirees in the United States and Puerto Rico,
through other post-retirement benefit plans. Net obligations for these plans have been reflected on the
consolidated balance sheets as of December 31, 2016 and 2015.
AbbVie’s principal domestic defined benefit plan is the AbbVie Pension Plan. AbbVie made voluntary
contributions of $150 million in 2016, $150 million in 2015 and $370 million in 2014 to this plan. AbbVie
also made a voluntary contribution of $150 million to this plan subsequent to December 31, 2016.
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The benefit plan information in the table below pertains to the global AbbVie-sponsored defined
benefit and other post-employment plans:
as of and for the years ended December 31 (in millions)
2016
2015
2016
2015
Defined
benefit plans
Other
post-employment
plans
Projected benefit obligations
Beginning of period
Service cost
Interest cost
Employee contributions
Actuarial loss (gain)
Benefits paid
Other, primarily foreign currency translation adjustments
End of period
Fair value of plan assets
Beginning of period
Actual return (loss) on plan assets
Company contributions
Employee contributions
Benefits paid
Other, primarily foreign currency translation adjustments
End of period
Funded status end of period
Amounts recognized on the consolidated balance sheets
Other assets
Accounts payable and accrued liabilities
Other long-term liabilities
Net obligation
Actuarial loss, net
Prior service cost (credit)
Accumulated other comprehensive loss
$ 5,387
210
201
1
313
(163)
(120)
$ 5,681
227
219
2
(467)
(158)
(117)
$ 557
25
24
—
33
(12)
—
$ 538
25
23
—
(17)
(11)
(1)
5,829
5,387
627
557
4,174
383
273
1
(163)
(96)
4,572
4,173
(25)
217
2
(158)
(35)
4,174
—
—
12
—
(12)
—
—
—
—
11
—
(11)
—
—
$(1,257) $(1,213)
$(627)
$(557)
$
240
(25)
(1,472)
$
214
(24)
(1,403)
$ —
(14)
(613)
$ —
(11)
(546)
$(1,257) $(1,213)
$(627)
$(557)
$ 2,118
14
$ 1,939
16
$ 179
(37)
$ 154
(45)
$ 2,132
$ 1,955
$ 142
$ 109
The projected benefit obligations (PBO) in the table above included $1.7 billion at December 31, 2016
and $1.5 billion at December 31, 2015, related to international defined benefit plans.
For plans reflected in the table above, the accumulated benefit obligations (ABO) were $5.3 billion at
December 31, 2016 and $4.8 billion at December 31, 2015. For those plans reflected in the table above in
which the ABO exceeded plan assets at December 31, 2016, the ABO was $3.2 billion, the PBO was
$3.7 billion and aggregate plan assets were $2.2 billion.
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Amounts Recognized in Other Comprehensive Loss
The following table summarizes the pre-tax gains and losses included in other comprehensive loss:
years ended December 31 (in millions)
2016
2015
2014
Defined benefit plans
Actuarial loss (gain)
Prior service cost
Amortization of actuarial loss and prior service cost
Foreign exchange gain
Total pre-tax loss (gain) recognized in other comprehensive loss
Other post-employment plans
Actuarial loss (gain)
Prior service credit
Amortization of actuarial loss and prior service cost (credit)
Total pre-tax loss (gain) recognized in other comprehensive loss
$284
—
(85)
(22)
$(117) $1,127
1
(68)
(41)
—
(127)
(37)
$177
$(281) $1,019
$ 33
—
—
$ (17) $ 111
(13)
3
—
(2)
$ 33
$ (19) $ 101
The pre-tax amount of actuarial loss and prior service cost included in AOCI at December 31, 2016
that is expected to be recognized in net periodic benefit cost in 2017 is $103 million for defined benefit
plans and $3 million for other post-employment plans.
Net Periodic Benefit Cost
years ended December 31 (in millions)
Defined benefit plans
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss and prior service cost
Net periodic benefit cost
Other post-employment plans
Service cost
Interest cost
Amortization of actuarial loss (gain) and prior service cost (credit)
Net periodic benefit cost
2016
2015
2014
$ 210
201
(354)
85
$ 227
219
(325)
127
$ 173
217
(302)
68
$ 142
$ 248
$ 156
$ 25
24
—
$ 25
23
2
$ 22
22
(2)
$ 49
$ 50
$ 42
Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date
as of December 31
Defined benefit plans
Discount rate
Rate of compensation increases
Other post-employment plans
Discount rate
2016
2015
3.9% 4.4%
4.4% 4.4%
4.7% 4.9%
The assumptions used in calculating the December 31, 2016 measurement date benefit obligations will
be used in the calculation of net periodic benefit cost in 2017.
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Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost
years ended December 31
Defined benefit plans
Discount rate for determining service cost
Discount rate for determining interest cost
Expected long-term rate of return on plan assets
Expected rate of change in compensation
Other post-employment plans
Discount rate for determining service cost
Discount rate for determining interest cost
2016
2015
2014
4.4%
4.0%
7.9%
4.4%
5.1%
4.3%
3.9%
3.9%
7.8%
4.4%
4.5%
4.5%
4.9%
4.9%
7.9%
5.0%
5.3%
5.3%
Effective December 31, 2015, AbbVie elected to change the method it uses to estimate the service and
interest cost components of net periodic benefit costs. Historically, AbbVie estimated these service and
interest cost components of this expense utilizing a single weighted-average discount rate derived from the
yield curve used to measure the benefit obligation at the beginning of the period. In late 2015, AbbVie
elected to utilize a full yield curve approach in the estimation of these components by applying the specific
spot rates along the yield curve used in the determination of the benefit obligation to the relevant
projected cash flows. AbbVie elected to make this change to provide a more precise measurement of
service and interest costs by improving the correlation between projected benefit cash flows to the
corresponding spot yield curve rates. AbbVie has accounted for this change prospectively as a change in
accounting estimate that is inseparable from a change in accounting principle. This change reduced AbbVie’s
net periodic benefit cost by approximately $41 million in 2016. This change had no effect on the 2015 or
2014 expense and did not affect the measurement of AbbVie’s total benefit obligations.
For the December 31, 2016 post-retirement health care obligations remeasurement, the company
assumed a 6.8 percent pre-65 (7.8 percent post-65) annual rate of increase in the per capita cost of
covered health care benefits. The rate was assumed to decrease gradually to 4.5 percent in 2064 and
remain at that level thereafter. For purposes of measuring the 2016 post-retirement health care costs, the
company assumed a 7.3 percent pre-65 (8.3 percent post-65) annual rate of increase in the per capita cost
of covered health care benefits. The rate was assumed to decrease gradually to 4.5 percent for 2064 and
remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for health care
plans. As of December 31, 2016, a 1 percentage point change in assumed health care cost trend rates
would have the following effects:
year ended December 31, 2016 (in millions) (brackets denote a reduction)
Service cost and interest cost
Projected benefit obligation
One percentage
point
Increase
Decrease
$ 11
120
$ (9)
(95)
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Defined Benefit Pension Plan Assets
as of December 31 (in millions)
Equities
U.S. large cap(a)
U.S. mid cap(b)
International(c)
Fixed income securities
U.S. government securities(d)
Corporate debt instruments(d)
Non-U.S. government securities(d)
Other(d)
Absolute return funds(e)
Real assets
Other(f)
Total
Total assets measured at NAV
Fair value of plan assets
as of December 31 (in millions)
Equities
U.S. large cap(a)
U.S. mid cap(b)
International(c)
Fixed income securities
U.S. government securities(d)
Corporate debt instruments(d)
Non-U.S. government securities(d)
Other(d)
Absolute return funds(e)
Real assets
Other(f)
Total
Total assets measured at NAV
Fair value of plan assets
Basis of fair value measurement
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$ 519
63
97
—
162
30
179
3
31
61
$ —
—
—
94
81
2
5
225
—
—
$—
—
—
—
—
—
—
—
—
—
$1,145
$407
$—
Basis of fair value measurement
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$ 542
35
100
15
124
33
122
2
8
93
$ —
—
—
78
79
2
4
192
—
—
$—
—
—
—
—
—
—
—
—
$1,074
$355
$—
2016
$ 519
63
97
94
243
32
184
228
31
61
$1,552
3,020
$4,572
2015
$ 542
35
100
93
203
35
126
194
8
93
$1,429
2,745
$4,174
(a) A mix of index funds and actively managed equity accounts that are benchmarked to various large cap
indices.
(b) A mix of index funds and actively managed equity accounts that are benchmarked to various mid cap
indices.
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(c) A mix of index funds and actively managed equity accounts that are benchmarked to various non-US
equity indices in both developed and emerging markets.
(d) Securities held by actively managed accounts, index funds and mutual funds.
(e) Funds having global mandates with the flexibility to allocate capital broadly across a wide range of
asset classes and strategies, including but not limited to equities, fixed income, commodities, financial
futures, currencies and other securities, with objectives to outperform agreed upon benchmarks of
specific return and volatility targets.
(f)
Investments in cash and cash equivalents.
Equities and registered investment companies having quoted prices are valued at the published market
prices. Fixed income securities that are valued using significant other observable inputs are quoted at prices
obtained from independent financial service industry-recognized vendors. Investments held in pooled
investment funds, common collective trusts or limited partnerships are valued at the net asset value (NAV)
practical expedient to estimate fair value. The NAV is provided by the fund administrator and is based on
the value of the underlying assets owned by the fund minus its liabilities.
The investment mix of equity securities, fixed income and other asset allocation strategies is based
upon achieving a desired return, balancing higher return, more volatile equity securities and lower return,
less volatile fixed income securities. Investment allocations are established for each plan and are generally
made across a range of markets, industry sectors, capitalization sizes and in the case of fixed income
securities, maturities and credit quality. The target investment allocations for the AbbVie Pension Plan is
35% in equity securities, 20% in fixed income securities and 45% in asset allocation strategies and other
holdings. There are no known significant concentrations of risk in the plan assets of the AbbVie Pension
Plan or any other plans’ assets.
The plans’ expected return on plan assets assumption is based on management’s expectations of
long-term average rates of return to be achieved by the underlying investment portfolios. In establishing
this assumption, management considers historical and expected returns for the asset classes in which the
plans are invested, as well as current economic and capital market conditions.
Expected Defined Benefit and Other Post-Employment Plan Payments
years ending December 31 (in millions)
2017
2018
2019
2020
2021
2022 to 2026
Defined
benefit plans
Other
post-employment
plans
$ 174
185
199
211
226
1,351
$ 14
17
20
20
22
145
The above table reflects total benefit payments expected to be paid to participants, which includes
payments funded from both plan and company assets.
Defined Contribution Plan
AbbVie’s principal defined contribution plan is the AbbVie Savings Plan. AbbVie recorded expense of
$75 million in 2016, $73 million in 2015 and $67 million in 2014 related to this plan. AbbVie provides
certain other post-employment benefits, primarily salary continuation arrangements, to qualifying
employees and accrues for the related cost over the service lives of the employees.
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Note 12 Equity
.....................................................................................................................................................................................................................................................................................................................................................
Stock-Based Compensation
AbbVie grants stock-based awards to eligible employees pursuant to the AbbVie 2013 Incentive Stock
Program (2013 ISP), which provides for several different forms of benefits, including nonqualified stock
options, RSAs, RSUs and various performance-based awards. Under the 2013 ISP, 100 million shares of
AbbVie common stock were reserved for issuance as awards to AbbVie employees. The 2013 ISP also
facilitated the assumption of certain awards granted under Abbott’s incentive stock program, which were
adjusted and converted into Abbott and AbbVie stock-based awards as a result of AbbVie’s separation from
Abbott.
Compensation expense for stock-based awards is measured based on the grant date fair value of the
awards and the estimated number of awards that are expected to vest. Forfeitures are estimated based on
historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from
those estimates. Compensation cost for stock-based awards is amortized over the service period, which
could be shorter than the vesting period if an employee is retirement eligible. Retirement eligible
employees generally are those who are age 55 or order and have at least ten years of service.
Stock-based compensation expense is principally related to awards issued pursuant to the 2013 ISP and
is summarized as follows:
(in millions)
Cost of products sold
Research and development
Selling, general and administrative
Pre-tax compensation expense
Tax benefit
After-tax compensation expense
Years ended
December 31,
2016
2015
2014
$ 22
193
181
396
104
$ 21
111
150
282
89
$ 16
78
147
241
73
$292
$193
$168
Stock-based compensation expense for the year ended December 31, 2016 also included the
post-combination impact related to Stemcentrx options. See Note 5 for additional information related to the
Stemcentrx acquisition.
The realized excess tax benefits associated with stock-based compensation totaled $55 million in 2016,
$61 million in 2015 and $56 million in 2014. These amounts were recorded in additional paid in capital and
were presented in the consolidated statements of cash flows as an outflow in operating activities and an
inflow in financing activities.
Stock Options
Stock options awarded pursuant to the 2013 ISP typically have a contractual term of 10 years and
generally vest in one-third increments over a three-year period. The exercise price is equal to at least 100%
of the market value on the date of grant. The fair value is determined using the Black-Scholes model. The
weighted-average grant-date fair values of stock options granted were $9.29 in 2016, $9.96 in 2015 and
$9.83 in 2014.
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The following table summarizes AbbVie stock option activity in 2016:
(options in thousands, aggregate intrinsic value in millions)
Outstanding at December 31, 2015
Granted
Granted in acquisition
Exercised
Lapsed
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Weighted-
average
exercise price
Weighted-
average
remaining
life (in years)
Aggregate
intrinsic value
$30.64
54.99
12.85
26.71
23.62
$33.63
$30.76
3.0
$674
3.7
2.5
$463
$412
Options
23,569
1,143
1,076
(9,720)
(106)
15,962
12,945
The total intrinsic value of options exercised was $325 million in 2016, $216 million in 2015 and
$253 million in 2014. The total fair value of options vested during 2016 was $28 million. On June 1, 2016,
AbbVie issued stock options for 1.1 million AbbVie shares to holders of unvested Stemcentrx options as a
result of the conversion of such options in connection with the Stemcentrx acquisition. These options were
fair-valued using a lattice valuation model. See Note 5 for additional information related to the Stemcentrx
acquisition.
As of December 31, 2016, $34 million of unrecognized compensation cost related to stock options is
expected to be recognized as expense over approximately the next two years.
RSAs, RSUs and Performance Shares
RSUs awarded to employees other than senior executives and other key employees pursuant to the
2013 ISP generally vest in one-third increments over a three year period. Recipients of these RSUs are
entitled to receive dividend equivalents as dividends are declared and paid during the RSU vesting period.
The majority of the equity awards AbbVie grants to its senior executives and other key employees
under the 2013 ISP are performance-based. Such awards granted before 2016 consisted of RSAs (or RSUs to
the extent necessary for global employees) that generally vest in one-third increments over a three-to-five
year period, with vesting contingent upon AbbVie achieving a minimum annual return on equity (ROE).
Recipients are entitled to receive dividends (or dividend equivalents for RSUs) as dividends are declared and
paid during the award vesting period.
In 2016, AbbVie redesigned certain aspects of its long-term incentive program. As a result, equity
awards granted in 2016 to senior executives and other key employees consist of a combination of
performance-vested RSUs and performance shares. The performance-vested RSUs have the potential to vest
in one-third increments during a three-year performance period based on AbbVie’s ROE relative to a
defined peer group of pharmaceutical, biotech and life sciences companies. The recipient may receive one
share of AbbVie common stock for each vested award. The performance shares have the potential to vest
over a three-year performance period and may be earned based on AbbVie’s EPS achievement and AbbVie’s
total stockholder return (TSR) (a market condition) relative to a defined peer group of pharmaceutical,
biotech and life sciences companies. Dividend equivalents on performance-vested RSUs and performance
shares accrue during the performance period and are payable at vesting only to the extent that shares are
earned.
The weighted-average grant-date fair value of RSAs, RSUs and performance shares generally is
determined based on the number of shares/units granted and the quoted price of AbbVie’s common stock
on the date of grant. The weighted-average grant-date fair values of performance shares with a TSR market
condition are determined using the Monte Carlo simulation model.
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The following table summarizes AbbVie RSA, RSU and performance share activity for 2016:
(share units in thousands)
Outstanding at December 31, 2015
Granted
Vested
Forfeited
Outstanding at December 31, 2016
Share units
Weighted-average
grant date fair value
12,490
5,561
(6,559)
(777)
10,715
$51.66
55.28
46.24
57.00
$56.47
The fair market value of RSAs, RSUs and performance shares (as applicable) vested was $362 million in
2016, $335 million in 2015 and $338 million in 2014.
As of December 31, 2016, $228 million of unrecognized compensation cost related to RSAs, 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 for the years ended December 31, 2016 and
2015:
Date Declared
Payment Date
Dividend Per Share
Date Declared
Payment Date
Dividend Per Share
2016
2015
10/28/16
09/09/16
06/16/16
02/18/16
02/15/17
11/15/16
08/15/16
05/16/16
$0.64
$0.57
$0.57
$0.57
10/30/15
09/11/15
06/18/15
02/19/15
02/16/16
11/16/15
08/14/15
05/15/15
$0.57
$0.51
$0.51
$0.51
Stock Repurchase Program
AbbVie’s board of directors authorized increases to its existing stock repurchase program of $4.0 billion
in April 2016 in anticipation of executing an ASR in connection with the Stemcentrx acquisition and of
$5.0 billion in March 2015 in anticipation of executing an ASR in connection with the Pharmacyclics
acquisition. The stock repurchase authorization permits purchases of AbbVie shares from time to time in
open-market or private transactions at management’s direction depending on the company’s cash flows, net
debt level and market conditions. The program has no time limit and can be discontinued at any time.
Shares repurchased under these programs are recorded at acquisition cost, including related expenses and
are available for general corporate purposes. The following table shows details about AbbVie’s ASR
transactions:
(shares in millions, repurchase amounts in billions)
Execution date
05/26/15
06/01/16
Purchase
amount
$5.0
3.8
Initial
delivery of
shares
68.1
54.4
Final delivery
of shares
5.0
5.4
Related acquisition
Pharmacyclics
Stemcentrx
On June 2, 2016, the initial 54.4 million shares of AbbVie’s common stock related to the 2016 ASR
were received. The 2016 ASR transaction was completed on September 28, 2016, resulting in the receipt of
an additional 5.4 million shares. AbbVie recorded the aggregate $3.8 billion purchase price of the 2016 ASR
as a reduction to common stock held in treasury on the consolidated balance sheet as of December 31,
2016.
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In addition to the ASRs, AbbVie repurchased on the open market approximately 34 million shares for
$2.1 billion in 2016, 46 million shares for $2.8 billion in 2015 and 9 million shares for $550 million in 2014.
AbbVie’s remaining share repurchase authorization was $36 million as of December 31, 2016. On
February 16, 2017, AbbVie’s board of directors authorized a $5.0 billion increase to AbbVie’s existing stock
repurchase program. The stock repurchase authorization permits shares to be repurchased in open market
or private transactions, has no time limit and may be discontinued at any time.
Accumulated Other Comprehensive Loss
The following table summarizes the changes in each component of AOCI, net of tax, for 2016, 2015
and 2014:
(in millions) (brackets denote losses)
Foreign
currency
translation
adjustments
Net
investment
hedging
activities
Pension
and post-
Unrealized
gains
(losses) on
employment marketable
securities
benefits
Cash
flow
hedging
activities
Total
Balance as of December 31, 2013
$
470
$ —
$ (827)
$ 2
$ (87)
$ (442)
Other comprehensive income (loss)
before reclassifications
Net losses reclassified from
accumulated other comprehensive
loss
Net current-period other
comprehensive income (loss)
Balance as of December 31, 2014
Other comprehensive income (loss)
before reclassifications
Net losses (gains) reclassified from
accumulated other comprehensive
loss
Net current-period other
comprehensive income (loss)
Balance as of December 31, 2015
Other comprehensive income (loss)
before reclassifications
Net losses (gains) reclassified from
accumulated other comprehensive
loss
Net current-period other
comprehensive income (loss)
Balance as of December 31, 2016
(827)
46
(781)
(1,608)
147
1
—
1
3
48
187
(1,712)
77
123
264
177
122
(1,589)
(2,031)
(350)
83
(4)
(259)
(180)
(1,073)
—
(1,073)
(603)
(667)
—
(667)
(1,270)
—
—
—
—
—
—
—
—
230
(1,378)
(165)
140
(194)
—
—
59
44
47
7
(8)
(1)
(137)
(530)
40
(2,561)
160
(52)
(24)
27
136
(25)
(165)
$(1,435)
140
$140
(135)
$(1,513)
$46
$ 176
$(2,586)
Other comprehensive loss in 2016 included foreign currency translation adjustments totaling a loss of
$165 million, which was principally due to the impact of the weakening of the Euro on the translation of
the company’s Euro-denominated assets. Other comprehensive loss in 2015 included foreign currency
translation adjustments totaling a loss of $667 million, which was principally driven by the impact of the
weakening of the Euro on the translation of the company’s Euro-denominated assets. Other comprehensive
loss in 2014 included foreign currency translation adjustments totaling a loss of $1.1 billion, which was
principally driven by (i) the impact of the substantial weakening of the Euro in 2014 on the translation of
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the company’s Euro-denominated assets and (ii) the weakening of foreign currencies in combination with an
increased concentration of cash denominated in foreign currencies accumulated in anticipation of the
terminated proposed combination with Shire.
The table below presents the impact on AbbVie’s consolidated statements of earnings for significant
amounts reclassified out of each component of accumulated other comprehensive loss:
years ended December 31 (in millions) (brackets denote gains)
2016
2015
2014
Pension and post-employment benefits
Amortization of actuarial losses and other(a)
Tax benefit
Total reclassifications, net of tax
Cash flow hedging activities
Losses (gains) on designated cash flow hedges(b)
Tax expense (benefit)
Total reclassifications, net of tax
$ 85
(26)
$ 129
(46)
$ 65
(19)
$ 59
$ 83
$ 46
$(20) $(265) $ 79
(2)
(4)
6
$(24) $(259) $ 77
(a) Amounts are included in the computation of net periodic benefit cost (see Note 11).
(b) Amounts are included in cost of products sold (see Note 10).
Other
In addition to common stock, AbbVie’s authorized capital includes 200 million shares of preferred
stock, par value $0.01. As of December 31, 2016, no shares of preferred stock were issued or outstanding.
Note 13 Income Taxes
.....................................................................................................................................................................................................................................................................................................................................................
Earnings Before Income Tax Expense
years ended December 31 (in millions)
Domestic
Foreign
Total earnings before income tax expense
2016
2015
2014
$(1,651) $(1,038) $(3,245)
5,614
7,683
9,535
$ 7,884
$ 6,645
$ 2,369
The domestic loss before income taxes in 2014 was driven by transaction and financing-related costs
associated with the terminated proposed combination with Shire. See Note 5 for additional information.
Income Tax Expense
years ended December 31 (in millions)
2016
2015
2014
Current
Domestic
Foreign
Total current taxes
Deferred
Domestic
Foreign
Total deferred taxes
Total income tax expense
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$2,229
498
$1,036
313
$ 634
341
$2,727
$1,349
$ 975
$ (792) $ 141
11
(4)
$(301)
(79)
$ (796) $ 152
$(380)
$1,931
$1,501
$ 595
Effective Tax Rate Reconciliation
years ended December 31
Statutory tax rate
Effect of foreign operations
U.S. tax credits
Branded prescription drug fee
Tax law change related to foreign currency
Valuation allowances
All other, net
Effective tax rate
2016
2015
2014
35.0% 35.0% 35.0%
(11.3)
(9.4)
(10.3)
(8.9)
(4.5)
(4.4)
3.7
0.7
0.5
—
2.4
—
3.6
— (1.6)
3.0
2.4
1.3
24.5% 22.6% 25.1%
The effective tax rate fluctuates year to year due to the allocation of the company’s taxable earnings
among jurisdictions, as well as certain discrete factors and events in each year, including acquisitions and
collaborations. The effective tax rates in 2016, 2015 and 2014 differed from the statutory tax rate
principally due to the benefit from foreign operations which reflects the impact of lower income tax rates
in locations outside the United States, tax exemptions and incentives in Puerto Rico and other foreign tax
jurisdictions, business development activities and the cost of repatriation decisions. The effective tax rates
for these periods also reflected the benefit from U.S. tax credits principally related to research and
development credits, the orphan drug tax credit and Puerto Rico excise tax credits. The Puerto Rico excise
tax credits relate to legislation enacted by Puerto Rico that assesses an excise tax on certain products
manufactured in Puerto Rico. The tax is levied on gross inventory purchases from entities in Puerto Rico
and is included in cost of products sold in the consolidated statements of earnings. The majority of the tax
is creditable for U.S. income tax purposes.
The effective tax rate in 2016 included additional expense of $187 million related to the recognition of
the tax effect of regulations issued by the Internal Revenue Service on December 7, 2016 that changed the
determination of the US taxability of foreign currency gains and losses related to certain foreign operations.
The effective income tax rate included a tax benefit of $103 million in 2015 from a reduction of state
valuation allowances.
The effective tax rate in 2014 included additional expenses of $129 million related to the Branded
Prescription Drug Fee, which is non-deductible and state valuation allowances of $129 million. On July 28,
2014, the Internal Revenue Service issued final rules and regulations for the Branded Prescription Drug Fee,
an annual non-tax-deductible fee payable to the federal government under the Affordable Care Act based
on an allocation of a company’s market share for branded prescription drugs sold to certain government
programs in the prior year. The final rules accelerated the expense recognition criteria for the fee obligation
from the year in which the fee is paid, to the year in which the market share used to allocate the fee is
determined. This change required AbbVie and other industry participants to recognize an additional year of
expense in 2014.
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Deferred Tax Assets and Liabilities
as of December 31 (in millions)
Deferred tax assets
Compensation and employee benefits
Accruals and reserves
Chargebacks and rebates
Deferred revenue
Depreciation
Net operating losses and other credit carryforwards
Other
Total deferred tax assets
Valuation allowances
Total net deferred tax assets
Deferred tax liabilities
Excess of book basis over tax basis of intangible assets
Excess of book basis over tax basis in investments
Total deferred tax liabilities
Net deferred tax liabilities
2016
2015
$
665
378
473
391
24
151
71
$
584
368
472
372
45
282
316
2,153
(76)
2,077
2,439
(70)
2,369
(5,375)
(3,367)
(4,459)
(2,958)
(8,742)
(7,417)
$(6,665) $(5,048)
The increases in the deferred tax liabilities were primarily due to the acquisition of Stemcentrx in
which AbbVie recorded the excess of book basis over tax basis of intangible assets.
As of December 31, 2016, gross state net operating losses were $847 million and tax credit
carryforwards were $188 million. The state tax carryforwards expire between 2017 and 2036. As of
December 31, 2016, foreign net operating loss carryforwards were $198 million. Foreign net operating loss
carryforwards of $166 million expire between 2017 and 2026 and the remaining do not have an expiration
period.
The company had valuation allowances of $76 million as of December 31, 2016 and $70 million as of
December 31, 2015. These were principally related to state net operating losses and credit carryforwards
that are not expected to be realized.
Deferred income taxes have not been provided on approximately $29 billion of the undistributed
earnings of foreign subsidiaries as these earnings have been indefinitely reinvested for continued use in
foreign operations. Due to the complexities in tax laws and assumptions that would have to be made, it is
not practicable to estimate the amount of income taxes that would be due if these earnings were
distributed.
Unrecognized Tax Benefits
years ended December 31 (in millions)
Balance as of January 1
Increase due to current year tax positions
Increase due to prior year tax positions
Decrease due to prior year tax positions
Lapse of statutes of limitations
Balance as of December 31
2016
2015
2014
$ 954
118
111
(7)
(8)
$421
187
369
(15)
(8)
$247
115
67
(6)
(2)
$1,168
$954
$421
AbbVie and Abbott entered into a tax sharing agreement, effective on the date of separation, which
provides that Abbott is liable for and has indemnified AbbVie against all income tax liabilities for periods
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prior to the separation. AbbVie will be responsible for unrecognized tax benefits and related interest and
penalties for periods after separation or in instances where an existing entity was transferred to AbbVie
upon separation.
If recognized, the net amount of potential tax benefits that would impact the company’s effective tax
rate is $1.1 billion in 2016 and $901 million in 2015. Of the unrecognized tax benefits recorded in the table
above as of December 31, 2016, AbbVie would be indemnified for approximately $96 million. The ‘‘Increase
due to prior year tax positions’’ in the table above includes amounts relating to federal, state and
international items as well as prior positions acquired through business development activities during the
year. Uncertain tax positions are generally included as a long-term liability on the consolidated balance
sheets.
AbbVie recognizes interest and penalties related to income tax matters in income tax expense in the
consolidated statements of earnings. AbbVie recognized gross income tax expense of $35 million in 2016,
$13 million in 2015 and $10 million in 2014, for interest and penalties related to income tax matters.
AbbVie had an accrual for the payment of gross interest and penalties of $112 million at December 31,
2016, $83 million at December 31, 2015 and $25 million at December 31, 2014.
The company is routinely audited by the tax authorities in significant jurisdictions and a number of
audits are currently underway. It is reasonably possible during the next twelve months that uncertain tax
positions may be settled, which could result in a decrease in the gross amount of unrecognized tax
benefits. Due to the potential for resolution of federal, state and foreign examinations and the expiration of
various statutes of limitation, the company’s gross unrecognized tax benefits balance may change within the
next twelve months up to $201 million. All significant federal, state, local and international matters have
been concluded for years through 2005. The company believes adequate provision has been made for all
income tax uncertainties.
Note 14 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
$225 million as of December 31, 2016 and approximately $170 million at December 31, 2015. 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 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 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 against Unimed Pharmaceuticals, Inc., 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 in the United States District Court for the Northern District of Georgia
under the Multi-District Litigation (MDL) Rules as In re: AndroGel Antitrust Litigation, MDL No. 2084. These
cases, brought by private plaintiffs and the Federal Trade Commission (FTC), generally allege Solvay’s patent
litigation involving AndroGel was sham litigation and the 2006 patent litigation settlement agreements and
related agreements with three generic companies violate federal antitrust laws. Plaintiffs generally seek
monetary damages and/or injunctive relief and attorneys’ fees. These cases include: (a) four individual
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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 discovery in
the district court. The Attorney General of the State of Alaska has served AbbVie with a Civil Investigative
Demand, primarily seeking documents that AbbVie produced in these lawsuits.
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 consist of four individual
plaintiff lawsuits and two consolidated purported class actions: one brought by three named direct
purchasers of Niaspan and the other brought by ten named end-payor purchasers of Niaspan. The cases are
consolidated for pre-trial proceedings in the United States District Court for the Eastern District of
Pennsylvania under the MDL Rules as In re: Niaspan Antitrust Litigation, MDL No. 2460. The office of the
Attorney General of the State of Alaska has served AbbVie with a Civil Investigative Demand, primarily
seeking documents that AbbVie produced in this lawsuit. In October 2016, the State of California filed a
lawsuit 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 November 2007, GlaxoSmithKline plc (GSK) filed a lawsuit against Abbott in the United States
District Court for the Northern District of California alleging that Abbott violated federal antitrust and
various state laws in connection with the 2003 Norvir re-pricing. In March 2011, a jury found that Abbott
did not violate antitrust laws, but breached its license agreement with GSK. In January 2014, the United
States Court of Appeals for the Ninth Circuit reversed this verdict and remanded the case for a new trial
due to the alleged improper exclusion of a potential juror. The case was returned to the district court in
California, but after GSK dismissed its federal antitrust claims, the case was transferred in April 2015 to the
United States District Court for the Middle District of North Carolina, where pre-trial proceedings are
pending. AbbVie assumed the liability for and control of this proceeding in connection with its separation
from Abbott.
In September 2014, the FTC filed suit in the United States District Court for the Eastern District of
Pennsylvania against AbbVie and others, alleging that the 2011 patent litigation with two generic companies
regarding AndroGel was sham litigation and the patent litigation settlement with one of those generic
companies violates federal antitrust laws. The FTC’s complaint seeks monetary damages and injunctive
relief. In May 2015, the court dismissed the FTC’s claim regarding the patent litigation settlement. The
office of the Attorney General of the State of Alaska has served AbbVie with a Civil Investigative Demand,
primarily seeking documents that AbbVie produced in this lawsuit.
In March 2015, the State of Louisiana filed a lawsuit, State of Louisiana v. Fournier Industrie 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 August 2015, the court dismissed the case as time-barred.
In December 2016, the appellate court for the state’s appeal remanded for the trial court to determine
whether the state is a proper party in interest.
In August 2013, a putative class action lawsuit, Sidney Hillman Health Center of Rochester, et al. v.
AbbVie Inc., et al., was filed against AbbVie in the United States District Court for the Northern District of
Illinois by three healthcare benefit providers alleging violations of Federal Racketeer Influenced and Corrupt
Organizations (RICO) statutes and state deceptive business practice and unjust enrichment laws in
connection with reimbursements for certain uses of Depakote from 1998 to 2012. Plaintiffs seek monetary
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damages and/or equitable relief and attorneys’ fees. In June 2016, the court granted AbbVie’s motion to
dismiss, without prejudice, and the plaintiffs have filed an amended complaint.
In November 2014, a putative class action lawsuit, Medical Mutual of Ohio v. AbbVie Inc., et al., was
filed against several manufacturers of testosterone replacement therapies (TRTs), including AbbVie, in the
United States District Court for the Northern District of Illinois on behalf of all insurance companies, health
benefit providers and other third party payors who paid for TRTs, including AndroGel. The claims asserted
include violations of the federal RICO Act and state consumer fraud and deceptive trade practices laws. The
complaint seeks monetary damages and injunctive relief. A similar lawsuit, Allied Services Division Welfare
Fund v. AbbVie Inc., et al., was filed in the same court in October 2015 on behalf of the same putative
class members and a putative class of consumers.
Product liability cases are pending 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 3,941 claims 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 217 claims are pending in
various state courts. Plaintiffs seek compensatory and punitive damages.
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. Over
ninety percent of the approximately 698 claims are pending in the United States District Court for the
Southern District of Illinois, and the rest are pending in various other federal and state courts. Plaintiffs
seek compensatory and punitive damages.
In November 2014, five individuals filed a putative class action lawsuit 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 that
the defendants made and/or are responsible for material misstatements in violation of federal securities
laws in connection with AbbVie’s proposed transaction with Shire.
In June 2016, a lawsuit, Elliott Associates, L.P., et al. v. AbbVie Inc., was filed by five investment funds
against AbbVie in the Cook County, Illinois Circuit Court alleging that AbbVie made misrepresentations and
omissions in connection with its proposed transaction with Shire. Plaintiffs seek compensatory and punitive
damages.
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 will review the validity of the patents.
AbbVie is seeking to enforce certain patent rights related to adalimumab (a drug AbbVie sells under
the trademark HUMIRA(cid:3)). In a case filed in United States District Court for the District of Delaware in
August 2016, AbbVie alleges that Amgen Inc.’s and Amgen Manufacturing, Limited’s proposed biosimilar
adalimumab product infringes certain AbbVie patents. AbbVie seeks declaratory and injunctive relief.
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Note 15 Segment and Geographic Area Information
.....................................................................................................................................................................................................................................................................................................................................................
AbbVie operates in one business segment—pharmaceutical products. Substantially all of AbbVie’s net
revenues in the United States are to three wholesalers. Outside the United States, products are sold
primarily to health care providers or through distributors, depending on the market served. The following
tables detail AbbVie’s worldwide net revenues:
years ended December 31 (in millions)
2016
2015
2014
HUMIRA
IMBRUVICA
VIEKIRA
Lupron
Synagis
Synthroid
Creon
AndroGel
Kaletra
Sevoflurane
Duodopa
All other
Total net revenues
$16,078
1,832
1,522
821
730
763
730
675
549
428
293
1,217
$14,012
754
1,639
826
740
755
632
694
700
474
231
1,402
$12,543
—
48
778
835
709
516
934
870
550
220
1,957
$25,638
$22,859
$19,960
Net revenues to external customers by geographic area, based on product shipment destination, were
as follows:
years ended December 31 (in millions)
United States
Germany
United Kingdom
Japan
France
Canada
Spain
Italy
Brazil
The Netherlands
All other countries
Total net revenues
2016
2015
2014
$15,947
1,104
776
770
713
624
589
523
355
352
3,885
$13,561
1,082
688
599
597
551
618
452
376
334
4,001
$10,845
1,035
722
581
584
551
534
432
435
345
3,896
$25,638
$22,859
$19,960
Long-lived assets, primarily net property and equipment, by geographic area were as follows:
years ended December 31 (in millions)
United States and Puerto Rico
Europe
All other
Total long-lived assets
2016
2015
$1,822
504
278
$1,868
513
184
$2,604
$2,565
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Note 16 Quarterly Financial Data (unaudited)
.....................................................................................................................................................................................................................................................................................................................................................
(in millions except per share data)
First Quarter
Net revenues
Gross margin
Net earnings(a)
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
Second Quarter
Net revenues
Gross margin
Net earnings(b)
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
Third Quarter
Net revenues
Gross margin
Net earnings(c)
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
Fourth Quarter
Net revenues
Gross margin
Net earnings(d)
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
2016
2015
$5,958
4,589
1,354
$ 0.83
$ 0.83
$ 0.57
$6,452
5,047
1,610
$ 0.99
$ 0.98
$ 0.57
$6,432
4,928
1,598
$ 0.97
$ 0.97
$ 0.57
$6,796
5,241
1,391
$ 0.86
$ 0.85
$ 0.64
$5,040
4,098
1,022
$ 0.64
$ 0.63
$ 0.51
$5,475
4,559
1,366
$ 0.84
$ 0.83
$ 0.51
$5,944
4,777
1,239
$ 0.75
$ 0.74
$ 0.51
$6,400
4,925
1,517
$ 0.93
$ 0.92
$ 0.57
(a) Results for the first quarter of 2016 included a net foreign exchange loss of $298 million relating to
the devaluation of AbbVie’s net monetary assets denominated in the Venezuelan bolivar. Results for
the first quarter of 2015 included after-tax foreign exchange losses of $170 million related to the
liquidation in 2015 of remaining foreign currency positions related to the terminated proposed
combination with Shire in 2014, a $100 million after-tax charge as a result of entering into an exclusive
worldwide license agreement with C2N and after-tax costs of $41 million incurred in connection with
the with the acquisition of Pharmacyclics.
(b) Second quarter results in 2016 included after-tax costs totaling $122 million relating to the acquisition
of Stemcentrx and BI compounds as well as the amortization of the acquisition date fair value step-up
for inventory related to the acquisition of Pharmacyclics. Second quarter results for 2015 included
after-tax costs totaling $215 million incurred in connection with the acquisition and integration of
Pharmacyclics.
(c) Third quarter results in 2016 included after-tax costs totaling $104 million relating to the change in fair
value of contingent consideration. Results for the third quarter of 2015 included a $350 million
after-tax charge related to the purchase of a rare pediatric disease PRV from a third party, after
after-tax costs totaling $85 million incurred in connection with the acquisition and integration of
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Pharmacyclics and an $83 million after-tax charge due to the achievement of a development milestone
under the global collaboration with Infinity.
(d) Fourth quarter results in 2016 included after-tax costs totaling $187 million associated with a tax law
change for regulations issued in the fourth quarter of 2016 that revised the treatment of foreign
currency translation gains and losses for certain operations and included after-tax costs totaling
$85 million relating to the change in fair value of contingent consideration. Fourth quarter results for
2015 included after-tax costs totaling $68 million incurred in connection with the acquisition and
integration of Pharmacyclics and after-tax charges of $101 million to increase the company’s litigation
reserves.
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Report Of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of AbbVie Inc.
We have audited the accompanying consolidated balance sheets of AbbVie Inc. and subsidiaries as of
December 31, 2016 and 2015 and the related consolidated statements of earnings, comprehensive income,
equity and cash flows for each of the three years in the period ended December 31, 2016. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of AbbVie Inc. and subsidiaries at December 31, 2016 and 2015 and the
consolidated results of their operations and their cash flows for each of the three years in the period
ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), AbbVie Inc. and subsidiaries’ internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report
dated February 17, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 17, 2017
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
.....................................................................................................................................................................................................................................................................................................................................................
None.
ITEM 9A. CONTROLS AND PROCEDURES
.....................................................................................................................................................................................................................................................................................................................................................
Disclosure Controls and Procedures; Internal Control Over Financial Reporting
Evaluation of disclosure controls and procedures.
The Chief Executive Officer, Richard A. Gonzalez,
and the Chief Financial Officer, William J. Chase, 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 Securities Exchange Act of 1934 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.
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 Securities Exchange Act of 1934)
that have materially affected, or are reasonably likely to materially affect, AbbVie’s internal control over
financial reporting during the quarter ended December 31, 2016.
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.
Management’s annual report on internal control over financial reporting.
Management of AbbVie is
responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. AbbVie’s internal control over
financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles in the United States. However, all internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and reporting.
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Management assessed the effectiveness of AbbVie’s internal control over financial reporting as of
December 31, 2016. In making this assessment, management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework
(2013 framework). Based on that assessment, management concluded that AbbVie maintained effective
internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
The effectiveness of AbbVie’s internal control over financial reporting as of December 31, 2016 has
been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their
attestation report below, which expresses an unqualified opinion on the effectiveness of AbbVie’s internal
control over financial reporting as of December 31, 2016.
Report of independent registered public accounting firm.
The report of AbbVie’s independent
registered public accounting firm related to its assessment of the effectiveness of internal control over
financial reporting is included below.
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Report Of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of AbbVie Inc.
We have audited AbbVie Inc. and subsidiaries’ internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).
AbbVie Inc. and subsidiaries’ management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, AbbVie Inc. and subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets as of December 31, 2016 and 2015 and the related
consolidated statements of earnings, comprehensive income, equity and cash flows for each of the three
years in the period ended December 31, 2016 of AbbVie Inc. and subsidiaries and our report dated
February 17, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 17, 2017
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ITEM 9B. OTHER INFORMATION
.....................................................................................................................................................................................................................................................................................................................................................
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
.....................................................................................................................................................................................................................................................................................................................................................
Incorporated herein by reference are ‘‘Information Concerning Director Nominees,’’ ‘‘The Board of
Directors and its Committees—Committees of the Board of Directors,’’ ‘‘Section 16(a) Beneficial Ownership
Reporting Compliance,’’ and ‘‘Procedure for Recommendation and Nomination of Directors and Transaction
of Business at Annual Meeting’’ to be included in the 2017 AbbVie Inc. Proxy Statement. The 2017
Definitive Proxy Statement will be filed on or about March 20, 2017. Also incorporated herein by reference
is the text found in this Form 10-K under the caption, ‘‘Executive Officers of the Registrant.’’
AbbVie’s code of business conduct requires all its business activities to be conducted in compliance
with all applicable laws, regulations and ethical principles and values. All directors, officers and employees
of AbbVie are required to read, understand and abide by the requirements of the code of business conduct
applicable to them. AbbVie’s code of business conduct is available in the corporate governance section of
AbbVie’s investor relations website at www.abbvieinvestor.com.
Any waiver of the code of business conduct for directors or executive officers may be made only by
AbbVie’s audit committee. AbbVie will disclose any amendment to, or waiver from, a provision of the code
of conduct for the principal executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, on its website within four business days following the
date of the amendment or waiver. In addition, AbbVie will disclose any waiver from the code of business
conduct for the other executive officers and for directors on the website.
AbbVie has a chief ethics and compliance officer who reports to the chief executive officer and to the
public policy committee. The chief ethics and compliance officer is responsible for overseeing, administering
and monitoring AbbVie’s compliance program.
ITEM 11. EXECUTIVE COMPENSATION
.....................................................................................................................................................................................................................................................................................................................................................
The material to be included in the 2017 Proxy Statement under the headings ‘‘Director Compensation,’’
‘‘Executive Compensation,’’ and ‘‘Compensation Committee Report’’ is incorporated herein by reference. The
2017 Definitive Proxy Statement will be filed on or about March 20, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
.....................................................................................................................................................................................................................................................................................................................................................
(a) Equity Compensation Plan Information.
The following table presents information as of December 31, 2016 about AbbVie’s equity compensation
plans under which AbbVie common stock has been authorized for issuance:
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights(1)
25,991,282
—
25,991,282
(b)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights(2)
$33.63
—
$33.63
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
78,997,077
—
78,997,077
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
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(1)
Includes 10,761,273 shares issuable under AbbVie’s Incentive Stock Program pursuant to awards
granted by Abbott and adjusted into AbbVie awards in connection with AbbVie’s separation from
Abbott.
(2) The weighted-average exercise price does not include outstanding restricted stock units and
restricted stock awards that have no exercise price.
(b)
Information Concerning Security Ownership.
Incorporated herein by reference is the material under
the heading ‘‘Securities Ownership—Securities Ownership of Executive Officers and Directors’’ in the
2017 Proxy Statement. The 2017 Definitive Proxy Statement will be filed on or about March 20, 2017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
.....................................................................................................................................................................................................................................................................................................................................................
INDEPENDENCE
The material to be included in the 2017 Proxy Statement under the headings ‘‘The Board of Directors
and its Committees,’’ ‘‘Corporate Governance Materials,’’ and ‘‘Procedures for Approval of Related Person
Transactions’’ is incorporated herein by reference. The 2017 Definitive Proxy Statement will be filed on or
about March 20, 2017.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
.....................................................................................................................................................................................................................................................................................................................................................
The material to be included in the 2017 Proxy Statement under the headings ‘‘Audit Fees and
Non-Audit Fees’’ and ‘‘Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of the Independent Registered Public Accounting Firm’’ is incorporated herein by reference. The 2017
Definitive Proxy Statement will be filed on or about March 20, 2017.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
.....................................................................................................................................................................................................................................................................................................................................................
(a) Documents filed as part of this Form 10-K.
(1) Financial Statements:
See Item 8, ‘‘Financial Statements and Supplementary Data,’’ on page 57
hereof, for a list of financial statements.
(2) Financial Statement Schedules: All schedules omitted are inapplicable or the information required
is shown in the consolidated financial statements or notes thereto.
(3) Exhibits Required by Item 601 of Regulation S-K:
The information called for by this paragraph is
incorporated herein by reference to the Exhibit Index on pages 118 through 121 of this
Form 10-K.
(b) Exhibits filed:
See Exhibit Index on pages 118 through 121.
(c)
Financial Statement Schedules: None applicable.
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116
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
AbbVie Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
AbbVie Inc.
By: /s/ RICHARD A. GONZALEZ
Name: Richard A. Gonzalez
Title:
Chairman of the Board and
Chief Executive Officer
Date: February 17, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of AbbVie Inc. on February 17, 2017 in the capacities indicated
below.
/s/ RICHARD A. GONZALEZ
Richard A. Gonzalez
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ THOMAS A. HURWICH
Thomas A. Hurwich
Vice President, Controller
(Principal Accounting Officer)
/s/ ROBERT J. ALPERN, M.D.
Robert J. Alpern, M.D.
Director of AbbVie Inc.
/s/ WILLIAM H.L. BURNSIDE
William H.L. Burnside
Director of AbbVie Inc.
/s/ EDWARD M. LIDDY
Edward M. Liddy
Director of AbbVie Inc.
/s/ GLENN F. TILTON
Glenn F. Tilton
Director of AbbVie Inc.
/s/ WILLIAM J. CHASE
William J. Chase
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
/s/ ROXANNE S. AUSTIN
Roxanne S. Austin
Director of AbbVie Inc.
/s/ BRETT J. HART
Brett J. Hart
Director of AbbVie Inc.
/s/ EDWARD J. RAPP
Edward J. Rapp
Director of AbbVie Inc.
/s/ FREDERICK H. WADDELL
Frederick H. Waddell
Director of AbbVie Inc.
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EXHIBIT INDEX
ABBVIE INC.
ANNUAL REPORT
FORM 10-K
2016
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
Number
2.1
2.2
2.3
2.4
3.1
3.2
4.1
4.2
4.3
4.4
Exhibit Description
*Agreement and Plan of Merger, dated as of April 25, 2016, by and among Stemcentrx, Inc.,
AbbVie Inc., Sirius Sonoma Corporation, AbbVie Stemcentrx LLC (formerly Sirius Sonoma LLC) and,
solely for the purposes set forth therein, Fertile Valley LLC (incorporated by reference to
Exhibit 2.1 of AbbVie’s Current Report on Form 8-K/A filed on May 6, 2016).
*Amendment No. 1, dated as of May 28, 2016, to the Agreement and Plan of Merger, dated as of
April 25, 2016, by and among Stemcentrx, Inc., AbbVie Inc., Sirius Sonoma Corporation, AbbVie
Stemcentrx LLC (formerly Sirius Sonoma LLC) and, solely for the purposes set forth therein, Fertile
Valley LLC (incorporated by reference to Exhibit 2.2 of AbbVie’s Current Report on Form 8-K filed
on June 1, 2016).
*Agreement and Plan of Reorganization by and among AbbVie Inc., Oxford Amherst Corporation,
Oxford Amherst LLC and Pharmacyclics, Inc. dated as of March 4, 2015 (incorporated by reference
to Exhibit 2.1 of the company’s Current Report on Form 8-K filed on March 6, 2015).
*Amendment No. 1 to Agreement and Plan of Reorganization by and among AbbVie Inc., Oxford
Amherst Corporation, Oxford Amherst LLC and Pharmacyclics, Inc. dated as of March 22, 2015
(incorporated by reference to Exhibit 2.1 of the company’s Current Report on Form 8-K filed on
March 23, 2015).
*Amended and Restated Certificate of Incorporation of AbbVie Inc. (incorporated by reference to
Exhibit 3.1 of the company’s Current Report on Form 8-K filed on January 2, 2013).
*Amended and Restated By-Laws of AbbVie Inc. (incorporated by reference to Exhibit 3.1 of the
company’s Current Report on Form 8-K filed on February 22, 2016).
*Indenture dated as of November 8, 2012 between AbbVie Inc. and U.S. Bank National Association
(incorporated by reference to Exhibit 4.1 of Amendment No. 5 to the company’s Registration
Statement on Form 10 filed on November 16, 2012).
*Supplemental Indenture No. 1 dated as of November 8, 2012 among AbbVie Inc. and U.S. Bank
National Association, including forms of notes (incorporated by reference to Exhibit 4.2 of
Amendment No. 5 to the company’s Registration Statement on Form 10 filed on November 16,
2012).
*Supplemental Indenture No. 2 dated May 14, 2015, between AbbVie Inc. and U.S. Bank National
Association, as trustee, including forms of notes (incorporated by reference to Exhibit 4.1 of the
company’s Current Report on Form 8-K filed on May 14, 2015).
*Supplemental Indenture No. 3 dated May 12, 2016, between AbbVie Inc. and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 of AbbVie’s Current Report on
Form 8-K filed on May 12, 2016).
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Exhibit
Number
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
Exhibit Description
*Supplemental Indenture No. 4, dated as of November 17, 2016, among AbbVie Inc., U.S. Bank
National Association, as trustee, Elavon Financial Services DAC, U.K. Branch, as paying agent and
Elavon Financial Services DAC, as transfer agent and registrar (incorporated by reference to
Exhibit 1.1 of the company’s Current Report on Form 8-K filed on November 17,2016).
*Agency Agreement, dated as of November 17, 2016, among AbbVie Inc., U.S. Bank National
Association, as trustee, Elavon Financial Services DAC, U.K. Branch, as paying agent and Elavon
Financial Services DAC, as transfer agent and registrar (incorporated by reference to Exhibit 1.1 of
the company’s Current Report on Form 8-K filed on November 17,2016).
*Support Agreement by and among AbbVie Inc., Oxford Amherst Corporation and Robert W.
Duggan dated as of March 4, 2015 (incorporated by reference to Exhibit 4.1 of the company’s
Current Report on Form 8-K filed on March 6, 2015).
*Form of Agreement Regarding Change in Control by and between AbbVie Inc. and its named
executive officers (incorporated by reference to Exhibit 10.13 of Amendment No. 5 to the
Company’s Registration Statement on Form 10 filed on November 16, 2012).**
*AbbVie 2013 Incentive Stock Program (incorporated by reference to Exhibit A to the AbbVie Inc.
Definitive Proxy Statement on Schedule 14A dated March 15, 2013).**
*AbbVie 2013 Management Incentive Plan (incorporated by reference to Exhibit 10.14 of the
company’s Annual Report on Form 10-K filed on March 15, 2013).**
*AbbVie Performance Incentive Plan, as amended and restated (incorporated by reference to
Exhibit 10.4 of the company’s Annual Report on Form 10-K filed on February 19, 2016).**
AbbVie Deferred Compensation Plan, as amended and restated.**
*AbbVie Non-Employee Directors’ Fee Plan, as amended and restated (incorporated by reference
to Exhibit 10.6 of the company’s Annual Report on Form 10-K filed on February 19, 2016).**
10.7
AbbVie Supplemental Pension Plan.**
10.8
10.9
10.10
10.11
10.12
10.13
*AbbVie Supplemental Savings Plan, as amended and restated (incorporated by reference to
Exhibit 10.8 of the company’s Annual Report on Form 10-K filed on February 19, 2016).**
*Form of AbbVie Inc. Non-Employee Director Non-Qualified Stock Option Agreement (incorporated
by reference to Exhibit 10.3 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2013).**
*Form of AbbVie Inc. Performance Restricted Stock Agreement (CEO/Chairman) (incorporated by
reference to Exhibit 10.4 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2013).**
*Form of AbbVie Inc. Performance Restricted Stock Agreement (Annual) (incorporated by reference
to Exhibit 10.5 of the company’s Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2013).**
*Form of AbbVie Inc. Performance Restricted Stock Agreement (Interim) (incorporated by
reference to Exhibit 10.6 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2013).**
*Form of AbbVie Inc. Non-Qualified Stock Option Agreement (incorporated by reference to
Exhibit 10.7 of the company’s Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2013).**
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Exhibit
Number
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Exhibit Description
*Form of AbbVie Inc. Non-Employee Director Restricted Stock Unit Agreement (incorporated by
reference to Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2016).**
*Form of AbbVie Inc. Non-Qualified Stock Option Agreement (incorporated by reference to
Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2016).**
*Form of AbbVie Inc. Retention Restricted Stock Unit Agreement—Cliff Vesting (incorporated by
reference to Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2016).**
*Form of AbbVie Inc. Retention Restricted Stock Unit Agreement—Ratable Vesting (incorporated by
reference to Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2016).**
*Form of AbbVie Inc. Retention Restricted Stock Agreement—Cliff Vesting (incorporated by
reference to Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2016).**
*Form of AbbVie Inc. Retention Restricted Stock Agreement—Ratable Vesting (incorporated by
reference to Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2016).**
*Form of AbbVie Inc. Performance Share Award Agreement (incorporated by reference to
Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2016).**
*Form of AbbVie Inc. Performance-Vested Restricted Stock Unit Agreement (incorporated by
reference to Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2016).**
*Stemcentrx 2011 Equity Incentive Plan (incorporated by reference to Exhibit 4.3 of the Company’s
Registration Statement on Form S-8 filed on June 16, 2016).**
*Pharmacyclics, Inc. 2014 Equity Incentive Award Plan (incorporated by reference to Exhibit 4.1 of
the company’s Registration Statement on Form S-8 filed on May 27, 2015).**
*Revolving Credit Agreement, dated as of August 18, 2014, among AbbVie Inc., AbbVie Private
Limited, AbbVie Holdings Private Limited, JPMorgan Chase Bank, N.A. and the lenders and other
parties party thereto (incorporated by reference to Exhibit 10.2 of the company’s Current Report
on Form 8-K filed on August 21, 2014).
*Amendment No. 1 to Revolving Credit Agreement, dated as of March 16, 2015, by and among
AbbVie Inc., JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders party thereto
(incorporated by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed on
March 20, 2015).
*Three-Year Term Loan Agreement, dated as of September 25, 2015, among AbbVie, Bank of
America, N.A. and the lenders and other parties party thereto (incorporated by reference to
Exhibit 10.1 of the company’s Current Report on Form 8-K filed on September 29, 2015).
*364-Day Term Loan Credit Agreement, dated as of September 25, 2015, among AbbVie, Bank of
America, N.A. and the lenders and other parties party thereto (incorporated by reference to
Exhibit 10.2 of the company’s Current Report on Form 8-K filed on September 29, 2015).
120
13NOV201221352027
2016 Form 10-K
120
Exhibit
Number
10.28
10.29
10.30
10.31
12.1
12.2
21
23
31.1
31.2
32.1
32.2
101
Exhibit Description
*364-Day Bridge Term Loan Credit Agreement, dated as of March 27, 2015, among the company,
as borrower, the various financial institutions party thereto, as lenders and Morgan Stanley Senior
Funding, Inc., as administrative agent (incorporated by reference to Exhibit 10.1 of the company’s
Current Report on Form 8-K filed on March 30, 2015).
*Underwriting Agreement, dated as of May 5, 2015, by and among AbbVie Inc. and Morgan
Stanley & Co. LLC, Barclays Capital Inc., Deutsche Bank Securities Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as representatives of the several other underwriters named therein
(incorporated by reference to Exhibit 1.1 of the company’s Current Report on Form 8-K filed on
May 7, 2015).
*Underwriting Agreement, dated as of May 9, 2016, by and among AbbVie Inc., and Barclays
Capital Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as representatives of the several underwriters named in Schedule II
thereto (incorporated by reference to Exhibit 1.1 of AbbVie’s Current Report on Form 8-K filed on
May 12, 2016).
*Underwriting Agreement, dated as of November 14, 2016, by and among AbbVie Inc., and
Barclays Bank PLC, Deutsche Bank AG, London Branch, J.P. Morgan Securities plc, Merrill Lynch
International and Morgan Stanley & Co. International plc, as representatives of the several other
underwriters named therein (incorporated by reference to Exhibit 1.1 of the company’s Current
Report on Form 8-K filed on November 17, 2016).
Ratio of Earnings to Fixed Charges
Computation of Ratio of Earnings to Fixed Charges
Subsidiaries of AbbVie Inc.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).
Certification of Chief Financial Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).
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.
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.
The following financial statements and notes from the AbbVie Inc. Annual Report on Form 10-K
for the year ended December 31, 2016 filed on February 17, 2017, formatted in XBRL:
(i) Consolidated Statements of Earnings; (ii) Consolidated Statements of Comprehensive Income;
(iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Equity; (v) Consolidated
Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements.
The AbbVie Inc. 2017 Definitive Proxy Statement will be filed with the Securities and Exchange
Commission under separate cover on or about March 20, 2017.
Incorporated herein by reference. Commission file number 001-35565.
*
** Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit
hereto.
AbbVie will furnish copies of any of the above exhibits to a stockholder upon written request to the
Secretary, AbbVie Inc., 1 North Waukegan Road, North Chicago, Illinois 60064.
121
2016 Form 10-K
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13NOV201221352027
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
25FEB201723195604
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 5, 2017
The Annual Meeting of the Stockholders of AbbVie Inc. will be held at the Fairmont Chicago, Millennium Park,
200 North Columbus Drive, Chicago, Illinois 60601, on Friday, May 5, 2017, at 9:00 a.m. CT for the following purposes:
•
•
•
•
•
To elect 4 directors to hold office until the next Annual Meeting or until their successors are elected
(Item 1),
To ratify the appointment of Ernst & Young LLP as AbbVie’s independent registered public accounting firm
for 2017 (Item 2),
To vote on an advisory vote on the approval of executive compensation (Item 3),
To vote on a management proposal regarding the annual election of directors (Item 4),
To transact such other business as may properly come before the meeting, including consideration of two
stockholder proposals, if presented at the meeting (Items 5 and 6).
Your Vote Is Important
Please promptly vote your shares by telephone, using the Internet, or by signing and returning your proxy in
the enclosed envelope if you received a printed version of the proxy card.
The board of directors recommends that you vote FOR Items 1, 2, 3, and 4 on the proxy card.
The board of directors recommends that you vote AGAINST Items 5 and 6 on the proxy card.
The close of business on March 8, 2017, has been fixed as the record date for determining the stockholders
entitled to receive notice of and to vote at the Annual Meeting.
AbbVie’s 2017 Proxy Statement and 2016 Annual Report on Form 10-K are available at
www.abbvieinvestor.com. If you are a registered stockholder, you may access your proxy card by either:
•
•
Going to the following website: www.proxyvote.com, entering the information requested on your computer
screen and following the simple instructions, or
Calling (in the United States, U.S. territories, and Canada) toll free 1-800-690-6903 on a touch-tone
telephone and following the simple instructions provided by the recorded message.
Admission to the meeting will be by admission card only. If you plan to attend, please complete and return the
reservation form in the back of these materials and an admission card will be sent to you. Due to space limitations,
reservation forms must be received before April 28, 2017. Each admission card, along with photo identification, admits
one person. A stockholder may request two admission cards, but a guest must be accompanied by a stockholder.
By order of the board of directors.
Laura J. Schumacher
Secretary
March 20, 2017
13NOV201221352027
PROXY STATEMENT
25FEB201723200035
Table of Contents
Proxy Statement Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information about the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who Can Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notice and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting by Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revoking a Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discretionary Voting Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quorum and Vote Required to Approve Each Item on the Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Broker Non-Votes and Abstentions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inspectors of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Soliciting Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AbbVie Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information Concerning Director Nominees (Item 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board of Directors and its Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communicating with the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Outstanding Equity Awards at Fiscal Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-qualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratification of Ernst & Young LLP as AbbVie’s Independent Registered Public Accounting Firm (Item 2) . . . . . . . . .
Audit Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Fees and Non-Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent
Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Say on Pay—Advisory Vote on the Approval of Executive Compensation (Item 3)
. . . . . . . . . . . . . . . . . . . . . . . .
Management Proposal Regarding the Annual Election of Directors (Item 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Proposal on Lobbying Report (Item 5)
Stockholder Proposal to Separate Chair and CEO (Item 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
7
7
7
7
7
7
8
8
8
8
8
9
13
17
18
20
22
22
39
40
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13NOV201221352027
PROXY STATEMENT
25FEB201723200035
The accompanying proxy is solicited on behalf of the board of directors for use at the Annual Meeting of
Stockholders. The meeting will be held on May 5, 2017, at the Fairmont Chicago, Millennium Park, 200 North Columbus
Drive, Chicago, Illinois 60601. This summary highlights selected information in the Proxy Statement. Please review the
entire Proxy Statement and the AbbVie 2016 Annual Report before voting.
2017 Annual Meeting of Stockholders
.................................................................................................................................................................................................................................................................................................................................
Date and Time: May 5, 2017 9:00 a.m. CT
Location: Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, Illinois 60601
Record Date: March 8, 2017
How to Vote: Stockholders as of the record date are entitled to vote via Internet at www.proxyvote.com; by telephone at
1-800-690-6903; by returning a completed proxy card; or in person at the Annual Meeting of Stockholders.
Voting Items and Board Recommendations
.................................................................................................................................................................................................................................................................................................................................
Election of Directors
Ratification of Independent Auditor
Say on Pay—Advisory Vote on the Approval of Executive Compensation
Item 1
Item 2
Item 3
Item 4 Management Proposal Regarding the Annual Election of Directors
Item 5
Item 6
Stockholder Proposal on Lobbying Report
Stockholder Proposal to Separate Chair and CEO
Board Recommendations
FOR All Nominees
FOR
FOR
FOR
AGAINST
AGAINST
Business Overview and Performance Highlights
.................................................................................................................................................................................................................................................................................................................................
Business Overview
AbbVie was created in 2013 following separation from Abbott Laboratories. 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 through continued strong
performance from its existing portfolio of on-market products, including its flagship brands, HumiraTM and ImbruvicaTM, as
well as growth from pipeline products; (ii) continuing to enhance efficiency by expanding operating margins;
(iii) continued investment in its pipeline in support of opportunities in immunology, oncology, neuroscience and virology,
as well as focused investments in other areas that augment AbbVie’s core strengths; (iv) augmentation of its pipeline
through concerted focus on strategic licensing, acquisition and partnering activity with a focus on identifying compelling
programs that fit AbbVie’s strategic criteria; and (v) returning cash to stockholders via dividends and share repurchases.
25FEB201717321998
1
2017 Proxy Statement
13NOV201221352027
1
PROXY STATEMENT SUMMARY
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 and human
immunodeficiency virus; neurological disorders, such as Parkinson’s disease and multiple sclerosis; metabolic diseases,
including thyroid disease and complications associated with cystic fibrosis; as well as other serious health conditions.
AbbVie also has a pipeline of promising new medicines across such important medical specialties as immunology,
virology, oncology and neuroscience, with additional targeted investments in cystic fibrosis and women’s health.
Business Performance Highlights
AbbVie has Delivered Robust Financial Results since Separation
Performance from 2013 Inception to 2016 Year End
10.8%
Adjusted net revenues – compound annual growth rate*
15.4%
Adjusted diluted earnings per share – compound annual
growth rate*
+600
Basis points
Operating margin expansion, adjusted*
Committed to driving an adjusted operating margin profile of greater than 50 percent by 2020
111.4%
4-year total stockholder return
$48BN
Increase in market capitalization
Added significant stockholder value
60%
50+
Increase in quarterly dividend
Raised quarterly dividend to $0.64 per share from $0.40 per share at inception
Active clinical development programs
More than 20 new products or indications in late-stage development or under regulatory review
27FEB201704215476
The measures set forth above were calculated as of December 31, 2016.
* Net revenues, diluted earnings per share and operating margin are adjusted to exclude certain
specified items and are non-GAAP numbers, which are reconciled in Appendix B.
AbbVie has delivered a strong compound annual growth rate (CAGR) since inception on adjusted net revenues
and adjusted diluted earnings per share (EPS), placing AbbVie in the top quartile of its Health Care Peer Group.
Additionally, AbbVie has been committed to a robust return of capital to stockholders with an increase of 60% in its
dividend since 2013 as part of a balanced and disciplined capital allocation program. AbbVie’s total stockholder return
(TSR) since inception of 111.4% also places AbbVie among the top of its Health Care Peer Group, and more than
25FEB201717321998
2
13NOV201221352027
2017 Proxy Statement
2
40 percentage points above the Standard & Poor’s 500 Index and more than 65 percentage points above the NYSE Arca
Pharmaceutical Index over the same time period.
AbbVie has significantly grown revenue and EPS since 2013.
PROXY STATEMENT SUMMARY
Net Revenues*
CAGR = 10.8%
25.6
22.8
18.8 19.9
)
N
B
$
(
Diluted EPS*
CAGR = 15.4%
$4.82
$4.29
$3.14 $3.32
2013 2014
2015
2016
2013 2014
2015
2016
20MAR201708361664
*Net revenues and diluted earnings per share are adjusted for specified
items, including the impact of intangible asset amortization, and are
non-GAAP numbers, which are reconciled in Appendix B. Adjusted net
revenues exclude specified items, as described in Appendix B.
AbbVie also Delivered Strong Business Performance in 2016
AbbVie has built a strong foundation for its business and 2016 was an exceptional year, as evidenced by a
number of 2016 business highlights:
• Net Revenues: AbbVie reported 2016 full-year net revenues of $25.6 billion on a GAAP basis and adjusted
net revenues of $25.6 billion, an increase of 13.3% over 2015, excluding the impact of foreign exchange.
This reflects top-tier growth, third in AbbVie’s Health Care Peer Group.
• Operating Margins: In 2016, AbbVie expanded its operating margin to 36.6% on a GAAP basis or 42.4% of
net revenues on an adjusted basis, and reported gross margin of 77.2% on a GAAP basis or 81.2% of net
revenues on an adjusted basis. Excluding the incremental R&D investment related to acquisitions in 2016
and an unfavorable impact from foreign exchange, the adjusted operating margin was 45.9% in 2016.
•
•
•
Earnings Per Share: AbbVie reported full-year diluted EPS of $3.63 on a GAAP basis and adjusted diluted
EPS of $4.82, up 12.4%. This reflects top-tier growth, third in AbbVie’s Health Care Peer Group. AbbVie
provided 2017 GAAP diluted EPS guidance in the range of $4.55 to $4.65 and adjusted diluted EPS guidance
in the range of $5.44 to $5.54, reflecting growth of nearly 14% at the midpoint.
Humira Sales: AbbVie delivered global Humira sales of $16.1 billion, an increase of 14.7% on a reported
basis over 2015, or 16.1% excluding the impact of foreign exchange. Humira’s performance was driven by
continued market penetration across therapeutic categories and geographies.
Imbruvica Net Revenue: In 2016, global Imbruvica net revenue exceeded $1.8 billion, with performance
driven by market share growth following Imbruvica’s approval as a first line treatment for patients with
chronic lymphocytic leukemia (CLL).
25FEB201717321998
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2017 Proxy Statement
13NOV201221352027
3
PROXY STATEMENT SUMMARY
•
•
•
Business Development: AbbVie acquired Stemcentrx and its lead late-stage asset, rovalpituzumab tesirine
(Rova-T), further strengthening AbbVie’s oncology portfolio by providing a highly attractive platform in solid
tumors. AbbVie also entered into a collaboration with Boehringer Ingelheim to develop and commercialize
risankizumab, an anti-IL-23 monoclonal antibody that has the potential to be a transformative therapy in a
number of immune-mediated diseases.
Regulatory Milestones: AbbVie also achieved a number of regulatory milestones in markets worldwide for
several key products, including U.S. Food and Drug Administration (FDA) and European Medicines Agency
(EMA) approvals for several new products, including VenclextaTM for relapsed/refractory chronic lymphocytic
leukemia (CLL) patients with 17p deletion, ZinbrytaTM for relapsing forms of multiple sclerosis and EmplicitiTM
for the treatment of multiple myeloma, as well as new indications for Humira and Imbruvica.
Pipeline Development: With a record number of programs in mid- and late-stage development, AbbVie
made significant pipeline advancements in 2016, such as regulatory application submissions for the
company’s pan-genotypic next-generation HCV combination and Imbruvica for marginal zone lymphoma.
Corporate Governance Highlights
.................................................................................................................................................................................................................................................................................................................................
Our board of directors is committed to strong corporate governance tailored to meet the needs of AbbVie and
its stockholders to enhance stockholder value. In connection with our ongoing, proactive engagement with stockholders
(as described in greater detail on page 29), AbbVie’s board of directors:
•
•
approved and implemented in 2016 a proxy access by-law provision to permit a stockholder, or a group of
up to 20 stockholders, owning at least 3% of the company’s outstanding common stock continuously for at
least 3 years to nominate and include in the company’s proxy materials director nominees constituting up to
25% of the board of directors, as further detailed in the company’s By-Laws; and
approved a declassification management proposal in this proxy statement (Item 4) to seek stockholder
approval to amend the company’s Amended and Restated Certificate of Incorporation to declassify the board
of directors and to allow for the annual election of directors, as described in Item 4.
4
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2017 Proxy Statement
4
25FEB201717321998
Highlights of our governance practices include:
Governance Practice
For more information
PROXY STATEMENT SUMMARY
Independent lead director with robust responsibilities is selected
by the Board
Eight of AbbVie’s nine directors are independent and regularly
meet in executive session
All members of the audit, compensation, nominations and
governance and public policy committees are independent
Adopted a Proxy Access By-Law provision for 3%/3 years
Policy prohibiting hedging and pledging
Robust stock ownership guidelines
Disclosure of our corporate political contributions and our trade
association dues and oversight process
Clawback authority in the event of financial restatement to
recover incentive plan awards
Related person transaction policy to ensure appropriate oversight
We do not have a stockholder rights plan or ‘‘poison pill’’
Our directors are elected by a majority vote of our stockholders
for uncontested elections and we have a resignation policy if the
director fails to receive a majority of the votes cast
We hold an annual say-on-pay advisory vote on executive
compensation
Our governance guidelines restrict the number of boards our
directors may serve on to prevent overboarding
Annual board and committee self-assessments and annual
succession planning
We are guided by strong ethics programs and supplier guidelines
For inclusion on the board, the nominations and governance
committee considers diversity of ethnicity, gender, and geography
p. 13
p. 13
p. 15
p. 69
p. 39
p. 39
http://www.abbvie.com/responsibility/
transparency-policies/corporate-political-
participation.html
p. 39
p. 67
Certificate of Incorporation and By-Laws
p. 9
p. 59
Corporate Governance Guidelines
Corporate Governance Guidelines
http://www.abbvie.com/responsibility/
home.html
p. 14
Executive Compensation Highlights
.................................................................................................................................................................................................................................................................................................................................
AbbVie’s board of directors believes a well-designed compensation program should align executive interests with
the drivers of stockholder returns and profitable growth, support achievement of the company’s primary business goals,
and attract and retain world-class executives whose talents and contributions sustain the growth in long-term stockholder
value. Consequently, the compensation committee of the board has designed and implemented an executive
compensation program in which a substantial majority of named executive officer (NEO) compensation at AbbVie is
performance-based.
When determining NEO compensation, the committee first considers the median of the competitive marketplace
(as derived primarily from the Health Care Peer Group approved by the committee) as an initial benchmark for assessing
compensation. The committee then takes into account the company’s overall performance against the financial, operating
and strategic objectives that were established at the start of the performance period. Finally, specific pay determinations
are made for each NEO based on his or her individual performance against goals and contributions to the short- and
long-term performance of the company.
25FEB201717321998
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PROXY STATEMENT SUMMARY
Three primary components make up AbbVie’s executive pay program: base salary, short-term incentives and
long-term incentives. The structure of each component is tailored to serve a specific function and purpose. The following
is a summary of the key components of our compensation program.
Base Salary
Designed to be competitive with market and industry norms, and to reflect individual performance
Individual salaries are established relative to market median based on each NEO’s individual performance, skills, experience,
and internal equity, as well as the company’s annual operating budget
Plan utilizes non-GAAP financial goals as
Targets are based on expected business, market and regulatory
Short-Term
Incentives
Long-Term
Incentives
well as an assessment of individual
performance against strategic objectives:
— Net revenues
— Income before taxes
— Operating margin
— Humira sales
— Return on assets
— Strategic and leadership goals
Long-term incentive awards are granted in
the form of:
— Performance shares and
performance-vested restricted stock
units (80% of NEO’s LTI award)
— Non-qualified stock options (20% of
NEO’s LTI award)
Level of awards NEOs receive varies
according to plan design and individual
performance as reviewed by our
compensation committee
conditions, including expectations for our pipeline
Compensation committee establishes maximum award allocations
for plan participants each year as a percentage of consolidated net
earnings, and the plan imposes a maximum of 200% of target
Compensation committee uses a payout matrix based on financial
performance to define and cap the range of awards at or below the
plan maximum when making its final determinations
Awards are based on LTI program goals and company business
performance, as well as individual factors
Compensation committee determines grants for each NEO based
on its assessment of performance and progress against strategic
milestones
Significant redesign for 2016 awards, which incorporates multi-year
performance periods and multiple performance metrics, including
relative total stockholder return (see below for additional details)
3MAR201713171492
Element of Pay
Long-Term Incentive Program
Changes Made for 2016
(cid:5) Completed redesign of our long-term incentive program:
— Added multiple performance metrics, including relative ROE, EPS and
relative TSR as criteria for vesting.
— Removed provision that allowed performance awards to vest if
thresholds were met in any 3 of 5 years, creating more risk of
forfeiture.
— Added multi-year performance periods.
— Changed dividend payment schedule so dividends are paid only at
vesting and only on earned shares.
— Increased use of performance-vested awards from 75% to 80% which,
in combination with stock options, ties 100% of our LTI program to
performance metrics and stock price appreciation.
— Refined process for referencing the market median for long-term
incentive award decisions.
Short-Term Incentive Plan
(cid:5) Added disclosure of our maximum annual incentive cap of 200% of
Peer Comparisons
target.
(cid:5) Reduced the CEO’s target annual incentive to 150% of base salary.
(cid:5) Established a formal payout matrix based on net revenues and operating
margin to define and cap NEO annual incentive awards at or below the
plan maximum.
(cid:5) Simplified the peer group used for compensation benchmarking, the
AbbVie Health Care Peer Group.
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25FEB201717321998
INFORMATION ABOUT THE ANNUAL MEETING
26FEB201707354627
Who Can Vote
Stockholders of record at the close of business on March 8, 2017 will be entitled to notice of and to vote at the
Annual Meeting. As of March 8, 2017, AbbVie had 1,593,576,738 outstanding shares of common stock, which are
AbbVie’s only outstanding voting securities. Each stockholder has one vote per share. Stockholders do not have the right
to vote cumulatively in electing directors.
Notice and Access
In accordance with the Securities and Exchange Commission (SEC) e-proxy rules, AbbVie mailed a Notice of
Internet Availability of Proxy Materials (the ‘‘Notice’’) to stockholders in March 2017. The Notice describes the matters to
be considered at the Annual Meeting and how stockholders can access the proxy materials online. It also provides
instructions on how stockholders can vote their shares. If you received the Notice, you will not receive a printed version
of the proxy materials unless you request one. If you would like to receive a printed version of the proxy materials, free
of charge, please follow the instructions on the Notice.
Voting by Proxy
AbbVie’s stockholders may vote their shares by telephone, the Internet, or at the Annual Meeting. If you vote by
telephone or the Internet, you do not need to return your proxy card. The instructions for voting can be found on the
Notice, on the website listed in the Notice, and, if you received one, on your proxy card. If you requested a printed
version of the proxy card, you may also vote by mail.
Revoking a Proxy
You may revoke your proxy by voting in person at the Annual Meeting or, at any time prior to the meeting:
•
•
•
by delivering a written notice to the secretary of AbbVie,
by delivering an authorized proxy with a later date, or
by voting by telephone or the Internet after you have given your proxy.
Discretionary Voting Authority
Unless otherwise specified in accordance with the instructions on the proxy, the persons named in the proxy will
vote the shares of AbbVie common stock covered by proxies they receive to elect the 4 nominees named in Item 1 on
the proxy card. If a nominee becomes unavailable to serve, the shares will be voted for a substitute designated by the
board of directors or for fewer than 4 nominees if, in the judgment of the proxy holders, such action is necessary or
desirable.
Where a stockholder has specified a choice for or against the proposals to be presented at the Annual Meeting
or if the stockholder has chosen to abstain, the shares of AbbVie common stock represented by the proxy will be voted
(or not voted) as specified. Where no choice has been specified, the proxy will be voted FOR the ratification of Ernst &
Young LLP as auditors, FOR the approval of executive compensation, FOR the management proposal regarding the annual
election of directors, and AGAINST each of the stockholder proposals.
The board of directors is not aware of any other issue which may properly be brought before the meeting. If
other matters are properly brought before the meeting, the accompanying proxy will be voted in accordance with the
judgment of the proxy holders.
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INFORMATION ABOUT THE ANNUAL MEETING
Quorum and Vote Required to Approve Each Item on the Proxy
A majority of the outstanding shares entitled to vote generally in the election of directors, represented in person
or by proxy, constitutes a quorum. Directors are elected by stockholders in an uncontested election if a majority of the
votes cast are ‘‘for’’ a director’s re-election at the Annual Meeting, excluding abstentions and broker non-votes. For other
matters, the affirmative vote of a majority of the shares represented, in person or by proxy, at the meeting and entitled
to vote on a matter shall be the act of the stockholders with respect to that matter, except for the management
proposal regarding the annual election of directors, which requires the affirmative vote of shares representing not less
than eighty percent (80%) of the outstanding shares of capital stock of AbbVie entitled to vote generally in the election
of directors pursuant to Article XI of AbbVie’s Amended and Restated Certificate of Incorporation.
Effect of Broker Non-Votes and Abstentions
A proxy submitted by an institution such as a broker or bank that holds shares for the account of a beneficial
owner may indicate that all or a portion of the shares represented by that proxy are not being voted with respect to a
particular matter. This could occur, for example, when the broker or bank is not permitted to vote those shares in the
absence of instructions from the beneficial owner of the stock. These ‘‘non-voted shares’’ will be considered shares not
present and, therefore, not entitled to vote on those matters, although these shares may be considered present and
entitled to vote for other purposes. Brokers and banks have discretionary authority to vote shares in the absence of
instructions on matters the New York Stock Exchange considers ‘‘routine,’’ such as the ratification of the appointment of
the auditors. They do not have discretionary authority to vote shares in absence of instructions on ‘‘non-routine’’
matters. The election of directors, the advisory vote on the approval of executive compensation, the management
proposal regarding the annual election of directors, and the stockholder proposals are considered ‘‘non-routine’’ matters.
Non-voted shares will not affect the determination of the outcome of the vote on any matter to be decided at the
meeting. Shares represented by proxies that are present and entitled to vote on a matter but which have elected to
abstain from voting on that matter, other than the election of directors, will have the effect of votes against that matter.
Inspectors of Election
The inspectors of election and the tabulators of all proxies, ballots, and voting tabulations that identify
stockholders are independent and are not AbbVie employees.
Cost of Soliciting Proxies
AbbVie will bear the cost of making solicitations from its stockholders and will reimburse banks and brokerage
firms for out-of-pocket expenses incurred in connection with this solicitation. Proxies may be solicited by mail, telephone,
Internet, or in person by directors, officers, or employees of AbbVie and its subsidiaries.
AbbVie has retained Georgeson Inc. to aid in the solicitation of proxies, at an estimated cost of $19,500 plus
reimbursement for reasonable out-of-pocket expenses.
AbbVie Savings Plan
Participants in the AbbVie Savings Plan will receive voting instructions for their shares of AbbVie common stock
held in the AbbVie Savings Plan Trust. The Trust is administered by both a trustee and an investment committee. The
trustee is The Northern Trust Company. The members of the investment committee are William H.S. Preece, Tabetha A.
Skarbek and Michael J. Thomas, employees of AbbVie. The voting power with respect to the shares is held by and
shared between the investment committee and the participants. The investment committee must solicit voting
instructions from the participants and follow the voting instructions it receives. The investment committee may use its
own discretion with respect to those shares of AbbVie common stock for which no voting instructions are received.
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INFORMATION CONCERNING DIRECTOR NOMINEES
(ITEM 1)
25FEB201723195465
The board of directors consists of three classes with each class currently comprised of three directors and four
directors standing for election in Class II. Directors of one class are elected each year for a term of three years. The
Class II directors are presented for re-election to hold office until the expiration of their term at the 2020 annual
meeting of stockholders and until their successors are elected and qualified or until their earlier death or resignation.
Directors are elected by stockholders if a majority of the votes cast are ‘‘for’’ a director’s re-election at the
Annual Meeting, excluding abstentions and broker non-votes. For more information on the director majority vote
standard, see AbbVie’s By-Laws as listed as an exhibit to AbbVie’s 2016 Annual Report on Form 10-K. All of the
nominees, except Ms. Meyer, are currently serving as directors. Ms. Meyer was recommended for election by the
nominations and governance committee.
Class II—Directors Whose Terms Expire in 2017
.................................................................................................................................................................................................................................................................................................................................
Robert J. Alpern, M.D.
Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of Yale School of Medicine
Dr. Alpern has served as the Ensign Professor of Medicine, Professor of Internal Medicine, and
Dean of Yale School of Medicine since June 2004. From July 1998 to June 2004, Dr. Alpern was
the Dean of The University of Texas Southwestern Medical Center. Dr. Alpern also serves as a
director of Abbott Laboratories and as a director on the Board of Yale-New Haven Hospital.
Key Contributions to the Board: As the Ensign Professor of Medicine, Professor of Internal
Medicine, and Dean of Yale School of Medicine, Dean of The University of Texas Southwestern
Medical Center, and as a director on the Board of Yale-New Haven Hospital, Dr. Alpern contributes
valuable insights to the board through his medical and scientific expertise and his knowledge of
the health care environment and the scientific nature of AbbVie’s key research and development
initiatives.
17JAN201314181230
Committees:
Nominations &
Governance
Public Policy
Director since: 2013
Age: 66
17JAN201314191789
Committees:
Compensation
Public Policy
Director since: 2013
Age: 71
Edward M. Liddy
Retired Chairman & CEO, The Allstate Corporation
Mr. Liddy served as a partner in the private equity investment firm Clayton, Dubilier & Rice, LLC
from January 2010 to December 2015. At the request of the Secretary of the U.S. Department of
the Treasury, Mr. Liddy served as interim chairman and chief executive officer of American
International Group, Inc. (AIG), a global insurance and financial services holding company, from
September 2008 to August 2009. From January 1999 to April 2008, Mr. Liddy served as chairman
of the board of The Allstate Corporation (insurance). He served as chief executive officer of
Allstate from January 1999 to December 2006, president from January 1995 to May 2005, and
chief operating officer from August 1994 to January 1999. Mr. Liddy currently serves on the board
of directors of Abbott Laboratories, 3M Company, and The Boeing Company.
Key Contributions to the Board: Mr. Liddy’s executive leadership at Allstate and AIG and his board
service at several Fortune 100 companies enable him to provide our board with valuable insights
on corporate strategy, risk management, corporate governance and other issues facing large,
global enterprises. Additionally, as a former chief financial officer, audit committee chair at
Goldman Sachs and 3M, and a private equity firm partner, Mr. Liddy provides our board with
significant knowledge and understanding of corporate finance, capital markets, financial reporting
and accounting matters.
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INFORMATION CONCERNING DIRECTOR NOMINEES
Melody B. Meyer
3MAR201712524254
Director Nominee
Age: 59
President of Melody Meyer Energy, LLC
Ms. Meyer is president of Melody Meyer Energy, LLC, a private consulting firm, a position she has
held since June 2016. From March 2011 to April 2016, Ms. Meyer served as the president of
Chevron Asia Pacific Exploration and Production Company. She previously served as president of
Chevron Energy Technology Company from 2008 to 2011, in addition to various other roles over
her thirty-seven year career at Chevron.
Key Contributions to the Board: As a result of her tenure at Chevron, Ms. Meyer has acquired
operational, management, strategic planning, and financial expertise with extensive global
experience and provides an informed perspective on financial and operational matters faced by a
complex international company.
Frederick H. Waddell
Chairman of the Board and Chief Executive Officer of Northern Trust Corporation and The Northern
Trust Company
Mr. Waddell has served as the chief executive officer of Northern Trust Corporation and The
Northern Trust Company since January 2008 and as chairman of the board since November 2009.
He served as president from February 2006 through September 2011 and from October to
December 2016, and as chief operating officer from February 2006 to January 2008. Mr. Waddell
served as a board member of Northern Trust from February 2006 to November 2009 prior to
becoming the chairman of the board.
17JAN201314192826
Committees:
Audit
Compensation
Director since: 2013
Age: 63
Key Contributions to the Board: As chairman and chief executive officer of Northern Trust
Corporation and The Northern Trust Company, Mr. Waddell possesses broad financial services
experience with a strong record of leadership in a highly regulated industry.
Class III—Directors Whose Terms Expire in 2018
.................................................................................................................................................................................................................................................................................................................................
Roxanne S. Austin
17JAN201314185859
Committees:
Audit
Compensation
Director since: 2013
Age: 56
President, Austin Investment Advisors
Ms. Austin is president of Austin Investment Advisors, a private investment and consulting firm, a
position she has held since 2004. From July 2009 through July 2010, Ms. Austin also served as the
president and chief executive officer of Move Networks, Inc., a provider of Internet television
services. Ms. Austin previously served as president and chief operating officer of DIRECTV, Inc.
Ms. Austin also previously served as executive vice president and chief financial officer of Hughes
Electronics Corporation and as a partner of Deloitte & Touche LLP. Ms. Austin is also a director of
Abbott Laboratories, Target Corporation, and Teledyne Technologies, Inc. Ms. Austin also served as
a director of Telefonaktiebolaget LM Ericsson from 2008 to 2016.
Key Contributions to the Board: Through her extensive management and operating roles, including
her financial roles, Ms. Austin contributes significant oversight and leadership experience, including
financial expertise and knowledge of financial statements, corporate finance and accounting
matters.
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INFORMATION CONCERNING DIRECTOR NOMINEES
Richard A. Gonzalez
Chairman of the Board and Chief Executive Officer, AbbVie Inc.
Mr. Gonzalez is the chairman and chief executive officer of AbbVie. He served as Abbott’s
executive vice president of the pharmaceutical products group from July 2010 to December 2012,
and was responsible for Abbott’s worldwide pharmaceutical business, including commercial
operations, research and development, and manufacturing. He also served as president, Abbott
Ventures Inc., Abbott’s medical technology investment arm, from 2009 to 2011. Mr. Gonzalez
joined Abbott in 1977 and held various management positions before briefly retiring in 2007,
including: Abbott’s president and chief operating officer; president, chief operating officer of
Abbott’s Medical Products Group; senior vice president and president of Abbott’s former Hospital
Products Division; vice president and president of Abbott’s Health Systems Division; and divisional
vice president and general manager for Abbott’s Diagnostics Operations in the United States and
Canada.
Key Contributions to the Board: As a result of his service as Abbott’s executive vice president,
Pharmaceutical Products Group, his previous service as Abbott’s president and chief operating
officer and his more than 30-year career at Abbott, Mr. Gonzalez has developed valuable business,
management and leadership experience, as well as extensive knowledge of AbbVie and its global
operations. Mr. Gonzalez’s experience and knowledge enable him to contribute to AbbVie’s board
key insights into strategic, management, and operational matters.
Glenn F. Tilton
Retired Chairman and Chief Executive Officer of the UAL Corporation
Mr. Tilton was chairman of the Midwest for JPMorgan Chase & Co. from 2011 until his retirement
in 2014. From October 2010 to December 2012, Mr. Tilton also served as the non-executive
chairman of the board of United Continental Holdings, Inc. From September 2002 to October
2010, he served as chairman, president and chief executive officer of UAL Corporation, and
chairman and chief executive officer of United Air Lines, Inc., its wholly owned subsidiary. Prior to
becoming the vice chairman of Chevron Texaco following the merger of Texaco Inc. and Chevron
Corp., Mr. Tilton enjoyed a 30-year multi-disciplinary career with Texaco Inc., culminating in his
election as chairman and chief executive officer. Mr. Tilton is also a director of Abbott Laboratories
and Phillips 66. Mr. Tilton also served on the board of directors of Lincoln National Corporation
from 2002 to 2007, of TXU Corporation from 2005 to 2007, of Corning Incorporated from 2010 to
2012, and of United Continental Holdings, Inc. from 2010 to 2012.
Key Contributions to the Board: As chairman of the Midwest for JPMorgan Chase & Co. and
having previously served as non-executive chairman of the board of United Continental
Holdings, Inc., and chairman, president, and chief executive officer of UAL Corporation and United
Air Lines, vice chairman of Chevron Texaco and as interim chairman of Dynegy, Inc., Mr. Tilton
acquired strong management experience overseeing complex multinational businesses operating in
highly regulated industries, as well as expertise in finance and capital markets matters. His
experience as non-executive chairman of the board of United Continental Holdings, Inc. also
enhances his contributions as AbbVie’s lead independent director.
15MAR201411192791
Director since: 2013
Age: 63
17JAN201314185103
Committees:
Compensation
Nominations &
Governance
Lead Independent
Director
Director since: 2013
Age: 68
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INFORMATION CONCERNING DIRECTOR NOMINEES
Class I—Directors Whose Terms Expire in 2019
.................................................................................................................................................................................................................................................................................................................................
William H.L. Burnside
Retired Senior Vice President and Director at The Boston Consulting Group
Mr. Burnside is a retired senior vice president and director at The Boston Consulting Group (BCG),
where he currently serves as an advisor. Prior to becoming managing partner of BCG’s Los Angeles
office in 1987, he worked in BCG’s London and Chicago offices, servicing clients in
telecommunications, media, defense, financial services, and manufacturing. Mr. Burnside is a
director at Audubon California.
Key Contributions to the Board: Through his experience with The Boston Consulting Group,
Mr. Burnside acquired knowledge and understanding of corporate finance and capital markets
matters, as well as global and domestic strategic advisory experience across a broad base of
industries.
6FEB201522131611
Committees:
Audit
Nominations &
Governance
Director since: 2013
Age: 65
Brett J. Hart
Executive Vice President and General Counsel, United Continental Holdings, Inc.
Mr. Hart is the executive vice president and general counsel of United Continental Holdings, Inc.
(UAL) and United Airlines, Inc. since February 2012. Mr. Hart also served as acting chief executive
officer of UAL and United Airlines, Inc. from October 2015 to March 2016. From December 2010
to February 2012, he served as senior vice president, general counsel and secretary of UAL,
United and Continental. From June 2009 to December 2010, Mr. Hart served as executive vice
president, general counsel and corporate secretary at Sara Lee Corporation.
Key Contributions to the Board: As an executive vice president and general counsel for two large
public companies with international operations and having served as an acting CEO, Mr. Hart
contributes operational and strategic acumen with expertise in risk management, legal strategic
matters, government and regulatory affairs, customer and external facing matters, corporate
governance, and compliance.
8MAR201622161098
Committees:
Nominations &
Governance
Public Policy
Director since: 2016
Age: 47
Edward J. Rapp
Retired Group President for Resource Industries of Caterpillar Inc.
Mr. Rapp served as the Caterpillar Inc. group president for resource industries from 2014 until his
retirement in mid-2016. He previously served at Caterpillar as group president based in Singapore
in 2013 and 2014 and as the chief financial officer from 2010 to 2013, and he was named a group
president in 2007. Mr. Rapp is presently a board member for FM Global. He is currently a
member of the University of Missouri College of Business Strategic Development Board.
Key Contributions to the Board: As a result of his tenure as group president and chief financial
officer at Caterpillar Inc., Mr. Rapp has acquired management, operational, and financial expertise
with extensive global experience and provides the board with an informed perspective on financial
and operational matters faced by a complex international company.
17JAN201314183678
Committees:
Audit
Public Policy
Director since: 2013
Age: 59
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
25FEB201723200322
The Board of Directors
.................................................................................................................................................................................................................................................................................................................................
The board of directors held eleven meetings in 2016. The average attendance of all incumbent directors at board
and committee meetings in 2016 was ninety-six percent and each director attended at least seventy-five percent of the
total number of board meetings and meetings of the committees on which he or she served. AbbVie encourages its
board members to attend the annual stockholder meeting. All of AbbVie’s directors attended the 2016 annual
stockholder meeting.
The board has determined that each of the following individuals is independent in accordance with the New
York Stock Exchange (NYSE) listing standards: Dr. Alpern, Ms. Austin, Mr. Burnside, Mr. Hart, Mr. Liddy, Ms. Meyer,
Mr. Rapp, Mr. Tilton, and Mr. Waddell. To determine independence, the board applied the AbbVie Inc. director
independence guidelines. The board also considered whether a director has any other material relationships with AbbVie
or its subsidiaries and concluded that none of these directors had a relationship that impaired the director’s
independence. This included consideration of the fact that some of the directors are officers or serve on boards of
companies or entities to which AbbVie sold products or made contributions or from which AbbVie purchased products
and services during the year. This also included consideration of the fact that some of the directors serve on the board
of Abbott Laboratories (Abbott), AbbVie’s former parent. In making its determination, the board relied on both
information provided by the directors and information developed internally by AbbVie.
The board has risk oversight responsibility for AbbVie and administers this responsibility both directly and with
assistance from its committees.
The board has determined that the current leadership structure, in which the offices of chairman of the board
and chief executive officer are held by one individual and the chair of the nominations and governance committee is
appointed to be the lead director, ensures the appropriate level of oversight, independence, and responsibility is applied
to all board decisions, including risk oversight, and is in the best interests of AbbVie and its stockholders. The lead
independent director is chosen by and from the independent members of the board of directors.
The lead independent director responsibilities include:
1.
2.
facilitates communication with the board and presides over regularly conducted executive sessions of the
independent directors or sessions where the chairman of the board is not present;
reviews and approves matters, such as agenda items, schedule sufficiency, and, where appropriate,
information provided to other board members;
3.
serves as the liaison between the chairman of the board and the independent directors;
4. has the authority to call meetings of the independent directors;
5.
if requested by major stockholders, ensures that he or she is available for consultation and direct
communication as needed; and
6. performs such other duties as the board may determine from time to time.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
All directors are encouraged to, and in fact do, consult with the chairman on each of the above topics, as well.
The lead director, and each of the other directors, communicates regularly with the chairman of the board and chief
executive officer regarding appropriate agenda topics and other board related matters.
AbbVie directors have backgrounds that when combined provide a portfolio of experience and knowledge that
serve AbbVie’s governance and strategic needs. Director nominees are considered based on a range of criteria including
broad-based business knowledge and relationships, prominence and excellent reputations in their primary fields of
endeavor, as well as a global business perspective and commitment to good corporate citizenship, and ability to commit
sufficient time and attention to the activities of the board. They must have demonstrated experience and ability that is
relevant to the board’s oversight role with respect to AbbVie’s business and affairs. They must also be able and willing to
represent the stockholders’ economic interests and satisfy their fiduciary duties to stockholders without conflicts of
interest. For more details on director qualifications, please see Exhibit A to AbbVie’s Governance Guidelines.
Each year, the board conducts a self-evaluation to determine whether it and its committees are functioning
effectively. The full board discusses the evaluation reports to determine what, if any, action should be undertaken to
improve board and committee performance.
In the process of identifying nominees to serve as a member of the board of directors, the nominations and
governance committee considers the board’s diversity of ethnicity, gender, and geography and assesses the effectiveness
of the process in achieving that diversity.
Each director’s biography includes the particular experience and qualifications that led the board to conclude
that the director should serve on the board. The directors’ biographies are in the section of this proxy statement
captioned ‘‘Information Concerning Director Nominees.’’
The following table highlights our directors’ skills and experience. The skills identified below are considered by
nominations and governance committee to be the most relevant to the board’s oversight role with respect to AbbVie’s
business and affairs and to drive our culture of innovation and responsibility. The specific importance of each skill also is
noted.
Such skills include, among others:
•
•
•
•
•
•
Healthcare Industry—Relevant to an industry understanding and review of our business and strategy for
continued innovation.
Leadership—For a board that can successfully advise and oversee the company’s business performance and
represent stockholders interests.
Global Business and Strategy—For oversight of a complex global organization like AbbVie to successfully
advise and oversee the strategic development and direction of the company.
Corporate Governance and Public Company Board—Ensuring directors have background and knowledge to
perform oversight and governance roles.
Finance or Accounting—Enabling our directors to analyze our financial statements, oversee our capital
structure, and consider financial transactions.
Government Relations and Regulatory—For an understanding of the complex regulatory and governmental
environment in which our business operates.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
Director Skills, Knowledge and Experience Matrix
Healthcare
Industry
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
Leadership
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
Global
Business
and
Strategy
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
Corporate
Governance
and Public
Company
Board
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
Finance or
Accounting
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
Government
Relations and
Regulatory
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
Dr. Alpern
Ms. Austin
Mr. Gonzalez
Mr. Burnside
Mr. Hart
Mr. Liddy
Ms. Meyer
Mr. Rapp
Mr. Tilton
Mr. Waddell
Committees of the Board of Directors
.................................................................................................................................................................................................................................................................................................................................
The board of directors has five committees established in AbbVie’s By-Laws: the audit committee, compensation
committee, nominations and governance committee, public policy committee, and executive committee. Each of the
members of the audit committee, compensation committee, nominations and governance committee, and public policy
committee is independent. Mr. Tilton serves as AbbVie’s lead independent director.
Audit
Committee
Compensation
Committee
Nominations and
Governance
Committee
Public Policy
Committee
25FEB201719113796
25FEB201719113796
R. Alpern
25FEB201719113376
R. Austin
W. Burnside
B. Hart
E. Liddy
E. Rapp
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G. Tilton
F. Waddell
25FEB201719112935
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25FEB201719113796
Number of meetings
6
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25FEB201719112935
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25FEB201719113796
3
25FEB201719113796
25FEB201719113796
25FEB201719112935
25FEB201719113796
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25FEB201719112935
4
4
25FEB201719113656
25FEB201719112935
25FEB201719113796
25FEB201719113376
Lead Director
Chairperson
Member
Financial Expert
Audit Committee
The audit committee is governed by a written charter. This committee assists the board of directors in fulfilling
its oversight responsibility with respect to AbbVie’s accounting and financial reporting practices and the audit process,
the quality and integrity of AbbVie’s financial statements, the independent auditors’ qualifications, independence, and
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
performance, the performance of AbbVie’s internal audit function and internal auditors, certain areas of legal and
regulatory compliance, and enterprise risk management. Each of the members of the audit committee is financially
literate, as required of audit committee members by the NYSE, and the independence requirements set forth in
Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). The board of directors has
determined that Ms. Austin, the committee’s chairperson, is an ‘‘audit committee financial expert.’’
Compensation Committee
The compensation committee is governed by a written charter. This committee assists the board of directors in
carrying out the board’s responsibilities relating to the compensation of AbbVie’s executive officers and directors. The
compensation committee annually reviews the compensation paid to the directors and gives its recommendations to the
full board regarding both the amount of director compensation that should be paid and the allocation of that
compensation between equity-based awards and cash. In recommending director compensation, the compensation
committee takes into account director fees paid by companies in AbbVie’s Health Care Peer Group and reviews any
arrangement that could be viewed as indirect director compensation. The processes and procedures used for the
consideration and determination of executive compensation are described in the ‘‘Compensation Discussion and Analysis’’
section of this proxy statement. The committee also reviews, approves, and administers the incentive compensation plans
in which the AbbVie executive officers participate and all of AbbVie’s equity-based plans. It may delegate the
responsibility to administer and make grants under these plans to management, except to the extent that such
delegation would be inconsistent with applicable law or regulations or with the listing rules of the New York Stock
Exchange. The compensation committee has the sole authority, under its charter, to select, retain and/or terminate
independent advisors who may assist the committee in carrying out its responsibilities. The compensation committee
reviews and discusses with management and its independent compensation advisor potential risks associated with
AbbVie’s compensation policies and practices as discussed in the ‘‘Compensation Risk Assessment’’ section of this proxy
statement. Each member of the committee qualifies as a ‘‘non-employee director’’ for purposes of Rule 16b-3 under the
Exchange Act and as an ‘‘outside director’’ for purposes of Internal Revenue Code Section 162(m).
The committee has engaged Compensation Advisory Partners (CAP) as its independent compensation consultant.
The independent compensation consultant provides counsel and advice to the committee on executive and non-employee
director compensation matters. CAP, and its principal, report directly to the chair of the committee. The principal meets
regularly, and as needed, with the committee in executive sessions, and has direct access to the committee chair during
and between meetings. The committee determines what variables it will instruct CAP to consider, including: peer groups
against which performance and pay should be examined, metrics to be used in incentive plans to assess AbbVie’s
performance, competitive short- and long-term incentive practices in the marketplace, and compensation levels relative
to market benchmarks. The committee negotiates and approves all fees paid to CAP for these services. AbbVie did not
engage CAP to perform any other services during 2016.
Based on an assessment of internally developed information and information provided by CAP, the committee
has determined that its independent compensation advisor does not have a conflict of interest. A copy of the
compensation committee report is included in the ‘‘Compensation Committee Report’’ section of this proxy statement.
Nominations and Governance Committee
The nominations and governance committee is governed by a written charter. This committee assists the board
of directors in identifying individuals qualified to become board members and recommends to the board the nominees
for election as directors at the next annual meeting of stockholders, recommends to the board the persons to be elected
as executive officers of AbbVie, recommends to the board the corporate governance guidelines applicable to AbbVie,
oversees the evaluation of the board and management, and serves in an advisory capacity to the board and the
chairman of the board on matters of organization, management succession plans, major changes in the organizational
structure of AbbVie, and the conduct of board activities. The process used by this committee to identify a nominee to
serve as a member of the board of directors depends on the qualities being sought, as described on pages 14-15. From
time to time, AbbVie engages an executive search firm to assist the committee in identifying individuals qualified to be
board members.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
Public Policy Committee
The public policy committee is governed by a written charter. This committee assists the board of directors in
fulfilling its oversight responsibility with respect to AbbVie’s public policy, certain areas of legal and regulatory
compliance, and governmental affairs and health care compliance matters that affect AbbVie by discharging the
responsibilities set forth in its charter.
Executive Committee
The executive committee members are Mr. Gonzalez, chair, Ms. Austin, Mr. Liddy, Mr. Rapp, and Mr. Tilton. This
committee may exercise all of the authority of the board in the management of AbbVie, except for matters expressly
reserved by law for board action.
Communicating with the Board of Directors
.................................................................................................................................................................................................................................................................................................................................
Stockholders and other interested parties may communicate with the board of directors by writing a letter to
the chairman of the board, to the lead director, or to the independent directors c/o AbbVie Inc., 1 North Waukegan
Road, AP34, North Chicago, Illinois 60064, Attention: corporate secretary. The corporate secretary regularly forwards to
the addressee all letters other than mass mailings, advertisements, and other materials not relevant to AbbVie’s business.
In addition, directors regularly receive a log of all correspondence received by the company that is addressed to a
member of the board and may request any correspondence on that log.
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DIRECTOR COMPENSATION
25FEB201719113096
AbbVie employees are not compensated for serving on the board or board committees. AbbVie’s non-employee
directors are compensated for their service under the AbbVie Non-Employee Directors’ Fee Plan and the AbbVie 2013
Incentive Stock Program. As described in ‘‘Committees of the Board of Directors—Compensation Committee,’’ director
compensation is reviewed annually by the compensation committee with the independent compensation consultant,
including a review of director compensation against AbbVie’s Health Care Peer Group, and a recommendation is then
provided to the full board.
The following table sets forth the non-employee directors’ 2016 compensation.
Fees
Earned or
Paid in Cash
($)(1)
Restricted
Stock Unit
Awards
($)(2)
Option
Awards
($)(3)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(4)
All Other
Compensation
($)(5)
Total
($)
$113,750
$184,983
$0
$16,319
$25,000
$340,052
135,833
119,750
61,250
130,417
131,417
57,500
145,000
119,750
184,983
184,983
184,983
184,983
184,983
0
184,983
184,983
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
320,816
25,000
25,000
329,733
271,233
6,604
322,004
25,000
28,847
25,000
25,000
341,400
86,347
354,983
329,733
Name
R. Alpern
R. Austin
W. Burnside
B. Hart
E. Liddy
E. Rapp
R. Roberts
G. Tilton
F. Waddell
(1) Under the AbbVie Non-Employee Directors’ Fee Plan as in effect until the 2016 annual meeting of stockholders,
non-employee directors earned $10,500 for each month of service as a director and $1,000 for each month of
service as a chair of a board committee, other than the chair of the audit committee. The chair of the audit
committee received $1,500 for each month of service as a chair of that committee and the other members of the
audit committee received $500 for each month of service as a committee member. The Non-Employee Directors’
Fee Plan was amended in 2016 to adjust certain components of the program based on recommendations of the
compensation committee’s independent compensation consultant following review of AbbVie’s Health Care Peer
Group market practices and trends. Under the amended Non-Employee Directors’ Fee Plan, effective as of the 2016
annual meeting of stockholders, non-employee directors earn $105,000 per year for service as a director and
$20,000 per year for service as a chair of a board committee, other than the chair of the audit committee. The
chair of the audit committee receives $25,000 per year for service as chair of that committee and the other
members of the audit committee receive $500 for each month of service as a committee member. The
non-employee director and committee fees are earned monthly for each calendar month or portion thereof that
the director holds the position, excluding the month in which the director is first elected to the position.
Fees earned under the AbbVie Non-Employee Directors’ Fee Plan are, at the director’s election, paid in cash,
delivered in the form of vested non-qualified stock options (based on an independent appraisal of their fair value),
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DIRECTOR COMPENSATION
deferred until retirement (as an unfunded AbbVie obligation), or paid currently into an individual grantor trust
established by an eligible director. The distribution of deferred fees and amounts held in a director’s grantor trust
generally commences at the later of when the director reaches age 65 or upon retirement from the board of
directors. Fees deposited in a trust may be credited to a stock equivalent account that earns the same return as if
the fees were invested in AbbVie stock or to a guaranteed interest account. If necessary, AbbVie contributes funds
to a director’s trust so that as of year-end the stock equivalent account balance (net of taxes) is not less than
seventy-five percent of the market value of the related AbbVie common stock at year end.
(2) The amounts in this column represent the aggregate grant date fair value of the restricted stock unit awards
granted during 2016, determined in accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 718. AbbVie determines the grant date fair value of the awards by multiplying
the number of units granted by the average of the high and low market prices of one share of AbbVie common
stock on the award grant date.
In addition to the fees described in footnote (1), each non-employee director elected to or serving on the board of
directors at the 2016 annual stockholder meeting received under the AbbVie 2013 Incentive Stock Program vested
restricted stock units with a target grant date value of $185,000. In 2016, this equated to 2,974 restricted stock
units (after rounding the award down to the nearest whole unit), with a reportable value of $184,983. The
non-employee directors receive cash payments equal to the dividends paid on the shares covered by the units at
the same rate as other stockholders, but do not otherwise have access to the restricted stock units during their
board service. Upon termination or retirement from the board, death, or a change in control of the company, a
non-employee director will receive one common share for each restricted stock unit outstanding under the
Incentive Stock Program.
The following AbbVie restricted stock units were outstanding as of December 31, 2016: R. Alpern, 19,019;
R. Austin, 26,682; W. Burnside, 10,460; B. Hart, 2,974; E. Liddy, 14,446; E. Rapp, 10,460; G. Tilton, 22,666;
F. Waddell, 10,460. These numbers include, where applicable, AbbVie restricted stock units issued with respect to
Abbott Laboratories restricted stock units outstanding when AbbVie separated from Abbott on January 1, 2013.
(3) No AbbVie stock options were outstanding as of December 31, 2016.
(4) The totals in this column include reportable interest credited under the AbbVie Non-Employee Directors’ Fee Plan
during 2016.
(5) Charitable contributions made by AbbVie’s non-employee directors are eligible for a matching contribution (up to
$25,000 annually). For 2016 contributions, the AbbVie Foundation made charitable matching contributions on behalf
of the following AbbVie directors: R. Alpern, $25,000; W. Burnside, $25,000; B. Hart, $25,000; E. Liddy, $5,000;
E. Rapp, $25,000; R. Roberts $25,000; G. Tilton, $25,000; F. Waddell, $25,000. This column also includes
reimbursement for certain taxes.
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SECURITIES OWNERSHIP
25FEB201723200187
Securities Ownership of Executive Officers and Directors
.................................................................................................................................................................................................................................................................................................................................
The table below reflects the number of shares of AbbVie common stock beneficially owned as of January 31,
2017, by each director, the chief executive officer, the chief financial officer, and the three other most highly paid
executive officers (NEOs), and by all directors and executive officers of AbbVie as a group. It also reflects the number of
stock equivalent units and restricted stock units held by non-employee directors under the AbbVie Non-Employee
Directors’ Fee Plan.
Name
R. Gonzalez
R. Alpern
R. Austin
W. Burnside
B. Hart
E. Liddy
M. Meyer
E. Rapp
G. Tilton
F. Waddell
W. Chase
L. Schumacher
H. Gosebruch
M. Severino
Shares
Beneficially
Owned(1)(2)(3)
Stock Options
Exercisable
within 60 days
of January 31, 2017
339,631
656,296
19,019
33,526
10,460
2,974
15,581
0
12,960
30,411
12,460
172,871
141,159
78,104
143,282
0
0
0
0
0
0
0
0
0
404,517
414,413
27,987
149,856
Stock
Equivalent
Units
0
5,194
0
0
0
16,772
0
10,331
26,342
0
0
0
0
0
All directors and executive officers as a group(4)
1,336,412
2,243,498
58,639
(1) The table includes shares held in the executive officers’ accounts in the AbbVie Savings Plan as follows: all executive
officers as a group, 2,788. Each executive officer has shared voting power and sole investment power with respect
to the shares held in his or her account.
(2) The table includes restricted stock units held by the non-employee directors. The directors’ units are payable in
stock as described in footnote (2) to the Director Compensation table.
(3) The table includes shared voting and/or investment power over shares as follows: R. Gonzalez, 5,050; G. Tilton,
350; W. Chase, 501; and all directors and executive officers as a group, 49,374.
(4) The directors and executive officers as a group own less than one percent of the outstanding shares of AbbVie.
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SECURITIES OWNERSHIP
Securities Ownership of Principal Stockholders
.................................................................................................................................................................................................................................................................................................................................
The table below reports the number of shares of AbbVie common stock beneficially owned as of December 31,
2016 by Capital Research Global Investors, BlackRock, Inc. and The Vanguard Group (directly or through subsidiaries),
respectively, the only persons known to AbbVie to own beneficially more than 5% of AbbVie’s outstanding common
stock. It is based on information contained in Schedules 13G filed with the Securities and Exchange Commission by
Capital Research Global Investors on February 13, 2017, by BlackRock, Inc. on January 19, 2017, and by The Vanguard
Group on February 9, 2017. Capital Research Global Investors reported that it had sole voting power with respect to
174,963,752 shares, shared voting power with respect to 0 shares, sole dispositive power with respect to 174,963,752
shares and shared dispositive power with respect to 0 shares. The Vanguard Group reported that it had sole voting
power with respect to 2,548,785 shares, shared voting power with respect to 295,907 shares, sole dispositive power with
respect to 106,722,611 shares and shared dispositive power with respect to 2,814,152 shares. BlackRock, Inc. reported
that it had sole voting power with respect to 78,355,516 shares, shared voting power with respect to 14,485 shares, sole
dispositive power with respect to 92,404,082 shares and shared dispositive power with respect to 14,485 shares.
Name and Address of Beneficial Owner
Shares Beneficially Owned
Percent of Class
Capital Research Global Investors
333 South Hope Street
Los Angeles, CA 90071
The Vanguard Group
100 Vanguard Boulevard
Malvern, PA 19355
BlackRock, Inc.
40 East 52nd Street
New York, NY 10022
174,963,752
10.7%
109,536,763
6.74%
92,418,567
5.7%
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EXECUTIVE COMPENSATION
25FEB201723195151
Compensation Discussion and Analysis
.................................................................................................................................................................................................................................................................................................................................
This Compensation Discussion and Analysis (CD&A) describes the pay philosophy established for AbbVie’s named
executive officers (NEOs), the design of our compensation programs, the process used to examine performance in the
context of executive pay decisions, and the performance goals and results for each NEO:
Richard A. Gonzalez
Chairman of the Board and Chief Executive Officer
William J. Chase
Executive Vice President, Chief Financial Officer
Laura J. Schumacher
Executive Vice President, External Affairs, General Counsel and Corporate Secretary
Henry O. Gosebruch
Executive Vice President, Chief Strategy Officer
Michael E. Severino
Executive Vice President, Research & Development and Chief Scientific Officer
Although we describe our programs in the context of the NEOs, it is important to note that our programs
generally have broad eligibility and therefore in most cases apply to employee populations outside the NEO group as
well.
CD&A Table of Contents
The CD&A is organized as follows:
I. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Performance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components of our Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Performance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Engagement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation Program Updates in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Program Governance Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Executive Compensation Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitment to Performance-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committee Process for Setting Total Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Benchmarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Role of the Compensation Consultant
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Compensation Plan Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excise Tax Gross-Ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in Control Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV. Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clawback Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Anti-Hedging and Anti-Pledging Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
23
23
24
28
28
29
30
31
31
31
31
32
32
32
33
33
33
36
37
38
38
38
39
39
39
39
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EXECUTIVE COMPENSATION
I.
Executive Summary
Compensation Philosophy
At AbbVie, the board of directors and management believe a well-designed compensation program should align
executive interests with the drivers of stockholder returns and profitable growth, support achievement of the company’s
primary business goals, and attract and retain world-class executives whose talents and contributions sustain the growth
in long-term stockholder value. The board believes it has implemented a compensation program that appropriately
balances short- and long-term strategic objectives and directly links compensation to stockholder value with more than
three-fourths of the total direct compensation paid to NEOs tied to performance.
Business Overview
AbbVie was created in 2013 following separation from Abbott Laboratories. 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 and human immunodeficiency virus; neurological disorders,
such as Parkinson’s disease and multiple sclerosis; metabolic diseases, including thyroid disease and complications
associated with cystic fibrosis; as well as other serious health conditions.
Our pipeline includes more than 50 compounds or indications in development across important medical
specialties such as immunology, virology, oncology and neuroscience, with additional targeted investment in cystic fibrosis
and women’s health.
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EXECUTIVE COMPENSATION
Business Performance Highlights
AbbVie has Delivered Robust Financial Results since Separation
Performance from 2013 Inception to 2016 Year End
10.8%
Adjusted net revenues – compound annual growth rate*
15.4%
Adjusted diluted earnings per share – compound annual
growth rate*
+600
Basis points
Operating margin expansion, adjusted*
Committed to driving an adjusted operating margin profile of greater than 50 percent by 2020
111.4%
4-year total stockholder return
$48BN
Increase in market capitalization
Added significant stockholder value
60%
50+
Increase in quarterly dividend
Raised quarterly dividend to $0.64 per share from $0.40 per share at inception
Active clinical development programs
More than 20 new products or indications in late-stage development or under regulatory review
27FEB201704215476
The measures set forth above were calculated as of December 31, 2016.
* Net revenues, diluted earnings per share and operating margin are adjusted to exclude certain
specified items and are non-GAAP numbers, which are reconciled in Appendix B.
AbbVie has delivered a strong compound annual growth rate (CAGR) since inception on adjusted net revenues
and adjusted diluted earnings per share (EPS), placing AbbVie in the top quartile of its Health Care Peer Group.
Additionally, AbbVie has been committed to a robust return of capital to stockholders with an increase of 60% in its
dividend since 2013 as part of a balanced and disciplined capital allocation program. AbbVie’s total stockholder return
(TSR) since inception of 111.4% also places AbbVie among the top of its Health Care Peer Group, and more than
40 percentage points above the Standard & Poor’s 500 Index and more than 65 percentage points above the NYSE Arca
Pharmaceutical Index over the same time period.
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AbbVie also Delivered Strong Business Performance in 2016
AbbVie has built a strong foundation for its business and 2016 was an exceptional year, as evidenced by a
number of 2016 business highlights:
EXECUTIVE COMPENSATION
• Net Revenues: AbbVie reported 2016 full-year net revenues of $25.6 billion on a GAAP basis and adjusted
net revenues of $25.6 billion, an increase of 13.3% over 2015, excluding the impact of foreign exchange.
This reflects top-tier growth, third in AbbVie’s Health Care Peer Group.
• Operating Margins: In 2016, AbbVie expanded its operating margin to 36.6% on a GAAP basis or 42.4% of
net revenues on an adjusted basis, and reported gross margin of 77.2% on a GAAP basis or 81.2% of net
revenues on an adjusted basis. Excluding the incremental R&D investment related to acquisitions in 2016
and an unfavorable impact from foreign exchange, the adjusted operating margin was 45.9% in 2016.
•
•
•
•
•
•
Earnings Per Share: AbbVie reported full-year diluted EPS of $3.63 on a GAAP basis and adjusted diluted
EPS of $4.82, up 12.4%. This reflects top-tier growth, third in AbbVie’s Health Care Peer Group. AbbVie
provided 2017 GAAP diluted EPS guidance in the range of $4.55 to $4.65 and adjusted diluted EPS guidance
in the range of $5.44 to $5.54, reflecting growth of nearly 14% at the midpoint.
Humira Sales: AbbVie delivered global Humira sales of $16.1 billion, an increase of 14.7% on a reported
basis over 2015, or 16.1% excluding the impact of foreign exchange. Humira’s performance was driven by
continued market penetration across therapeutic categories and geographies.
Imbruvica Net Revenue: In 2016, global Imbruvica net revenue exceeded $1.8 billion, with performance
driven by market share growth following Imbruvica’s approval as a first line treatment for patients with
chronic lymphocytic leukemia (CLL).
Business Development: AbbVie acquired Stemcentrx and its lead late-stage asset, rovalpituzumab tesirine
(Rova-T), further strengthening AbbVie’s oncology portfolio by providing a highly attractive platform in solid
tumors. AbbVie also entered into a collaboration with Boehringer Ingelheim to develop and commercialize
risankizumab, an anti-IL-23 monoclonal antibody that has the potential to be a transformative therapy in a
number of immune-mediated diseases.
Regulatory Milestones: AbbVie also achieved a number of regulatory milestones in markets worldwide for
several key products, including U.S. Food and Drug Administration (FDA) and European Medicines Agency
(EMA) approvals for several new products, including VenclextaTM for relapsed/refractory chronic lymphocytic
leukemia (CLL) patients with 17p deletion, ZinbrytaTM for relapsing forms of multiple sclerosis and EmplicitiTM
for the treatment of multiple myeloma, as well as new indications for Humira and Imbruvica.
Pipeline Development: With a record number of programs in mid- and late-stage development, AbbVie
made significant pipeline advancements in 2016, such as regulatory application submissions for the
company’s pan-genotypic next-generation HCV combination and Imbruvica for marginal zone lymphoma.
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EXECUTIVE COMPENSATION
The graphs below illustrate AbbVie’s growth of net revenue and diluted EPS in 2016 versus 2015.
Net Revenues*
Diluted EPS*
25.6
22.8
$4.82
$4.29
)
N
B
$
(
2015
2016
2015
2016
20MAR201708361525
* Net revenues and diluted earnings per share are adjusted for specified
items, including the impact of intangible asset amortization, and are
non-GAAP numbers, which are reconciled in Appendix B. Adjusted net
revenues exclude specified items, as described in Appendix B.
2016 Performance
AbbVie is in the top tier of its peers on several financial measures. The chart below outlines AbbVie’s
performance relative to its Health Care Peer Group in 2016:
Metric
Net Revenue Growth
Adjusted Operating Income Growth
Adjusted EPS Growth
Adjusted Return on Equity
AbbVie Percentile Rank
0th
25th
50th
75th
100th
81%
71%
75%
100%
25FEB201723322109
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26
EXECUTIVE COMPENSATION
Total Stockholder Return (TSR) Performance
Over the four years since AbbVie’s separation from Abbott, we have delivered a total stockholder return of
111.4%, which places us among the top of our Health Care Peers and surpasses the cumulative total returns of the
Standard & Poor’s 500 Index and the NYSE Arca Pharmaceutical Index, as shown in the graph below. The graph covers
the period from January 2, 2013 (the first day AbbVie’s common stock began ‘‘regular-way’’ trading on the NYSE) through
December 31, 2016. The graph assumes $100 was invested in AbbVie common stock and each index on January 2, 2013
and also assumes the reinvestment of dividends. The stock price performance in the following graph is not necessarily
indicative of future stock price performance.
Comparison of Cumulative Total Return since AbbVie’s Launch
$225
$200
$175
$150
$125
$100
1/2/2013
12/31/2013
12/31/2014
12/31/2015
12/31/2016
AbbVie Inc.
S&P 500 Index
NYSE Arca Pharmaceutical Index
25FEB201723322654
AbbVie is Positioned for Future Growth
AbbVie is well-positioned to deliver strong top- and bottom-line performance through 2020 and beyond. The
company has established growth platforms in some of the largest and most attractive market segments, including
immunology, oncology, virology and neurology, and has built a compelling pipeline in these areas which will contribute
significantly to future performance. AbbVie is committed to top-line growth and operating margin expansion. In October
2015, AbbVie outlined its long-term strategic and financial objectives through 2020, including an expectation to deliver
annual double-digit adjusted EPS growth on average, company net revenues of approximately $37 billion in 2020, and an
adjusted operating margin profile of greater than 50 percent in 2020.
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EXECUTIVE COMPENSATION
Components of our Compensation Program
The compensation committee of the board oversees our executive compensation program, which includes
several compensation elements that have each been tailored to incentivize and reward specific aspects of company
performance the board believes are central to delivering long-term stockholder value. Key components of our
compensation program are listed below.
Base Salary
Designed to be compe(cid:15)(cid:15)ve with market and industry norms, and to reflect
individual performance
Individual salaries are established rela(cid:15)ve to market median based on each
NEO's individual performance, skills, and experience, and internal equity, as
well as the company's annual opera(cid:15)ng budget
Performance Incen(cid:1)ve Plan (PIP)
Based on non-GAAP performance measures such as:
Short-Term Incen(cid:1)ves
— Net revenues
— Income before taxes
— Opera(cid:15)ng margin
— Humira sales
— Return on assets
— Strategic and leadership goals
Long-Term Incen(cid:1)ves
80% Performance shares and performance-vested restricted stock units
20% Non-qualified stock op(cid:1)ons
25FEB201723322517
In response to stockholder feedback, we redesigned our long-term incentive (LTI) program for 2016,
emphasizing multiple, relative performance metrics and multi-year performance periods (see page 36 for a detailed
description of the 2016 redesign).
The committee is dedicated to ensuring that a substantial portion of executive compensation is ‘‘at-risk’’ and
variable. Generally, more than three-fourths of our NEOs’ total direct compensation is variable and directly affected by
both the company’s and the NEO’s performance.
2016 Performance Results
The performance targets established under our annual and long-term incentive plans are rigorous and calibrated
to a range of potential outcomes, with above target payouts for strong performance and below target payouts (including
no payout) for below target performance. Targets are based on expected business, market and regulatory conditions,
including expectations for our pipeline. The financial goals shown in the following table were carried by all of the NEOs
as part of their 2016 performance goals. The specific weightings for each NEO, other than the CEO, are established at
the start of each performance year based on the NEO’s role and anticipated contributions to the company’s annual
objectives. Financial goals are set rigorously; achievement of these targets has resulted in top-tier industry performance.
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Financial Goals
Goal and Expected Result(1)
Result(2)
A. Non-GAAP Net Revenues of $25.7BN
A.
$25.4BN(3)
Outcome
Achieved
B. Non-GAAP Income Before Taxes of $9.7BN B.
$10.0BN
Achieved Above Target
C.
Adjusted Return on Assets of 17.0%
D. Non-GAAP Operating Margin of $10.9BN
E.
Humira Sales of $15.7BN
C.
D.
E.
17.2%
$11.0BN
$16.0BN(3)
Achieved Above Target
Achieved Above Target
Achieved Above Target
EXECUTIVE COMPENSATION
Performance Against
Annual Goals
99%
100%
100%
100%
100%
(1) Expected results reflect the acquisition of assets from Boehringer Ingelheim and the acquisition of Stemcentrx.
(2) Results achieved reflect certain specified items, which are reconciled in Appendix B.
(3) Net revenues and Humira sales are evaluated on a constant currency basis.
In addition to the financial goals set forth above, each of our NEOs also has individual performance goals that
the committee reviews and ensures are appropriately rigorous and in line with the long-term success of the company.
Each NEO achieved or exceeded his or her 2016 goals, which are listed below:
•
Richard A. Gonzalez: Drive top-tier business performance; execute key strategic initiatives to drive
sustainable long-term business performance; deliver value to our stockholders, building investor confidence
and credibility; successfully advance mid- and late-stage pipeline assets; continue to drive employee
engagement and motivation around AbbVie’s mission and future prospects; and advance our transformation
to a biopharmaceutical culture.
• William J. Chase: Achieve proprietary pharmaceutical pipeline enhancement objectives; and provide support
on corporate strategic initiatives and build shareholder value through investor activities.
•
•
Laura J. Schumacher: Successfully continue to develop and implement strategies to effectively resolve key
litigation matters; achieve proprietary pharmaceutical pipeline enhancement objectives; execute biologics
strategic development initiatives; and support research and development initiatives per company strategy.
Henry O. Gosebruch: Achieve proprietary pharmaceutical pipeline enhancement objectives; and support
research and development initiatives per company strategy.
• Michael E. Severino: Achieve key research and development milestones per company strategy; and achieve
proprietary pipeline enhancement objectives.
Stockholder Engagement
2016 Say on Pay Results
At our 2016 Annual Meeting, the say on pay proposal received support from 94% of our stockholders. The board
and compensation committee are encouraged by the continued, consistent stockholder support for our executive
compensation program.
AbbVie is committed to regular, ongoing engagement with stockholders to ensure that we continue to
understand stockholder feedback about our compensation program and incorporate that feedback into the compensation
decision-making process. To that end, in 2016 AbbVie approached and engaged stockholders holding approximately 38%
of the company’s outstanding shares. In these discussions, the aggregate feedback was generally supportive of the
compensation program, consistent with the level of stockholder support for our say on pay proposals in the last two
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EXECUTIVE COMPENSATION
years, and was not prescriptive about our compensation plan design. The feedback informs the compensation
committee’s continuous assessment of the program design and ongoing discussions with stockholders, which contribute
to the evolution of the program.
After considering stockholder feedback and suggestions, AbbVie’s compensation committee, in consultation with
management and the committee’s independent compensation consultant, has proactively reviewed our policies and
compensation program design. For annual awards beginning in 2016, our LTI program has been redesigned, as discussed
in greater detail in the following section.
Executive Compensation Program Updates in 2016
The compensation committee of the board has engaged in a continuous process of evaluation and enhancement
of the AbbVie executive compensation program. Since the company’s launch, AbbVie has made significant enhancements
to its legacy compensation programs, the most recent of which are described in the following paragraphs and on
page 36.
The committee has considered the feedback from stockholders as to the design of its compensation program
and competitive benchmarking and, in 2016, completed a comprehensive revision of the program. The new long-term
incentive program was effective for equity grants made in 2016. The program consists of equity awards that include 40%
performance shares, 40% performance-vested restricted stock awards and 20% stock options. Vesting may occur over a
3-year period based on relative return on equity (ROE) for the performance-vested restricted stock awards and earnings
per share (EPS) (with a relative 3-year total stockholder return (TSR) modifier) for the performance shares. The 2016
program eliminates vesting in any 3 of 5 years and provides that awards may vest only over 3 years based on the
achievement of the defined performance metrics. Additionally, dividends will not be paid unless the performance criteria
are met, and then will be paid only on shares that are earned. AbbVie believes the new design further strengthens and
aligns the performance orientation of senior executive compensation. Highlights of the changes made for 2016 include:
Element of Pay
Long-Term Incentive Program
Changes Made for 2016
(cid:5) Completed redesign of our long-term incentive program:
— Added multiple performance metrics, including relative ROE, EPS and
relative TSR as criteria for vesting.
— Removed provision that allowed performance awards to vest if
thresholds were met in any 3 of 5 years, creating more risk of
forfeiture.
— Added multi-year performance periods.
— Changed dividend payment schedule so dividends are paid only at
vesting and only on earned shares.
— Increased use of performance-vested awards from 75% to 80% which,
in combination with stock options, ties 100% of our LTI program to
performance metrics and stock price appreciation.
— Refined process for referencing the market median for long-term
incentive award decisions.
Short-Term Incentive Plan
(cid:5) Added disclosure of our maximum annual incentive cap of 200% of
Peer Comparisons
target.
(cid:5) Reduced the CEO’s target annual incentive to 150% of base salary.
(cid:5) Established a formal payout matrix based on net revenues and operating
margin to define and cap NEO annual incentive awards at or below the
plan maximum.
(cid:5) Simplified the peer group used for compensation benchmarking, the
AbbVie Health Care Peer Group.
The new design is discussed in more detail in Section III.
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EXECUTIVE COMPENSATION
Compensation Program Governance Summary
In addition to strong alignment of pay with the performance of the company and our NEOs, we maintain and
are committed to good governance practices, including the following:
New
(cid:5) Long-term incentive design emphasizing multiple, relative performance metrics and multi-year performance
periods (see page 36 for a detailed description of the 2016 redesign)
— Shifts program away from a single, absolute performance metric to a multi-factor model
— Incorporates relative total stockholder return
— Eliminates extra vesting opportunity that was a part of the prior LTI design
— Dividends on outstanding equity awards are paid at vesting and only on earned shares
(cid:5) CEO target annual incentive reset at 150% of base salary
(cid:5) Robust stock ownership guideline of 5x annual fees for non-employee directors
Ongoing
(cid:5) Majority of NEO compensation tied to long-term performance
(cid:5) Short- and long-term incentive programs closely align pay with performance
(cid:5) Annual incentive payout matrix used to define and cap the range for the committee’s determinations (at or
below the plan maximum of 200% of target)
(cid:5) Robust stock ownership guidelines of 6x salary for CEO and 3x salary for NEOs
(cid:5) NEOs must hold and not sell equity until the minimum stock ownership requirement is satisfied
(cid:5) Double-trigger requirements for equity acceleration and other benefits in the event of a change in control
(cid:5) No tax gross-ups in executive compensation program
(cid:5) No duplication of performance metrics in short-and long-term incentives
(cid:5) No repricing of stock options without express stockholder approval
(cid:5) No employment contracts
(cid:5) No guaranteed short-term incentives or equity awards
(cid:5) Anti-hedging and anti-pledging policies
(cid:5) Independent compensation consultant that performs no other work for the company
(cid:5) Committee has broad discretion to claw back incentive awards in the unlikely event of a restatement of earnings
(cid:5) Proactive stockholder engagement process
II.
Executive Compensation Process
Commitment to Performance-Based Awards
More than three-fourths of AbbVie’s NEO pay is performance-based. Specific goals and targets are the
foundation of our pay-for-performance process, and this section describes how they apply to each pay component.
Though quantitative metrics such as financial and operational results are a central part of our performance assessment,
some goals such as leadership and progress against strategic and long-term objectives are difficult to measure using
numeric or formulaic criteria. As such, the compensation committee also conducts a qualitative assessment of individual
performance to ensure the overall assessment of performance and pay decisions are aligned with the company’s true
performance over a period of time. A discussion of the decision-making criteria for each pay component follows.
Committee Process for Setting Total Compensation
Each February, the committee, with the assistance of its independent compensation consultant and AbbVie’s
management team, determines target pay levels for NEOs. The process starts with a consideration of compensation levels
and the mix of compensation for comparable executives at companies in AbbVie’s Health Care Peer Group, which are
listed below in the section captioned ‘‘Compensation Benchmarking.’’ After this benchmark review, the committee
establishes NEO compensation—base salary adjustments, annual incentive awards, and long-term incentive awards—
relative to the peer median in each instance. Awards can be differentiated from the peer group median based on each
NEO’s individual performance, leadership, and contributions to long-term strategic performance.
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EXECUTIVE COMPENSATION
Compensation Benchmarking
To provide the appropriate context for executive pay decisions, the committee, in consultation with its
independent compensation consultant, assesses the compensation practices and pay levels of AbbVie’s Health Care Peer
Group. The committee chooses to focus on the Health Care Peer Group because its constituents share important
characteristics with AbbVie, particularly the global emphasis on research-based pharmaceuticals and biopharmaceutical
therapies and the regulatory environment within which they operate. Members of the Health Care Peer Group are
AbbVie’s primary competitors for executive talent and are companies the committee believes chiefly represent our
competitive market:
Health Care Peer Group
Amgen, Inc.
Bristol-Myers Squibb Company
Eli Lilly and Company
Gilead Sciences, Inc.
GlaxoSmithKline plc
Johnson & Johnson
Merck & Company, Inc.
Novartis AG
Pfizer Inc.
Role of the Compensation Consultant
The compensation committee has engaged Compensation Advisory Partners as its independent compensation
consultant. The committee’s independent consultant reports directly to the chair of the committee. The consultant meets
regularly, and as needed, with the committee in executive sessions, has direct access to the chair during and between
meetings, and performs no other services for AbbVie or its senior executives. The committee determines what variables
it will instruct its consultant to consider, which include: peer groups against which performance and pay should be
examined, metrics to be used to assess AbbVie’s performance, competitive incentive practices in the marketplace, and
compensation levels relative to market benchmarks.
Compensation Risk Oversight
The company has established, and the compensation committee endorses, several controls to address and
mitigate compensation-related risk, such as employing a diverse set of performance metrics, maintaining robust stock
ownership guidelines for its executives and non-employee directors, and retaining broad discretion to recover incentive
awards in the unlikely event that incentive plan award decisions are based on earnings that are subsequently restated.
The committee identified no material risks in AbbVie’s compensation programs in 2016.
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III. Compensation Plan Elements
Three primary components make up AbbVie’s executive pay program: (1) base salary, (2) short-term incentives
and (3) long-term incentives. The structure of each component is tailored to serve a specific function and purpose.
CEO Pay Mix
All Other NEO Average Pay Mix
EXECUTIVE COMPENSATION
10%
Base Salary
21%
Short-term
Incen(cid:15)ves
61%
Long-term
Incen(cid:15)ves
15%
Base Salary
24%
Short-term
Incen(cid:15)ves
26FEB201702135978
25FEB201723323071
69%
Long-term
Incen(cid:15)ves
Base Salary
The compensation committee sets appropriate levels of base salary to ensure that AbbVie can attract and retain
a leadership team that will continue to meet our commitments to customers and patients and sustain long-term
profitable growth for our stockholders. Generally, the committee considers the median of the Health Care Peer Group as
an initial benchmark, but also references additional information as needed. Specific pay rates are then established for
each NEO relative to his or her market benchmark based on the NEO’s performance, experience, unique skills, internal
equity with others at AbbVie, and the company’s operating budget.
Short-Term Incentives
Performance Incentive Plan
Annual cash incentives are paid to NEOs through AbbVie’s Performance Incentive Plan (PIP), which rewards
executives for achieving key financial and non-financial goals that are measured at the company and individual levels. The
PIP is intended to comply with the requirements of Internal Revenue Code Section 162(m) for performance-based
compensation. The compensation committee may define and cap PIP awards below the maximum amounts allowed by
IRC Section 162(m), and is guided by the use of a formal annual incentive payout matrix that establishes a potential
range of final incentive outcomes based on net revenues and operating margin performance. All NEOs carry a target
incentive amount set as a percentage of their base salary. Mr. Gonzalez’s target is 150% of base salary and the other
NEOs’ targets are 110% of base salary. Determining award amounts is a multi-step process. First, financial and individual
goals are evaluated and scored, resulting in a preliminary award amount of up to 100% of target only. For 2016, all
financial and strategic goals were materially achieved, resulting in performance scores between 99% and 100% of target.
Final awards above 100% of target are determined at the February meeting based on company performance (the extent
to which performance exceeds targets), the recommendation of the CEO (for NEOs other than himself), and the support
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EXECUTIVE COMPENSATION
of the compensation committee. To determine final awards, the CEO and the compensation committee use the payout
matrix to define and cap the range in making its final determinations. This process is more fully described below:
Illustration of 2016 Incentive Calculation
Target
Award
x
Performance
Score
=
Preliminary
Award
Final
Committee
Decision
=
Final
Award
Plan Governance:
Maximum
100% of Target
per plan design
2016 Performance results:
Maximum 150% of Target per payout matrix
6MAR201710144573
While the compensation committee relies heavily on objective, quantitative metrics to determine PIP awards, the
performance review also includes a qualitative element to ensure the review is comprehensive and inclusive of all
individual, strategic, and leadership goals for which assessment is not solely dictated by numeric or formulaic
applications. Moreover, while each participant has predetermined goals, the committee also considers relative
achievements and/or developments in the company, the marketplace, and the global economy that could not have been
foreseen when individual goals were established.
For 2016, net revenue performance was 99% compared to plan, while operating margin performance was 101%
compared to plan. As a result of this performance, the annual incentive payout matrix capped the annual incentives at
150% of target, below the plan maximum of 200% of target and the Code Section 162(m) cap. This resulted in final
awards between 134% and 150% of target, consistent with the high level of performance achieved in 2016 and within
the outcome range suggested by the payout matrix.
Annual Metrics and Goal Assessment
AbbVie’s PIP structure is intended to align NEOs’ interests directly with AbbVie’s annual operating strategies,
financial goals, and leadership behaviors. In doing so, it provides a direct link between the NEOs’ short-term incentives
and the company’s and the NEOs’ annual performance results through measurable financial and operational performance
and qualitative assessments of clearly defined strategic progress and leadership behaviors. The compensation committee
approves pre-established goals at the beginning of each year. The qualitative assessment reflects NEOs’ overall leadership,
progress on strategic initiatives, advancement of the pipeline, and enhancement of AbbVie’s biopharmaceutical culture.
The financial and strategic/leadership goals and their respective weightings are summarized in the chart below.
The specific goals and weightings for each NEO, other than the CEO, are established at the start of each performance
year based on the NEO’s role and anticipated contributions to the company’s annual objectives. The CEO’s goals are
similarly established at the start of each performance year; however, to reflect the CEO’s overall accountability for
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company financial performance and strategic outcomes, the committee considers all financial and non-financial goals
holistically, without specific weightings, when evaluating CEO performance.
EXECUTIVE COMPENSATION
Annual Incentive Payout Matrix
Net Revenues
Operating Margin
Financial Goals
Income Before Taxes
Net Revenues, Operating Margin, Humira Sales, and Return on Assets
Total Tied to Financial Goals
Strategic/Leadership Goals
R&D/Biosimilars
Business Development
Other (including strategic initiatives, etc.)
Total Tied to Strategic/Leadership Goals
Range
0% to 200% of target
0% to 200% of target
% Weighting
20%
20% to 60%
40% to 80%
% Weighting
0% to 50%
0% to 50%
0% to 30%
20% to 60%
Assessments of performance against financial results consider the effect of specified adjustments and/or unusual
or unpredictable events, and the appropriateness of these adjustments is reviewed annually by the committee. In 2016
specified adjustments consisted of intangible asset amortization, milestones and other research and development
expenses, acquired in process research and development, acquisition related costs, change in fair value of contingent
consideration, Venezuela devaluation loss, revaluation due to tax law change, and other items, as described in
Exhibit 99.1 to AbbVie’s Form 8-K filed on January 27, 2017.
2016 PIP Awards
Richard A. Gonzalez
William J. Chase
Laura J. Schumacher
Henry O. Gosebruch
Michael E. Severino
Target
Award
Actual Award
Paid
$2,400,000
1,084,358
1,084,358
990,418
1,063,986
$3,600,000
1,626,000
1,626,000
1,327,136
1,596,000
Actual Award
as a % of
Target
150%
150%
150%
134%
150%
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EXECUTIVE COMPENSATION
Long-Term Incentives
AbbVie redesigned its LTI program effective with the 2016 annual grant, based in part on feedback from
stockholders. The new design increases the alignment of AbbVie’s long-term incentive compensation with key operational
and financial initiatives, including sustained EPS growth and generation of superior investment returns relative to peers.
In 2016, NEOs received LTI awards with the following characteristics as compared to the 2015 LTI awards:
Evolution of Long-Term Incentive Program
2015
2016
Award Type
Metric
Performance
Period
Award Type
Metric
Performance
Period
e
v
i
t
n
e
c
n
I
m
r
e
T
-
g
n
o
L
75%
Performance-
Vested
Restricted
Stock
Absolute
Return on
Equity
3- to 5-year
performance
period in
which ROE
target must
be met in 3 out
of 5 years
25%
Non-Qualified
Stock Options
Stock Price
10-year term
40%
Performance
Shares
40%
Performance-
Vested
Restricted
Stock
20%
Non-Qualified
Stock Options
(cid:127) EPS
(cid:127) 3-Year
Relative
TSR
Modifier
3 Years
Relative
Return on
Equity
3 Years
Stock Price
10-year term
6MAR201710144421
•
•
Performance Shares (40% of total LTI award)—These awards have the potential to vest at 0% to 250% of
target after a three-year performance period and are earned based on company performance in earnings
per share (EPS) and relative total stockholder return (TSR). TSR performance is measured relative to a group
made up of companies that are constituents in either the S&P Pharmaceutical, Biotech, and Life Science
Index or the NYSE Arca Pharmaceutical Index. Dividends on performance shares accrue during the
performance period and are paid at vesting only to the extent that shares are earned.
Performance-Vested Restricted Stock (40% of total LTI award)—These awards have the potential to vest at
0% to 150% of target, in one-third increments during a three-year performance term based on AbbVie’s
return on equity articulated as pre-set goals and measured relative to a group made up of companies that
are constituents in either the S&P Pharmaceutical, Biotech, and Life Science Index or the NYSE Arca
Pharmaceutical Index. Dividends accrue during the performance period and are paid at vesting only to the
extent that shares are earned.
• Non-Qualified Stock Options (20% of total LTI award)—These awards have the potential to vest in one-third
increments on each of the first three annual anniversaries of the grant date, subject to continued
employment with the company. The option exercise price is set at or above fair market value on the grant
date. To the extent that the options vest, the award expires ten years after the grant date.
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Performance Share and Performance-Vested Restricted Stock Performance Targets and Results
Performance targets and results associated with the 2016 awards of performance shares and performance-vested
restricted stock are shown below. Total shareholder return results are in progress; these results and their impact on final
payout will be disclosed following the completion of the three-year performance period.
EXECUTIVE COMPENSATION
Performance Objective
Adjusted Diluted EPS
Total Shareholder Return
ROE compared to industry peers
Target
$4.72
Result
$ 4.82
Impact on Payout
166.7%
TSR is measured over a 3-year performance period and used as a modifier
75th - 90th
> 90th
150%
AbbVie’s policy with respect to its annual equity award for all eligible employees, including the NEOs, is to grant
the award and set the grant price at the compensation committee’s regularly scheduled February meeting each year.
These meeting dates generally are the third Thursday of February and are scheduled two years in advance. The grant
price is the average of the highest and lowest trading prices of a common share on the date of the grant (rounded up to
the next even penny). The grant price for the 2016 annual grant was $54.86. The high, low and closing prices of an
AbbVie common share on the grant date (February 18, 2016) were $55.53, $54.17, and $54.55, respectively. All LTI
awards are subject to a minimum vesting period of 12 months.
Benefits
Benefits are an important part of retention and capital preservation for all employees, helping to protect against
the impact of unexpected catastrophic loss of health and/or earnings potential, as well as providing a means to save and
accumulate for retirement or other post-employment needs.
Each of the benefits described below supports the company’s objective of providing a market competitive total
rewards program. Individual benefits do not directly affect decisions regarding other benefits or pay components, except
to the extent that all benefits and pay components must, in aggregate, be competitive, as previously discussed.
Retirement Benefits
All eligible U.S. employees, including NEOs, participate in the AbbVie Pension Plan, the company’s principal
qualified defined benefit plan. NEOs and certain other employees also participate in the AbbVie Supplemental Pension
Plan. These plans are described in greater detail in the section of this proxy statement captioned ‘‘Pension Benefits.’’
The Supplemental Pension Plan is a non-qualified defined benefit plan that cannot be secured in a manner
similar to a qualified plan, for which assets are held in trust, so eligible NEOs receive an annual cash payment equal to
the increase in the present value of their Supplemental Pension Plan benefit. Eligible NEOs have the option of depositing
the annual payment into an individually established grantor trust, net of tax withholdings. Deposited amounts may be
credited with the difference between the NEO’s actual annual trust earnings and the rate used to calculate trust funding
(currently 8 percent). Amounts deposited in the individual trusts are not tax-deferred and the NEOs personally pay the
taxes on those amounts without gross-ups.
The manner in which the grantor trust assets are to be distributed to an NEO upon retirement from the
company generally follows the distribution method elected by the NEO under the AbbVie Pension Plan. If an NEO (or the
NEO’s surviving spouse, depending on the pension distribution method elected by the NEO under the AbbVie Pension
Plan) lives beyond the actuarial life expectancy age used to determine the Supplemental Pension Plan benefit, and
therefore exhausts the trust balance, the Supplemental Pension Plan benefit will be paid to the NEO (or his or her
surviving spouse) by AbbVie.
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EXECUTIVE COMPENSATION
Savings Plans
All U.S. employees, including NEOs, are eligible to defer a portion of their annual base salary under the AbbVie
Savings Plan, the company’s principal qualified defined contribution plan, up to the IRS contribution limits. Eligible NEOs
also may defer up to 18 percent of their base salary, less contributions to the AbbVie Savings Plan, to the AbbVie
Supplemental Savings Plan, which is a non-qualified defined contribution plan. Eligible NEOs may defer these amounts to
unfunded book accounts or choose to have the amounts paid in cash on a current basis and deposited into individually
established grantor trusts, net of tax withholdings. These amounts are credited annually with earnings. Amounts
deposited in the individual trusts are not tax-deferred and the NEOs personally pay the taxes on those amounts without
gross-ups.
NEOs elect the manner in which the assets held in their grantor trusts will be distributed to them upon
retirement or other separation from the company. These arrangements are described in greater detail in this proxy
statement beginning with the section captioned ‘‘Summary Compensation Table.’’
Financial Planning
NEOs are paid an annual stipend of $10,000 for estate planning advice, tax preparation and general financial
planning fees. The stipend is income to the NEO, who is responsible for payment of all resulting taxes without gross-ups.
Company-Provided Transportation
NEOs are eligible for transportation perquisites that are designed to improve the effectiveness and efficiency of
their work, including the use of a company-leased vehicle and access to company-provided air travel, as appropriate. In
some circumstances, these benefits may be used for personal travel, which would then be considered part of the NEO’s
total compensation and treated as taxable income to them under applicable tax laws. The NEOs pay the taxes on such
income without gross-ups.
Disability Benefits
In addition to AbbVie’s standard disability benefits, NEOs are eligible for a monthly long-term disability benefit,
which is described on page 53 of this proxy statement.
Employment Agreements
AbbVie does not have employment agreements with any of its NEOs.
Excise Tax Gross-ups
AbbVie does not provide excise tax gross-ups on NEO compensation.
Change in Control Agreements
AbbVie has entered into change in control agreements with its NEOs to aid in retention and recruitment,
encourage continued attention and dedication to assigned duties during periods involving a possible change in control of
the company, and to protect the earned benefits of the NEOs against potential adverse changes resulting from a change
in control.
The change in control agreements contain a double-trigger feature, meaning that if the NEO’s employment is
terminated other than for cause or permanent disability, or if the NEO elects to terminate employment for good reason,
within two years following a change in control, he or she is entitled to receive certain pay and benefits as described in
the section of this proxy statement captioned ‘‘Potential Payments upon Termination or Change in Control.’’
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EXECUTIVE COMPENSATION
IV. Other Matters
Stock Ownership Guidelines
AbbVie’s stock ownership guidelines are designed to further promote sustained stockholder return and to ensure
the company’s senior executives remain focused on both short- and long-term objectives. Each senior executive has five
years from the date of election or appointment to his or her position to achieve the ownership level associated with his
or her position. NEOs are not allowed to sell stock, except for tax withholding at vesting or exercise, if they do not
satisfy the minimum stock ownership requirement. The minimum stock ownership guidelines for the CEO and other NEOs
are as follows:
Executive
Richard A. Gonzalez
William J. Chase
Laura J. Schumacher
Henry O. Gosebruch
Michael E. Severino
Stock Ownership Requirement
Requirement Met?
6x Base Salary
3x Base Salary
3x Base Salary
3x Base Salary
3x Base Salary
Yes
Yes
Yes
Yes
Yes
In addition, AbbVie’s non-employee directors are required to own AbbVie stock valued at five times (5x) the
annual fee for service as a director under the AbbVie Non-Employee Directors’ Fee Plan within five years of joining the
Board or as soon as practicable thereafter.
Clawback Policy
While the committee does not anticipate there would ever be circumstances where a restatement of earnings
upon which any incentive plan award decisions were based would occur, the committee, in evaluating such
circumstances, has broad discretion to take all actions necessary to protect the interests of stockholders up to and
including actions to recover such incentive awards.
Anti-Hedging and Anti-Pledging Policies
AbbVie has a formal policy that prohibits directors and officers subject to Section 16 of the Exchange Act,
including all of the NEOs, from entering into or engaging in the purchase or sale of financial instruments that are
designed to hedge or offset any decrease in the market value of AbbVie equity securities they hold. AbbVie also has a
formal policy that prohibits directors and officers subject to Section 16 of the Exchange Act, including all of the NEOs,
from pledging AbbVie common stock as collateral for a loan.
In addition, the AbbVie Incentive Stock Program provides that no long-term incentive award may be assigned,
alienated, sold or transferred other than by will or by the laws of descent and distribution or as permitted by the
compensation committee for estate planning purposes, and no award and no right under any award may be pledged,
alienated, attached or otherwise encumbered. All members of senior management, including the company’s NEOs and
certain other employees, are required to clear any transaction involving company stock with the General Counsel prior to
entering into such transaction.
Compensation Committee Report
.................................................................................................................................................................................................................................................................................................................................
The compensation committee of the board of directors is primarily responsible for reviewing, approving and
overseeing AbbVie’s compensation plans and practices, and works with management and the committee’s independent
compensation consultant to establish AbbVie’s executive compensation philosophy and programs. The committee
reviewed and discussed the Compensation Discussion and Analysis with management and recommended to the board of
directors that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation Committee
E. Liddy, Chairman, R. Austin, G. Tilton, and F. Waddell
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EXECUTIVE COMPENSATION
Compensation Risk Assessment
.................................................................................................................................................................................................................................................................................................................................
During 2016, in collaboration with the compensation committee’s independent compensation consultant, AbbVie
conducted an in-depth risk assessment of its compensation policies and practices, including those related to executive
compensation programs for NEOs. The risk assessment included a quantitative and qualitative analysis of AbbVie’s
executive compensation programs and broader employee incentive compensation plans. AbbVie also considered how
these programs compare, from a design perspective, to programs maintained by other companies. Based on this
assessment, it was determined that AbbVie’s executive compensation programs are balanced and appropriately incent
employees, and any risks arising from the compensation policies and practices are not reasonably likely to have a
material adverse effect on AbbVie. The following factors were among those considered in making this determination:
•
•
•
•
•
•
•
•
•
AbbVie’s compensation structure contributes to a corporate culture that encourages our NEOs to regard
AbbVie as a long-term employer. For example, equity awards vest over multi-year periods, which encourages
NEOs to consider the long-term impact of their decisions and align their interests with those of AbbVie’s
stockholders.
AbbVie’s annual incentive program is based on multiple performance measures, balancing earnings
achievement with other factors. Since earnings are a key component of stock price performance, this aspect
of AbbVie’s compensation plan also promotes alignment with stockholder interests.
AbbVie does not include certain pay design features that may have the potential to encourage excessive
risk-taking, such as: over-weighting toward annual incentives, highly leveraged payout curves, unreasonable
thresholds or dramatic changes in payout opportunity at certain performance levels that may encourage
inappropriate short-term business decisions to meet payout thresholds. In addition, a limit of 200% of target
applies to any awards made under the NEO short-term incentive plan.
AbbVie’s long-term incentive program focuses NEOs on longer-term operating performance and aligns NEOs
with stockholder interests through the use of multi-year performance periods and multiple performance
measures, including relative total stockholder return. In 2016, AbbVie’s NEOs received roughly two-thirds of
their total direct compensation in the form of long-term incentives (20% of which are stock options that
may vest over a three-year period and 80% of which are performance-based awards that may vest over a
three-year performance period).
AbbVie makes equity awards and sets grant prices at the same time each year, at the compensation
committee’s regularly scheduled meeting in February. In addition, AbbVie does not award discounted stock
options or immediately vesting equity awards.
AbbVie has robust stock ownership guidelines for its senior executives, which promotes alignment with
stockholder interests, and other good governance equity practices such as anti-hedging and anti-pledging
policies.
AbbVie’s compensation committee has the ability to exercise downward discretion in determining annual
incentive plan payouts.
AbbVie’s compensation committee has broad discretion to claw back incentive compensation that was
awarded based on financials that were later restated. The committee can reduce or cancel incentive
compensation in connection with a violation of company policy or similar misconduct.
AbbVie requires mandatory training on its code of conduct and policies and procedures to educate its
employees on appropriate behaviors and the consequences of taking inappropriate actions.
The risk assessment results were presented to the compensation committee by its independent compensation
consultant.
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EXECUTIVE COMPENSATION
Summary Compensation Table
.................................................................................................................................................................................................................................................................................................................................
This section contains compensation information for AbbVie’s NEOs for the fiscal year ended December 31, 2016.
The following table summarizes compensation awarded to, earned by and/or paid to AbbVie’s NEOs in connection with
their service to AbbVie during 2016, 2015 and 2014, as applicable. Mr. Gosebruch was not a named executive officer
before 2016. The section of this proxy statement captioned ‘‘Compensation Plan Elements’’ describes in greater detail the
information reported in this table.
Year
2016
2015
2014
2016
2015
2014
2016
2015
2014
Salary
($)(1)
Bonus
($)
$1,600,000
1,588,461
1,595,961
979,369
950,385
923,711
979,369
951,538
957,577
$0
0
0
0
0
0
0
0
0
Stock
Awards
($)(2)
Option
Awards
($)(3)(4)
$9,318,854
9,747,455
8,379,403
$2,360,323
3,259,808
2,762,525
3,483,919
3,298,795
2,764,853
2,864,483
3,073,930
2,807,018
882,450
1,103,269
911,634
725,663
1,028,071
925,396
Non-Equity
Incentive
Plan
Compensation
($)(5)
$3,600,000
2,976,000
3,500,000
1,626,000
1,358,300
1,490,000
1,626,000
1,358,300
1,490,000
Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings
($)(6)(7)
$3,232,531
2,447,316
5,044,809
1,697,232
739,381
1,710,772
1,627,686
504,413
2,465,919
All Other
Compensation
($)(8)
Total
($)
$859,216
791,063
723,573
$20,970,924
20,810,103
22,006,271
162,406
163,664
121,925
394,498
390,089
402,095
8,831,376
7,613,794
7,922,895
8,217,699
7,306,341
9,048,005
2016
894,523
1,000,000(9)
3,066,591
776,630
1,327,136
190,717
143,466
7,399,063
2016
2015
2014
960,969
918,077
503,750
0
0
1,000,000(9)
3,359,376
3,111,604
7,710,065
850,908
1,040,621
734,916
1,596,000
1,238,700
1,200,000
375,080
228,599
188,911
101,530
66,204
205,104
7,243,863
6,603,805
11,542,746
Name and Principal Position
Richard A. Gonzalez
Chairman of the Board and
Chief Executive Officer
William J. Chase
Executive Vice President,
Chief Financial Officer
Laura J. Schumacher
Executive Vice President,
External Affairs, General Counsel
and Corporate Secretary
Henry O. Gosebruch
Executive Vice President,
Chief Strategy Officer
Michael E. Severino
Executive Vice President,
Research & Development and
Chief Scientific Officer
(1) The year-over-year difference in base salary from 2014 to 2015 is a function of the number of pay periods in each
year. There were 27 pay periods in 2014 and 26 pay periods in 2015 and 2016.
(2)
In accordance with Securities and Exchange Commission (SEC) rules, the amounts in this column represent the
aggregate grant date fair value of the awards determined in accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic 718. AbbVie determines the grant date fair value of stock
awards by multiplying the number of shares granted by the average of the high and low market prices of one share
of AbbVie common stock on the award grant date.
(3)
In accordance with SEC rules, the amounts in this column represent the aggregate grant date fair value of the
awards determined in accordance with FASB ASC Topic 718.
(4) These amounts were determined as of the option grant date using a Black-Scholes stock option valuation model.
These amounts are being reported solely for the purpose of comparative disclosure in accordance with the SEC
rules. There is no certainty that the amount determined using a Black-Scholes stock option valuation model would
be the value at which employee stock options would be traded for cash. The weighted-average assumptions used to
estimate the grant date fair value of options granted in 2016, along with the weighted-average grant date fair
value, are shown below:
Assumption
Risk-free interest rate
Average life of options (years)
Volatility
Dividend yield
Fair value per stock option
All NEOs
1.36%
6.0
28.46%
4.09%
$9.25
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(5) The compensation reported in this column for 2016 was earned as a performance-based incentive award pursuant
to the AbbVie Performance Incentive Plan. Additional information regarding the plan can be found in the section of
this proxy statement captioned ‘‘Compensation Plan Elements.’’
(6) The amounts shown below are reported in this column for 2016, 2015, and 2014, respectively, as applicable.
AbbVie Pension Plan
R. Gonzalez: $(70,521) / $45,413 / $142,324; W. Chase: $74,428 / $(20,261) / $148,641; L. Schumacher: $86,510 /
$(11,019) / $166,274; H. Gosebruch: $15,980; and M. Severino: $22,663 / $15,872 / $18,610.
AbbVie Supplemental Pension Plan
R. Gonzalez: $3,016,444 / $2,230,380 / $4,794,683; W. Chase: $1,463,791 / $676,623 / $1,500,464; L. Schumacher:
$1,093,415 / $218,282 / $2,072,222; H. Gosebruch: $174,737; and M. Severino: $306,868 / $196,191 / $170,007.
The changes in pension value result primarily from the following factors: (i) the effect of changes in the actuarial
assumptions AbbVie uses to calculate plan liability for financial reporting purposes; (ii) additional pension benefit
accrual under the Pension Plan and the Supplemental Pension Plan; and (iii) the impact of the time value of money
on the pension value.
Non-Qualified Defined Contribution Plan Earnings
The totals in this column include reportable interest credited under the AbbVie Performance Incentive Plan and the
AbbVie Supplemental Savings Plan.
R. Gonzalez: $286,608 / $171,523 / $107,802; W. Chase: $159,013 / $83,019 / $61,667; L. Schumacher: $447,761 /
$297,150 / $227,423; and M. Severino: $45,549 / $16,536 / $294.
(7) The amounts shown in this column include the change in pension value during the applicable year, which is
attributable to changes in actuarial assumptions (primarily discount rate and mortality tables) and other factors
based on plan design (primarily pay, service and age).
The present value of a pension benefit is determined, in part, by the discount rate used for accounting purposes.
The discount rate is determined by reference to the prevailing market rate of interest. In 2016, interest rates
decreased and the discount rates used for the Pension Plan and the Supplemental Pension Plan were decreased to
reflect that change. A decrease in the discount rate increases the present value of participants’ pension benefits
while actual payments to be made to participants are not changed. The discount rate used for 2016 was 4.67% for
the Pension Plan and 4.59% for the Supplemental Pension Plan. The discount rate used for 2015 was 4.93% for the
Pension Plan and 4.83% for the Supplemental Pension Plan, while the discount rate used for 2014 for both the
Pension Plan and the Supplemental Pension Plan was 4.45%. The mortality assumptions that apply for actuarial
purposes also affect pension values. During 2014, the Society of Actuaries released new mortality tables reflecting
longer life expectancies, which are now in use for Pension Plan and Supplemental Pension Plan accounting. This
increase in assumed life expectancy resulted in an increase in the present value of participants’ pension benefits in
2014. During 2015, the Society of Actuaries released an improved scale that adjusted the previously released 2014
scale, which AbbVie determined was appropriate to use in determining the funded status as of December 31, 2015.
In addition to the effect of the changes in actuarial assumptions, other factors built into the plans contributed to
the change in pension value. The change in pension value numbers reflect the application of the benefit formulas
under the Pension Plan and the Supplemental Pension Plan, which are described in the section of this proxy
statement captioned ‘‘Pension Benefits.’’ As participants’ pay changes, the formulas yield revised pension values.
Furthermore, as a participant ages and service credit accumulates year over year (before the participant is eligible
for unreduced pension benefits), the present value of his or her pension benefits increases, even without changes
in pay or actuarial assumptions.
(8) The amounts shown below are reported in this column for 2016, 2015, and 2014, respectively, as applicable.
Earnings for Non-Qualified Defined Benefit and Non-Qualified Defined Contribution Plans
R. Gonzalez: $149,512 / $120,030 / $94,209; W. Chase: $84,680 / $75,830 / $50,968; L. Schumacher: $310,138 /
$280,224 / $302,097; and M. Severino: $20,104 / $437 / $0.
Each of the NEOs’ awards under the AbbVie Performance Incentive Plan is paid in cash to the NEO on a current
basis and, for eligible NEOs, may be deposited into a grantor trust established by the NEO, net of maximum tax
withholdings. Each of the eligible NEOs has also established grantor trusts in connection with the AbbVie
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EXECUTIVE COMPENSATION
Supplemental Pension Plan and the AbbVie Supplemental Savings Plan. These amounts include the earnings (net of
the reportable interest included in footnote (6)).
Employer Contributions to Defined Contribution Plans
R. Gonzalez: $80,000 / $79,423 / $79,798; W. Chase: $48,968 / $47,519 / $46,186; L. Schumacher: $48,968 /
$47,577 / $47,879; H. Gosebruch: $13,250; and M. Severino: $48,048 / $45,904 / $25,188.
These amounts include AbbVie contributions to the AbbVie Savings Plan and the AbbVie Supplemental Savings Plan,
as applicable. The Supplemental Savings Plan permits eligible NEOs to contribute amounts in excess of the annual
limit set by the Internal Revenue Code for employee contributions to 401(k) plans up to the excess of (i) 18 percent
of their base salary over (ii) the amount contributed to AbbVie’s tax-qualified 401(k) plan. AbbVie matches
participant contributions at the rate of 250 percent of the first 2 percent of compensation contributed to the plan.
The eligible NEOs have these amounts paid to them in cash on a current basis and deposited into a grantor trust
established by the NEO, net of maximum tax withholdings.
Other 2016 Compensation
The totals shown in the table include the cost of providing a corporate automobile less the amount reimbursed by
the NEO: R. Gonzalez: $19,362; W. Chase: $18,645; L. Schumacher: $20,856; H. Gosebruch: $16,634; and
M. Severino: $23,378. AbbVie imputes income to the NEO, if required, and the NEO pays taxes in accordance with
tax regulations without gross-ups.
The totals shown in the table include a $10,000 financial planning services allowance for each NEO. AbbVie imputes
income to the NEO, if required, and the NEO pays taxes in accordance with tax regulations without gross-ups.
The totals shown in the table include the following costs for non-business-related air travel: R. Gonzalez: $535,834;
W. Chase: $112; and L. Schumacher: $4,536. AbbVie determines the incremental cost for flights based on the direct
cost to AbbVie, including fuel costs, parking, handling and landing fees, catering, travel fees, and other
miscellaneous direct costs. AbbVie imputes income to the NEO, if required, and the NEO pays taxes in accordance
with tax regulations without gross-ups.
For Mr. Gonzalez, the total includes $64,508 for costs associated with security, determined based on AbbVie’s actual
costs for such services. The security was provided on the recommendation of an independent security study.
AbbVie imputes income to Mr. Gonzalez, if required, and he pays taxes in accordance with tax regulations without
gross-ups.
For Mr. Gosebruch, the total includes $103,581 for relocation costs.
The NEOs also are eligible to participate in an executive disability benefit which is described on page 53 of this
proxy statement.
(9) These amounts were paid to replace prior employer incentive awards.
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EXECUTIVE COMPENSATION
2016 Grants of Plan-Based Awards
.................................................................................................................................................................................................................................................................................................................................
The following table summarizes the equity awards granted under the AbbVie 2013 Incentive Stock Program to
the NEOs during 2016.
Estimated Future
Payouts Under
Non-Equity
Incentive Plan
Awards(1)
Grant
Date
Target Maximum
($)
($)
Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards
Target
(#)
All Other
Option
Awards:
Numbers of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/Sh)
Closing
Market
Price on
Grant
Date
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
2/18/2016
85,300(2)
85,300(3)
31,890(2)
31,890(3)
26,220(2)
26,220(3)
28,070(2)
28,070(3)
30,750(2)
30,750(3)
255,170(5)
$54.86
$54.55
95,400(5)
54.86
54.55
78,450(5)
54.86
54.55
83,960(5)
54.86
54.55
91,990(5)
54.86
54.55
Grant Date
Fair Value
of Stock
and Option
Awards
$4,640,149(4)
4,678,705(4)
2,360,323(6)
1,734,752(4)
1,749,167(4)
882,450(6)
1,426,316(4)
1,438,167(4)
725,663(6)
1,526,952(4)
1,539,639(4)
776,630(6)
1,672,738(4)
1,686,638(4)
850,908(6)
Name
R. Gonzalez
W. Chase
L. Schumacher
H. Gosebruch
M. Severino
(1) During 2016, each of the NEOs participated in the AbbVie Performance Incentive Plan. The annual cash incentive
award earned by the NEO in 2016 under the plan is shown in the Summary Compensation Table in the column
captioned ‘‘Non-Equity Incentive Plan Compensation.’’ No future pay-outs will be made with respect to the 2016
awards under the plan. The plan is described in greater detail in the section of this proxy statement captioned
‘‘Compensation Discussion and Analysis—Compensation Plan Elements—Short-Term Incentives.’’
(2) This is a performance share award that has the potential to vest at 0% to 250% of target during a three-year
performance period and is earned based on company performance in earnings per share (EPS) and relative total
stockholder return (TSR). TSR performance is measured relative to a group made up of companies that are
constituents in either the S&P Pharmaceutical, Biotech, and Life Science Index or the NYSE Arca Pharmaceutical
Index. Dividends accrue during the performance period and are paid in cash at vesting only to the extent that
shares are earned. In 2016, in connection with the phase-in of the redesigned long-term incentive program,
AbbVie’s EPS performance resulted in the vesting on February 28, 2017 of two-thirds of the award at 166.7% of
target, and the remaining one-third of the award has been banked for vesting to be determined based on the
company’s relative TSR performance following the three-year performance period that ends December 31, 2018.
The performance metrics are described in the section of this proxy statement captioned ‘‘Compensation Discussion
and Analysis—Compensation Plan Elements—Long-Term Incentives.’’
(3) This is a performance-vested restricted stock unit award that has the potential to vest at 0% to 150% of target, in
one-third increments, during a three-year performance term based on AbbVie’s return on equity (ROE) articulated
as pre-set goals and measured relative to a group made up of companies that are constituents in either the S&P
Pharmaceutical, Biotech, and Life Science Index or the NYSE Arca Pharmaceutical Index. Dividends accrue during the
performance period and are paid in cash at vesting only to the extent that shares are earned. In 2016, AbbVie’s
relative ROE performance resulted in the vesting on February 28, 2017 of one-third of the award at 150% of target.
The performance metrics are described in the section of this proxy statement captioned ‘‘Compensation Discussion
and Analysis—Compensation Plan Elements—Long-Term Incentives.’’
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(4) The grant date fair value of stock awards is determined by multiplying the number of shares or units granted by
the average of the high and low market prices of one share of AbbVie common stock on the award grant date. In
the event of a grantee’s death or disability, these awards will be deemed earned either based on actual
performance through the date of death or disability or at target, depending on the timing of the death or disability,
as set forth in the award agreement. Upon a change in control, the treatment of these awards is determined as
described in the section of this proxy statement captioned ‘‘Potential Payments upon Termination or Change in
Control—Equity Awards.’’
(5) One-third of the shares of common stock covered by these options are exercisable after one year, two-thirds after
two years, and all after three years. The options vest in the event of the grantee’s death or disability. Upon a
change in control, the treatment of these awards is determined as described in the section of this proxy statement
captioned ‘‘Potential Payments upon Termination or Change in Control—Equity Awards.’’ Under the AbbVie 2013
Incentive Stock Program, these options have an exercise price equal to the average of the high and low market
prices (rounded up to the next even penny) of one share of AbbVie common stock on the date of grant. These
options do not contain a replacement option feature.
(6) The grant date fair value of option awards is determined as of the option grant date using a Black-Scholes stock
option valuation model. The assumptions used to determine the grant date fair value are described in footnote (4)
to the Summary Compensation Table.
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EXECUTIVE COMPENSATION
2016 Outstanding Equity Awards at Fiscal Year End
.................................................................................................................................................................................................................................................................................................................................
The following table summarizes the outstanding AbbVie equity awards held by the NEOs at year end.
Option Awards(1)(2)
Stock Awards
Number of
Shares of
Stock That
Have Not
Vested (#)
Market
Value of
Shares of
Stock That
Have Not
Vested ($)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
18,366
53,650
187,353
109,097
25,500
12,800
13,400
19,000
19,600
115,830
61,827
36,924
79,800
145,510
62,760
34,407
49,539
34,827
93,677(3)
218,193(3)
255,170(3)
30,913(3)
73,846(3)
95,400(3)
31,380(3)
68,813(3)
78,450(3)
83,960(3)
24,770(3)
69,653(3)
91,990(3)
Option
Exercise
Price ($)
Option
Expiration
Date
$24.2082
29.2265
51.4200
58.8800
54.8600
28.8628
28.1251
28.3122
24.2082
29.2265
35.8800
51.4200
58.8800
54.8600
29.2265
35.8800
51.4200
58.8800
54.8600
2/17/2021
2/16/2022
2/19/2024
2/18/2025
2/17/2026
2/14/2018
2/19/2019
2/18/2020
2/17/2021
2/16/2022
2/13/2023
2/19/2024
2/18/2025
2/17/2026
2/16/2022
2/13/2023
2/19/2024
2/18/2025
2/17/2026
54.8600
2/17/2026
54.4400
58.8800
54.8600
6/1/2024
2/18/2025
2/17/2026
Name
R. Gonzalez
W. Chase
L. Schumacher
H. Gosebruch
M. Severino
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares
or Other
Rights That
Have Not
Vested (#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares
or Other
Rights That
Have Not
Vested ($)
54,320(3)
110,393(3)
170,600(3)
$3,401,518
6,912,810
10,682,972
17,923(3)
37,360(3)
63,780(3)
1,122,338
2,339,483
3,993,904
18,197(3)
34,813(3)
52,440(3)
1,139,496
2,179,990
3,283,793
60,699(3)
56,140(3)
47,209(3)
35,240(3)
61,500(3)
3,800,971
3,515,487
2,956,228
2,206,729
3,851,130
(1) Three of AbbVie’s NEOs were employed by Abbott Laboratories (Abbott) prior to AbbVie’s separation from Abbott
on January 1, 2013 (the ‘‘Separation’’). When AbbVie separated from Abbott, outstanding Abbott equity awards
generally converted into adjusted awards based on Abbott common shares and AbbVie common stock (except to
the extent prohibited by local law or with respect to certain awards described below). Such awards are subject to
substantially the same terms, vesting conditions and other restrictions that applied to the original Abbott awards
immediately before the Separation.
Each Abbott stock option was converted into an adjusted Abbott stock option and an AbbVie stock option, with
adjustments to the stock option exercise prices that were intended to preserve the value of the original Abbott
award as measured immediately before and immediately after the Separation. Each such adjusted Abbott stock
option and AbbVie stock option is subject to substantially the same terms, vesting conditions, post-termination
exercise rules and other restrictions that applied to the original Abbott stock option immediately before the
Separation.
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EXECUTIVE COMPENSATION
As a result of the Separation, the NEOs held the following Abbott equity awards as of December 31, 2016:
• W. Chase: Vested options to purchase 6,533 Abbott common shares with an exercise price of $27.03 per share.
•
L. Schumacher: Vested options to purchase 265,906 Abbott common shares with exercise prices ranging from
$22.39 to $27.03 per share.
(2) Except as noted, the stock options are fully vested.
(3) The vesting dates of AbbVie unexercisable stock options and unvested performance share and restricted stock/unit
awards outstanding at December 31, 2016 are as follows:
Option Awards
Number of
Unexercised
Shares
Remaining
from
Original
Grant
Number of
Option
Shares
Vesting—
Date
Vested 2017
Number of
Option
Shares
Vesting—
Date
Vested 2018
Number of
Option
Shares
Vesting—
Date
Vested 2019
93,677
218,193
255,170
93,677—2/20
109,096—2/19
85,057—2/18
109,097—2/19
85,056—2/18
85,057—2/18
30,913
73,846
95,400
31,380
68,813
78,450
30,913—2/20
36,923—2/19
31,800—2/18
31,380—2/20
34,406—2/19
26,150—2/18
36,923—2/19
31,800—2/18
31,800—2/18
34,407—2/19
26,150—2/18
26,150—2/18
Name
R. Gonzalez
W. Chase
L. Schumacher
H. Gosebruch
83,960
27,987—2/18
27,986—2/18
27,987—2/18
M. Severino
24,770
69,653
91,990
24,770—6/02
34,826—2/19
30,664—2/18
34,827—2/19
30,663—2/18
30,663—2/18
Number of
Shares of
Restricted
Stock or
Units
54,320
110,393
85,300
85,300
17,923
37,360
31,890
31,890
18,197
34,813
26,220
26,220
60,699
28,070
28,070
47,209
35,240
30,750
30,750
Stock or Unit Awards
Number of
Shares of
Restricted
Stock or
Units
Vesting—
Date
Vested 2017
Number of
Shares of
Restricted
Stock or
Units
Vesting—
Date
Vested 2018
Number of
Shares of
Restricted
Stock or
Units
Vesting—
Date
Vested 2019
(a)
(b)
(c)
(d)
(a)
(b)
(c)
(d)
(a)
(b)
(c)
(d)
(e)
(c)
(d)
(f)
(b)
(c)
(d)
(a) These are shares of performance-vested restricted stock that remained outstanding and unvested on
December 31, 2016, from an award made on February 20, 2014. The award has a 5-year term, with no more
than one-third of the original award vesting in any one year upon AbbVie achieving a minimum return on
equity target, measured at the end of the relevant year. In 2016, AbbVie reached its minimum return on
equity target and the unvested shares vested on February 28, 2017.
(b) These are shares of performance-vested restricted stock that remained outstanding and unvested on
December 31, 2016, from an award made on February 19, 2015. The award has a 5-year term, with no more
than one-third of the original award vesting in any one year upon AbbVie achieving a minimum return on
equity target, measured at the end of the relevant year. In 2016, AbbVie reached its minimum return on
equity target and one-half of the unvested shares vested on February 28, 2017.
(c) These are performance shares that remained outstanding and unvested on December 31, 2016 from an award
made on February 18, 2016. The award has the potential to vest at 0% to 250% of target during a 3-year
performance period and is earned based on company performance in earnings per share (EPS) and relative
total stockholder return (TSR). TSR performance is measured relative to a group made up of companies that
are constituents in either the S&P Pharmaceutical, Biotech, and Life Science Index or the NYSE Arca
Pharmaceutical Index. Dividends accrue during the performance period and are paid at vesting only to the
extent that shares are earned. In 2016, in connection with the phase-in of the redesigned long-term incentive
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EXECUTIVE COMPENSATION
program, AbbVie’s EPS performance resulted in the vesting on February 28, 2017 of two-thirds of the award at
166.7% of target, and the remainder of the award has been banked for vesting to be determined based on the
company’s relative TSR performance following the 3-year performance period that ends December 31, 2018.
(d) These are performance-vested restricted stock units that remained outstanding and unvested on December 31,
2016, from an award made on February 18, 2016. The award has the potential to vest at 0% to 150% of
target, in one-third increments, during a 3-year performance term based on AbbVie’s return on equity (ROE)
articulated as pre-set goals and measured relative to a group made up of companies that are constituents in
either the S&P Pharmaceutical, Biotech, and Life Science Index or the NYSE Arca Pharmaceutical Index.
Dividends accrue during the performance period and are paid at vesting only to the extent that shares are
earned. In 2016, AbbVie’s relative ROE performance resulted in the vesting on February 28, 2017 of one-third
of the award at 150% of target.
(e) These are shares of performance-vested restricted stock that remained outstanding and unvested on
December 31, 2016, from an award made on December 9, 2015. The award has a 5-year term, with no more
than one-third of the original award vesting in any one year upon AbbVie achieving a minimum return on
equity target, measured at the end of the relevant year. In 2016, AbbVie reached its minimum return on
equity target and one-half of the unvested shares will vest on December 9, 2017.
(f)
These are shares of performance-vested restricted stock that remained outstanding and unvested on
December 31, 2016, from an award made on June 2, 2014. The award has a 5-year term, with no more than
one-third of the original award vesting in any one year upon AbbVie achieving a minimum return on equity
target, measured at the end of the relevant year. In 2016, AbbVie reached its minimum return on equity target
and the unvested shares will vest on June 2, 2017.
2016 Option Exercises and Stock Vested
.................................................................................................................................................................................................................................................................................................................................
The following table summarizes for each NEO the number of shares acquired on the exercise of AbbVie stock
options and the number of shares acquired on the vesting of AbbVie stock awards in 2016:
Name
R. Gonzalez
W. Chase
L. Schumacher
H. Gosebruch
M. Severino
Option Awards
Stock Awards
Number of
Shares
Acquired On
Exercise (#)
Value
Number of
Shares
Realized On Acquired On
Vesting (#)
Exercise ($)
Value
Realized On
Vesting ($)
285,953
$7,989,718
195,424
$10,943,744
6,600
210,514
99,904
5,594,624
186,106
6,030,202
118,548
6,638,688
0
0
0
0
30,351
64,827
1,848,376
3,952,736
Pension Benefits
.................................................................................................................................................................................................................................................................................................................................
During 2016, the NEOs participated in two AbbVie-sponsored defined benefit pension plans: the AbbVie Pension
Plan, a tax-qualified pension plan; and the AbbVie Supplemental Pension Plan, a non-qualified supplemental pension
plan. The Supplemental Pension Plan also includes a benefit feature AbbVie uses to attract senior executives who are
mid-career hires, which provides an additional benefit to such participants that is less valuable to participants who have
spent most of their career at the company. Except as provided in AbbVie’s change in control agreements, AbbVie does
not have a policy granting extra years of credited service under the plans. The change in control agreements are
described in the section of this proxy statement captioned ‘‘Potential Payments upon Termination or Change in Control.’’
The compensation considered in determining the pensions payable to the NEOs is the compensation shown in
the ‘‘Salary’’ and ‘‘Non-Equity Incentive Plan Compensation’’ columns of the Summary Compensation Table.
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EXECUTIVE COMPENSATION
Pension Plan
The Pension Plan is a broad-based plan that covers most AbbVie employees in the United States, age 21 or
older, and provides participants with a life annuity benefit at normal retirement equal to A plus the greater of B or C
below.
A.
1.10% of 5-year final average earnings multiplied by years of benefit service after 2003.
B.
1.65% of 5-year final average earnings multiplied by years of benefit service prior to 2004 (up to 20); plus
1.50% of 5-year final average earnings multiplied by years of benefit service prior to 2004 in excess of 20
(but no more than 15 additional years); less 0.50% of the lesser of 3-year final average earnings (but not
more than the social security wage base in any year) or the social security covered compensation level
multiplied by years of benefit service.
C.
1.10% of 5-year final average earnings multiplied by years of benefit service prior to 2004.
The benefit for service prior to 2004 (B or C above) is reduced for the cost of preretirement surviving spouse
benefit protection. The reduction is calculated using formulas based on age and employment status during the period in
which coverage was in effect.
Final average earnings are the average of the employee’s 60 highest-paid consecutive calendar months of
compensation (salary and non-equity incentive plan compensation). The Pension Plan covers earnings up to the limit
imposed by Internal Revenue Code Section 401(a)(17) and provides for a maximum of 35 years of benefit service.
Participants become fully vested in their pension benefit upon the completion of five years of service. The
benefit is payable on an unreduced basis at age 65. Employees hired after 2003 who terminate employment prior to
age 55 with at least 10 years of service may choose to commence their benefits on an actuarially reduced basis as early
as age 55. Employees hired before 2004 who terminate employment prior to age 50 with at least 10 years of service
may choose to commence their benefits on an actuarially reduced basis as early as age 50. Employees hired before 2004
who terminate employment prior to age 50 with fewer than 10 years of service may choose to commence their benefits
on an actuarially reduced basis as early as age 55.
The Pension Plan offers several optional forms of payment, including certain and life annuities, joint and survivor
annuities, and level income annuities. The benefit paid under any of these options is actuarially equivalent to the life
annuity benefit produced by the formula described above.
Employees who retire from AbbVie prior to their normal retirement age may receive subsidized early retirement
benefits. Employees hired after 2003 are eligible for early retirement at age 55 with 10 years of service. Employees hired
before 2004 are eligible for early retirement at age 50 with 10 years of service or age 55 if the employee’s age plus
years of benefit service total 70 or more. Mr. Gonzalez and Ms. Schumacher are eligible for early retirement benefits
under the plan.
The subsidized early retirement reductions applied to the benefit payable for service after 2003 (A above)
depend upon the participant’s age at retirement. If the participant retires after reaching age 55, the benefit is reduced
5 percent per year for each year that payments are made before age 62. If the participant retires after reaching age 50
but prior to reaching age 55, the benefit is actuarially reduced from age 65.
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EXECUTIVE COMPENSATION
The early retirement reductions applied to the benefit payable for service prior to 2004 (B and C above) depend
upon age and service at retirement:
•
•
In general, the 5-year final average earnings portions of the benefit are reduced 3 percent per year for each
year that payments are made before age 62 and the 3-year final average earnings portion of the benefit is
reduced 5 percent per year for each year that payments are made before age 62.
Employees who participated in the plan before age 36 may elect ‘‘Special Retirement’’ on the last day of
any month after reaching age 55 with age plus Seniority Service points of at least 94 or ‘‘Early Special
Retirement’’ on the last day of any month after reaching age 55, provided their age plus Seniority Service
points would reach at least 94 before age 65. Seniority Service includes periods of employment prior to
attaining the minimum age required to participate in the plan. If Special Retirement or Early Special
Retirement applies, Seniority Service is used in place of benefit service in the formulas. The 5-year final
average earnings portions of the benefit in B above are reduced 12⁄3 percent for each year between ages 59
and 62 plus 21⁄2 percent for each year between ages 55 and 59. The 3-year final average earnings portion of
the benefit is reduced 5 percent per year for each year that payments are made before age 62. Benefit C is
payable on an unreduced basis at Special Retirement and is reduced 3 percent per year for each year that
payments are made before age 62, if Early Special Retirement applies.
Supplemental Pension Plan
The provisions of the Supplemental Pension Plan (which covers AbbVie employees in the United States whose
compensation exceeds certain limits under the Internal Revenue Code) are substantially the same as those of the Pension
Plan, with the following exceptions:
•
•
•
•
•
Participants’ 5-year final average earnings are calculated using the average of the 5 highest years of base
earnings and the 5 highest years of payments under AbbVie’s non-equity incentive plans.
The Pension Plan does not include amounts deferred or payments received under the AbbVie Deferred
Compensation Plan in its calculation of a participant’s final average earnings. To preserve the pension
benefits of Deferred Compensation Plan participants, the Supplemental Pension Plan includes amounts
deferred by a participant under the Deferred Compensation Plan in its calculation of final average earnings.
In addition to the benefits outlined above for the Pension Plan, the NEOs are eligible for an additional
Supplemental Pension Plan benefit equal to 0.6% of 5-year final average earnings for each year of service
for each of the first 20 years of service occurring after the participant attains age 35. The benefit is further
limited by the maximum percentage allowed under the Pension Plan under that plan’s benefit formulas (A, B
and C above). The portion of this additional benefit attributable to service before 2004 is reduced 3 percent
per year for each year that payments are made before age 60. The portion attributable to service after
2003 is reduced 5 percent per year for each year that payments are made before age 60 if the participant
is at least age 55 at early retirement. If the participant is under age 55 at retirement, the portion
attributable to service after 2003 is actuarially reduced from age 65.
The Supplemental Pension Plan provides early retirement benefits similar to those provided under the
Pension Plan. The benefits provided to NEOs under the Supplemental Pension Plan are not, however,
reduced for the period between age 60 and age 62, unless the benefit is being actuarially reduced from
age 65. Mr. Gonzalez and Ms. Schumacher are eligible for early retirement benefits under the plan.
Vested benefits accrued under the Supplemental Pension Plan may be funded through a grantor trust
established by an eligible NEO. Consistent with the distribution requirements of Internal Revenue Code
Section 409A and its regulations, those NEOs who became officers prior to 2009 may have the entire
amount of their vested plan benefits funded through a grantor trust. Eligible NEOs who became officers
after 2008 and before 2015 may have only the vested benefits that accrue following the calendar year in
which he or she is first elected as an officer funded through a grantor trust.
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Benefits payable under the Supplemental Pension Plan are offset by the benefits payable from the Pension Plan,
calculated as if benefits under the plans commenced at the same time. The amounts paid to an eligible NEO’s
Supplemental Pension Plan grantor trust to fund plan benefits are actuarially determined. The plan is designed to result
in AbbVie paying the eligible NEO’s Supplemental Pension Plan benefits to the extent assets held in his or her trust are
insufficient.
Pension Benefits Table
EXECUTIVE COMPENSATION
Name
R. Gonzalez
W. Chase
L. Schumacher
H. Gosebruch
M. Severino
Plan Name
AbbVie Pension Plan
AbbVie Supplemental Pension Plan
AbbVie Pension Plan
AbbVie Supplemental Pension Plan
AbbVie Pension Plan
AbbVie Supplemental Pension Plan
AbbVie Pension Plan
AbbVie Supplemental Pension Plan
AbbVie Pension Plan
AbbVie Supplemental Pension Plan
Number of
Present
Value of
Years Accumulated
Benefit
($)(1)
Credited
Service (#)
Payments
During Last
Fiscal Year
($)
35
35
28
28
26
26
1
1
3
3
$431,133
15,682,566
$0
2,088,728(2)
527,008
4,934,899
0
377,517(2)
714,514
8,684,377
0
497,947(2)
17,018
253,992
57,145
673,066
0
0
0
0
(1) AbbVie calculates these present values using: (i) a discount rate of 4.67% for the Pension Plan and a discount rate
of 4.59% for the Supplemental Pension Plan, the same discount rates it uses for Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) Topic 715 calculations for financial reporting purposes; and
(ii) each plan’s unreduced retirement age, which is age 62 under the AbbVie Pension Plan and age 60 under the
AbbVie Supplemental Pension Plan for those participants who are eligible for early retirement benefits and which is
age 65 under both plans for other participants. The present values shown in the table reflect postretirement
mortality, based on the FASB ASC Topic 715 assumption (the RP2006 Healthy Annuitant table projected fully
generationally with MP2016 mortality improvement scale), but do not include a factor for preretirement
termination, mortality, or disability.
(2) During 2016, the amounts shown, less applicable tax withholdings, were distributed and deposited into the
individual grantor trusts established by the eligible NEOs and included in the NEOs’ income, as applicable.
Consistent with the distribution requirements of Internal Revenue Code Section 409A and its regulations, vested
Supplemental Pension Plan benefits, to the extent not previously funded, are distributed to the eligible participants’
individual grantor trusts and included in their income. Amounts held in an eligible NEO’s individual trust are
expected to offset AbbVie’s obligations to him or her under the plan. Grantor trusts are described in greater detail
in the section of this proxy statement captioned ‘‘Compensation Plan Elements—Benefits—Retirement Benefits.’’
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EXECUTIVE COMPENSATION
Non-qualified Deferred Compensation
.................................................................................................................................................................................................................................................................................................................................
The following table summarizes Mr. Chase’s and Ms. Schumacher’s non-qualified deferred compensation under
the AbbVie Deferred Compensation Plan. No additional contributions have been made to their accounts under the plan
since such time as Mr. Chase and Ms. Schumacher, respectively, became officers and ceased to be eligible to contribute
to the plan. None of the other NEOs has any non-qualified deferred compensation under the plan.
Name
Plan Name
Executive
contributions
in last FY
($)
Registrant
contributions
in last FY
($)
Aggregate
Aggregate
earnings withdrawals/
distributions
in last FY
($)
($)(3)
W. Chase
L. Schumacher
Deferred Compensation Plan(1)(2)
Deferred Compensation Plan(1)(2)
$0
0
$0
0
$5,805
33,967
$0
0
Aggregate
balance at
last FYE
($)(4)
$77,745
417,810
(1) Mr. Chase’s and Ms. Schumacher’s contributions to the Deferred Compensation Plan ceased in 2007 and 2002,
respectively.
(2) The plan permits participants to defer up to 75% of their base salary and up to 75% of their annual cash incentives
and credits a participant’s account with an amount equal to the employer matching contributions that otherwise
would have been made for the participant under AbbVie’s tax-qualified defined contribution plan. Participants may
direct the investment of their deferral accounts into one or more of several funds chosen by the administrator, and
the deferral account is credited with investment returns based on the performance of the fund(s) selected. During
2016, the weighted average rate of return credited to the accounts was 8.1% for Mr. Chase and 8.8% for
Ms. Schumacher.
The plan provides for cash distributions in either a lump sum or installments after separation from service and
permits in-service withdrawals in accordance with specific procedures. Participants make distribution elections each
year that apply to the deferrals to be made in the following calendar year, in accordance with the requirements of
Internal Revenue Code Section 409A. Participants may request withdrawals due to financial hardship; if a hardship
withdrawal is approved, it is limited to the amount needed to address the hardship.
(3) The amounts reported in this column are not included in the Summary Compensation Table of this proxy
statement.
(4) The amounts reported in this column have not been previously reported as compensation in AbbVie’s Summary
Compensation Tables because they relate to contributions made before the applicable individual became an NEO.
Potential Payments upon Termination or Change in Control
.................................................................................................................................................................................................................................................................................................................................
Potential Payments upon Termination—Generally
AbbVie does not have employment agreements with its NEOs.
The following summarizes the payments that the NEOs would have received if their employment had terminated
on December 31, 2016. Earnings would have continued to be paid for the NEO’s Performance Incentive Plan and
Supplemental Savings Plan grantor trusts, as applicable, until the trust assets were fully distributed. The amount of these
payments would depend on the period over which the trust assets were distributed and the trust earnings and fees. If
the trust assets were distributed over a 10-year period and based on current earnings, the NEOs would receive the
following average annual payments over such 10-year period: Mr. Gonzalez, $410,784; Mr. Chase, $249,683;
Ms. Schumacher, $594,974; and Dr. Severino, $85,551. In addition, the following one-time deposits would have been
made under the AbbVie Supplemental Pension Plan for each of the following NEOs, respectively: Mr. Gonzalez,
$1,253,903; Mr. Chase, $713,187; and Ms. Schumacher, $834,337. As of December 31, 2016, Mr. Gonzalez and
Ms. Schumacher were eligible to retire, and therefore were eligible to receive the pension benefits previously described.
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EXECUTIVE COMPENSATION
If the termination of employment had been due to disability, then the NEOs also would have received, in
addition to AbbVie’s standard disability benefits, a monthly long-term disability benefit in the amount of $180,000 for
Mr. Gonzalez; $81,300 for Mr. Chase; $81,300 for Ms. Schumacher; $66,357 for Mr. Gosebruch; and $79,800 for
Dr. Severino. This long-term disability benefit would continue for up to 24 months following termination of employment.
It ends if the NEO retires, recovers, dies or ceases to meet eligibility criteria.
If the NEO’s employment had terminated due to death or disability, his or her unvested stock options and
restricted stock or unit awards would have vested on December 31, 2016 with values as set forth below in the
subsection of this proxy statement captioned ‘‘Equity Awards.’’
Potential Payments upon Change in Control
AbbVie has entered into change in control agreements with its NEOs. Each change in control agreement
continues in effect until December 31, 2018, and can be renewed for successive two-year terms upon notice prior to the
expiration date. If notice of non-renewal is given, the agreement will expire on the later of the scheduled expiration date
and the one-year anniversary of the date of such notice. If no notice is given, the agreement will expire on the one-year
anniversary of the scheduled expiration date. Each agreement also automatically extends for two years following any
change in control (see below) that occurs while the agreement is in effect.
The agreements provide that if the employee is terminated other than for cause or permanent disability or if
the employee elects to terminate employment for good reason (see below) within two years following a change in
control, he or she is entitled to receive a lump sum payment equal to three times his or her annual salary and annual
incentive (‘‘bonus’’) award (assuming for this purpose that all target performance goals have been achieved or, if higher,
based on the average bonus for the last three years), plus any unpaid bonus owing for any completed performance
period and the pro rata bonus for any current bonus period (based on the highest of the bonus assuming achievement
of target performance, the average bonus for the past three years or, in the case of the unpaid bonus for any completed
performance period, the actual bonus earned). If the employee is terminated other than for cause or permanent
disability or if the employee elects to terminate employment for good reason during a potential change in control (see
below), he or she is entitled to receive a lump sum payment of the annual salary and bonus payments described above,
except that the amount of the bonus to which the employee is entitled will be based on the actual achievement of the
applicable performance goals. If the potential change in control becomes a ‘‘change in control event’’ (within the
meaning of Internal Revenue Code Section 409A), the employee will be entitled to receive the difference between the
bonus amounts the officer received upon termination during the potential change in control and the bonus amounts that
would have been received had such amounts instead been based on the higher of the employee’s target bonus or the
average bonus paid to the employee in the preceding three years.
Bonus payments include payments made under the Performance Incentive Plan. The employee also will receive
up to two years of additional employee benefits (including welfare benefits, outplacement services and tax and financial
counseling) and the value of three more years of pension accruals. If change in control-related payments and benefits
become subject to the excise tax imposed under Internal Revenue Code Section 4999, payments under the agreement
will be reduced to prevent application of the excise tax if such a reduction would leave the employee in a better
after-tax position than if the payments were not reduced and the tax applied. The agreements also limit the conduct for
which awards under AbbVie’s incentive stock programs can be terminated and generally permit options to remain
exercisable for the remainder of their term.
For purposes of the agreements, the term ‘‘change in control’’ includes the following events: any person
becoming the beneficial owner of AbbVie securities representing 20 percent or more of the outstanding voting power
(not including an acquisition directly from AbbVie and its affiliates); a change in the majority of the members of the
board of directors whose appointment was approved by a vote of at least two-thirds of the incumbent directors; and the
consummation of certain mergers or similar corporate transactions involving AbbVie. A ‘‘potential change in control’’
under the agreements includes, among other things, AbbVie’s entry into an agreement that would result in a change in
control. Finally, the term ‘‘good reason’’ includes: a significant adverse change in the employee’s position, duties, or
authority; the company’s failure to pay the employee’s compensation or a reduction in the employee’s base pay or
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EXECUTIVE COMPENSATION
benefits; or the relocation of the company’s principal executive offices to a location that is more than 35 miles from the
location of the offices at the time of the change in control.
If a change in control had occurred on December 31, 2016, immediately followed by one of the covered
circumstances described above, Mr. Gonzalez, Mr. Chase, Ms. Schumacher, Mr. Gosebruch, and Dr. Severino would have
been entitled to receive the following payments and benefits under the change in control agreements:
• Mr. Gonzalez: cash termination payments—$10,012,616; additional Supplemental Pension Plan benefits—
$1,741,749; welfare and fringe benefits—$67,068.
• Mr. Chase: cash termination payments—$6,905,640; additional Supplemental Pension Plan benefits—
$573,953; welfare and fringe benefits—$67,982.
• Ms. Schumacher: cash termination payments—$7,095,640; additional Supplemental Pension Plan benefits—
$3,957,291; welfare and fringe benefits—$53,963.
• Mr. Gosebruch: cash termination payments—$5,758,560; welfare and fringe benefits—$48,240.
•
Dr. Severino: cash termination payments—$6,559,830; additional Supplemental Pension Plan benefits—
$683,693; welfare and fringe benefits—$67,372.
The amounts shown for Mr. Gonzalez’s cash termination payments and additional supplemental pension plan
benefits reflect reductions of $4,563,384 and $793,825, respectively, which would have applied under cutback provisions
in the agreement as described above.
Equity Awards
The AbbVie 2013 Incentive Stock Program was approved by AbbVie’s stockholders and covers approximately
8,500 participants, including a broad group of management and professional staff.
The AbbVie 2013 Incentive Stock Program provides that any unvested equity awards granted in or after February
2013 may be assumed, converted or replaced on an equivalent basis by the surviving company upon a change in control.
If the surviving company does not do so, the vesting of the awards is accelerated. If the surviving company does assume,
convert or replace the awards on an equivalent basis, then accelerated vesting of the awards is limited to circumstances
in which, during the period from six months before through two years after a change in control, the grantee’s
employment is terminated without cause or the grantee resigns for good reason. The terms ‘‘cause’’ and ‘‘good reason’’
have the same definitions as in the change in control agreements.
If a change in control had occurred on December 31, 2016 and the surviving company did not assume, convert
or replace any of the awards granted after January 2013, or the NEO’s employment had terminated without cause or he
or she had resigned for good reason, as described above, then the unvested equity awards of the NEOs would have
vested as follows:
• Mr. Gonzalez would have vested in (i) 567,040 unvested AbbVie stock options with a value of $3,845,343,
(ii) 164,713 shares of AbbVie restricted stock with a value of $10,314,328, (iii) 99,517 AbbVie restricted
stock units with a value of $6,231,755, and (iv) 142,166 AbbVie performance shares with a value of
$8,902,435.
• Mr. Chase would have vested in (i) 200,159 unvested AbbVie stock options with a value of $1,362,714,
(ii) 55,283 shares of AbbVie restricted stock with a value of $3,461,821, (iii) 37,205 AbbVie restricted stock
units with a value of $2,329,777, and (iv) 53,150 AbbVie performance shares with a value of $3,328,253.
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EXECUTIVE COMPENSATION
• Ms. Schumacher would have vested in (i) 178,643 unvested AbbVie stock options with a value of
$1,217,588, (ii) 53,010 shares of AbbVie restricted stock with a value of $3,319,486, (iii) 30,590 AbbVie
restricted stock units with a value of $1,915,546, and (iv) 43,700 AbbVie performance shares with a value of
$2,736,494.
• Mr. Gosebruch would have vested in (i) 83,959 unvested AbbVie stock options with a value of $651,521,
(ii) 60,699 shares of AbbVie restricted stock with a value of $3,800,971, (iii) 32,749 AbbVie restricted stock
units with a value of $2,050,711, and (iv) 46,783 AbbVie performance shares with a value of $2,929,551.
•
Dr. Severino would have vested in (i) 186,413 unvested AbbVie stock options with a value of $1,176,964,
(ii) 82,449 shares of AbbVie restricted stock with a value of $5,162,956, (iii) 35,875 AbbVie restricted stock
units with a value of $2,246,493, and (iv) 51,250 AbbVie performance shares with a value of $3,209,275.
The value of stock options shown is based on the excess of the closing price of one share of common stock on
December 30, 2016 over the exercise price of such options, multiplied by the number of unvested stock options held by
the NEO. The value of restricted stock, restricted stock units and performance shares shown is determined by multiplying
the number of shares or units that would vest as of December 31, 2016 in accordance with the applicable equity award
agreement terms and the closing price of one share of common stock on December 30, 2016.
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RATIFICATION OF ERNST & YOUNG LLP AS ABBVIE’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(ITEM 2)
27FEB201707451726
The audit committee of the board of directors is directly responsible for the appointment, compensation,
retention and oversight of the independent registered public accounting firm retained to audit the company’s financial
statements. On October 13, 2016, the audit committee appointed Ernst & Young LLP to perform independent audit
services for the fiscal year ending December 31, 2017. Ernst & Young LLP has served as our independent registered
public accounting firm since 2013. In conjunction with the periodic mandated rotation of the audit firm’s lead
engagement partner, the chair of the audit committee would be involved in the selection of a new lead engagement
partner. Further, the audit committee will periodically consider whether there should be a regular rotation of the
independent registered public accounting firm.
Although the audit committee has sole authority to appoint the independent registered public accounting firm, it
would like to know the opinion of the stockholders regarding its appointment of Ernst & Young LLP for 2017. For this
reason, stockholders are being asked to ratify this appointment. If the stockholders do not ratify the appointment of
Ernst & Young LLP for 2017, the audit committee will take that fact into consideration, but may, nevertheless, continue
to retain Ernst & Young LLP. The audit committee and the board believe that the continued retention of Ernst &
Young LLP to serve as the company’s independent registered public accounting firm is in the best interests of the
company and its stockholders.
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will be given the
opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions.
The board of directors recommends that you vote FOR ratification of the appointment of Ernst & Young LLP as
AbbVie’s independent registered public accounting firm for 2017.
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AUDIT INFORMATION
26FEB201714333432
Audit Fees and Non-Audit Fees
.................................................................................................................................................................................................................................................................................................................................
The following table presents fees for professional audit services rendered to AbbVie by Ernst & Young LLP for
the years ended December 31, 2016 and December 31, 2015, and fees for other services rendered to AbbVie by Ernst &
Young LLP for that period.
Audit fees:(1)
Audit related fees:(2)
Tax fees:(3)
All other fees:(4)
Total
2016
(millions)
2015
(millions)
$10.5
0.3
2.3
1.0
$14.1
$11.6
0.3
6.9
0.5
$19.3
(1) Ernst & Young LLP billed or will bill AbbVie for professional services rendered for the audit of AbbVie’s annual
financial statements, the review of AbbVie’s financial statements included in AbbVie’s quarterly reports, the audits
of AbbVie’s internal control over financial reporting, statutory and subsidiary audits, the review of documents filed
with the Securities and Exchange Commission, comfort letters, consents and certain accounting consultations in
connection with the audits.
(2) Audit related fees include audits of certain employee benefit plan financial statements and other agreed upon
procedures.
(3) Tax fees consist principally of professional services for corporate tax compliance, expatriate tax compliance and tax
advisory services.
(4) Other fees represent Independent Review Organization services.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent
Registered Public Accounting Firm
.................................................................................................................................................................................................................................................................................................................................
The audit committee has established policies and procedures to pre-approve all audit and permissible non-audit
services performed by the independent registered public accounting firm and its related affiliates.
Prior to engagement of the independent registered public accounting firm for the next year’s audit, management
will submit a schedule of all proposed permissible services expected to be rendered during that year for each of four
categories of services to the audit committee for approval.
Prior to engagement, the audit committee pre-approves these services by category of service. The fees are
budgeted and the audit committee requires the independent registered public accounting firm and management to
report actual fees versus the budget periodically by category of service. During the year, circumstances may arise when it
may become necessary to engage the independent registered public accounting firm for additional services not
contemplated in the original pre-approval. In those instances, the audit committee requires specific pre-approval before
engaging the independent registered public accounting firm.
The audit committee may delegate pre-approval authority to one or more of its members. The member to
whom such authority is delegated must report any pre-approval decisions to the audit committee at its next scheduled
meeting.
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AUDIT INFORMATION
Audit Committee Report
.................................................................................................................................................................................................................................................................................................................................
Management is responsible for the preparation and integrity of AbbVie’s consolidated financial statements. The
independent registered public accounting firm is responsible for performing an audit of the consolidated financial
statements and expressing an opinion on the conformity of those financial statements with accounting principles
generally accepted in the United States of America. The audit committee reviews these processes on behalf of the board
of directors. In this context, the audit committee has reviewed and discussed the audited financial statements contained
in the 2016 Annual Report on Form 10-K with AbbVie’s management and its independent registered public accounting
firm.
The audit committee has discussed with the independent registered public accounting firm the matters required
to be discussed pursuant to the Public Company Accounting Oversight Board Auditing Standard No. 16, Communication
with Audit Committees.
The audit committee has received the written disclosures and the letter from the independent registered public
accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding the
independent registered public accounting firm’s communications with the audit committee concerning independence, and
has discussed with the independent registered public accounting firm the firm’s independence. The audit committee has
also considered whether the provision of non-audit services is compatible with maintaining the independence of the
independent registered public accounting firm.
Based on the review and discussions referred to above, the audit committee recommended to the board of
directors that the audited financial statements be included in AbbVie’s Annual Report on Form 10-K for the year ended
December 31, 2016 filed with the Securities and Exchange Commission.
Audit Committee
R. Austin, Chair, W. Burnside, E. Rapp, and F. Waddell
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SAY ON PAY—ADVISORY VOTE ON THE APPROVAL OF
EXECUTIVE COMPENSATION (ITEM 3)
27FEB201707294640
Stockholders are being asked to approve the compensation of AbbVie’s named executive officers, as disclosed
under Securities and Exchange Commission rules, including the Compensation Discussion and Analysis, the compensation
tables and related material included in this proxy statement.
The independent compensation committee of the board of directors, with the counsel of its independent
compensation consultant, has thoroughly examined AbbVie’s programs, the company’s performance related to our
industry and peer group, and market factors. The committee has determined that the specific pay decisions for the
named executive officers are appropriate given the company’s performance, the executives’ contributions, and our
stockholders’ interests.
While this vote is advisory and non-binding, the board of directors and the compensation committee value the
opinion of the stockholders and will review the voting results and take them into account when future compensation
decisions are made.
Accordingly, the board of directors recommends that you vote FOR the approval of the named executive
officers’ compensation.
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MANAGEMENT PROPOSAL REGARDING THE ANNUAL
ELECTION OF DIRECTORS (cid:24)ITEM 4(cid:25)
26FEB201714333569
Currently, AbbVie’s Amended and Restated Certificate of Incorporation (the ‘‘Certificate of Incorporation’’)
provides for a classified board of directors divided into three classes of directors, with each class elected for three-year
terms.
After considering the advantages and disadvantages of declassification, including through an open dialogue with
our stockholders, the board has determined it is in the best interests of the company and its stockholders to amend the
company’s Certificate of Incorporation and the Amended and Restated By-Laws (the ‘‘By-Laws’’) to declassify the board.
This will result in a fully declassified board by the 2020 Annual Meeting.
The proposed amendment to the Certificate of Incorporation would eliminate the classification of the board over
a three-year period beginning at the 2018 Annual Meeting with directors elected to a one-year term following the
expiration of the directors’ existing terms and provide for the annual election of all directors beginning at the 2020
Annual Meeting. The proposed amendment to the Certificate of Incorporation would become effective upon the filing of
a Certificate of Amendment with the Secretary of State of the State of Delaware, which the company would file promptly
following the 2017 Annual Meeting if our stockholders approve the amendment. The proposed amendment would not
change the present number of directors or the board’s authority to change that number and to fill any vacancies or
newly created directorships.
Delaware law provides, unless otherwise addressed in the certificate of incorporation, that members of a board
that is classified may be removed only for cause. The proposed amendment would provide that once the AbbVie board
is fully declassified as of the 2020 Annual Meeting, directors may be removed with or without cause.
The proposed Certificate of Amendment to the Certificate of Incorporation is attached to this proxy statement as
Appendix A. The affirmative vote of the holders of 80 percent of the outstanding shares of stock entitled to vote
generally in the election of directors on the Record Date is required to approve this proposal pursuant to the Certificate
of Incorporation. If our stockholders approve the proposed amendment to the Certificate of Incorporation, the board will
make certain conforming changes to the company’s By-Laws.
The board of directors recommends that you vote FOR the management proposal to amend the Certificate of
Incorporation to declassify the board of directors for annual elections.
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STOCKHOLDER PROPOSALS
26FEB201714333976
Two stockholder proposals will be voted upon at the Annual Meeting if properly presented by or on behalf of
the proponent. The address of each of the proponents is available upon request. The proposed resolutions and the
statements made in support thereof, as well as the Board of Directors’ statements in opposition to these proposals, are
presented on the following pages. The proposal may contain assertions about AbbVie or other statements that we
believe are incorrect.
The board of directors recommends that you vote AGAINST the proposals for the reasons set forth following
the proposals.
Stockholder Proposal on Lobbying Report (Item 5 on Proxy Card)
.................................................................................................................................................................................................................................................................................................................................
Zevin Asset Management, on behalf of William Creighton, and co-filer UAW Retiree Medical Benefits Trust have
notified AbbVie that it intends to present the following proposal at the Annual Meeting and that they collectively own
797,026 AbbVie shares.
Whereas, we believe in full disclosure of AbbVie’s direct and indirect lobbying activities and expenditures to
assess whether AbbVie’s lobbying is consistent with AbbVie’s expressed goals and in the best interests of stockholders.
Resolved, the stockholders of AbbVie request the preparation of a report, updated annually, disclosing:
1.
2.
3.
4.
Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying
communications.
Payments by AbbVie used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each
case including the amount of the payment and the recipient.
AbbVie’s membership in and payments to any tax-exempt organization that writes and endorses model
legislation.
Description of management’s decision making process and the Board’s oversight for making payments described
in section 2 above.
For purposes of this proposal, a ‘‘grassroots lobbying communication’’ is a communication directed to the
general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and
(c) encourages the recipient of the communication to take action with respect to the legislation or regulation. ‘‘Indirect
lobbying’’ is lobbying engaged in by a trade association or other organization of which AbbVie is a member.
Both ‘‘direct and indirect lobbying’’ and ‘‘grassroots lobbying communications’’ include efforts at the local, state
and federal levels.
The report shall be presented to the Audit Committee or other relevant oversight committees and posted
directly on AbbVie’s website.
Supporting Statement
As stockholders, we encourage transparency and accountability in the use of corporate funds to influence
legislation and regulation. AbbVie spent $11.4 million in 2015 and 2016 on direct federal lobbying activities
(opensecrets.org). This figure does not include lobbying expenditures to influence legislation in states. AbbVie lobbies at
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STOCKHOLDER PROPOSALS
the state level but disclosure is uneven or absent. For example, AbbVie spent $798,829 on lobbying in California in 2015
and 2016.
AbbVie is a member of the Chamber of Commerce, which spent over $79 million lobbying in 2016 and has
spent over $1.2 billion on lobbying since 1998. AbbVie is also a member of the Pharmaceutical Research and
Manufacturers of America (PhRMA) and the Business Roundtable, which together spent over $52 million on lobbying in
2015 and 2016. AbbVie’s membership in PhRMA has attracted press scrutiny (‘‘Generics Giant Teva Join PhRMA? AbbVie,
Others Aren’t Having It,’’ FiercePharma, July 5, 2016).
Investors are concerned that AbbVie does not disclose total state and federal lobbying expenditures nor the
portion of its trade association payments used for lobbying. More transparent reporting would reveal whether company
assets are being used for objectives contrary to AbbVie’s long-term interests. For example, AbbVie supports smoking
cessation, yet the Chamber has worked to block global antismoking laws and advance the tobacco industry’s domestic
priorities (‘‘U.S. Chamber Works Globally to Fight Antismoking Measures,’’ New York Times, June 30, 2015; ‘‘Big Tobacco’s
Staunch Friend in Washington: U.S. Chamber of Commerce,’’ New York Times, October 9, 2015).
Board of Directors Statement in Opposition to the Stockholder Proposal on Lobbying Report (Item 5 on
Proxy Card)
.................................................................................................................................................................................................................................................................................................................................
The Board of Directors recommends that stockholders vote AGAINST this proposal. This proposal is unnecessary,
because AbbVie already makes extensive disclosures regarding our lobbying and political activities as required by law and
we voluntarily disclose additional related information on our website, as outlined below. AbbVie has already
demonstrated transparency with respect to lobbying activities and strong risk mitigation procedures governing such
activities. The preparation and maintenance of an additional report, as proposed, is neither a good use of resources, nor
would it increase stockholder value.
The Board, through its Public Policy Committee, exercises oversight of AbbVie’s political and lobbying activities.
•
The Board of Directors Public Policy Committee exercises oversight of AbbVie’s political expenditures and
lobbying activities, as specifically enumerated in the Committee’s charter, and further governed by the
Committee’s approved policy on political contributions. The Public Policy Committee and AbbVie’s senior
management review these activities and expenditures on a regular basis.
• Our Executive Vice President, External Affairs, who reports directly to the CEO, and our Vice President,
Government Affairs, each review and approve all plans for corporate political contributions and lobbying at
the recommendation of AbbVie’s Government Affairs function to ensure that these activities are consistent
with the company’s guidelines and comply with applicable laws.
• We believe this approach, as explained on our website, minimizes risk and reflects our guiding commitment
to transparency, stewardship of corporate and stockholder funds, sound corporate practice, and high
standards of ethical conduct.
AbbVie already makes extensive disclosures regarding lobbying and political activities and has been recognized by a
leading organization for transparency in this area.
•
•
Since our launch as a new public company in 2013, AbbVie has provided robust transparency through the
disclosures described below. AbbVie’s website describes our oversight process and our guiding principles for
lobbying and political activities. We pursue activities that shape policies to benefit patients, with a focus on
improving patient access to new therapeutic advances.
AbbVie files quarterly reports that include (i) total federal lobbying expenditures, (ii) the name of the
legislation or subject matter covered, (iii) individuals who lobbied on behalf of AbbVie, and (iv) identification
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of the legislative body or executive branch that was contacted, in compliance with the Lobbying Disclosure
Act. These reports include expenses associated with lobbying the federal government and the portion of
trade association dues associated with federal lobbying. AbbVie provides links to these reports on our
website at http://www.abbvie.com/responsibility/transparency-policies/home.html#cpc. We file similar
publicly-available lobbying reports with state and local agencies as required by law.
In 2016, AbbVie enhanced our website with a comprehensive list of our state lobbying reports with direct
links to our state filings or the relevant database.
AbbVie also provides a listing of corporate contributions to political candidates, political parties, political
committees, ballot measure committees, and organizations operating under Section 527 of the Internal
Revenue Code. These reports are updated every six months and are archived for reference on our website
identified above.
AbbVie does not currently make direct expenditures toward U.S. federal or state grassroots lobbying
communications to the general public and does not currently contribute funds intended for use in elections
to tax-exempt organizations under Section 501(c)(4) of the Internal Revenue Code, as disclosed on our
website. If such a contribution were made, it would be enumerated in AbbVie’s reports on other corporate
political contributions.
AbbVie discloses trade associations to which AbbVie provides $50,000 or more in annual membership, which
are reviewed by the Public Policy Committee. This threshold was lowered in 2016 from $100,000. AbbVie
also posts a list of global trade associations in which an AbbVie employee serves on the organization’s board
of directors. Both of these lists are available on our website. AbbVie chooses to participate as a member of
various associations based on our commitment to voice our concerns as appropriate through our colleagues
who serve on the boards and committees of these groups. Such participation does not imply that we always
agree with the positions of the larger organization and/or other members.
AbbVie also provides a link to the Federal Election Commission reports of the AbbVie Political Action
Committee (‘‘PAC’’), which detail the PAC’s political contributions and expenditures.
In part due to the extensive disclosures described above, AbbVie is listed in the first tier of companies
providing the highest level of political transparency and accountability in the 2016 CPA-Zicklin Index of
Corporate Political Accountability and Disclosure as we have been for the past three years.
Attempting to quantify indirect lobbying would be difficult to estimate and potentially misleading to
stockholders as AbbVie is not directing the lobbying activities of trade, civic or patient groups. Further, it
would be difficult for us to determine which third parties may endorse model legislation and whether such
activities fall within the proposal’s request.
•
•
•
•
•
•
•
In summary, our robust oversight mechanisms and extensive disclosures address the concerns underlying the
proposal, but without the unnecessary business risks and additional resources the proposal would introduce if
implemented.
The Board of Directors recommends that you vote AGAINST the proposal.
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Stockholder Proposal to Separate Chair and CEO (Item 6 on Proxy Card)
.................................................................................................................................................................................................................................................................................................................................
The Congregation of Sisters of St. Agnes has notified AbbVie that it intends to present the following proposal at
the Annual Meeting and that the proponent owns 38 AbbVie shares.
RESOLVED:
The shareholders request the Board of Directors to adopt as policy, and amend the bylaws as
necessary, to require the Chair of the Board of Directors, whenever possible, to be an independent member of the
Board. This policy would be phased in for the next CEO transition.
If the Board determines that a Chair who was independent when selected is no longer independent, the Board
shall select a new Chair who satisfies the requirements of the policy within a reasonable amount of time. Compliance
with this policy is waived if no independent director is available and willing to serve as Chair.
Supporting Statement:
We believe:
•
•
•
The role of the CEO and management is to run the company.
The role of the Board of Directors is to provide independent oversight of management and the CEO.
There is a potential conflict of interest for a CEO to be her/his own overseer as Chair while managing the
business.
AbbVie’s CEO Richard A. Gonzalez serves both as CEO and Chair of the Company’s Board of Directors. We
believe the combination of these two roles in a single person weakens a corporation’s governance structure, which can
harm shareholder value.
As Andrew Grove, Intel’s former chair, stated, ‘‘The separation of the two jobs goes to the heart of the
conception of a corporation. Is a company a sandbox for the CEO, or is the CEO an employee? If he’s an employee, he
needs a boss, and that boss is the Board. The Chairman runs the Board. How can the CEO be his own boss?’’
In our view, shareholders are best served by an independent Board Chair who can provide a balance of power
between the CEO and the Board empowering strong Board leadership. The primary duty of a Board of Directors is to
oversee the management of a company on behalf of shareholders. We believe a combined CEO / Chair creates a
potential conflict of interest, resulting in excessive management influence on the Board and weaker oversight of
management.
Numerous institutional investors recommend separation of these two roles. For example, California’s Retirement
System CaiPERS’ Principles & Guidelines encourage separation, even with a lead director in place.
According to ISS ‘‘2015 Board Practices’’, (April 2015), 53% of S&P 1,500 firms separate these two positions and
the number of companies separating these roles is growing.
Chairing and overseeing the Board is a time intensive responsibility. A separate Chair also frees the CEO to
manage the company and build effective business strategies.
Many companies have separate and/or independent Chairs. An independent Chair is the prevailing practice in
the United Kingdom and is an increasing trend in the U.S.
Shareholder resolutions urging separation of CEO and Chair received approximately 33% in 2015 and 31% in
2016, an indication of strong investor support.
To simplify the transition, this policy would be phased in and implemented when the next CEO is chosen.
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Board of Directors Statement in Opposition to the Stockholder Proposal to Separate Chair and CEO
(Item 6 on Proxy Card)
.................................................................................................................................................................................................................................................................................................................................
The Board of Directors recommends that stockholders vote AGAINST this proposal.
Our Board of Directors believes that our stockholders are best served by preserving the flexibility to determine the
appropriate leadership structure for the company in light of the circumstances at the time.
The proposal would unnecessarily restrict the Board’s ability to determine the leadership structure best suited to
AbbVie and our stockholders and would not allow the Board to consider the specific circumstances and needs of AbbVie
at a particular time.
Our Board carefully considers the independence of its directors and committees, the availability of an engaged
strong lead independent director, the strategic plan, and the leadership of the CEO. It is important that our Board
continue to be able to assess these relevant factors, in fulfillment of its fiduciary duty, to determine the leadership
structure best suited to meet the needs of AbbVie. Further, our Board is committed to periodically reviewing the Board’s
leadership structure.
AbbVie’s existing leadership structure and corporate governance practices provide strong independent oversight.
AbbVie has a robust lead independent director role. The lead independent director is chosen by and from the
independent members of the full Board of Directors and has significant authority and responsibilities to ensure
meaningful independent leadership of the Board. Among other duties, our lead independent director:
•
•
•
•
•
•
facilitates communication with the Board and presides over regularly conducted executive sessions of the
independent directors or sessions where the chairman of the Board is not present;
reviews and approves matters, such as agenda items, schedule sufficiency, and, where appropriate,
information provided to other Board members;
serves as the liaison between the chairman of the Board and the independent directors;
has the authority to call meetings of the independent directors;
if requested by major stockholders, ensures that he or she is available for consultation and direct
communication as needed; and
performs such other duties as the Board may determine from time to time.
All directors, other than the CEO, are independent. All key committees and committee chairs are comprised
completely of independent directors. Our independent directors meet regularly in executive session, which is presided
over by the lead director, as set forth in our Governance Guidelines available on our website. Our directors are subject
to majority voting as set forth in our By-Laws.
The Board carefully considers AbbVie’s leadership structure and has determined that the existing leadership structure
best serves the needs of the company and its stockholders at this time.
In light of the lead independent director authority and responsibilities and other corporate governance practices
outlined above, the Board has determined that its current leadership structure, in which the offices of chairman of the
Board and chief executive officer are held by one individual and the chair of the nominations and governance committee
serves as the lead director, ensures that the appropriate level of oversight, independence, and responsibility is applied to
all Board decisions, including risk oversight, and is in the best interests of AbbVie and its stockholders.
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STOCKHOLDER PROPOSALS
In summary, the proposal would unnecessarily restrict the independent Board members’ flexibility, regardless of
circumstances, to appoint the individual they think is the most appropriate person to serve as Chair, even with a
balanced, strong lead independent director structure. These undue restrictions on the Board, in light of AbbVie’s robust
independent oversight mechanisms, are not in the best interests of stockholders.
The Board of Directors recommends that you vote AGAINST the proposal.
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ADDITIONAL INFORMATION
26FEB201714333282
Corporate Governance Materials
.................................................................................................................................................................................................................................................................................................................................
AbbVie’s corporate governance guidelines with the outline of directorship qualifications; director independence
guidelines; code of business conduct; and audit committee, compensation committee, nominations and governance
committee, and public policy committee charters are all available in the corporate governance section of AbbVie’s
investor relations website at www.abbvieinvestor.com.
Procedures for Approval of Related Person Transactions
.................................................................................................................................................................................................................................................................................................................................
It is AbbVie’s policy that the nominations and governance committee review, approve, ratify or disapprove of all
transactions in which AbbVie participates and in which any related person has a direct or indirect material interest if
such transaction involves or is expected to involve payments of $120,000 or more in the aggregate per fiscal year.
Related person transactions requiring review by the nominations and governance committee pursuant to this policy are
identified in:
•
•
•
questionnaires annually distributed to AbbVie’s directors and executive officers;
certifications submitted annually by AbbVie executive officers related to their compliance with AbbVie’s Code
of Business Conduct; or
communications made directly by the related person to the chief financial officer or general counsel.
In determining whether to approve or ratify a related person transaction, the nominations and governance
committee will consider the following items, among others:
•
•
•
•
•
the related person’s relationship to AbbVie and interest in the transaction;
the material facts of the transaction, including the aggregate value of such transaction or, in the case of
indebtedness, the amount of principal involved;
the benefits to AbbVie of the transaction;
if applicable, the availability of other sources of comparable products or services;
an assessment of whether the transaction is on terms that are comparable to the terms available to an
unrelated third party or to employees generally;
• whether a transaction has the potential to impair director independence; and
• whether the transaction constitutes a conflict of interest.
This process is included in the nominations and governance committee’s written charter, which is available on
the corporate governance section of AbbVie’s investor relations website at www.abbvieinvestor.com.
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ADDITIONAL INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
.................................................................................................................................................................................................................................................................................................................................
AbbVie believes that during 2016 its executive officers and directors timely complied with all filing requirements
under Section 16(a) of the Securities Exchange Act of 1934, except that one Form 4 reporting the receipt of stock
equivalent units for each director who received stock equivalent units during 2016 was not timely filed due to
administrative error by the company.
Performance-Based Compensation Arrangements
.................................................................................................................................................................................................................................................................................................................................
The Performance Incentive Plan and the Incentive Stock Program are intended to comply with Internal Revenue
Code Section 162(m) to permit deductibility of performance-based compensation.
The compensation committee reserves the flexibility to take actions that may be based on considerations in
addition to tax deductibility. The committee believes that stockholder interests are best served by not restricting the
committee’s discretion and flexibility in crafting compensation programs, even if such programs may result in certain
non-deductible compensation expenses. Accordingly, the committee may from time to time approve components of
compensation for certain executive officers that are not deductible.
While the compensation committee does not anticipate there would ever be circumstances where a restatement
of earnings upon which any incentive plan award decisions were based would occur, the committee, in evaluating such
circumstances, has discretion to take all actions necessary to protect the interests of stockholders up to and including
actions to recover such incentive awards.
Exclusive Forum
.................................................................................................................................................................................................................................................................................................................................
AbbVie is incorporated in the state of Delaware and Delaware law governs the relationship among its directors,
officers, and stockholders (also known as the internal affairs doctrine). To provide for the orderly, efficient and cost-
effective resolution of Delaware-law issues affecting AbbVie, the company’s Certificate of Incorporation provides that
unless the board of directors otherwise determines, Delaware courts are the exclusive forum for cases involving the
internal affairs doctrine, derivative actions brought on behalf of the company, claims for breach of fiduciary duty, and
other matters concerning Delaware statutory and common law. The provision does not apply to any other cases brought
against AbbVie.
Other Matters
.................................................................................................................................................................................................................................................................................................................................
The board of directors knows of no other business to be transacted at the 2017 Annual Meeting of
Stockholders, but if any other matters do come before the meeting, it is the intention of the persons named in the
accompanying proxy to vote or act with respect to them in accordance with their best judgment.
Date for Receipt of Stockholder Proposals for the 2018 Annual Meeting Proxy Statement
.................................................................................................................................................................................................................................................................................................................................
Stockholder proposals for presentation at the 2018 Annual Meeting must be received by AbbVie no later than
November 21, 2017 and must otherwise comply with the applicable requirements of the Securities and Exchange
Commission to be considered for inclusion in the proxy statement and proxy for the 2018 meeting.
Procedure for Recommendation and Nomination of Directors and Transaction of Business at Annual
Meeting
.................................................................................................................................................................................................................................................................................................................................
A stockholder may recommend persons as potential nominees for director by submitting the names of such
persons in writing to the secretary of AbbVie. Recommendations must be accompanied by certain information about
both the nominee and the stockholder making the nomination, as set forth in AbbVie’s Amended and Restated By-Laws.
A nominee who is recommended by a stockholder following these procedures will receive the same consideration as
other comparably qualified nominees.
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A stockholder entitled to vote for the election of directors at an Annual Meeting and who is a stockholder of
ADDITIONAL INFORMATION
record on:
•
•
•
the record date for that Annual Meeting,
the date of this proxy statement, and
the date of the Annual Meeting
may nominate persons for director, or make proposals of other business to be brought before the Annual Meeting, by
providing proper timely written notice to the secretary of AbbVie. That notice must include certain information required
by Article II of AbbVie’s Amended and Restated By-Laws, including information about the stockholder, any beneficial
owner on whose behalf the nomination or proposal is being made, their respective affiliates or associates or others
acting on concert with them, and any proposed director nominee.
For each matter the stockholder proposes to bring before the Annual Meeting, the notice must also include a
brief description of the business to be discussed, the reasons for conducting such business at the Annual Meeting, any
material interest of the stockholder in such business and certain other information specified in the By-Laws. In addition,
in the case of a director nomination, the notice must include a completed and signed questionnaire, representation and
agreement of the nominee addressing matters specified in the By-Laws.
To be timely, written notice either to directly nominate persons for director or to bring business properly before
the Annual Meeting must be received at AbbVie’s principal executive offices not less than ninety days and not more than
one hundred twenty days prior to the anniversary date of the preceding Annual Meeting. If the Annual Meeting is called
for a date that is more than thirty days before or sixty days after such anniversary date, notice by the stockholder must
be received not less than ninety days and not more than one hundred twenty days prior to the date of such Annual
Meeting and not later than the close of business on the later of ninety days prior to the date of such Annual Meeting,
or, if the first public announcement of the date of such Annual Meeting is less than one hundred days prior to the date
of such Annual Meeting, the tenth day following the day on which public announcement of the date of such meeting is
first made by AbbVie. To be timely for the 2018 Annual Meeting, this written notice must be received by AbbVie no later
than February 5, 2018.
In addition, the notice must be updated and supplemented, if necessary, so that the information provided or
required to be provided is true and correct as of the record date for the Annual Meeting and as of the date that is ten
business days prior to the meeting. Any such update or supplement must be delivered to the secretary of AbbVie at
AbbVie’s principal executive offices not more than five business days after the record date for the Annual Meeting, and
not less than eight business days before the date of the Annual Meeting in the case of any update or supplement
required to be made as of ten business days prior to the Annual Meeting.
Procedure for Stockholder Nominations to be Included in AbbVie’s Proxy Materials
.................................................................................................................................................................................................................................................................................................................................
AbbVie recently adopted a proxy access By-Law provision to permit a stockholder, or a group of up to 20
stockholders, continuously owning shares of our company for at least 3 years and representing an aggregate of at least
3% of the outstanding shares of common stock, to nominate and include in our proxy materials director nominee(s)
constituting up to 25% of the total number of the directors in office, provided that the stockholder(s) and the
nominee(s) satisfy the requirements in our By-Laws. Notice must include certain information required by Article II of
AbbVie’s Amended and Restated By-Laws. To be timely, written notice must be received at AbbVie’s principal executive
offices not earlier than 150 days and not later than 120 days before the anniversary of the date that the company
mailed its proxy statement for the prior year’s annual meeting of stockholders. To be timely for the 2018 Annual
Meeting, this written notice must be received by AbbVie no later than November 21, 2017 and must include the specific
information required by, and otherwise comply with the requirements of, our By-Laws.
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ADDITIONAL INFORMATION
Householding of Proxy Materials
.................................................................................................................................................................................................................................................................................................................................
The Securities and Exchange Commission has adopted rules that permit companies and intermediaries (such as
brokers or banks) to satisfy the delivery requirements for proxy statements with respect to two or more security holders
sharing the same address by delivering a single Notice or proxy statement addressed to those security holders. This
process, which is commonly referred to as ‘‘householding,’’ potentially provides extra convenience for security holders
and cost savings for companies.
Several brokers and banks with accountholders who are AbbVie stockholders will be ‘‘householding’’ our proxy
materials. As indicated in the notice provided by these brokers to AbbVie stockholders, a single proxy statement will be
delivered to multiple stockholders sharing an address unless contrary instructions have been received from an affected
stockholder. Once you have received notice from your broker that it will be ‘‘householding’’ communications to your
address, ‘‘householding’’ will continue until you are notified otherwise or until you revoke your consent. If, at any time,
you no longer wish to participate in ‘‘householding’’ and you prefer to receive a separate proxy statement, please notify
your broker, or contact Broadridge Financial Solutions at 1-866-540-7095, or write to us at Investor Relations, AbbVie Inc.,
1 North Waukegan Road, North Chicago, Illinois 60064. Stockholders who currently receive multiple copies of the proxy
statement at their address and would like to request ‘‘householding’’ of their communications should contact their
broker or bank.
Cautionary Statement Regarding Forward-Looking Statements
.................................................................................................................................................................................................................................................................................................................................
This proxy statement contains certain forward-looking statements regarding business strategies, market potential,
future financial performance and other matters. The words ‘‘believe,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘project’’ and similar
expressions, among others, generally identify ‘‘forward-looking statements,’’ which speak only as of the date the
statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and
other factors that may cause actual results to differ materially from those projected, anticipated or implied in the
forward-looking statements. Where, in any forward-looking statement, an expectation or belief as to future results or
events is expressed, such expectation or belief is based on the current plans and expectations of AbbVie management
and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation
or belief will result or be achieved or accomplished. Factors that could cause actual results or events to differ materially
from those anticipated include the matters described in AbbVie’s Annual Report on Form 10-K for the year ended
December 31, 2016 under Item 1A, ‘‘Risk Factors’’ and Item 7, ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations.’’ AbbVie does not undertake any obligation to update the forward-looking
statements included in this proxy statement to reflect events or circumstances after the date hereof, unless AbbVie is
required by applicable securities law to do so.
General
.................................................................................................................................................................................................................................................................................................................................
It is important that proxies be returned promptly. Stockholders are urged to vote, regardless of the number of
shares of AbbVie common stock owned. Stockholders may vote by telephone, by Internet, or by mail if a printed version
of the proxy card was received or requested. Stockholders who vote by telephone or the Internet do not need to return
a proxy card.
The Annual Meeting will be held at the Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago,
Illinois 60601. Admission to the meeting will be by admission card only. A stockholder planning to attend the meeting
should promptly complete and return the reservation form. Reservation forms must be received before April 28, 2017.
An admission card admits only one person. A stockholder may request two admission cards, but a guest must be
accompanied by a stockholder.
By order of the board of directors.
LAURA J. SCHUMACHER
SECRETARY
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Appendix A
Proposed Certificate of Amendment to the Amended and Restated Certificate of Incorporation of AbbVie Inc.
The text of the proposed amendment is marked to reflect the proposed changes.
AbbVie Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the
State of Delaware (the ‘‘Corporation’’), does hereby certify:
Sections 2, 3, and 4 of Article VI of AbbVie’s Amended and Restated Certificate of Incorporation are amended to
1.
read as follows:
Section 2. Classes of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect
directors under specified circumstances, the directors shall, until the annual meeting of stockholders to be held in
2020, be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in
number as is reasonably possible. , with tThe term of office of the class of directors elected at the annual meeting
of stockholders in 2017 shall first class to expire at the 202013 annual meeting of stockholders, the term of office of
the class of directors elected at the annual meeting of stockholders held in 2018 shall second class to expire at the
20194 annual meeting of stockholders and the term of office of the third class to class of directors elected at the
annual meeting of stockholders held in 2019 shall expire at the 202015 annual meeting of stockholders, with each
director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting
of stockholders, commencing with the 20183 annual meeting, (a) directors elected to succeed those directors whose
terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of
stockholders held in the year following the year of after their election, with each director to hold office until his or
her successor shall have been duly elected and qualified, and (b) if authorized by a resolution of the Board of
Directors, directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy
shall have been created.
Section 3. Vacancies. Subject to applicable law and the rights of the holders of any series of Preferred Stock
with respect to such series of Preferred Stock, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative
vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and in the event
that there is only one director remaining in office, by such sole remaining director, and directors so chosen shall
hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to
which they have been appointed expires and until such director’s successor shall have been duly elected and
qualified and, if the Board of Directors at such time is classified, for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which such director has been appointed expires.
Section 4. Removal. Except as provided in the subsequent sentence and subject to the rights of the holders
of any series of Preferred Stock with respect to such series of Preferred Stock, any director, or the entire Board of
Directors, may be removed from office at any time, with or without cause by the affirmative vote of the holders of
at least a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the
election of directors. Notwithstanding the immediately preceding sentence, subject to the rights of the holders of
any series of Preferred Stock with respect to such series of Preferred Stock, until the 2020 annual meeting of the
stockholders, a director may be removed from office only for cause by the affirmative vote of the holders of at least
a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of
directorsSubject to the rights of the holders of any series of Preferred Stock with respect to such series of Preferred
Stock, any director, or the entire Board of Directors, may be removed from office at any time but only for cause by
the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
The foregoing amendment to the Amended and Restated Certificate of Incorporation of the Corporation was duly
2.
adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law.
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Appendix A
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Amended and Restated
Certificate of Incorporation to be executed by the undersigned officer, duly authorized, as of the
2017.
day of
AbbVie Inc.
By:
Name:
Title:
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A-2
Appendix B
AbbVie Inc.
Reconciliation of GAAP Reported to Non-GAAP Adjusted Information
Year Ended December 31, 2016
(Unaudited) (In millions, except per share data)
Non-GAAP Financial Results
Financial results are presented on both a reported and a non-GAAP basis. Reported results were prepared in accordance
with GAAP and include all revenues and expenses recognized during the period. Non-GAAP results adjust for certain
non-cash items and for factors that are unusual or unpredictable, and exclude those costs, expenses, and other specified
items. AbbVie’s management believes non-GAAP financial measures provide useful information to investors regarding
AbbVie’s results of operations and assist management, analysts, and investors in evaluating the performance of the
business. Non-GAAP financial measures should be considered in addition to, and not as a substitute for, measures of
financial performance prepared in accordance with GAAP.
Business Performance Highlights Reconciliations
1. Net Revenues since 2013 Inception and Compound Annual Growth Rate
As reported (GAAP)
Adjusted for specified items:
As adjusted (non-GAAP)
2016
2015
2014
2013
$25,638
(78)
$22,859
(40)
$19,960
(81)
$18,790
—
$25,560
$22,819
$19,879
$18,790
2016-2013
CAGR
10.9%
(cid:6)0.1%
10.8%
The 2016 specified revenue items included milestone revenue under previously announced collaborations and prior
period royalty revenue related to a patent lawsuit settlement. The 2015 net revenue specified item represents a
milestone payment received under a previously announced collaboration. The 2014 net revenue specified item reflects
royalty income from prior periods recognized in the fourth quarter of 2014 as a result of the settlement of a licensing
arrangement.
2.
Diluted Earnings Per Share Compound Annual Growth Rate and Operating Margin Expansion since 2013 Inception
As reported (GAAP)
Adjusted for specified items:
As adjusted (non-GAAP)
Earnings Per Share
Operating Margin
Expansion
2016
2013
$3.63
1.19
$2.56
0.58
2016-2013
CAGR
2016
2013
2016-2013
Expansion
12.4% 36.6% 30.1%
6.2%
5.8%
3.1%
650 bps
(40 bps)
$4.82
$3.14
15.4% 42.4% 36.3%
610 bps
3.
2016 Net Revenues over 2015 Year End and Operating Margin Percentage
As reported (GAAP)
Adjusted for specified and other items:
Adjusted for R&D investment related acquisitions in 2016:
Adjusted for foreign exchange:
As adjusted (non-GAAP)
Net Revenues Operating Margin
12.2%
(cid:6)0.2%
—
1.3%
13.3%
36.6%
5.8%
0.9%
2.6%
45.9%
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Appendix B
4.
Diluted Earnings Per Share since 2013 Inception
As reported (GAAP)
Adjusted for specified items:
Intangible asset amortization
Separation costs
Milestones and other R&D expenses
Acquired IPR&D
Acquisition related costs
Shire transaction and termination costs
Change in fair value of contingent consideration
Venezuela devaluation loss
Revaluation due to Section 987 tax law change
Other
2016
2015
2014
2013
$3.63
$3.13
$1.10
$2.56
0.38
0.05
0.12
0.16
0.20
— 0.13
0.26
0.09
0.25
— 0.10
—
—
—
0.13
0.14
0.18
0.12
0.04
0.18
0.24
0.48
0.15
—
1.12
—
—
—
0.05
0.23
0.10
—
0.21
—
—
—
—
—
0.04
As adjusted (non-GAAP)
$4.82
$4.29
$3.32
$3.14
2016 Performance Results for Financial Goals Reconciliations
As reported (GAAP)
Adjusted for specified items:
Adjusted for foreign exchange:
As adjusted (non-GAAP)
Net Revenues
Income Before Taxes Operating Margin Humira Sales
$25,638
(78)
(166)
$25,394
$ 7,884
2,021
121
$10,026
$ 9,384
1,442
146
$10,972
$16,078
—
(89)
$15,989
The calculation of Adjusted Return on Assets reflects Adjusted Net Earnings.
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(This page has been left blank intentionally.)
26FEB201718350529
AbbVie Inc.
1 North Waukegan Road
North Chicago, Illinois 60064 U.S.A.
Notice of Annual Meeting
of Stockholders
and Proxy Statement
Meeting Date
May 5, 2017
YOUR VOTE IS IMPORTANT!
Please sign and promptly return your proxy
in the enclosed envelope or vote your
shares by telephone or using the Internet.
Reservation Form for Annual Meeting
I am a stockholder of AbbVie Inc. and I plan to attend the Annual Meeting to be held at the Fairmont Chicago,
Millennium Park, 200 North Columbus Drive, Chicago, Illinois 60601 at 9:00 a.m. CT on May 5, 2017.
Please send me an admission card for each of the following persons.
Name
Address
City
State
Zip Code
Name
Address
City
State
Zip Code
Phone Number (
)
Phone Number (
)
If you plan to attend the meeting, please complete the Reservation Form and send it to AbbVie Inc., Annual Meeting
Ticket Requests, AP34, 1 North Waukegan Road, North Chicago, Illinois 60064. Due to space limitations, Reservation
Forms must be received before April 28, 2017. An admission card, along with a form of photo identification, admits
one person. A stockholder may request two admission cards, but a guest must be accompanied by a stockholder.
To prevent a delay in the receipt of your admission card, do not return this form with your proxy card or mail it in
the enclosed business envelope.
28FEB201710025299
Printed on Recyclable Paper
about abbvie
AbbVie is a global, research-based
biopharmaceutical company formed
in 2013 following separation from
Abbott Laboratories. The company’s
mission is to use 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. Together
with its wholly-owned subsidiary,
Pharmacyclics, AbbVie employs more
than 28,000 people worldwide and markets
medicines in more than 170 countries.
For further information on the company
and its people, portfolio and commitments,
please visit www.abbvie.com.
stockholder information
AbbVie Inc. Corporate Headquarters
1 North Waukegan Road
North Chicago, IL 60064
847.932.7900
abbvie.com
Investor Relations
Dept. ZZ05, AP34
Corporate Secretary
Dept. V364, AP34
Stock Listing
The ticker for AbbVie’s common stock
is ABBV. The principal market for AbbVie
common stock is the NYSE. AbbVie
common stock is also listed on the Chicago
Stock Exchange, the NYSE Euronext Paris,
and the SIX Swiss Exchange.
Annual Meeting
The Annual Meeting will be held on
Friday, May 5, 2017, at 9 a.m. at
the Fairmont Chicago, Millennium Park,
200 North Columbus Drive,
Chicago, IL 60601.
Dividend Reinvestment Plan
The AbbVie Dividend Reinvestment
Plan offers registered stockholders
an opportunity to purchase additional
shares, commission-free, through
automatic dividend reinvestment
and/or optional cash investments.
Interested persons may contact the
transfer agent.
Transfer Agent
Computershare Trust Co. NA
P.O. Box 43078
Providence, RI 02940-3078
877.881.5970 (toll free)
732.645.4123
www.computershare.com
7188_AbbvieCover.indd 2
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2016 annual report
on form 10-k
2017 notice of
annual meeting
& proxy statement
AbbVie 1 North Waukegan Road, North Chicago, IL 60064 U.S.A. abbvie.com
Copyright© 2017 AbbVie. All rights reserved.
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