2018 Annual Report
on Form 10-K
2019 Notice of Annual
Meeting & Proxy Statement
AbbVie
1 North Waukegan Road
North Chicago, IL 60064
U.S.A.
abbvie.com
Copyright© 2019 AbbVie.
All rights reserved.
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Laura J. Schumacher
Vice Chairman, External Affairs and Chief Legal Officer
We live a culture of giving back.
In 2018, we pledged an additional $350 million in charitable contributions to nonprofits based in the United States supporting
long-term community strength. We focused our contributions in three areas that align with our priorities, and on nonprofits
that are making a real impact in communities in need.
Helping families thrive
Supporting disaster relief
Strengthening K-12 education
• Ronald McDonald House Charities
will add 600 new guest sleeping rooms and
family-centered spaces in 32 locations
• Habitat for Humanity expects to directly
assist 13,000 hurricane-affected residents
in Puerto Rico
• Communities In Schools will increase
reach to 143 schools and serve 100,000
more at-risk kids
• St. Jude Children’s Research Hospital
will serve 8,500 patients each year in the
new Family Commons space and add 6.5
new acres of green space
• Family Reach will expand and accelerate
its programs and reach 25 new hospitals
in 23 states
• Direct Relief will support 60 community
• City Year will expand in Chicago to reach
health centers in Puerto Rico
schools that serve 18,000 students
• University of Chicago Education Lab
will generate evidence to guide policy in
Chicago and cities nationwide
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#AbbVieGivesBack
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 also is listed on
the Chicago Stock Exchange.
Annual Meeting
The Annual Meeting will be held on
Friday, May 3, 2019, 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
EQ Shareowner Services
P.O. Box 64874
St Paul, MN 55164-0874
www.shareowneronline.com
877.881.5970
651.450.4064
About AbbVie
AbbVie is a global, research and
development-based biopharmaceutical
company committed to developing innovative
advanced therapies for some of the world’s
most complex and critical conditions. The
company’s mission is to use its expertise,
dedicated people and unique approach to
innovation to markedly improve treatments
across four primary therapeutic areas:
immunology, oncology, virology and
neuroscience. In more than 75 countries,
AbbVie employees are working every day to
advance health solutions for people around
the world. For more information about
AbbVie, please visit us at www.abbvie.com.
AbbVie's Commitment to
AbbVie’s commitment to corporate responsibility
Corporate Responsibility
We strive to make a remarkable impact on patients and drive sustainable growth by discovering and delivering a consistent
stream of innovative medicines that address serious health problems.
Creating real health improvement
is not only our mission, but also how we
stay competitive. To be a leading health
care innovator, we must attract, retain and
support a diverse workforce and invest in
their efforts to develop medicines that
bring value for patients.
We recognize that health is of fundamental
importance to all people. To participate
over the long term in the provision of health
care, we must earn and maintain the trust
of patients, health care providers,
regulators, policymakers, and the public.
For any business to be successful, it
must operate in strong, resilient and
growing markets. We have the opportunity
to use our unique resources to support
well-being, resilience and growth in our
current markets, and help lay the foundation
for broader economic development.
Commitment: Use our expertise to
improve health
Commitment: Steward our ethical and
sustainable business
Commitment: Support long-term
community strength
• Develop a diverse, inclusive workforce
• Maintain high standards of ethics, quality
• Advance public health and patient
• Make innovative medicines that offer
significant health benefit
and safety
well-being
• Protect human rights and workplace safety
• Support employee vitality
• Address the health needs of the
• Prioritize environmental sustainability
• Support community resilience and
underserved
long-term economic growth
2018 Highlights
Using our expertise to address the health needs of the underserved
39,945
pro-bono hours given by
AbbVie scientists to research
neglected diseases, malaria,
and tuberculosis
90
+
low- and middle-income countries
covered by a royalty-free license to
the Medicines Patent Pool for our
pan-genotypic HCV medicine
Developing a diverse and inclusive culture
47%
of management
positions are held
by women globally
31%
of our US workforce is made up
of historically underrepresented
populations
Supporting long-term community strength
Advancing
sustainability
and environmental
stewardship
20%
of our electricity was
purchased from renewable
sources in 2018
2018 was a significant year in our efforts to build long-term community strength. In addition to our ongoing support
for education and community programs, independent medical and patient education, and employee vitality and
volunteerism, in 2018 AbbVie made an additional $350 million in charitable contributions to support US non-profit
organizations making long-term impact on community strength.
For more details, please see back cover.
For more on our corporate responsibility efforts, visit abbvie.com/responsibility.
Printed on recycled paper
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13NOV201221365766
Dear AbbVie Shareholder,
Our sixth year as AbbVie was filled with many successes and launched the next phase of our company’s evolution.
Since our outset in 2013, AbbVie has been dedicated to driving a remarkable impact on patients and society by
addressing some of the world’s most complex medical challenges. We have made substantial progress on this vision
while simultaneously delivering consistent top-tier performance, and, in 2018, posted our fourth consecutive year of
double-digit growth.
Performance in 2018 was our strongest to-date across several metrics. Operational revenue grew 15 percent to
$32.7 billion with nearly one quarter of our global sales generated from products launched since our inception in
2013. Together with Humira, these new products continue to advance the standard of care for patients and drove
sustained long-term growth.
On the strength of our business performance and amid continued healthy investment for the future, we raised
our earnings forecast more than 20 percent over the course of 2018. We delivered adjusted earnings per share growth
of 41 percent to $7.91, the highest level of growth in our peer group and the best performance in AbbVie’s history.
We have demonstrated our strong commitment to our shareholders with quarterly dividend growth of 50 percent in
2018 and total growth of 168 percent since inception. We remain committed to investing in our business to sustain
long-term growth and rewarding our shareholders with a strong return on capital.
We continue to invest in our key therapeutic areas of Immunology, Oncology and Neuroscience as we strive to
bring innovative new treatments to patients. Since our inception, we have launched more than 15 new therapies or
indications across our key therapeutic areas. Over the coming months, we will see continued advancement of our mid-
and late-stage pipeline as additional data from our clinical programs becomes available. As is true in our industry,
bringing innovative new medicines that solve some of the most critical health conditions is a challenging and risky
goal. However, when we are successful, we achieve our mission of changing people’s lives. Unfortunately, in 2018 we
also received disappointing results from the clinical program for Rova-T in small cell lung cancer, one of the
hardest-to-treat forms of cancer. Our research continues to focus on the most serious conditions with significant unmet
medical need and although not all research endeavors will ultimately be successful, we remain relentless in our pursuit
of leading-edge science to provide new hope to patients around the world.
As expected, in 2018, the launch of biosimilar competition for Humira began in many areas around the world. We
remain confident in our robust product portfolio and promising late-stage pipeline to continue to deliver growth. For
example, in 2018, we launched Orilissa, the first new treatment for women suffering from endometriosis in more than
a decade. In 2019, we expect to receive regulatory approval for two new Immunology therapies, risankizumab and
upadacitinib, that have demonstrated superior efficacy in clinical studies and have the potential for market leadership.
We remain focused on augmenting our pipeline through internal and external innovation to generate a steady cadence
of new product launches well into the next decade.
At AbbVie, we live a culture of giving back. That’s why, in 2018, we pledged an additional $350 million to support
U.S. nonprofits creating long-term impact in communities in need, from North Chicago to Puerto Rico and other cities
across America. We focused our contributions in three areas that align with our philanthropic priorities—helping
families thrive, disaster relief and strengthening K-12 education—demonstrating the very best of AbbVie and our
culture.
AbbVie employees around the world are passionate and dedicated to driving a remarkable impact for patients
through life-changing therapies. We are entering an exciting phase of AbbVie’s journey, one that will set the foundation
for sustainable success and we thank you for your continued support of our company.
Sincerely,
4DEC201212233206
Richard A. Gonzalez
Chairman and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
WASHINGTON, D. C. 20549
(MARK ONE)
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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:2) No (cid:3)
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:3)
No (cid:2)
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:2) No (cid:3)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes (cid:2) No (cid:3)
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:2)
Non-accelerated Filer (cid:3)
Accelerated Filer (cid:3)
Smaller Reporting Company (cid:3)
Emerging Growth Company (cid:3)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes (cid:3)
No (cid:2)
The aggregate market value of the 1,498,817,459 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, 2018), was $138,865,437,576. AbbVie has no non-voting common equity.
Number of common shares outstanding as of February 8, 2019: 1,475,083,514
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2019 AbbVie Inc. Proxy Statement are incorporated by reference into Part III. The Definitive Proxy Statement
will be filed on or about March 22, 2019.
ABBVIE INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2018
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 DISCLOSURE
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.
Item 16.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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, FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
SIGNATURES
Page
No.
1
13
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24
24
24
25
27
29
30
49
51
105
105
108
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109
109
110
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111
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116
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 virus (HCV) and human
immunodeficiency virus (HIV); neurological disorders, such as Parkinson’s disease; metabolic diseases,
including thyroid disease and complications associated with cystic fibrosis; pain associated with
endometriosis; as well as other serious health conditions. AbbVie also has a pipeline of promising new
medicines in clinical development across such important medical specialties as immunology, oncology and
neuroscience, with additional targeted investment in cystic fibrosis and women’s health.
AbbVie 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.
Segments
AbbVie operates in one business segment—pharmaceutical products. See Note 15 to the Consolidated
Financial Statements and the sales information related to HUMIRA, IMBRUVICA and MAVYRET included
under Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and 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.
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.
(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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13NOV201221352027
1
HUMIRA is sold in numerous other markets worldwide, including Japan, China, Brazil and Australia, and
accounted for approximately 61% of AbbVie’s total net revenues in 2018.
Oncology products.
AbbVie’s oncology products target some of the most complex and
difficult-to-treat cancers. These products are:
IMBRUVICA.
IMBRUVICA (ibrutinib) is an oral, once-daily therapy that inhibits a protein called
Bruton’s tyrosine kinase (BTK). IMBRUVICA was one of the first medicines to receive a United States
Food and Drug Administration (FDA) approval after being granted a Breakthrough Therapy Designation
and is one of the few therapies to receive four separate designations. IMBRUVICA currently is
approved for the treatment of adult patients with:
• Chronic lymphocytic leukemia (CLL)/Small lymphocytic lymphoma (SLL) and CLL/SLL with 17p
deletion;
• Mantle cell lymphoma (MCL) who have received at least one prior therapy*;
• Waldenstr¨om’s macroglobulinemia (WM);
• Marginal zone lymphoma (MZL) who require systemic therapy and have received at least one
prior anti-CD20-based therapy*; and
• Chronic graft versus host disease (cGVHD) after failure of one or more lines of systemic therapy.
*
Accelerated approval was granted for this indication based on overall response rate.
Continued approval for this indication may be contingent upon verification of clinical benefit
in confirmatory trials.
VENCLEXTA. VENCLEXTA (venetoclax) is a BCL-2 inhibitor used to treat adults with CLL or SLL,
with or without 17p deletion, who have received at least one prior treatment. In addition, VENCLEXTA
is used in combination with azacitidine, or decitabine, or low-dose cytarabine to treat adults with
newly-diagnosed acute myeloid leukemia (AML) who are 75 years of age or older or have other
medical conditions that prevent the use of standard chemotherapy.
Virology Products.
AbbVie’s virology products address unmet needs for patients living with HCV and
HIV.
HCV products.
AbbVie’s HCV products are:
MAVYRET/MAVIRET. MAVYRET (glecaprevir/pibrentasvir) is approved in the United States
and European Union (MAVIRET) for the treatment of patients with chronic HCV genotype 1-6
infection without cirrhosis and with compensated cirrhosis (Child-Pugh A). It is also indicated for
the treatment of adult patients with HCV genotype 1 infection, who previously have been treated
with a regimen containing an HCV NS5A inhibitor or an NS3/4A protease inhibitor, but not both. It
is an 8-week, pan-genotypic treatment for patients without cirrhosis and who are new to
treatment.
VIEKIRA PAK AND TECHNIVIE. 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, VIEKIRA PAK is marketed as VIEKIRAX + EXVIERA and is approved for use in
patients with genotype 1 and genotype 4 HCV. AbbVie’s TECHNIVIE (ombitasvir, paritaprevir and
ritonavir) is FDA-approved for use in combination with ribavirin for the treatment of adults with
genotype 4 HCV infection in the United States.
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Additional Virology products.
AbbVie’s additional virology products include:
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 respiratory syncytial
virus (RSV).
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.
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:
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
AndroGel. AndroGel (testosterone gel) is a testosterone replacement therapy for males diagnosed
with symptomatic low testosterone due to certain underlying conditions.
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:
ORILISSA. ORILISSA (elagolix) is the first and only orally-administered, nonpeptide small molecule
gonadotropin-releasing hormone (GnRH) antagonist specifically developed for women with moderate to
severe endometriosis pain. The FDA approved ORILISSA under priority review. It represents the first
FDA-approved oral treatment for the management of moderate to severe pain associated with
endometriosis in over a decade. ORILISSA inhibits endogenous GnRH signaling by binding competitively
to GnRH receptors in the pituitary gland. Administration results in dose-dependent suppression of
luteinizing hormone and follicle-stimulating hormone, leading to decreased blood concentrations of
ovarian sex hormones, estradiol and progesterone.
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.
Sevoflurane.
Sevoflurane (sold under the trademarks Ultane and Sevorane) is an anesthesia
product that AbbVie sells worldwide for human use.
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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,
payers, 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 2018, 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
42% of AbbVie’s 2018 gross revenues in the United States. Outside the United States, products are sold
primarily 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 HCV 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 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.’’ Biologics have added major therapeutic options for the treatment of
many diseases, including some for which therapies were unavailable or inadequate. The cost of developing
and producing biologic therapies is typically dramatically higher than for conventional (small molecule)
medications, and many biologic medications are used for ongoing treatment of chronic diseases, such as
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2018 Form 10-K
4
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.
HUMIRA is now facing direct biosimilar competition in Europe and other countries, which represent
approximately 75% of AbbVie’s international HUMIRA business or approximately 25% of total global
HUMIRA revenues. AbbVie will continue to face competitive pressure from these biologics and from orally
administered products.
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. 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, bioequivalence studies and studies to demonstrate chemical similarity,
animal studies (including toxicity studies) and clinical studies.
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.
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 (NDA) 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
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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
all existing exclusivities (patent and 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 regulatory
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. 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 close regulatory scrutiny over, and more rigorous
requirements for approval of, follow-on biosimilar 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 2019 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 expired in October 2018 in the majority of European Union countries. 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) and those related to glecaprevir and pibrentasvir (which
are sold under the trademarks MAVYRET and MAVIRET). The United States composition of matter patent
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covering ibrutinib is expected to expire in 2027. The United States composition of matter patents covering
glecaprevir and pibrentasvir are expected to expire in 2032.
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, option-to-license 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, option fees and option exercise payments (if applicable), milestone payments and
royalty and/or profit sharing obligations. See 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.’’
Third Party Agreements
AbbVie has agreements with third parties for process development, product distribution, 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. In addition, AbbVie has agreements
with third parties for active pharmaceutical ingredient 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
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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
an 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
trials are designed and conducted to collect additional data regarding, among other parameters, the
benefits and risks of an approved drug.
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 prior to implementation. 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, patient registries, observational data or additional work on
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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 for approval and marketing of pharmaceutical products. 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 (EMA). 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
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 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
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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 oversight, 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 payers 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. Political and 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.
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.’’
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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 2019 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.
European Union.
The European Union has adopted directives and other legislation governing labeling,
advertising, distribution, supply, pharmacovigilance and marketing of pharmaceutical products. Such
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. Many governments are also following a similar path for biosimilar therapies. 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/biosimilar
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
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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 2018 were approximately $20 million and
operating expenditures were approximately $31 million. In 2019, capital expenditures for pollution control
are estimated to be approximately $26 million and operating expenditures are estimated to be
approximately $33 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
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, 2019. 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 or biosimilar 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, biosimilars 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 or
biosimilars. 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 $19.9 billion in 2018, expired in December 2016, and the equivalent European Union patent
expired in the majority of European Union countries in October 2018.
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
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
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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 61% of AbbVie’s total net revenues in 2018. 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
commercialization 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
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
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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. 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,
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
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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 and do
compete with AbbVie’s biologic products, including HUMIRA. As competitors 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
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.
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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.
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.
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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
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
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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.
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 34% of AbbVie’s total
net revenues in 2018. 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.
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If AbbVie does not effectively and profitably commercialize its products, AbbVie’s revenues and
financial condition could be adversely affected.
AbbVie must effectively and profitably commercialize its principal products by creating and meeting
continued market demand; achieving market acceptance and generating product sales; ensuring that the
active pharmaceutical ingredient(s) for a product 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 ensuring that the entire supply chain
efficiently and consistently delivers AbbVie’s products to its customers. The commercialization of AbbVie
products 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 approved indications, the relative price
of AbbVie’s product as compared to alternative treatment options and changes to a product’s label that
further restrict its marketing. If the commercialization of AbbVie’s principal products is unsuccessful,
AbbVie’s ability to generate revenue from product sales will be adversely affected.
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 2018, three wholesale distributors (McKesson Corporation, Cardinal Health, Inc. and
AmerisourceBergen Corporation) accounted for substantially all of AbbVie’s sales 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 or interest rates increase, these risks could increase. In
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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
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 software applications and complex information technology systems to
operate its business. These systems are potentially vulnerable to malicious intrusion, random attack, loss of
data privacy, disruption, degradation or breakdown. Data privacy or security breaches by employees or
others may result in the failure of critical business operations or 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. Such adverse consequences could include
loss of revenue, or the loss of critical or sensitive information from AbbVie’s or third-party providers’
databases or IT systems and could also result in legal, financial, reputational or business harm to AbbVie
and potentially substantial remediation costs.
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
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• 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
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;
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• 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
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.
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.
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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 facilities are in the following locations:
United States
Abbott Park, Illinois*
Barceloneta, Puerto Rico
Jayuya, Puerto Rico
North Chicago, Illinois
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. There are no material encumbrances on
AbbVie’s owned properties.
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.
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
Laura J. Schumacher
Michael E. Severino, M.D.*
William J. Chase
Henry O. Gosebruch*
Timothy J. Richmond
Azita Saleki-Gerhardt, Ph.D.
Nicholas Donoghoe, M.D.*
Robert A. Michael*
Jeffrey R. Stewart*
Brian L. Durkin*
65
56
55
53
51
46
52
55
38
48
50
58
Chairman of the Board and Chief Executive Officer
Vice Chairman, Chief Commercial Officer
Vice Chairman, External Affairs and Chief Legal Officer
Vice Chairman and President
Executive Vice President, Finance and Administration
Executive Vice President and Chief Strategy Officer
Executive Vice President, Chief Human Resources Officer
Executive Vice President, Operations
Senior Vice President, Enterprise Innovation
Senior Vice President, Chief Financial Officer
Senior Vice President, U.S. Commercial Operations
Vice President, Controller
*
Dr. Severino was first appointed as a corporate officer in June 2014; Mr. Gosebruch was first
appointed as a corporate officer in December 2015; Dr. Donoghoe was first appointed as a corporate
officer in January 2019; Mr. Michael was first appointed as a corporate officer in December 2015;
Mr. Stewart was first appointed as a corporate officer in December 2018; and Mr. Durkin was first
appointed as a corporate officer in October 2018.
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.
Mr. Alban is AbbVie’s Vice Chairman, Chief Commercial Officer, responsible for global commercial
operations of the company, including the Pharmacyclics commercial functions. He previously served as
Executive Vice President, Commercial Operations from 2013 to 2018. 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.
Ms. Schumacher is AbbVie’s Vice Chairman, External Affairs and Chief Legal Officer, responsible for
legal, ethics and compliance, corporate governance, corporate aviation, and all externally-facing functions
including health economics outcomes research, government affairs, corporate responsibility, brand and
communications. Prior to her current appointment in 2018, she served as AbbVie’s Executive Vice President,
External Affairs, General Counsel and Corporate Secretary. Prior to AbbVie’s separation from Abbott,
Ms. Schumacher served as Executive Vice President, General Counsel and Corporate Secretary from 2007 to
2012. 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 Vice Chairman and President, responsible for research and development,
human resources, operations, and the corporate strategy office. He served as Executive Vice President,
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Research and Development and Chief Scientific Officer from 2014 to 2018. 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. Chase is AbbVie’s Executive Vice President, Finance and Administration, responsible for all financial
and administrative functions of the company. He previously served as Executive Vice President, Chief
Financial Officer from 2013 to 2018. 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.
Mr. Richmond is AbbVie’s Executive Vice President, Chief Human Resources Officer. He served as Senior
Vice President, Human Resources from 2013 to 2018. Mr. Richmond 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 Executive Vice President, Operations. She served as Senior Vice
President, Operations from 2013 to 2018. Dr. Saleki-Gerhardt 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.
She serves on the board of Entegris Inc.
Dr. Donoghoe is AbbVie’s Senior Vice President, Enterprise Innovation. He previously served as a
Partner at McKinsey & Company, leading the firm’s West Coast pharma and biotechnology practice.
Dr. Donoghoe joined the firm in 2007 and supported multiple successful launches in therapeutic areas such
as oncology, immunology, and primary care. He joined AbbVie in 2019.
Mr. Michael is AbbVie’s Senior Vice President, Chief Financial Officer. Mr. Michael previously served as
Vice President, Controller from March 2017 to October 2018. He became an AbbVie officer in 2015 and
served as AbbVie’s Vice President, Treasurer from 2015 to 2016, as Vice President, Controller, Commercial
Operations from 2013 to 2015 and Vice President, Financial Planning and Analysis from 2012 to 2013. At
Abbott, Mr. Michael served as Division Controller, Nutrition Supply Chain from 2010 to 2012. Mr. Michael
joined Abbott in 1993.
Mr. Stewart is AbbVie’s Senior Vice President, U.S. Commercial Operations. Mr. Stewart previously
served as AbbVie’s President, Commercial Operations from 2013 to 2018. Prior to AbbVie’s separation from
Abbott, he served as Vice President, Abbott Proprietary Pharmaceutical Division, United States. Mr. Stewart
joined Abbott in 1992.
Mr. Durkin is AbbVie’s Vice President, Controller. Mr. Durkin previously served as Vice President,
Internal Audit from 2016 to 2018. Prior to joining AbbVie, he served as Vice President of Finance and
Division Controller for Abbott’s Vision Care business from 2009 to 2016 and Controller Pharmaceutical
Research and Development from 2005 to 2009. Mr. Durkin joined Abbott in 1986.
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 (Symbol: ABBV).
AbbVie’s common stock is also listed on the Chicago Stock Exchange and traded on various regional and
electronic exchanges.
Stockholders
There were 48,516 stockholders of record of AbbVie common stock as of January 31, 2019.
Dividends
On November 2, 2018, AbbVie’s board of directors declared an increase in the quarterly cash dividend
from $0.96 per share to $1.07 per share, payable on February 15, 2019 to stockholders of record as of
January 15, 2019. 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 for the period from December 31, 2013 through December 31, 2018. This graph
assumes $100 was invested in AbbVie common stock and each index on December 31, 2013 and also
assumes the reinvestment of dividends. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
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COMPARISON OF CUMULATIVE TOTAL RETURN
$250
$200
$150
$100
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
AbbVie Inc.
S&P 500 Index
NYSE Arca Pharmaceutical Index
5MAR201910462832
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
(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
4,246(1) $88.24(1)
17,119,956(1) $87.62(1)
8,546,698(1) $87.89(1)
25,670,900(1) $87.71(1)
—
17,118,625
8,533,255
25,651,880
$1,500,000,050
$
8,924
$4,250,016,122(2)
$4,250,016,122(2)
Period
October 1, 2018 - October 31, 2018
November 1, 2018 - November 30, 2018
December 1, 2018 - December 31, 2018
Total
1.
In addition to AbbVie shares repurchased on the open market under a publicly announced program, if
any, these shares also included the shares purchased on the open market for the benefit of
participants in the AbbVie Employee Stock Purchase Plan—4,246 in October; 1,331 in November; and
13,443 in December.
These shares do not include the shares surrendered to AbbVie to satisfy minimum tax withholding
obligations in connection with the vesting or exercise of stock-based awards.
2. On December 13, 2018, AbbVie’s board of directors authorized a $5.0 billion increase to the existing
stock repurchase program. The company’s stock repurchase authorization permits purchases of AbbVie
shares from time to time in open-market or private transactions at management’s discretion. The
program has no time limit and can be discontinued at any time.
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ITEM 6. SELECTED FINANCIAL DATA
.....................................................................................................................................................................................................................................................................................................................................................
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
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
Weighted-average basic shares outstanding
Weighted-average diluted shares outstanding
Balance sheet data
Total assets(a)(b)
Long-term debt and lease obligations(a)(b)(c)
2018
2017
2016
2015
2014
$32,753
5,687
$ 3.67
$ 3.66
$ 3.95
1,541
1,546
$28,216
5,309
$ 3.31
$ 3.30
$ 2.63
1,596
1,603
$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
$59,352
36,611
$70,786
36,968
$66,099
36,465
$53,050
31,265
$27,513
14,552
(a)
(b)
In May 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.
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.
(c)
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, 2018 and 2017 and results of operations for each of the three years in the
period ended December 31, 2018. 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 uses its expertise, dedicated people and unique approach to
innovation to develop and market advanced therapies that address some of the world’s most complex and
serious diseases. AbbVie’s products are focused on treating conditions such as chronic autoimmune diseases
in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including
hepatitis C virus (HCV) and human immunodeficiency virus (HIV); neurological disorders, such as Parkinson’s
disease; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis; pain
associated with endometriosis; as well as other serious health conditions. AbbVie also has a pipeline of
promising new medicines in clinical development across such important medical specialties as immunology,
oncology and neuroscience, with additional targeted investment in cystic fibrosis and women’s health.
AbbVie’s products are generally sold worldwide directly to wholesalers, distributors, government
agencies, health care facilities, specialty pharmacies and independent retailers from AbbVie-owned
distribution centers and public warehouses. In the United States, AbbVie distributes pharmaceutical
products principally through independent wholesale distributors, with some sales directly to pharmacies and
patients. Outside the United States, products are sold primarily to customers or through distributors,
depending on the market served. Certain products are co-marketed or co-promoted with other companies.
AbbVie has approximately 30,000 employees. AbbVie operates in one business segment—pharmaceutical
products.
2018 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. The company’s financial performance in 2018 included delivering worldwide net revenues of
$32.8 billion, operating earnings of $6.4 billion, diluted earnings per share of $3.66 and cash flows from
operations of $13.4 billion. Worldwide net revenues grew by 16%, or 15% on a constant currency basis,
driven primarily by revenue growth related to MAVYRET, IMBRUVICA and VENCLEXTA, and the continued
strength of HUMIRA.
Diluted earnings per share in 2018 was $3.66 and included the following after-tax costs: (i) a
Stemcentrx-related impairment charge of $4.1 billion net of the related fair value adjustment to contingent
consideration liabilities; (ii) $1.1 billion of intangible asset amortization; (iii) $500 million as a result of a
collaboration agreement extension with Calico Life Sciences LLC (Calico); (iv) $424 million for acquired
in-process research and development (IPR&D); (v) $478 million for the change in fair value of contingent
consideration liabilities excluding the fair value adjustment associated with the Stemcentrx-related
impairment; (vi) litigation reserve charges of $282 million; (vii) charitable contributions of $271 million as
part of AbbVie’s previously announced plan to make contributions to U.S. not-for-profit organizations in
2018; and (viii) milestone payments of $137 million. 2018 financial results were also impacted by U.S. tax
reform and the timing of the new legislation’s phase in on certain subsidiaries. Additionally, financial results
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reflected continued added funding to support all stages of AbbVie’s emerging pipeline assets and continued
investment in AbbVie’s growth brands.
In November 2018, AbbVie’s board of directors declared a quarterly cash dividend of $1.07 per share
of common stock payable in February 2019. This reflected an increase of approximately 11.5% over the
previous quarterly dividend of $0.96 per share of common stock.
2019 Strategic Objectives
AbbVie’s mission is to be an innovation-driven, patient-focused specialty biopharmaceutical company
capable of achieving top-tier financial performance through outstanding execution and a consistent stream
of innovative new medicines. AbbVie intends to continue to advance its mission in a number of ways,
including: (i) growing revenues by diversifying revenue streams, driving late-stage pipeline assets to the
market and ensuring strong commercial execution of new product launches; (ii) continued investment and
expansion in its pipeline in support of opportunities in immunology, oncology and neuroscience, with
additional targeted investment in cystic fibrosis and women’s health as well as continued investment in key
on-market products; (iii) expanding operating margins; and (iv) returning cash to shareholders via dividends
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 through:
• Hematologic oncology revenue growth from both IMBRUVICA and VENCLEXTA.
• The strong execution of new product launches across multiple therapeutic areas.
• HUMIRA U.S. sales growth by driving biologic penetration across disease categories and maintaining
market leadership.
• Effective management of HUMIRA international biosimilar erosion.
• The favorable impact of pipeline products and indications recently approved or currently under
regulatory review where approval is expected in 2019. These products are described in greater detail
in the section labeled ‘‘Research and Development’’ included as part of this Item 7.
AbbVie remains committed to driving continued expansion of operating margins and expects to achieve
this objective through continued leverage from revenue growth, the reduction of HUMIRA royalty expense,
productivity initiatives in supply chain and ongoing efficiency programs to optimize manufacturing,
commercial infrastructure, administrative costs and general corporate expenses.
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 60 compounds or indications in clinical development
individually or under collaboration or license agreements and is focused on such important medical
specialties as immunology, oncology and neuroscience along with targeted investments in cystic fibrosis and
women’s health. Of these programs, more than 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.
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Significant Programs and Developments
Immunology
Upadacitinib
• In January 2018, the U.S. Food and Drug Administration (FDA) granted breakthrough therapy
designation for upadacitinib, an investigational oral JAK1-selective inhibitor, in adult patients with
moderate to severe atopic dermatitis who are candidates for systemic therapy.
• In April 2018, AbbVie announced that top-line results from the Phase 3 SELECT-COMPARE clinical
trial evaluating upadacitinib met all primary and ranked secondary endpoints in patients with
moderate to severe rheumatoid arthritis (RA) who are on a stable background of methotrexate and
who have an inadequate response. The safety profile of upadacitinib was consistent with previously
reported clinical trials and no new safety signals were detected.
• In June 2018, AbbVie announced that top-line results from the Phase 3 SELECT-EARLY clinical trial
evaluating upadacitinib versus methotrexate in adult patients with moderate to severe RA who were
methotrexate-na¨ıve met all primary and ranked secondary endpoints. The safety profile of
upadacitinib was consistent with previously reported clinical trials and no new safety signals were
detected.
• In July 2018, AbbVie initiated two Phase 3 clinical trials to evaluate the efficacy and safety of
upadacitinib in subjects with moderate to severe atopic dermatitis.
• In September 2018, AbbVie initiated a Phase 3 clinical trial to evaluate the efficacy and safety of
upadacitinib in subjects with moderate to severe ulcerative colitis.
• In December 2018, AbbVie submitted a New Drug Application (NDA) to the FDA and a marketing
authorisation application (MAA) to the European Medicines Agency (EMA) for upadacitinib for the
treatment of adult patients with moderate to severe RA.
Risankizumab
• In January 2018, AbbVie initiated two Phase 3 clinical trials to evaluate the efficacy and safety of
risankizumab, an investigational interleukin-23 (IL-23) inhibitor, versus placebo during induction
therapy in subjects with moderately to severely active Crohn’s disease.
• In February 2018, AbbVie announced that top-line results from two Phase 3 clinical trials evaluating
risankizumab with 12-week dosing compared to ustekinumab met ranked additional secondary
endpoints for the treatment of patients with moderate to severe chronic plaque psoriasis. The initial
results from these clinical trials were previously announced in October 2017. The safety profile was
consistent with all previously reported studies, and there were no new safety signals detected across
the two studies.
• In April 2018, AbbVie submitted a Biologics License Application (BLA) to the FDA and an MAA to the
EMA for risankizumab for the treatment of plaque psoriasis in adults.
• In May 2018, AbbVie initiated a Phase 2b/3 clinical trial to evaluate the efficacy and safety of
risankizumab versus placebo in subjects with moderately to severely active ulcerative colitis.
Oncology
IMBRUVICA
• In April 2018, AbbVie initiated a Phase 3 clinical trial to evaluate the safety and efficacy of
IMBRUVICA in combination with VENCLEXTA versus chlorambucil plus GAZYVA (obinutuzumab) for
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the first-line treatment of subjects with chronic lymphocytic leukemia (CLL)/small lymphocytic
lymphoma (SLL).
• In May 2018, AbbVie announced that results from the Phase 3 iLLUMINATE study evaluating
IMBRUVICA in combination with GAZYVA in previously untreated CLL/SLL met its primary endpoint.
In December 2018, AbbVie announced additional results from the Phase 3 iLLUMINATE study that
demonstrated significantly prolonged progression-free survival (PFS).
• In June 2018, AbbVie announced that results from an interim analysis of the Phase 3 iNNOVATE
study evaluating IMBRUVICA plus Rituxan (rituximab) in previously untreated and relapsed/refractory
(R/R) patients with Waldenstr¨om’s macroglobulinemia (WM) met its primary endpoint.
• In July 2018, AbbVie announced that results from a Phase 3 study evaluating the addition of
IMBRUVICA to a chemotherapy regimen consisting of five different agents used in combination did
not meet its primary endpoint in a subset of untreated diffuse large B-cell lymphoma patients
identified to have the non-germinal center B-cell or activated B-cell subtypes of this disease.
• In August 2018, the FDA approved IMBRUVICA, in combination with Rituxan, for the treatment of
adult patients with WM.
• In December 2018, AbbVie announced that results from an interim analysis of the Phase 3
ECOG1912E study evaluating IMBRUVICA in combination with Rituxan versus the
chemoimmunotherapy FCR (fludarabine, cyclophosphamide and rituximab) in previously untreated
and younger CLL patients met its primary endpoint.
• In January 2019, AbbVie announced an update on the Phase 3 RESOLVE study evaluating IMBRUVICA
in combination with nab-paclitaxel and gemcitabine versus nab-paclitaxel and gemcitabine
combination in patients with metastatic pancreatic adenocarcinoma. Results showed the study did
not meet its primary endpoint of improving PFS or overall survival (OS) benefit among the study
population. Safety data collected from the study were consistent with the existing safety information
for the study therapies.
• In January 2019, the FDA approved IMBRUVICA, in combination with GAZYVA, for adult patients with
previously untreated CLL/SLL.
VENCLEXTA
• In January 2018, AbbVie submitted an sNDA to the FDA for VENCLEXTA monotherapy in patients
with CLL who are refractory to or have relapsed B-cell receptor pathway inhibitors.
• In June 2018, the FDA approved VENCLEXTA in combination with Rituxan for the treatment of
patients with CLL/SLL, with or without 17p deletion, who have received at least one prior therapy.
VENCLEXTA plus Rituxan is the first oral-based, chemotherapy-free combination in CLL that allows
patients an option for fixed treatment duration.
• In September 2018, the FDA expanded the label for VENCLEXTA in combination with Rituxan to
include information about patients with previously-treated CLL who achieved minimal residual
disease (MRD)-negativity in the Phase 3 MURANO trial.
• In October 2018, the European Commission approved the type-II variation application for VENCLYXTO
in combination with Rituxan for the treatment of patients with R/R CLL who have received at least
one prior therapy. In November, AbbVie received notification from the European Commission that
conditions of the original conditional marketing authorisation have been fulfilled, granting
VENCLYXTO official receipt of approval.
33
2018 Form 10-K
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33
• In October 2018, AbbVie announced that the results from the Phase 3 CLL14 study comparing the
efficacy and safety of VENCLEXTA plus obinutuzumab versus obinutuzumab plus chlorambucil in
previously untreated patients with CLL and coexisting medical conditions met its primary endpoint.
• In November 2018, the FDA granted accelerated approval for VENCLEXTA in combination with
azacitidine, or decitabine, or low dose cytarabine (LDAC) for the treatment of newly-diagnosed acute
myeloid leukemia (AML) in adults who are age 75 years or older, or who have comorbidities that
preclude use of intensive induction chemotherapy. This indication is approved under accelerated
approval based on response rates. Continued approval for this indication may be contingent upon
verification and description of clinical benefit in confirmatory trials.
Rova-T
• In March 2018, AbbVie announced top-line results from the Phase 2 TRINITY study evaluating
rovalpituzumab tesirine (Rova-T) for third-line R/R small cell lung cancer (SCLC). Although Rova-T
demonstrated single agent responses in advanced SCLC patients, after consulting with the FDA,
based on the magnitude of effect across multiple parameters in this single-arm study, the company
will not seek accelerated approval for Rova-T in third-line R/R SCLC.
• In December 2018, AbbVie announced the decision to stop enrollment for the TAHOE trial, a
Phase 3 study evaluating Rova-T as a second-line therapy for advanced SCLC. An Independent Data
Monitoring Committee recommended stopping enrollment in TAHOE due to shorter overall survival
in the Rova-T arm compared with the topotecan control arm. AbbVie will continue its ongoing
Phase 3 study of Rova-T in first-line SCLC.
Other
• In November 2018, Bristol-Myers Squibb Company (BMS) announced that the FDA expanded the
label for Empliciti in combination with pomalidomide and dexamethasone for the treatment of adult
patients with multiple myeloma who have received at least two prior therapies. BMS and AbbVie are
co-developing Empliciti, with BMS solely responsible for commercial activities.
Virology/Liver Disease
• In November 2018, AbbVie presented EXPEDITION 8 data at the Annual Meeting of the American
Association for the Study of Liver Diseases (AASLD), in which 8 weeks of MAVYRET in treatment
na¨ıve, cirrhotic patients was safe and effective with no virologic failures reported.
Neuroscience
• In March 2018, Biogen and AbbVie announced the voluntary worldwide withdrawal of marketing
authorizations for ZINBRYTA, a prescription medicine used to treat adults with relapsing forms of
multiple sclerosis.
Other
• In February 2018, AbbVie announced that top-line results from the Phase 3 ELARIS UF-I study
evaluating elagolix, an investigational, orally administered gonadotropin-releasing hormone (GnRH)
antagonist, being investigated in combination with low-dose hormone (add-back) therapy for uterine
fibroids met its primary efficacy endpoint and all ranked secondary endpoints.
• In March 2018, AbbVie announced that top-line results from the Phase 3 ELARIS UF-II study
evaluating elagolix in combination with low-dose hormone (add-back) therapy for uterine fibroids
met its primary efficacy endpoint and all ranked secondary endpoints.
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2018 Form 10-K
34
• In July 2018, the FDA approved ORILISSA (elagolix) for the management of moderate to severe pain
associated with endometriosis.
• In August 2018, AbbVie announced that top-line results from the Phase 3 ELARIS UF-EXTEND study
evaluating elagolix in combination with low-dose hormone (add-back) therapy for uterine fibroids
were consistent with findings observed in the ELARIS UF-I and ELARIS UF-II Phase 3 studies.
• In October 2018, AbbVie announced that it will assume full development and commercial
responsibility for its collaboration with Galapagos to discover and develop new therapies to treat
cystic fibrosis (CF). Under a revised agreement, AbbVie will assume full development and commercial
responsibility over the investigational program comprising several clinical and pre-clinical compounds
originally discovered and developed jointly by AbbVie and Galapagos. Galapagos will not pursue
further research and development in CF, but is eligible for future milestones and royalties on
commercialized programs.
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)
2018
2017
2016
2018
2017
2018
2017
United States
International
Net revenues
$21,524
11,229
$18,251
9,965
$15,947
9,691
17.9% 14.4% 17.9% 14.4%
12.8% 2.8% 10.4% 2.1%
$32,753
$28,216
$25,638
16.1% 10.1% 15.2% 9.8%
Percent change
At actual
currency
rates
At constant
currency
rates
35
2018 Form 10-K
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35
The following table details AbbVie’s worldwide net revenues:
years ended December 31 (dollars in millions)
2018
2017
2016
2018
2017
2018
2017
Percent change
At actual
currency
rates
At constant
currency
rates
Immunology
HUMIRA
United States
International
Total
Hematologic Oncology
IMBRUVICA
United States
Collaboration revenues
Total
VENCLEXTA
United States
International
Total
HCV
MAVYRET
United States
International
Total
VIEKIRA
United States
International
Total
Other Key Products
Creon
United States
Lupron
United States
International
Total
Synthroid
United States
Synagis
International
AndroGel
United States
Duodopa
United States
International
Total
Sevoflurane
United States
International
Total
Kaletra
United States
International
Total
All other
Total net revenues
n/m—Not meaningful
$13,685
6,251
$12,361
6,066
$10,432
5,646
$19,936
$18,427
$16,078
$ 2,968
622
$ 2,144
429
$ 1,580
252
$ 3,590
$ 2,573
$ 1,832
10.7%
3.1%
8.2%
38.4%
45.0%
39.5%
18.5%
7.4%
14.6%
35.8%
70.0%
40.5%
10.7%
0.6%
7.4%
38.4%
45.0%
39.5%
18.5%
6.7%
14.4%
35.8%
70.0%
40.5%
$
$
247
97
344
$ 1,614
1,824
$ 3,438
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3
175
178
928
726
166
892
776
726
469
80
350
430
74
317
391
55
281
336
319
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
89
33
122
277
213
490
61
723
784
831
669
160
829
781
738
577
61
294
355
78
332
410
71
352
423
876
$
$
$
$
$
17
1
18
—
—
—
342
1,180
$ 1,522
$
$
$
$
$
$
$
$
$
$
$
$
730
663
158
821
763
730
675
37
256
293
80
348
428
116
433
549
$ 1,199
$32,753
$28,216
$25,638
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
>100.0%
n/m
n/m
n/m
>100.0%
>100.0%
>100.0%
n/m
n/m
n/m
(96.7)%
(75.6)%
(77.2)%
(82.8)%
(38.7)%
(48.6)%
(96.7)%
(74.8)%
(76.5)%
(82.8)%
(38.6)%
(48.5)%
11.7%
13.9%
11.7%
13.9%
8.6%
3.4%
7.6%
0.8%
1.4%
0.9%
8.6%
4.7%
7.9%
0.8%
0.5%
0.7%
(0.6)%
2.3%
(0.6)%
2.3%
(1.6)%
1.2%
(2.8)%
0.6%
(18.8)%
(14.5)%
(18.8)%
(14.5)%
31.4%
19.1%
21.2%
(6.2)%
(4.4)%
(4.7)%
(22.1)%
(20.2)%
(20.5)%
(63.6)%
16.1%
66.1%
14.6%
21.1%
(2.1)%
(4.6)%
(4.1)%
(38.6)%
(18.8)%
(22.9)%
(26.9)%
10.1%
31.4%
14.8%
17.7%
(6.2)%
(4.3)%
(4.6)%
(22.1)%
(20.1)%
(20.4)%
(71.9)%
15.2%
66.1%
13.1%
19.8%
(2.1)%
(3.7)%
(3.4)%
(38.6)%
(21.1)%
(24.7)%
(27.9)%
9.8%
36
13NOV201221352027
2018 Form 10-K
36
The following discussion and analysis of AbbVie’s net revenues by product is presented on a constant
currency basis.
Global HUMIRA sales increased 7% in 2018 and 14% in 2017. The sales increases in 2018 and 2017
were driven primarily by market growth across therapeutic categories and geographies as well as favorable
pricing in certain geographies. In the United States, HUMIRA sales increased 11% in 2018 and 18% in 2017.
The sales increase in 2018 and 2017 was driven by market growth across all indications and favorable
pricing. Internationally, HUMIRA revenues increased 1% in 2018 and 7% in 2017. The sales increase in 2018
was driven primarily by market growth across indications partially offset by direct biosimilar competition in
Europe following the expiration of the European Union composition of matter patent for adalimumab in
October 2018. Due to the entry of biosimilar competition, AbbVie expects international HUMIRA net
revenues to decline in 2019. Biosimilar competition for HUMIRA is not expected in the United States until
2023. AbbVie continues to pursue strategies intended to further differentiate HUMIRA from competing
products and add to the sustainability 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. AbbVie’s global
IMBRUVICA revenues increased 39% in 2018 and 40% in 2017 as a result of continued penetration of
IMBRUVICA as a first-line treatment for patients with CLL as well as favorable pricing.
Net revenues for VENCLEXTA increased by more than 100% in 2018 primarily due to market share
gains following FDA and EMA approvals of VENCLEXTA in combination with Rituxan for certain patients
with R/R CLL.
Global MAVYRET sales increased by more than 100% in 2018 as a result of market share gains
following the FDA and EMA approvals of MAVYRET in the second half of 2017 as well as further geographic
expansion in 2018. Global VIEKIRA sales decreased by 76% in 2018 and 49% in 2017 primarily due to lower
market share following the launch of MAVYRET.
Net revenues for Creon increased 12% in 2018 and 14% in 2017, driven primarily by continued market
growth, higher market share and favorable pricing. Creon maintains market leadership in the pancreatic
enzyme market.
AndroGel net revenues decreased 19% in 2018 and 14% in 2017 primarily due to market contraction
and the entry of generic competition for the AndroGel 1.62% formulation in October 2018. AbbVie expects
net revenues for AndroGel to continue to decline in 2019.
Net revenues for Duodopa increased 18% in 2018 and 20% in 2017, primarily as a result of market
penetration.
Gross Margin
years ended December 31 (dollars in millions)
2018
2017
2016
Gross margin
as a percent of net revenues
$25,035
$21,174
$19,806
76%
75%
77%
Percent
change
2018
18%
2017
7%
Gross margin as a percentage of net revenues in 2018 increased from 2017 primarily due to the
reduction of HUMIRA royalty expense and a 2017 intangible asset impairment charge of $354 million
partially offset by the IMBRUVICA profit sharing arrangement.
Gross margin as a percentage of net revenues in 2017 decreased from 2016 primarily due to an
intangible asset impairment charge of $354 million in 2017, as well as the unfavorable impacts of higher
intangible asset amortization and the IMBRUVICA profit sharing arrangement. These drivers were partially
37
2018 Form 10-K
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37
offset by lower amortization of the fair market value step-up of acquisition-date inventory of Pharmacyclics
as well as favorable changes in product mix and operational efficiencies.
Selling, General and Administrative
Percent
change
years ended December 31 (dollars in millions)
2018
2017
2016
2018
Selling, general and administrative
as a percent of net revenues
$7,399
$6,295
$5,881
18%
23%
22%
23%
2017
7%
Selling, general and administrative (SG&A) expenses as a percentage of net revenues in 2018 increased
from 2017 primarily due to the unfavorable impacts of new product launch expenses and charitable
contributions of $350 million to select U.S. not-for-profit organizations in 2018 as part of AbbVie’s
previously announced plan partially offset by continued leverage from revenue growth.
SG&A expense percentage in 2017 decreased from 2016. SG&A expense percentage in 2017 was
favorably impacted by continued leverage from revenue growth partially offset by litigation reserves charges
that increased by $370 million in 2017 compared to the prior year and new product launch expenses.
Research and Development and Acquired In-Process Research and Development
Percent
change
years ended December 31 (dollars in millions)
2018
2017
2016
2018
2017
Research and development
as a percent of net revenues
Acquired in-process research and development
$10,329
$5,007
$4,385
>100% 14%
32%
18%
17%
$
424
$ 327
$ 200
30% 64%
Research and Development (R&D) expenses in 2018 increased from 2017 principally due to a
$5.1 billion intangible asset impairment charge related to IPR&D acquired as part of the 2016 Stemcentrx
acquisition following the decision to stop enrollment in the TAHOE trial. The impairment was primarily due
to lower probabilities of success of achieving regulatory approval across Rova-T and other early-stage assets
obtained in the acquisition. The remaining increase reflected greater funding to support all stages of the
company’s pipeline assets. See Note 7 to the Consolidated Financial Statements for additional information
regarding the impairment charge.
R&D expenses in 2017 increased from 2016 principally due to increased funding to support all stages
of the company’s pipeline assets, the impact of the post-acquisition R&D expenses of Stemcentrx and
Boehringer Ingelheim (BI) compounds and an increase in development milestones of $63 million. These
factors were partially offset by a decrease in acquisition related costs of $135 million.
Acquired IPR&D expenses reflect upfront payments related to various collaborations. There were no
individually significant transactions or cash flows during 2018. Acquired IPR&D expense in 2017 included a
charge of $205 million as a result of entering into a global strategic collaboration with Alector, Inc. (Alector)
to develop and commercialize medicines to treat Alzheimer’s disease and other neurodegenerative
disorders. There were no individually significant transactions or cash flows during 2016. See Note 5 to the
Consolidated Financial Statements for additional information regarding the Alector agreement.
Other Operating Expenses
Other operating expenses in 2018 included a $500 million charge related to the extension of the
previously announced Calico collaboration to discover, develop and bring to market new therapies for
patients with age-related diseases, including neurodegeneration and cancer.
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2018 Form 10-K
38
Other Non-Operating Expenses
years ended December 31 (in millions)
Interest expense
Interest income
Interest expense, net
Net foreign exchange loss
Other expense, net
2018
2017
2016
$1,348
(204)
$1,150
(146)
$1,047
(82)
$1,144
$1,004
$ 965
$
24
18
$ 348
466
$ 303
188
Interest expense in 2018 increased compared to 2017 primarily due to the unfavorable impact of
higher interest rates on the company’s debt obligations and a higher average outstanding debt balance
during 2018. Interest expense in 2017 increased compared to 2016 due to a full year of expense associated
with 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.
Interest income in 2018 increased compared to 2017 primarily due to higher interest rates. Interest
income in 2017 increased compared to 2016 primarily due to growth in the company’s investment
securities.
Net foreign exchange loss in 2017 included $316 million of historical currency translation losses that
were reclassified from accumulated other comprehensive income (AOCI) related to the liquidation of certain
foreign entities following the enactment of U.S. tax reform. 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.
Other expense, net included charges related to the change in fair value of the BI and Stemcentrx
contingent consideration liabilities of $49 million in 2018, $626 million in 2017 and $228 million in 2016.
The fair value of contingent consideration liabilities is impacted by the passage of time and multiple other
inputs, including the probability of success of achieving regulatory/commercial milestones, discount rates,
the estimated amount of future sales of the acquired products still in development and other market-based
factors. In 2018, the BI contingent consideration liability increased due to the passage of time and higher
estimated future sales partially offset by the effect of rising interest rates. The increase in the BI contingent
consideration liability was primarily offset by a $428 million decrease in the Stemcentrx contingent
consideration liability recorded during the fourth quarter of 2018 due to a reduction in probabilities of
success of achieving regulatory approval across Rova-T and other early-stage assets obtained in the
acquisition. In 2017, the change in fair value represented mainly higher probabilities of success, the passage
of time and declining interest rates. 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 2017 also included realized gains on
available-for-sale investment securities of $90 million.
Income Tax Expense
The effective income tax rate was negative 9% in 2018, was 31% in 2017 and was 24% in 2016. The
effective tax rate in each period differed from the statutory tax rate principally due to the allocation of the
company’s taxable earnings among jurisdictions, the benefit from foreign operations which reflects the
impact of lower income tax rates in locations outside the United States, tax incentives in Puerto Rico and
other foreign tax jurisdictions, and business development activities. The effective tax rate for 2018 reflects
the impact of the effective date of provisions of the Tax Cuts and Jobs Act (the Act) related to the earnings
39
2018 Form 10-K
13NOV201221352027
39
from certain foreign subsidiaries and the effects of Stemcentrx intangible impairment related expenses.
Given these factors, the effective income tax rate may change significantly in future periods.
The effective tax rate in 2017 included tax expense of $4.5 billion on the one-time mandatory
repatriation of previously untaxed earnings of foreign subsidiaries, partially offset by a $3.6 billion net tax
benefit for the remeasurement of deferred taxes related to the Act and foreign tax law changes.
The Act significantly changed the U.S. corporate tax system. The Act reduced the U.S. federal corporate
tax rate from 35% to 21% and created a territorial tax system that included new taxes on certain foreign
sourced earnings. See Note 13 to the Consolidated Financial Statements for additional information regarding
the Act.
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.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
years ended December 31 (in millions)
2018
2017
2016
Cash flows from:
Operating activities
Investing activities
Financing activities
$ 13,427
(1,006)
(14,396)
$ 9,960
(274)
(5,512)
$ 7,041
(6,074)
(3,928)
Operating cash flows in 2018 increased from 2017 primarily due to improved results of operations
from revenue growth and a decrease in income tax payments. Operating cash flows in 2017 increased from
2016 primarily due to improved results of operations resulting from revenue growth, an improvement in
operating earnings and a decrease in income tax payments. Realized excess tax benefits associated with
stock-based compensation totaled $78 million in 2018 and $71 million in 2017 and were presented within
operating cash flows as a result of the adoption of a new accounting pronouncement. Prior to the adoption
of the new accounting pronouncement, realized excess benefits of $55 million in 2016 were presented
within cash flows from financing activities. Operating cash flows also reflected AbbVie’s contributions to its
defined benefit plans of $873 million in 2018, $246 million in 2017 and $273 million in 2016.
Investing cash flows in 2018 included payments made for other acquisitions and investments of
$736 million and capital expenditures of $638 million, partially offset by net sales and maturities of
investment securities totaling $368 million. Investing cash flows in 2017 included capital expenditures of
$529 million and payments made for other acquisitions and investments of $308 million, partially offset by
net sales and maturities of investment securities totaling $563 million. Investing cash flows in 2016
primarily included $1.9 billion of cash consideration paid to acquire Stemcentrx in June 2016, a $595 million
upfront payment to acquire certain rights from BI in April 2016, net purchases of investment securities
totaling $3.0 billion and capital expenditures of $479 million.
In 2018, 2017 and 2016, the company issued and redeemed commercial paper. The balance of
commercial paper outstanding was $699 million as of December 31, 2018 and $400 million as of
December 31, 2017. AbbVie may issue additional commercial paper or retire commercial paper to meet
liquidity requirements as needed.
Financing cash flows in 2018 also included proceeds from the issuance of a $3.0 billion 364-day term
loan credit agreement (term loan) entered into in May 2018. In June 2018, the company drew on this term
loan and as of December 31, 2018, $3.0 billion was outstanding and was included in short-term borrowings
on the consolidated balance sheet. Borrowings under the term loan bear interest at one month LIBOR plus
applicable margin. The term loan may be prepaid without penalty upon prior notice and contains
40
13NOV201221352027
2018 Form 10-K
40
customary covenants, all of which the company was in compliance with as of December 31, 2018. In
September 2018, the company issued $6.0 billion aggregate principal amount of unsecured senior notes. Of
the $5.9 billion net proceeds, $2.0 billion was used to repay the company’s outstanding three-year term
loan credit agreement in September 2018 and $1.0 billion was used to repay the aggregate principal
amount of 2.00% senior notes at maturity in November 2018. The company intends to use the remaining
proceeds to repay term loan obligations in 2019 as they become due. Financing cash flows in 2018 also
included the May 2018 repayment of $3.0 billion aggregate principal amount of the company’s 1.80%
senior notes at maturity.
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 that were due to mature in November 2017. 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 accelerated share repurchase (ASR). See Note 12 to the Consolidated
Financial Statements for additional information on the 2016 ASR transaction.
Cash dividend payments totaled $5.6 billion in 2018, $4.1 billion in 2017 and $3.7 billion in 2016. The
increase in cash dividend payments was primarily driven by an increase in the dividend rate. On
November 2, 2018, AbbVie announced that its board of directors declared an increase in the company’s
quarterly cash dividend from $0.96 per share to $1.07 per share beginning with the dividend payable on
February 15, 2019 to stockholders of record as of January 15, 2019. This reflects an increase of
approximately 11.5% over the previous quarterly rate. The timing, declaration, amount of and payment of
any dividends by AbbVie in the future is within the discretion of its board of directors and will depend
upon many factors, including AbbVie’s financial condition, earnings, capital requirements of its operating
subsidiaries, covenants associated with certain of AbbVie’s debt service obligations, legal requirements,
regulatory constraints, industry practice, ability to access capital markets and other factors deemed relevant
by its board of directors.
On February 15, 2018, AbbVie’s board of directors authorized a new $10.0 billion stock repurchase
program, which superseded AbbVie’s previous stock repurchase program. On December 13, 2018, AbbVie’s
board of directors authorized a $5.0 billion increase to the existing $10.0 billion stock repurchase program.
The new stock repurchase authorization permits purchases of AbbVie shares from time to time in
open-market or private transactions at management’s discretion. The program has no time limit and can be
discontinued at any time. Under this authorization, AbbVie repurchased approximately 109 million shares
for $10.7 billion in 2018. AbbVie cash-settled $201 million of its December 2018 open market purchases in
January 2019. AbbVie’s remaining stock repurchase authorization was $4.3 billion as of December 31, 2018.
Under previous stock repurchase programs, AbbVie made open market share repurchases of
approximately 11 million shares for $1.3 billion in 2018, approximately 13 million shares for $1.0 billion in
2017 and approximately 34 million shares for $2.1 billion in 2016. AbbVie cash-settled $285 million of its
December 2016 open market purchases in January 2017 and cash-settled $300 million of its December
2015 open market purchases in January 2016.
In 2018, AbbVie paid $100 million of contingent consideration to BI related to BLA and MAA
acceptance milestones. $78 million of these payments were included in financing cash flows and
$22 million of the payments were included in operating cash flows. In 2017, AbbVie paid $305 million of
contingent consideration to BI related to a Phase 3 enrollment milestone. $268 million of this milestone
was included in financing cash flows and $37 million was included in operating cash flows.
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Cash and equivalents were impacted by net unfavorable exchange rate changes totaling $39 million in
2018, net favorable exchange rate changes totaling $29 million in 2017 and net unfavorable exchange rate
changes totaling $338 million in 2016. The unfavorable exchange rate changes in 2018 were primarily 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. The favorable exchange rate changes
in 2017 were primarily due to the strengthening of the Euro and other foreign currencies on the translation
of the company’s Euro-denominated assets and cash denominated in foreign currencies. The unfavorable
exchange rate changes in 2016 were primarily due to the devaluation of AbbVie’s net monetary assets
denominated in the Venezuelan bolivar.
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. 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. AbbVie may also utilize factoring arrangements to mitigate credit risk, although the
receivables included in such arrangements have historically not been a significant amount of total
outstanding receivables.
Credit Facility, Access to Capital and Credit Ratings
Credit Facility
In August 2018, AbbVie replaced its existing revolving credit facility with a new $3.0 billion five-year
revolving credit facility. 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, 2018, the company was in
compliance with all its credit facility covenants. Commitment fees under the credit facility were
insignificant. No amounts were outstanding under the credit facility as of December 31, 2018 and 2017.
Access to Capital
The company intends to fund short-term and long-term financial obligations as they mature through
cash on hand, future cash flows from operations, or by issuing additional debt. The company’s ability to
generate cash flows from operations, issue debt or enter into financing arrangements on acceptable terms
could be adversely affected if there is a material decline in the demand for the company’s products or in
the solvency of its customers or suppliers, deterioration in the company’s key financial ratios or credit
ratings, or other material unfavorable changes in business conditions. At the current time, the company
believes it has sufficient financial flexibility to issue debt, enter into other financing arrangements and
attract long-term capital on acceptable terms to support the company’s growth objectives.
Credit Ratings
There were no changes in the company’s credit ratings during 2018. 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 obligations.
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Contractual Obligations
The following table summarizes AbbVie’s estimated contractual obligations as of December 31, 2018:
(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)(f)
Total
(a)
Total
Less than
one year
One to
three years
Three to
five years
More than
five years
$ 3,699
$3,699
$
— $
— $
—
37,360
17,204
809
1,843
9,994
1,612
1,433
116
1,710
736
6,808
2,613
205
110
1,392
6,370
2,024
145
21
1,478
22,570
11,134
343
2
6,388
$70,909
$9,306
$11,128
$10,038
$40,437
Includes estimated future interest payments on long-term debt and capital lease obligations. Interest
payments on debt are calculated for future periods using forecasted interest rates in effect at the end
of 2018. 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, 2018. 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 swap agreements outstanding at December 31, 2018.
(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 that AbbVie made to its
principal domestic defined benefit plan subsequent to December 31, 2018. Amounts otherwise exclude
pension and other post-employment benefits and related deferred compensation cash outflows. Timing
of future 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 and other post-employment benefit plans.
(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)
(f)
Includes $4.5 billion of contingent consideration liabilities primarily related to the acquisition of 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.
Includes a one-time transition tax liability on a mandatory deemed repatriation of previously untaxed
earnings of foreign subsidiaries resulting from U.S. tax reform enacted in 2017. The one-time transition
tax is generally payable in eight annual installments. See Note 13 to the Consolidated Financial
Statements for additional information regarding these tax 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,
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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 future 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 control of promised goods or services is transferred to the company’s
customers, in an amount that reflects the consideration AbbVie expects to be entitled to in exchange for
those goods or services. Sales, value add and other taxes collected concurrent with revenue-producing
activities are excluded from revenue. AbbVie generates revenue primarily from product sales. For the
majority of sales, the company transfers control, invoices the customer and recognizes revenue upon
shipment 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 accounted for as variable consideration and are recorded as a
reduction to revenue in the period the related product is sold. Rebates and chargebacks totaled
$16.4 billion in 2018, $12.9 billion in 2017 and $10.8 billion in 2016. 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 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.
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The following table is an analysis of the three largest rebate accruals and chargeback allowances,
which comprise approximately 91% of the total consolidated rebate and chargebacks recorded as reductions
to revenues in 2018. Remaining rebate provisions charged against gross revenues are not significant in the
determination of operating earnings.
(in millions)
Balance at December 31, 2015
Provisions
Payments
Balance at December 31, 2016
Provisions
Payments
Balance at December 31, 2017
Provisions
Payments
Balance at December 31, 2018
Cash Discounts and Product Returns
Medicaid
and
Medicare
Rebates
$ 1,032
2,606
(2,471)
1,167
2,909
(2,736)
1,340
3,493
(3,188)
Managed
Care
Rebates
$
920
3,146
(2,899)
1,167
3,990
(3,962)
1,195
4,729
(4,485)
Wholesaler
Chargebacks
$
363
3,987
(3,967)
383
5,026
(4,887)
522
6,659
(6,525)
$ 1,645
$ 1,439
$
656
Cash discounts and product returns, which totaled $1.6 billion in 2018, $1.3 billion in 2017 and
$964 million in 2016, are accounted for as variable consideration and 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
pension and other post-employment benefit 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, and are disclosed in
Note 11 to the Consolidated Financial Statements.
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, 2018. A 50 basis point change in the assumed discount rate
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would have had the following effects on AbbVie’s calculation of net periodic benefit costs in 2019 and
projected benefit obligations as of December 31, 2018:
(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
$ (54)
(512)
$
(2)
(47)
$ 64
578
$
4
54
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 for each plan 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, 2018 and will be used in the calculation of net periodic benefit cost in
2019. 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 2019 by $62 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 each plan. Assumed health care cost trend rates have a significant effect on
the amounts reported for health care plans as of December 31, 2018 and will be used in the calculation of
net periodic benefit cost in 2019. A one percentage point change in assumed health care cost trend rates
would have the following effects on AbbVie’s calculation of net periodic benefit costs in 2019 and the
projected benefit obligation as of December 31, 2018:
(in millions) (brackets denote a reduction)
Service and interest cost
Projected benefit obligation
Income Taxes
One percentage
point
Increase
Decrease
$ 17
110
$ (9)
(87)
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
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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 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.
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, 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 the reporting unit is less than its carrying amount, a quantitative impairment test is
performed. AbbVie tests indefinite-lived intangible assets 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 is less than its carrying amount, a
quantitative impairment test is performed.
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, 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. The use of alternative estimates and assumptions could increase or decrease the
estimated fair value of the assets and could potentially impact 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. Contingent consideration liabilities are
revalued to fair value at each subsequent reporting date until the related contingency is resolved. Changes
to the fair value of the contingent consideration liabilities can result from changes to one or a number of
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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, 2018, a 50
basis point increase/decrease in the assumed discount rate would have decreased/increased the value of
the contingent consideration liabilities by approximately $160 million. Additionally, at December 31, 2018, 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 $420 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,
2018 and 2017:
(in millions)
Receive primarily U.S. dollars in exchange
for the following currencies:
Euro
Japanese yen
British pound
All other currencies
Total
2018
Weighted
average
exchange
rate
Fair and
carrying
value
receivable/
(payable)
1.157
111.5
1.328
n/a
$ 68
(12)
21
29
$106
2017
Weighted
average
exchange
rate
Fair and
carrying
value
receivable/
(payable)
1.175
112.4
1.310
n/a
$ (88)
2
(22)
(18)
$(126)
Contract
amount
$6,366
940
760
1,877
$9,943
Contract
amount
$ 6,660
1,076
499
1,776
$10,011
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 $1.0 billion at December 31, 2018. If realized, this appreciation would
negatively affect earnings over the remaining life of the contracts. However, 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. A 10% appreciation is believed to be a
reasonably possible near-term change in foreign currencies.
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.
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 $403 million at December 31, 2018.
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 $2.4 billion at December 31, 2018. A 100 basis point change is believed to be a
reasonably possible near-term change in interest rates.
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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 $16 million as of December 31, 2018. If the portfolio were to be liquidated, the
fair value reduction would affect the statement of earnings in the period sold.
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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
52
53
54
55
56
57
104
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AbbVie Inc. and Subsidiaries
Consolidated Statements of Earnings
years ended December 31 (in millions, except per share data)
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, net
Earnings before income taxes
Income tax expense (benefit)
Net earnings
Per share data
Basic earnings per share
Diluted earnings per share
Weighted-average basic shares outstanding
Weighted-average diluted shares outstanding
2018
2017
2016
$32,753
$28,216
$25,638
7,718
7,399
10,329
424
500
26,370
6,383
1,144
24
18
5,197
(490)
7,042
6,295
5,007
327
—
5,832
5,881
4,385
200
—
18,671
16,298
9,545
1,004
348
466
7,727
2,418
9,340
965
303
188
7,884
1,931
$ 5,687
$ 5,309
$ 5,953
$ 3.67
$ 3.66
$ 3.31
$ 3.30
$ 3.65
$ 3.63
1,541
1,546
1,596
1,603
1,622
1,631
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 $(18)
in 2018, $34 in 2017 and $(31) in 2016
Net investment hedging activities, net of tax expense (benefit) of $40 in 2018,
$(194) in 2017 and $79 in 2016
Pension and post-employment benefits, net of tax expense (benefit) of $35 in
2018, $(94) in 2017 and $(75) in 2016
Marketable security activities, net of tax expense (benefit) of $— in 2018, $(8)
in 2017 and $(11) in 2016
Cash flow hedging activities, net of tax expense (benefit) of $23 in 2018, $(26)
in 2017 and $18 in 2016
Other comprehensive income (loss)
Comprehensive income
2018
2017
2016
$5,687
$5,309
$5,953
(391)
996
(165)
138
197
(343)
140
(406)
(135)
(10)
(46)
(1)
313
247
(342)
(141)
136
(25)
$5,934
$5,168
$5,928
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)
2018
2017
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 (deficit)
Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,776,510,871
shares issued as of December 31, 2018 and 1,768,738,550 as of December 31,
2017
Common stock held in treasury, at cost, 297,686,473 shares as of December 31,
2018 and 176,607,525 as of December 31, 2017
Additional paid-in-capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity (deficit)
Total liabilities and equity
$ 7,289
772
5,384
1,605
1,895
$ 9,303
486
5,088
1,605
4,741
16,945
21,223
1,420
2,883
21,233
15,663
1,208
2,090
2,803
27,559
15,785
1,326
$ 59,352
$ 70,786
$ 3,699
1,609
11,931
17,239
35,002
1,067
14,490
$
400
6,015
10,226
16,641
30,953
2,490
15,605
18
18
(24,108)
14,756
3,368
(2,480)
(11,923)
14,270
5,459
(2,727)
(8,446)
5,097
$ 59,352
$ 70,786
The accompanying notes are an integral part of these consolidated financial statements.
54
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54
AbbVie Inc. and Subsidiaries
Consolidated Statements of Equity
years ended December 31 (in millions)
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
Net earnings
Other comprehensive loss, net of tax
Dividends declared
Purchases of treasury stock
Stock-based compensation plans and other
Balance at December 31, 2017
Adoption of new accounting standards(a)
Net earnings
Other comprehensive income, net of tax
Dividends declared
Purchases of treasury stock
Stock-based compensation plans and other
Balance at December 31, 2018
Common
shares
outstanding
Common Treasury
stock
stock
Additional
paid-in
capital
Accumulated
other
Retained comprehensive
earnings
loss
1,610
—
—
—
63
(94)
14
1,593
—
—
—
(15)
14
1,592
—
—
—
—
(121)
8
1,479
$17
—
—
—
—
—
1
18
—
—
—
—
—
18
—
—
—
—
—
—
$ (8,839) $13,080
—
—
—
(35)
—
633
—
—
—
3,958
(6,018)
47
(10,852)
—
—
—
(1,125)
54
(11,923)
—
—
—
—
(12,215)
30
13,678
—
—
—
—
592
14,270
—
—
—
—
—
486
$ 2,248
5,953
—
(3,823)
—
—
—
4,378
5,309
—
(4,221)
—
(7)
5,459
(1,733)
5,687
—
(6,045)
—
—
$(2,561)
—
(25)
—
—
—
—
(2,586)
—
(141)
—
—
—
(2,727)
—
—
247
—
—
—
Total
$ 3,945
5,953
(25)
(3,823)
3,923
(6,018)
681
4,636
5,309
(141)
(4,221)
(1,125)
639
5,097
(1,733)
5,687
247
(6,045)
(12,215)
516
$18
$(24,108) $14,756
$ 3,368
$(2,480)
$ (8,446)
(a)
See Note 2 for additional information regarding the cumulative effect of the adoption of accounting standards in 2018.
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)
2018
2017
2016
Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to net cash from operating activities:
$ 5,687
$ 5,309
$ 5,953
Depreciation
Amortization of intangible assets
Change in fair value of contingent consideration liabilities
Stock-based compensation
Upfront costs and milestones related to collaborations
Devaluation loss related to Venezuela
Intangible asset impairment
Impacts related to U.S. tax reform
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 commercial paper borrowings
Proceeds from issuance of other short-term borrowings
Proceeds from issuance of long-term debt
Repayments of long-term debt and lease obligations
Debt issuance costs
Dividends paid
Purchases of treasury stock
Proceeds from the exercise of stock options
Payments of contingent consideration liabilities
Other, net
Cash flows from financing activities
Effect of exchange rate changes on cash and equivalents
Net change in cash and equivalents
Cash and equivalents, beginning of year
Cash and equivalents, end of year
425
764
228
353
280
298
39
—
390
(71)
(38)
(393)
(1,187)
7,041
(2,495)
(262)
(479)
(5,315)
2,359
118
(6,074)
471
1,294
49
421
1,061
—
5,070
424
76
(591)
(226)
(499)
190
425
1,076
626
365
470
—
354
1,242
84
(391)
93
(118)
425
13,427
9,960
—
(308)
(529)
(2,230)
2,793
—
(274)
—
(736)
(638)
(1,792)
2,160
—
(1,006)
299
3,002
5,963
(6,035)
(40)
(5,580)
(12,014)
73
(78)
14
(23)
23
—
—
— 11,627
(6,010)
(25)
(69)
—
(3,717)
(4,107)
(6,033)
(1,410)
268
254
—
(268)
29
21
(14,396)
(5,512)
(3,928)
(39)
(2,014)
9,303
29
4,203
5,100
(338)
(3,299)
8,399
$ 7,289
$ 9,303
$ 5,100
$ 1,215
(35)
$ 1,099
1,696
$
986
3,563
Other supplemental information
Interest paid, net of portion capitalized
Income taxes paid (received)
Supplemental schedule of non-cash investing and financing activities
Issuance of common shares associated with acquisitions of businesses
—
The accompanying notes are an integral part of these consolidated financial statements.
—
3,923
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AbbVie Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 Background
.....................................................................................................................................................................................................................................................................................................................................................
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. 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, 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.
Note 2 Summary of Significant Accounting Policies
.....................................................................................................................................................................................................................................................................................................................................................
Use of Estimates
The consolidated 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 other post-employment benefits, income taxes, litigation, valuation of goodwill and
intangible assets, contingent consideration liabilities, financial instruments and inventory and accounts
receivable exposures.
Basis of Consolidation
The consolidated financial statements 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, net in the consolidated statements of
earnings. Intercompany balances and transactions are eliminated.
Certain reclassifications have been made to conform the prior period consolidated financial statements
to the current period presentation.
Revenue Recognition
AbbVie recognizes revenue when control of promised goods or services is transferred to the company’s
customers, in an amount that reflects the consideration AbbVie expects to be entitled to in exchange for
those goods or services. Sales, value add and other taxes collected concurrent with revenue-producing
activities are excluded from revenue. AbbVie generates revenue primarily from product sales. For the
majority of sales, the company transfers control, invoices the customer and recognizes revenue upon
shipment to the customer. The company recognizes shipping and handling costs as an expense in cost of
products sold when the company transfers control to the customer. Payment terms vary depending on the
type and location of the customer, are based on customary commercial terms and are generally less than
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one year. AbbVie does not adjust revenue for the effects of a significant financing component for contracts
where AbbVie expects the period between the transfer of the good or service and collection to be one
year or less.
Discounts, rebates, sales incentives to customers, returns and certain other adjustments are accounted
for as variable consideration. Provisions for variable consideration are based on current pricing, executed
contracts, government pricing legislation and historical data and 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, factors used in the
calculation 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.
In addition to revenue from contracts with customers, the company also recognizes certain
collaboration revenues. See Note 6 for additional information related to the collaboration with Janssen
Biotech, Inc. Additionally, see Note 15 for disaggregation of revenue by product and geography.
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, prior to regulatory approval, the
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 selling, general and
administrative (SG&A) expense in the consolidated statements of earnings. Advertising expenses were
$1.1 billion in 2018, $846 million in 2017 and $764 million in 2016.
Pension and Other Post-Employment Benefits
AbbVie records annual expenses relating to its defined benefit pension and other post-employment
benefit 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
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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 debt 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 until realized, at which time the gains or losses are recognized in earnings.
Investments in equity securities that have readily determinable fair values are recorded at fair value.
Investments in equity securities that do not have readily determinable fair values are recorded at cost and
are remeasured to fair value based on certain observable price changes or impairment events as they
occur. Held-to-maturity debt securities are recorded at cost. Gains or losses on investments are included in
other expense, net in the consolidated statements of earnings.
AbbVie periodically assesses its marketable debt 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, the cost basis of the investment is written down with a charge to other expense, net in the
consolidated statements of earnings and an available-for-sale investment’s unrealized loss is reclassified
from AOCI to other expense, 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 for doubtful accounts
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 for doubtful accounts was
$51 million at December 31, 2018 and $58 million at December 31, 2017.
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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
2018
2017
$ 473
862
270
$ 610
822
173
$1,605
$1,605
2018
2017
$
73
1,603
6,362
358
$
48
1,428
5,991
604
8,396
(5,513)
8,071
(5,268)
$ 2,883
$ 2,803
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 2 to 25 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 $471 million in 2018, $425 million in 2017 and $425 million in 2016.
Assets related to capital leases were insignificant at December 31, 2018 and 2017.
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 for product liability claims, if any, 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, net in the
consolidated statements of earnings. The fair value of assets acquired and liabilities assumed in certain
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cases may be subject to revision based on the final determination of fair value during a period of time 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 would occur if the fair value of the intangible asset is less than the
carrying value.
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 the reporting unit is less than its carrying amount,
a quantitative impairment test is performed. AbbVie tests indefinite-lived intangible assets 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 is less
than its carrying amount, a quantitative impairment test is performed. 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, 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. 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.
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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
other comprehensive income (loss) (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
Recently Adopted Accounting Pronouncements
ASU No. 2014-09
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2014-09, 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 superseded most existing 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 adopted the standard in the first quarter of
2018 using the modified retrospective method. Results for reporting periods beginning after December 31,
2017 have been presented in accordance with the standard, while results for prior periods have not been
adjusted and continue to be reported in accordance with AbbVie’s historical accounting. The cumulative
effect of initially applying the new revenue standard was recognized as an adjustment to the opening
balance of retained earnings as of January 1, 2018.
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There were no significant changes to the amounts or timing of revenue recognition for product sales,
the company’s primary revenue stream. For certain licensing arrangements where revenue was previously
deferred and recognized over time, revenue is now recognized at the point in time when the license is
granted. Additionally, for certain contract manufacturing arrangements where revenue was previously
recognized at a point in time at the end of the manufacturing process, revenue is now recognized over
time throughout the manufacturing process.
Under the new standard, on January 1, 2018, the company recognized a cumulative-effect adjustment
to retained earnings primarily related to certain deferred license revenues that were originally expected to
be recognized through early 2020. The adjustment to the consolidated balance sheet included: (i) a
$42 million increase to prepaid expenses and other; (ii) a $39 million decrease to inventories; (iii) a
$57 million decrease to accounts payable and accrued liabilities; (iv) a $75 million decrease to other
long-term liabilities; (v) a $22 million increase to deferred income taxes; and (vi) a $124 million increase to
retained earnings. Other cumulative-effect adjustments to the consolidated balance sheet were insignificant.
The impact of adoption on the company’s consolidated statements of earnings in 2018 was as follows:
year ended December 31, 2018 (in millions, except per share data)
Net revenues
Cost of products sold
Income tax benefit
Net earnings
Diluted earnings per share
As
Reported
$32,753
7,718
(490)
5,687
$ 3.66
Balances Without
Adoption of
ASU 2014-09
Effect of Change
Higher/(Lower)
$32,812
7,730
(487)
5,731
$ 3.69
$ (59)
(12)
(3)
(44)
$(0.03)
As of December 31, 2018, due to the impact of the adoption of ASU 2014-09, prepaid expenses and
other were $40 million higher, inventories were $27 million lower, accounts payable and accrued liabilities
were $53 million lower, other long-term liabilities were $18 million lower, deferred income taxes were
$11 million higher and retained earnings were $80 million higher on the company’s consolidated balance
sheet than they would have been had ASU 2014-09 not been adopted. Other impacts to the consolidated
balance sheet were insignificant.
ASU No. 2016-01
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. AbbVie adopted the standard in the first quarter of 2018. The
adoption did not impact the accounting for AbbVie’s investments in debt securities and did not have a
material impact on the company’s consolidated financial statements.
ASU No. 2016-16
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory. The standard requires entities to recognize the income tax consequences of an
intercompany transfer of an asset other than inventory when the transfer occurs. Under previous U.S. GAAP,
the income tax consequences of these intercompany asset transfers were deferred until the asset was sold
to a third party or otherwise recovered through use. AbbVie adopted the standard in the first quarter of
2018 using the modified retrospective method. As a result, on January 1, 2018, the company recorded a
cumulative-effect adjustment to its consolidated balance sheet that included a $1.9 billion decrease to
retained earnings, a $1.4 billion decrease to prepaid expenses and other and a $0.5 billion decrease to
other assets.
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ASU No. 2017-07
In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715):
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The
standard requires that an employer continue to report the service cost component of net periodic benefit
cost in the same income statement line item or items as other employee compensation costs arising from
services rendered during the period. The other components of net periodic benefit cost are required to be
presented separately outside of income from operations and are not eligible for capitalization. AbbVie
adopted the standard in the first quarter of 2018 and applied the income statement classification provisions
of this standard retrospectively. As a result, the company reclassified income of $47 million from operating
earnings to non-operating income in 2017 and $44 million in 2016. Additionally, the company recorded
approximately $34 million of non-operating income in 2018 which would have been recorded in operating
earnings under the previous guidance.
ASU No. 2017-12
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities. The standard simplifies the application of hedge
accounting and more closely aligns the accounting with an entity’s risk management activities. AbbVie
elected to early adopt the standard in the first quarter of 2018. The adoption did not have a material
impact on the company’s consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
ASU No. 2016-02
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard outlines a
comprehensive lease accounting model that supersedes the current lease guidance and requires lessees to
recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than
12 months. The guidance also changes the definition of a lease and expands the disclosure requirements of
lease arrangements. AbbVie has substantially completed its assessment of the new standard as of
December 31, 2018. AbbVie will adopt the standard effective in the first quarter of 2019 and will not
restate comparative periods upon adoption. AbbVie will elect a package of practical expedients for leases
that commenced prior to January 1, 2019 and will not reassess: (i) whether any expired or existing
contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial
direct costs capitalization for any existing leases. AbbVie does not expect the adoption will have a material
impact on its consolidated statement of earnings. However, the new standard will require AbbVie to
establish liabilities and corresponding right-of-use assets on its consolidated balance sheet of approximately
$0.3 billion to $0.5 billion for operating leases that exist as of the adoption date.
ASU No. 2016-13
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The
standard changes how credit losses are measured for most financial assets and certain other instruments.
For trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, the
standard requires the use of a new forward-looking ‘‘expected credit loss’’ model that generally will result
in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized
losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the
investment. Additionally, the standard 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
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of adoption. AbbVie is currently assessing the impact and timing of adopting this guidance on its
consolidated financial statements.
ASU No. 2018-02
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive
Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,
which allows a reclassification from AOCI to retained earnings for stranded tax effects related to
adjustments to deferred taxes resulting from the December 2017 enactment of the Tax Cuts and Jobs Act.
The standard will be effective for AbbVie starting with the first quarter of 2019. AbbVie is currently
assessing the impact of adopting this guidance on its consolidated financial statements.
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
Dividends payable
Accounts 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)
Income taxes payable
Contingent consideration liabilities
Liabilities for unrecognized tax benefits
Pension and other post-employment benefits
Other
Other long-term liabilities
2018
2017
2016
$1,348
(204)
$1,150
(146)
$1,047
(82)
$1,144
$1,004
$ 965
2018
2017
$ 3,939
1,607
1,546
787
304
3,748
$ 3,069
1,143
1,474
763
514
3,263
$11,931
$10,226
2018
2017
$ 4,311
4,306
2,726
1,840
1,307
$ 4,675
4,266
2,683
2,740
1,241
$14,490
$15,605
Note 4 Earnings Per Share
.....................................................................................................................................................................................................................................................................................................................................................
AbbVie grants certain 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,
2018
2017
2016
$5,687
30
$5,309
26
$5,953
30
$5,657
$5,283
$5,923
1,541
1,596
1,622
$ 3.67
$ 3.31
$ 3.65
$5,687
30
$5,309
26
$5,953
30
$5,657
$5,283
$5,923
1,541
5
1,546
1,596
7
1,603
1,622
9
1,631
$ 3.66
$ 3.30
$ 3.63
As further described in Note 12, AbbVie entered into and executed an accelerated share repurchase
agreement (ASR) with a third party financial institution in 2016. For purposes of calculating EPS, AbbVie
reflected the ASR as a repurchase of AbbVie common stock.
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 expanded 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 was 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 certain contingent payments upon the achievement of defined development
and regulatory milestones. As of the acquisition date, the maximum aggregate amount payable for
development and regulatory milestones was $4.0 billion. The acquisition-date fair value of these milestones
was $620 million and was estimated using a combination of probability-weighted discounted cash flow
models and Monte Carlo simulation models. The estimate was determined 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.
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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
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 were 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. See Note 7 for additional information on the 2018 partial impairment of Stemcentrx-
related intangible assets.
The goodwill recognized represented 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. Goodwill was also 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.
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 year ended December 31, 2016 as if the acquisition of Stemcentrx had occurred on
January 1, 2015:
year ended December 31 (in millions, except per share information)
Net revenues
Net earnings
Basic earnings per share
Diluted earnings per share
2016
$25,641
5,907
$ 3.58
$ 3.56
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 other indications,
including Crohn’s disease, psoriatic arthritis and ulcerative colitis. 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. Additionally, $18 million of payments to
BI, pursuant to a contractual obligation to reimburse BI for certain development costs it incurred prior to
the acquisition date, were initially deferred. AbbVie may make certain contingent payments upon the
achievement of defined development, regulatory and commercial milestones, as well as royalty payments
based on net revenues of licensed products. As of the acquisition date, the maximum aggregate amount
payable for development and regulatory milestones was approximately $1.6 billion. The acquisition-date fair
value of these milestones was $606 million. 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 contingent royalty payments, which were then discounted to present value. The fair value
measurements were based on Level 3 inputs.
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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 represented expected synergies, including an
expansion of the company’s immunology product portfolio.
Pro forma results of operations for this acquisition have not been presented because this acquisition
was insignificant to AbbVie’s consolidated results of operations.
Other Licensing & Acquisitions Activity
Excluding the acquisitions above, cash outflows related to other acquisitions and investments totaled
$736 million in 2018, $308 million in 2017 and $262 million in 2016. AbbVie recorded acquired IPR&D
charges of $424 million in 2018, $327 million in 2017 and $200 million in 2016. Significant arrangements
impacting 2018, 2017 and 2016, some of which require contingent milestone payments, are summarized
below.
Calico Life Sciences LLC
In June 2018, AbbVie and Calico Life Sciences LLC (Calico) entered into an extension of a collaboration
to discover, develop and bring to market new therapies for patients with age-related diseases, including
neurodegeneration and cancer. Under the terms of the agreement, AbbVie and Calico will each contribute
an additional $500 million to the collaboration and the term is extended for an additional 3 years. Calico
will be responsible for research and early development until 2022 and will advance collaboration projects
through Phase 2a through 2027. Following completion of Phase 2a, AbbVie will have the option to
exclusively license collaboration compounds. AbbVie will support Calico in its early research and
development efforts and, upon exercise, would be responsible for late-stage development and commercial
activities. Collaboration costs and profits will be shared equally by both parties post option exercise. During
2018, AbbVie recorded $500 million in other expense in the consolidated statement of earnings related to
its commitments under the agreement.
Alector, Inc.
In October 2017, AbbVie entered into a global strategic collaboration with Alector, Inc. (Alector) to
develop and commercialize medicines to treat Alzheimer’s disease and other neurodegenerative disorders.
AbbVie and Alector have agreed to research a portfolio of antibody targets and AbbVie has an option to
global development and commercial rights to two targets. The terms of the arrangement included an initial
upfront payment of $205 million, which was expensed to IPR&D in the fourth quarter of 2017. Alector will
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conduct exploratory research, drug discovery and development for lead programs up to the conclusion of
the proof of concept studies. If the option is exercised, AbbVie will lead development and
commercialization activities and could make additional payments to Alector of up to $986 million upon
achievement of certain development and regulatory milestones. Alector and AbbVie will co-fund
development and commercialization and will share global profits equally.
Other Arrangements
In addition to the significant arrangements described above, AbbVie entered into several other
arrangements resulting in charges to IPR&D of $424 million in 2018, $122 million in 2017 and $200 million
in 2016. In connection with the other individually insignificant early-stage arrangements entered into in
2018, AbbVie could make additional payments of up to $4.8 billion upon the achievement of certain
development, regulatory and commercial milestones.
Note 6 Collaboration with Janssen Biotech, Inc.
.....................................................................................................................................................................................................................................................................................................................................................
In December 2011, Pharmacyclics, a wholly-owned subsidiary of AbbVie, entered into a worldwide
collaboration and license agreement with Janssen Biotech, Inc. and its affiliates (Janssen), one of the
Janssen Pharmaceutical companies of Johnson & Johnson, for the joint development and commercialization
of IMBRUVICA, a novel, orally active, selective covalent inhibitor of Bruton’s tyrosine kinase (BTK) and
certain compounds structurally related to IMBRUVICA, for oncology and other indications, excluding all
immune and inflammatory mediated diseases or conditions and all psychiatric or psychological diseases or
conditions, in the United States and outside the United States.
The collaboration provides Janssen with an exclusive license to commercialize IMBRUVICA outside of
the United States and co-exclusively with AbbVie in the United States. Both parties are responsible for the
development, manufacturing and marketing of any products generated as a result of the collaboration. The
collaboration has no set duration or specific expiration date and provides for potential future development,
regulatory and approval milestone payments of up to $200 million to AbbVie. The collaboration also
includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, Janssen
is responsible for approximately 60% of collaboration development costs and AbbVie is responsible for the
remaining 40% of collaboration development costs.
In the United States, both parties have co-exclusive rights to commercialize the products; however,
AbbVie is the principal in the end-customer product sales. AbbVie and Janssen share pre-tax profits and
losses equally from the commercialization of products. Sales of IMBRUVICA are included in AbbVie’s net
revenues. Janssen’s share of profits is included in AbbVie’s cost of products sold. Other costs incurred under
the collaboration are reported in their respective expense line items, net of Janssen’s share.
Outside the United States, Janssen is responsible for and has exclusive rights to commercialize
IMBRUVICA. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of
products. AbbVie’s share of profits is included in AbbVie’s net revenues. Other costs incurred under the
collaboration are reported in their respective expense line items, net of Janssen’s share.
The following table shows the profit and cost sharing relationship between Janssen and AbbVie:
years ended December 31 (in millions)
United States—Janssen’s share of profits (included in cost of products sold)
International—AbbVie’s share of profits (included in net revenues)
Global—AbbVie’s share of other costs (included in respective line items)
2018
2017
2016
$1,372
622
326
$1,001
429
288
$735
252
262
AbbVie’s receivable from Janssen, included in accounts receivable, net, was $177 million at
December 31, 2018 and $124 million at December 31, 2017. AbbVie’s payable to Janssen, included in
accounts payable and accrued liabilities, was $376 million at December 31, 2018 and $253 million at
December 31, 2017.
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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, 2016
Foreign currency translation
Balance as of December 31, 2017
Foreign currency translation
Balance as of December 31, 2018
$15,416
369
15,785
(122)
$15,663
The latest impairment assessment of goodwill was completed in the third quarter of 2018. As of
December 31, 2018, 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
2018
2017
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
$15,872
7,865
$(5,614)
(1,810)
$10,258
6,055
$16,138
7,822
$(4,982)
(1,409)
$11,156
6,413
23,737
(7,424)
16,313
23,960
(6,391)
17,569
development
4,920
—
4,920
9,990
—
9,990
Total intangible assets, net
$28,657
$(7,424)
$21,233
$33,950
$(6,391)
$27,559
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets represent acquired IPR&D associated with products that have not yet
received regulatory approval. Indefinite-lived intangible assets as of December 31, 2018 and 2017 related to
the acquisitions of Stemcentrx and BI compounds. See Note 5 for additional information. The latest annual
impairment assessment of indefinite-lived intangible assets was completed in the third quarter of 2018
which supported that no impairment existed at that time.
During the fourth quarter of 2018, the company made a decision to stop enrollment for the TAHOE
trial, a Phase 3 study evaluating Rova-T as a second-line therapy for advanced small cell lung cancer
following a recommendation from an Independent Data Monitoring Committee. This decision lowered the
probabilities of success of achieving regulatory approval across Rova-T and other early-stage assets and
represented a triggering event which required the company to evaluate for impairment the IPR&D assets
associated with the Stemcentrx acquisition. The company utilized multi-period excess earnings models of
the ‘‘income approach’’ and determined that the current fair value was $1.0 billion as of December 31,
2018, which was lower than the carrying value of $6.1 billion and resulted in a pre-tax impairment charge
of $5.1 billion ($4.5 billion after tax). The fair value measurements were based on Level 3 inputs. Some of
the more significant assumptions inherent in the development of the models included the estimated annual
cash flows for each asset (including net revenues, cost of sales, R&D costs, selling and marketing costs and
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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. This
impairment charge was recorded to R&D expense in the consolidated statement of earnings for the year
ended December 31, 2018. AbbVie continues to evaluate information as it becomes available with respect
to the Stemcentrx-related clinical development programs and will monitor the remaining IPR&D assets for
further impairment.
No indefinite-lived intangible asset impairment charges were recorded in 2017 and 2016. Future
impairment tests for indefinite-lived intangible assets will be performed annually in the third quarter, or
earlier if impairment indicators exist.
Definite-Lived Intangible Assets
Definite-lived intangible assets are amortized over their estimated useful lives, which range between 2
to 16 years with an average of 11 years for both developed product rights and license agreements.
Amortization expense was $1.3 billion in 2018, $1.1 billion in 2017 and $764 million in 2016 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, 2018 is as follows:
(in billions)
Anticipated annual amortization expense
2019
2020
2021
2022
2023
$1.5
$1.7
$1.9
$2.1
$2.2
No definite-lived intangible asset impairment charges were recorded in 2018. In 2017, an impairment
charge of $354 million was recorded related to ZINBRYTA that reduced both the gross carrying amount and
net carrying amount of the underlying intangible assets due to lower expected future cash flows for the
product. In 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. The 2017 and 2016 impairment
charges were based on discounted cash flow analyses and were included in cost of products sold in the
consolidated statements of earnings.
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. As a result, AbbVie management periodically approves individual restructuring plans
to achieve these objectives. In 2018, 2017 and 2016, no such plans were individually significant.
Restructuring charges recorded were $70 million in 2018, $86 million in 2017 and $52 million in 2016 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 the classification of the affected employees or operations.
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The following table summarizes the cash activity in the restructuring reserve for 2018, 2017 and 2016:
(in millions)
Accrued balance as of December 31, 2015
2016 restructuring charges
Payments and other adjustments
Accrued balance as of December 31, 2016
2017 restructuring charges
Payments and other adjustments
Accrued balance as of December 31, 2017
2018 restructuring charges
Payments and other adjustments
Accrued balance as of December 31, 2018
$ 148
52
(113)
87
86
(87)
86
59
(46)
$ 99
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Note 9 Debt, Credit Facilities and Commitments and Contingencies
.....................................................................................................................................................................................................................................................................................................................................................
The following table summarizes long-term debt:
as of December 31 (dollars in millions)
Senior notes issued in 2012
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)
Senior notes issued in 2018
3.375% notes due 2021
3.75% notes due 2023
4.25% notes due 2028
4.875% notes due 2048
Term loan facilities
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 2018(a)
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%
3.51%
3.84%
4.38%
4.94%
3.06%
Effective
interest rate
in 2017(a)
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%
—%
—%
—%
—%
2.26%
2018
$
—
3,100
2,600
—
3,750
1,000
3,750
2,500
2,700
1,800
1,000
2,000
1,000
2,000
1,604
1,661
859
1,250
1,250
1,750
1,750
—
36
(466)
(120)
(163)
36,611
1,609
$35,002
2017
$ 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
1,673
1,733
896
—
—
—
—
2,000
110
(401)
(97)
(146)
36,968
6,015
$30,953
(a) Excludes the effect of any related interest rate swaps.
In September 2018, the company issued $6.0 billion aggregate principal amount of unsecured senior
notes, consisting of $1.25 billion aggregate principal amount of 3.375% senior notes due 2021, $1.25 billion
aggregate principal amount of 3.75% senior notes due 2023, $1.75 billion aggregate principal amount of
4.25% senior notes due 2028 and $1.75 billion aggregate principal amount of 4.875% senior notes due
2048. 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, and except for the 3.375%
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notes due 2021, AbbVie may redeem the senior notes at par between one and six months prior to
maturity. In connection with the offering, debt issuance costs incurred totaled $37 million and debt
discounts totaled $37 million and are being amortized over the respective terms of the senior notes to
interest expense, net in the consolidated statements of earnings. Of the $5.9 billion net proceeds,
$2.0 billion was used to repay the company’s outstanding three-year term loan credit agreement in
September 2018 and $1.0 billion was used to repay the aggregate principal amount of 2.00% senior notes
at maturity in November 2018. The company intends to use the remaining proceeds to repay term loan
obligations in 2019 as they become due.
In May 2018, the company also repaid $3.0 billion aggregate principal amount of 1.80% senior notes at
maturity.
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 incurred totaled $17 million and debt discounts totaled $9 million and are being amortized
over the respective terms of the senior 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 that were 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 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
incurred totaled $52 million and debt discounts totaled $29 million and are being amortized over the
respective terms of the senior 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 connection with the May 2016 unsecured senior notes
issuance, AbbVie repaid a $2.0 billion 364-day term loan credit agreement.
AbbVie has outstanding $13.7 billion aggregate principal amount of unsecured senior notes which were
issued in 2015. AbbVie may redeem the senior notes, at any time, prior to maturity at a redemption price
equal to the principal amount of the senior notes redeemed plus a make-whole premium and AbbVie may
redeem the senior notes at par between one and six months prior to maturity.
AbbVie has outstanding $5.7 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, 2018, the company was in compliance with its senior note covenants and term loan
covenants.
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Short-Term Borrowings
Short-term borrowings included commercial paper borrowings of $699 million at December 31, 2018
and $400 million at December 31, 2017. The weighted-average interest rate on commercial paper
borrowings was 2.0% in 2018, 1.3% in 2017 and 0.6% in 2016.
In August 2018, AbbVie replaced its existing revolving credit facility with a new $3.0 billion five-year
revolving credit facility that matures in August 2023. The new facility enables the company to borrow funds
on an unsecured basis at variable interest rates and contains various covenants. At December 31, 2018, the
company was in compliance with all its credit facility covenants. Commitment fees under AbbVie’s revolving
credit facilities were insignificant in 2018, 2017 and 2016. No amounts were outstanding under the credit
facility as of December 31, 2018 and December 31, 2017.
In May 2018, AbbVie entered into a $3.0 billion 364-day term loan credit agreement (term loan). In
June 2018, the company drew on this term loan and as of December 31, 2018, $3.0 billion was outstanding
and was included in short-term borrowings on the consolidated balance sheet. Borrowings under the term
loan bear interest at one month LIBOR plus applicable margin. The term loan may be prepaid without
penalty upon prior notice and contains customary covenants, all of which the company was in compliance
with as of December 31, 2018.
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, 2018:
as of and for the years ending December 31 (in millions)
2019
2020
2021
2022
2023
Thereafter
Total obligations and commitments
Fair value hedges, unamortized bond discounts and deferred financing costs
Operating
leases
Debt maturities
and capital leases
$116
105
100
81
64
343
809
$ 1,612
3,755
3,053
4,120
2,250
22,570
37,360
(749)
Total long-term debt and lease obligations
$809
$36,611
Lease expense was $161 million in 2018, $169 million in 2017 and $159 million in 2016. 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, 2018, annual future
minimum lease payments for capital lease obligations were 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.
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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 also periodically enters into interest rate swaps in which the company agrees 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 $1.4 billion at December 31, 2018 and $2.2 billion at December 31, 2017, 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, 2018 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. These contracts had notional amounts totaling
$8.6 billion at December 31, 2018 and $7.7 billion at December 31, 2017.
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 that
were designated as net investment hedges.
AbbVie is a party to interest rate hedge contracts designated as fair value hedges with notional
amounts totaling $10.8 billion at December 31, 2018 and $11.8 billion at December 31, 2017. The effect of
the hedge contracts is to change a fixed-rate interest obligation to a floating rate for that portion of the
debt. AbbVie records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by
an offsetting amount.
No amounts are excluded from the assessment of effectiveness for cash flow hedges, net investment
hedges or fair value hedges.
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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 2018 2017 Balance sheet caption 2018 2017
Foreign currency forward exchange contracts
Designated as cash flow hedges
Prepaid expenses and other $113 $ 1 Accounts payable and $ — $120
Fair value -
Derivatives in asset position
Fair value -
Derivatives in liability position
Not designated as hedges
Prepaid expenses and other
19
accrued liabilities
22 Accounts payable and
accrued liabilities
26
29
Interest rate swaps designated as fair value hedges
Prepaid expenses and other — — Accounts payable and —
8
Interest rate swaps designated as fair value hedges
Other assets — —
accrued liabilities
Other long-term 466 393
liabilities
Total derivatives
$132 $23
$492 $550
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 pre-tax amounts of gains (losses) from derivative instruments
recognized in other comprehensive income (loss):
years ended December 31 (in
millions)
Cash Flow Investment
Cash Flow Investment
Cash Flow Investment
Hedges
Hedges
Total
Hedges
Hedges
Total
Hedges
Hedges
Total
2018
Net
2017
Net
2016
Net
Foreign currency forward
exchange contracts
$175
$— $175
$(250)
$— $(250) $174
$118
$292
Assuming market rates remain constant through contract maturities, the company expects to transfer
pre-tax gains of $159 million into cost of products sold for foreign currency cash flow hedges during the
next 12 months.
The company recognized, in other comprehensive loss, pre-tax gains of $178 million in 2018, pre-tax
losses of $537 million in 2017 and pre-tax gains of $101 million in 2016 related to non-derivative, foreign
currency denominated debt designated as net investment hedges.
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 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
2018
2017
2016
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
Debt designated as hedged item in fair value hedges
Cost of products sold
Net foreign exchange loss
Other expense, net
Interest expense, net
Interest expense, net
$(161) $118
(96)
—
(63)
63
83
—
(71)
71
$ 20
6
(12)
(266)
266
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Fair Value Measures
The fair value hierarchy consists of the following three levels:
• Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets that the
company has the ability to access;
• Level 2—Valuations based on quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active and model-based valuations in
which all significant inputs are observable in the market; and
• Level 3—Valuations using significant inputs that are unobservable in the market and include the use
of judgment by the company’s management about the assumptions market participants would use in
pricing the asset or liability.
The following table summarizes the bases used to measure certain assets and liabilities carried at fair
value on a recurring basis on the consolidated balance sheet as of December 31, 2018:
(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)
$1,209
—
—
4
—
$1,213
$ —
—
—
$ —
$6,080
568
1,536
—
132
$8,316
$ 466
26
—
$ 492
$ —
—
—
—
—
$ —
$ —
—
4,483
$4,483
Total
$7,289
568
1,536
4
132
$9,529
$ 466
26
4,483
$4,975
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The following table summarizes the bases used to measure certain assets and liabilities carried at fair
value on a recurring basis on the consolidated balance sheet as of December 31, 2017:
(in millions)
Assets
Cash and equivalents
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)
$849
—
4
—
$853
$ —
—
—
$ —
$ 8,454
2,524
—
23
$11,001
$
$
401
149
—
550
$ —
—
—
—
$ —
$ —
—
4,534
$4,534
Total
$ 9,303
2,524
4
23
$11,854
$
401
149
4,534
$ 5,084
The fair values of time deposits approximate their amortized cost due to the short maturities of these
instruments. The fair values of available-for-sale debt securities were determined based on prices obtained
from commercial pricing services. The derivatives entered into by the company were valued using published
spot curves for interest rate hedges and published 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, 2018, a 50 basis point increase/decrease in the assumed discount
rate would have decreased/increased the value of the contingent consideration liabilities by approximately
$160 million. Additionally, at December 31, 2018, 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 $420 million.
There have been no transfers of assets or liabilities between the fair value measurement levels. The
following table presents the changes in fair value of contingent consideration liabilities which are measured
using Level 3 inputs:
years ended December 31 (in millions)
Beginning balance
Additions (See Note 5)
Change in fair value recognized in net earnings
Milestone payments
Ending balance
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2018
2017
2016
$4,534
—
49
(100)
$4,213
$ —
— 3,985
228
—
626
(305)
$4,483
$4,534
$4,213
The change in fair value recognized in net earnings is recorded in other expense, net in the
consolidated statements of earnings. During the fourth quarter of 2018, the company recorded a
$428 million decrease in the Stemcentrx contingent consideration liability due to a reduction in probabilities
of success of achieving regulatory approval.
Certain financial instruments are carried at historical cost or some basis other than fair value. The
book values, approximate fair values and bases used to measure the approximate fair values of certain
financial instruments as of December 31, 2018 are shown in the table below:
(in millions)
Liabilities
Short-term borrowings
Current portion of long-term debt and lease
obligations, excluding fair value hedges
Long-term debt and lease obligations,
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
$ 3,699
$ 3,693
$
—
$3,693
1,609
1,617
1,609
8
28
$—
—
—
$—
excluding fair value hedges
35,468
34,052
34,024
Total liabilities
$40,776
$39,362
$35,633
$3,729
AbbVie also holds investments in equity securities that do not have readily determinable fair values.
The company records these investments at cost and remeasures them to fair value based on certain
observable price changes or impairment events as they occur. The carrying amount of these investments
was $84 million as of December 31, 2018. No significant cumulative upward or downward adjustments have
been recorded for these investments as of December 31, 2018. Prior to the adoption of ASU No. 2016-01
discussed in Note 2, these investments were accounted for under the cost method and disclosed in the
table below as of December 31, 2017.
The book values, approximate fair values and bases used to measure the approximate fair values of
certain financial instruments as of December 31, 2017 are shown in the table below:
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
(in millions)
Assets
Investments
Total assets
Liabilities
Short-term borrowings
Current portion of long-term debt and lease
obligations, excluding fair value hedges
Long-term debt and lease obligations,
$
$
$
48
48
400
$
$
$
48
48
400
$
$
$
—
—
—
$ —
$ —
$ 400
6,023
6,034
4,004
2,030
excluding fair value hedges
31,346
32,846
32,763
83
Total liabilities
$37,769
$39,280
$36,767
$2,513
$48
$48
$ —
—
—
$ —
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Available-for-sale Securities
Substantially all of the company’s investments in debt securities were classified as available-for-sale
with changes in fair value recognized in other comprehensive income. Debt securities classified as
short-term were $204 million as of December 31, 2018 and $482 million as of December 31, 2017.
Long-term debt securities mature primarily within five years. Estimated fair values of available-for-sale debt
securities were based on prices obtained from commercial pricing services.
The following table summarizes available-for-sale securities by type as of December 31, 2018:
(in millions)
Asset backed securities
Corporate debt securities
Other debt securities
Total
Gross
unrealized
Amortized cost
Gains
Losses
Fair value
$ 423
1,042
81
$1,546
$— $ (2)
(9)
—
1
—
$ 421
1,034
81
$ 1
$(11)
$1,536
The following table summarizes available-for-sale securities by type as of December 31, 2017:
(in millions)
Asset backed securities
Corporate debt securities
Other debt securities
Equity securities
Total
Gross
unrealized
Amortized cost
Gains
Losses
Fair value
$ 930
1,451
144
4
$2,529
$ 1
4
—
2
$ 7
$(3)
(2)
(1)
(2)
$(8)
$ 928
1,453
143
4
$2,528
AbbVie had no other-than-temporary impairments as of December 31, 2018. Net realized gains and
losses were insignificant in 2018 and 2016. Net realized gains in 2017 were $90 million.
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. 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 (VEF) were no longer
expected to be settled at the official rate of 10 VEF per U.S. dollar, but rather at the Divisa Complementaria
(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, 2018 and 2017, AbbVie’s net monetary
assets in Venezuela were insignificant.
Of total net accounts receivable, three U.S. wholesalers accounted for 63% as of December 31, 2018
and 56% as of December 31, 2017, and substantially all of AbbVie’s net revenues in the United States were
to these three wholesalers.
HUMIRA (adalimumab) is AbbVie’s single largest product and accounted for approximately 61% of
AbbVie’s total net revenues in 2018, 65% in 2017 and 63% in 2016.
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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, 2018 and 2017.
The following table summarizes benefit plan information for the global AbbVie-sponsored defined
benefit and other post-employment plans:
as of and for the years ended December 31 (in millions)
2018
2017
2018
2017
Defined
benefit plans
Other
post-employment
plans
Projected benefit obligations
Beginning of period
Service cost
Interest cost
Employee contributions
Actuarial (gain) loss
Benefits paid
Other, primarily foreign currency translation adjustments
End of period
Fair value of plan assets
Beginning of period
Actual return 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
$ 6,985
285
227
2
(614)
(191)
(76)
$ 5,829
236
204
2
714
(173)
173
$ 813
26
25
—
(287)
(16)
—
$ 627
26
24
—
149
(15)
2
6,618
6,985
561
813
5,399
(384)
873
2
(191)
(62)
5,637
4,572
684
246
2
(173)
68
5,399
—
—
16
—
(16)
—
—
—
—
15
—
(15)
—
—
$ (981) $(1,586)
$(561)
$(813)
$
321
(8)
(1,294)
$
388
(32)
(1,942)
$ —
(15)
(546)
$ —
(15)
(798)
$ (981) $(1,586)
$(561)
$(813)
$ 2,516
11
$ 2,471
12
$ 25
(22)
$ 320
(29)
$ 2,527
$ 2,483
$
3
$ 291
The projected benefit obligations (PBO) in the table above included $1.9 billion at December 31, 2018
and $2.0 billion at December 31, 2017, related to international defined benefit plans.
For plans reflected in the table above, the accumulated benefit obligations (ABO) were $6.0 billion at
December 31, 2018 and $6.3 billion at December 31, 2017. For those plans reflected in the table above in
which the ABO exceeded plan assets at December 31, 2018, the ABO was $4.0 billion, the PBO was
$4.5 billion and aggregate plan assets were $3.3 billion.
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Subsequent to December 31, 2018, the company made a voluntary contribution of $150 million to its
principal domestic defined benefit plan, the AbbVie Pension Plan.
Amounts Recognized in Other Comprehensive Income (Loss)
The following table summarizes the pre-tax gains and losses included in other comprehensive income
(loss):
years ended December 31 (in millions)
Defined benefit plans
Actuarial loss
Amortization of actuarial loss and prior service cost
Foreign exchange gain (loss) and other
Total
Other post-employment plans
Actuarial loss (gain)
Amortization of actuarial loss and prior service credit
Total
2018
2017
2016
$ 209
(140)
(13)
$ 412
(107)
46
$284
(85)
(22)
$ 56
$ 351
$177
$(287) $ 149
—
(1)
$ 33
—
$(288) $ 149
$ 33
The pre-tax amounts included in AOCI at December 31, 2018 expected to be recognized in net periodic
benefit cost in 2019 consisted of $103 million of expense related to actuarial losses and prior service costs
for defined benefit plans and $5 million of income related to actuarial losses and prior service credits 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 and prior service credit
Net periodic benefit cost
2018
2017
2016
$ 285
227
(439)
140
$ 236
204
(382)
107
$ 210
201
(354)
85
$ 213
$ 165
$ 142
$ 26
25
1
$ 26
24
—
$ 25
24
—
$ 52
$ 50
$ 49
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
2018
2017
4.0% 3.4%
4.6% 4.5%
4.6% 3.9%
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The assumptions used in calculating the December 31, 2018 measurement date benefit obligations will
be used in the calculation of net periodic benefit cost in 2019.
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
2018
2017
2016
3.4%
3.1%
7.7%
4.4%
4.0%
3.7%
3.9%
3.7%
7.8%
4.4%
4.9%
4.1%
4.4%
4.0%
7.9%
4.4%
5.1%
4.3%
For the December 31, 2018 post-retirement health care obligations remeasurement, the company
assumed a 6.6% pre-65 (7.3% 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% in 2050 and remain at that level thereafter.
For purposes of measuring the 2018 post-retirement health care costs, the company assumed a 7.7%
pre-65 (9.5% 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% for 2050 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, 2018, a one percentage point change in assumed health care cost trend rates
would have the following effects:
year ended December 31, 2018 (in millions) (brackets denote a reduction)
Service cost and interest cost
Projected benefit obligation
One percentage
point
Increase
Decrease
$ 13
110
$(10)
(87)
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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)
$ 719
67
226
21
123
48
225
3
7
147
$ —
—
—
119
262
127
7
258
—
—
$—
—
—
—
—
—
—
—
—
—
$1,586
$773
$—
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)
$ 597
74
63
6
132
25
260
4
7
40
$ —
—
—
104
106
34
5
258
—
—
$—
—
—
—
—
—
—
—
—
—
$1,208
$507
$—
2018
$ 719
67
226
140
385
175
232
261
7
147
$2,359
3,278
$5,637
2017
$ 597
74
63
110
238
59
265
262
7
40
$1,715
3,684
$5,399
(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-U.S.
equity indices in both developed and emerging markets.
(d) Securities held by actively managed accounts, index funds and mutual funds.
(e) Primarily 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 of any other plans.
The expected return on plan assets assumption for each plan is based on management’s expectations
of long-term average rates of return to be achieved by the underlying investment portfolio. 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 Benefit Payments
The following table summarizes total benefit payments expected to be paid to plan participants
including payments funded from both plan and company assets:
years ending December 31 (in millions)
2019
2020
2021
2022
2023
2024 to 2028
Defined Contribution Plan
Defined
benefit plans
Other
post-employment
plans
$ 209
221
235
249
265
1,589
$ 16
19
21
21
22
135
AbbVie’s principal defined contribution plan is the AbbVie Savings Plan. AbbVie recorded expense of
$89 million in 2018, $82 million in 2017 and $75 million in 2016 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.
AbbVie measures compensation expense for stock-based awards 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 are 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 older 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,
2018
2017
2016
$ 27
169
225
421
73
$ 23
159
183
365
73
$ 22
193
181
396
104
$348
$292
$292
Realized excess tax benefits associated with stock-based compensation totaled $78 million in 2018,
$71 million in 2017 and $55 million in 2016. Since 2017, all excess tax benefits associated with stock-based
awards have been recognized in the statement of earnings when the awards vest or settle, rather than in
stockholders’ equity as a result of the adoption of a new accounting pronouncement.
Stock Options
Stock options awarded to employees 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 $21.63 in 2018, $9.80 in 2017 and $9.29 in
2016.
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The following table summarizes AbbVie stock option activity in 2018:
(options in thousands, aggregate intrinsic value in millions)
Outstanding at December 31, 2017
Granted
Exercised
Lapsed
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Weighted-
average
exercise price
Weighted-
average
remaining
life (in years)
Aggregate
intrinsic value
$ 41.69
114.36
28.75
17.03
$ 55.05
$ 45.23
5.1
$458
6.2
5.3
$242
$202
Options
8,316
634
(2,781)
(26)
6,143
4,293
The total intrinsic value of options exercised was $215 million in 2018, $371 million in 2017 and
$325 million in 2016. The total fair value of options vested during 2018 was $22 million. As of
December 31, 2018, $6 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 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 are
performance-based. Such awards granted before 2016 consisted of RSAs or RSUs for which vesting was
contingent upon AbbVie achieving a minimum annual return on equity (ROE). Since 2016, equity awards
granted to senior executives and other key employees consist of a combination of performance-vested RSUs
and performance shares as well as non-qualified stock options described above. 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.
The following table summarizes AbbVie RSA, RSU and performance share activity for 2018:
(share units in thousands)
Outstanding at December 31, 2017
Granted
Vested
Forfeited
Outstanding at December 31, 2018
Share units
Weighted-average
grant date fair value
10,682
4,771
(5,073)
(512)
9,868
$ 59.47
103.31
59.41
73.45
$ 79.90
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The fair market value of RSAs, RSUs and performance shares (as applicable) vested was $583 million in
2018, $348 million in 2017 and $362 million in 2016.
As of December 31, 2018, $307 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
Cash dividends declared per common share totaled $3.95 in 2018, $2.63 in 2017 and $2.35 in 2016.
The following table summarizes quarterly cash dividends declared during 2018, 2017 and 2016:
Date
Declared
11/02/18
09/07/18
06/14/18
02/15/18
2018
Payment
Date
02/15/19
11/15/18
08/15/18
05/15/18
Dividend
Per Share
Date
Declared
$1.07
$0.96
$0.96
$0.96
10/27/17
09/08/17
06/22/17
02/16/17
2017
Payment
Date
02/15/18
11/15/17
08/15/17
05/15/17
Dividend
Per Share
Date
Declared
$0.71
$0.64
$0.64
$0.64
10/28/16
09/09/16
06/16/16
02/18/16
2016
Payment
Date
02/15/17
11/15/16
08/15/16
05/16/16
Dividend
Per Share
$0.64
$0.57
$0.57
$0.57
Stock Repurchase Program
The company’s stock repurchase authorization permits purchases of AbbVie shares from time to time
in open-market or private transactions at management’s discretion. The program has no time limit and can
be discontinued at any time. Shares repurchased under these programs are recorded at acquisition cost,
including related expenses and are available for general corporate purposes.
On February 15, 2018, AbbVie’s board of directors authorized a new $10.0 billion stock repurchase
program, which superseded AbbVie’s previous stock repurchase program. On December 13, 2018, AbbVie’s
board of directors authorized a $5.0 billion increase to the existing $10.0 billion stock repurchase program.
Under this authorization, AbbVie repurchased approximately 109 million shares for $10.7 billion in 2018.
AbbVie’s remaining share repurchase authorization was $4.3 billion as of December 31, 2018.
Under previous stock repurchase programs, AbbVie made open-market share repurchases of
approximately 11 million shares for $1.3 billion in 2018, approximately 13 million shares for $1.0 billion in
2017 and approximately 34 million shares for $2.1 billion in 2016. Additionally, in 2016, AbbVie executed an
ASR in connection with the Stemcentrx acquisition and repurchased approximately 60 million shares for
$3.8 billion.
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Accumulated Other Comprehensive Loss
The following table summarizes the changes in each component of accumulated other comprehensive
loss, net of tax, for 2018, 2017 and 2016:
(in millions) (brackets denote losses)
Foreign
currency
translation
adjustments
Net
investment
hedging
activities
Pension
and post-
employment
benefits
Marketable
security
activities
Cash
flow
hedging
activities
Total
Balance as of December 31, 2015
$(1,270)
$ —
$(1,378)
$ 47
$ 40
$(2,561)
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
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, 2017
Other comprehensive income (loss)
before reclassifications
Net losses reclassified from
accumulated other comprehensive
loss
Net current-period other
comprehensive income (loss)
(165)
140
(194)
7
160
(52)
—
(165)
(1,435)
—
140
140
59
(135)
(1,513)
680
(343)
(480)
(8)
(1)
46
29
(24)
27
136
176
(25)
(2,586)
(230)
(344)
316
—
74
(75)
(112)
203
996
(439)
(343)
(203)
(406)
(1,919)
(391)
138
—
—
(391)
138
84
113
197
(46)
—
(14)
4
(10)
$(10)
(342)
(166)
(141)
(2,727)
156
(27)
157
313
274
247
$ 147
$(2,480)
Balance as of December 31, 2018
$ (830)
$ (65)
$(1,722)
Other comprehensive loss in 2018 included foreign currency translation adjustments totaling a loss of
$391 million, which was principally due to the impact of the weakening of the Euro on the translation of
the company’s Euro-denominated assets. In 2017, AbbVie reclassified $316 million of historical currency
translation losses from AOCI related to the liquidation of certain foreign entities following the enactment of
U.S. tax reform. These losses were included in net foreign exchange loss in the consolidated statement of
earnings and had no related income tax impacts. Other comprehensive loss in 2017 also included foreign
currency translation adjustments totaling a gain of $680 million, which was principally due to the impact of
the strengthening of the Euro on the translation of the company’s Euro-denominated assets. 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.
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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)
2018
2017
2016
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
$141
(28)
$ 107
(33)
$ 85
(26)
$113
$ 74
$ 59
$161
(4)
$(118) $(20)
(4)
6
$157
$(112) $(24)
(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, 2018, 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
Income Tax Expense
2018
2017
2016
$(4,274) $ (2,678) $(1,651)
9,535
10,405
9,471
$ 5,197
$ 7,727
$ 7,884
years ended December 31 (in millions)
2018
2017
2016
Current
Domestic
Foreign
Total current taxes
Deferred
Domestic
Foreign
Total deferred taxes
Total income tax expense (benefit)
Impacts Related to U.S. Tax Reform
$
593
434
$ 6,204
376
$2,229
498
$ 1,027
$ 6,580
$2,727
$(1,497) $(4,898) $ (792)
(4)
(20)
736
$(1,517) $(4,162) $ (796)
$ (490) $ 2,418
$1,931
The Tax Cuts and Jobs Act (the Act) was signed into law in December 2017, resulting in significant
changes to the U.S. corporate tax system. The Act reduced the U.S. federal corporate tax rate from 35% to
21% and required companies to pay a one-time transition tax on a mandatory deemed repatriation of
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earnings of certain foreign subsidiaries that were previously untaxed. These changes were generally effective
for tax years beginning in 2018.
The Act also created a minimum tax on certain foreign sourced earnings. The taxability of the foreign
earnings and the applicable tax rates are dependent on future events. The company’s accounting policy for
the minimum tax on foreign sourced earnings is to report the tax effects on the basis that the minimum
tax will be recognized in tax expense in the year it is incurred as a period expense.
Additionally, the Act significantly changed the timing and manner in which earnings of foreign
subsidiaries are subject to U.S. tax. Therefore, unremitted foreign earnings previously considered indefinitely
reinvested that were subject to the Act’s transition tax are no longer considered indefinitely reinvested.
Post-2017 earnings subject to the U.S. minimum tax on foreign sourced earnings and the 100 percent
foreign dividends received deduction are also not considered indefinitely reinvested earnings. As such, the
company records foreign withholding tax liabilities related to the future cash repatriation of such earnings.
However, the company considers instances of outside basis differences in foreign subsidiaries that would
incur additional U.S. tax upon reversal (e.g., capital gain distribution) to be permanent in duration. The
unrecognized tax liability is not practicable to determine.
Prior to the enactment of the Act, the company did not provide deferred income taxes on
undistributed earnings of foreign subsidiaries that were indefinitely reinvested for continued use in foreign
operations. Due to the provision of the Act that required a one-time deemed repatriation of earnings of
foreign subsidiaries, in 2017, the company recorded a transition tax expense of $4.5 billion. The company
also recognized income tax expense of $338 million related to transition tax on income from the sale of
inventory in 2018. The transition tax is generally payable in eight annual installments.
Additionally, in 2017, the company remeasured certain deferred tax assets and liabilities based on tax
rates at which they were expected to reverse in the future. In 2017, the net tax benefit of U.S. tax reform
from the remeasurement of deferred taxes related to the Act and foreign tax law changes was $3.6 billion.
Given the complexity of the Act and anticipated guidance from the U.S. Treasury about implementing
the Act, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) which allowed companies to
record provisional amounts during a measurement period not extending beyond one year from the
enactment date of the Act. As a result, in 2017, the company’s analysis and accounting for the tax effects
of the Act was preliminary. In 2017, as a direct result of the Act, the company recorded $4.5 billion of
transition tax expense, as well as $4.1 billion of net tax benefit for deferred tax remeasurement. Both of
these amounts were provisional estimates, as the company had not fully completed its analysis and
calculation of foreign earnings subject to the transition tax or its analysis of certain other aspects of the Act
that impacted the remeasurement of deferred tax balances. In 2018, the company finalized its provisional
estimates and recognized income tax expense related to the Act of $86 million, which primarily related to
the transition tax expense on the one-time mandatory repatriation of previously untaxed earnings of foreign
subsidiaries.
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Effective Tax Rate Reconciliation
years ended December 31
Statutory tax rate
Effect of foreign operations
U.S. tax credits
Impacts related to U.S. tax reform
Tax law change related to foreign currency
Stock-based compensation excess tax benefit
Tax audit settlements
All other, net
Effective tax rate
2018
2017
2016
21.0% 35.0% 35.0%
(10.3)
(12.2)
(28.7)
(4.4)
(4.0)
(7.3)
—
12.0
8.2
2.4
—
—
—
(0.9)
(1.5)
—
(1.2)
(2.5)
1.8
2.6
1.4
(9.4)% 31.3% 24.5%
The effective income 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 changes
in tax law, acquisitions and collaborations. The effective income tax rates in 2018, 2017 and 2016 differed
from the statutory tax rate principally due to changes in enacted tax rates and laws, the benefit from
foreign operations which reflects the impact of lower income tax rates in locations outside the
United States, tax incentives in Puerto Rico and other foreign tax jurisdictions, business development
activities, the cost of repatriation decisions and Stemcentrx impairment related expenses. 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 income tax rate in 2018 and 2017 included impacts related to U.S. tax reform. Specific to
2018, there was a favorable impact of the effective date of provisions of the Act related to the earnings
from certain foreign subsidiaries. The 2018 effective income tax rate also reflects the effects of Stemcentrx
impairment related expenses. In addition, the company recognized a net tax benefit of $131 million in 2018
and $91 million in 2017 related to the resolution of various tax positions pertaining to prior years.
The effective income 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.
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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
Advance payments
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
Other
Total deferred tax liabilities
Net deferred tax liabilities
2018
2017
$
529
371
417
867
228
353
$
556
315
305
219
208
429
2,765
(103)
2,662
2,032
(108)
1,924
(2,940)
(211)
(250)
(3,762)
(181)
(203)
(3,401)
(4,146)
$ (739) $(2,222)
As of December 31, 2018, gross state net operating losses were $717 million and tax credit
carryforwards were $210 million. The state tax carryforwards expire between 2019 and 2038. As of
December 31, 2018, foreign net operating loss carryforwards were $427 million. Foreign net operating loss
carryforwards of $350 million expire between 2020 and 2028 and the remaining do not have an expiration
period.
The company had valuation allowances of $103 million as of December 31, 2018 and $108 million as
of December 31, 2017. These were principally related to state net operating losses and credit carryforwards
that are not expected to be realized.
Current income taxes receivable were $488 million as of December 31, 2018 and $2.1 billion as of
December 31, 2017 and were included in prepaid expenses and other on the consolidated balance sheets.
Unrecognized Tax Benefits
years ended December 31 (in millions)
Beginning balance
Increase due to current year tax positions
Increase due to prior year tax positions
Decrease due to prior year tax positions
Settlements
Lapse of statutes of limitations
Ending balance
2018
2017
2016
$2,701
163
110
(36)
(79)
(7)
$1,168
1,768
16
(2)
(233)
(16)
$ 954
118
111
(7)
—
(8)
$2,852
$2,701
$1,168
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
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.
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If recognized, the net amount of potential tax benefits that would impact the company’s effective tax
rate is $2.7 billion in 2018 and $2.6 billion in 2017. Of the unrecognized tax benefits recorded in the table
above as of December 31, 2018, AbbVie would be indemnified for approximately $84 million. The ‘‘Increase
due to current year tax positions’’ in the table above includes amounts related to federal, state and
international tax items. 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.
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 $73 million in 2018,
$24 million in 2017 and $35 million in 2016, for interest and penalties related to income tax matters.
AbbVie had an accrual for the payment of gross interest and penalties of $190 million at December 31,
2018, $120 million at December 31, 2017 and $112 million at December 31, 2016.
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 $486 million. All significant federal, state, local and international matters have
been concluded for years through 2010. 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
$350 million as of December 31, 2018 and approximately $445 million as of December 31, 2017. 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
plaintiff lawsuits; (b) three purported class actions; and (c) Federal Trade Commission v. Actavis, Inc. et al.
Following the district court’s dismissal of all plaintiffs’ claims, appellate proceedings led to the
reinstatement of the claims regarding the patent litigation settlements, which are proceeding in the district
court. In July 2018, the court denied the private plaintiffs’ motion for class certification.
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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-payer 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. In October 2016,
the Orange County, California District Attorney’s Office filed a lawsuit on behalf of the State of California
regarding the Niaspan patent litigation settlement in Orange County Superior Court, asserting a claim under
the unfair competition provision of the California Business and Professions Code seeking injunctive relief,
restitution, civil penalties and attorneys’ fees. In May 2018, the California Court of Appeals ruled that the
District Attorney’s Office may not bring monetary claims beyond the scope of Orange County.
In September 2014, the FTC filed a lawsuit against AbbVie and others in the United States District
Court for the Eastern District of Pennsylvania, alleging that the 2011 patent litigation with two generic
companies regarding AndroGel was sham litigation and the settlements of that litigation violated federal
antitrust law. In May 2015, the court dismissed the FTC’s settlement-related claim. In June 2018, following a
bench trial, the court found for the FTC on its sham litigation claim and ordered a disgorgement remedy of
$448 million, plus prejudgment interest. The court denied the FTC’s request for injunctive relief. AbbVie is
appealing the court’s liability and disgorgement rulings and, based on an assessment of the merits of that
appeal, no liability has been accrued for this matter. The FTC is also appealing aspects of the court’s trial
ruling and the dismissal of its settlement-related claim. In July and August 2018, several direct AndroGel
purchasers brought two individual and one class action cases in the United States District Court for the
Eastern District of Pennsylvania alleging sham litigation based on the court’s trial ruling in the FTC’s case.
Those cases are stayed pending the appeals in the FTC’s case.
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. Plaintiff has filed a writ of certiorari with the Louisiana
Supreme Court seeking to appeal the August 2018 dismissal of this lawsuit by the Louisiana Court of
Appeal.
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 payers 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. In July 2018, the court denied the plaintiff’s
motion for class certification.
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 4,000 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 200 claims against AbbVie
are pending in various state courts. Plaintiffs generally seek compensatory and punitive damages. Six cases
have gone to trial. Four of those have resulted in complete verdicts for AbbVie: three by juries in the
United States District Court for the Northern District of Illinois in January, May, and June 2018, and one by
a jury in the Cook County, Illinois Circuit Court in August 2017. Another case in the United States District
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Court for the Northern District of Illinois resulted in a March 2018 jury verdict for AbbVie on strict liability
and fraud and for the plaintiff on negligence and awarded $200,000 in compensatory damages and
$3 million in punitive damages, which is the subject of post-trial proceedings. Another case in the
United States District Court for the Northern District of Illinois resulted in a jury verdict for AbbVie on strict
liability and for the plaintiff on remaining claims and an award of $140,000 in compensatory damages and
$140 million in punitive damages in August 2017. In July 2018, the court vacated that verdict and ordered a
new trial. In November 2018, AbbVie entered into a Master Settlement Agreement with the Plaintiffs’
Steering Committee in the MDL encompassing all existing claims in all courts. All proceedings in pending
cases are effectively stayed, including post-trial proceedings in cases that had been tried to verdict with
appellate rights preserved.
Product liability cases are pending in which plaintiffs generally allege that AbbVie did not adequately
warn about risk of certain injuries, primarily various birth defects, arising from use of Depakote.
Approximately 404 cases are pending in the United States District Court for the Southern District of Illinois,
and approximately six others are pending in various other federal and state courts. Plaintiffs generally seek
compensatory and punitive damages. Over ninety percent of these pending cases, plus other unfiled claims,
are subject to confidential settlement agreements and are expected to be dismissed with prejudice. To
date, approximately 185 cases have been dismissed with prejudice.
In November 2014, five individuals filed a putative class action lawsuit, Rubinstein, et al. v Gonzalez, et
al., on behalf of purchasers and sellers of certain Shire plc (Shire) securities between June 20 and
October 14, 2014, against AbbVie and its chief executive officer in the United States District Court for the
Northern District of Illinois alleging 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. Similar lawsuits were filed between July
2017 and October 2018 against AbbVie and in some instances its chief executive officer in the same court
by additional investment funds. Plaintiffs seek compensatory and punitive damages.
In May 2017, a shareholder derivative lawsuit, Ellis v. Gonzalez, et al., was filed in Delaware Chancery
Court, alleging that AbbVie’s directors breached their fiduciary duties in connection with statements made
regarding the Shire transaction. The lawsuit sought unspecified compensatory damages for AbbVie, among
other relief. In July 2018, the court dismissed this case with prejudice. In August 2018, plaintiff appealed
that dismissal to the Delaware Supreme Court.
In September 2018, the Commissioner of the California Department of Insurance intervened in a
qui tam lawsuit, State of California and Lazaro Suarez v. AbbVie Inc., et al., brought under the California
Insurance Frauds Prevention Act, in California Superior Court for Alameda County. The Department of
Insurance’s complaint alleges that, through patient and reimbursement support services and other services
and items of value provided in connection with HUMIRA, AbbVie caused the submission of fraudulent
commercial insurance claims for HUMIRA in violation of the California statute. The complaint seeks
injunctive relief, an assessment of up to three times the amount of the claims at issue, and civil penalties.
In addition, two federal securities lawsuits were filed in September (Pippins v. AbbVie Inc., et al., in the
United States District Court for the Central District of California) and October (Holwill v. AbbVie Inc., et al.,
in the United States District Court for the Northern District of Illinois) against AbbVie, its chief executive
officer and then-chief financial officer, alleging that reasons stated for HUMIRA sales growth in financial
filings between 2013 and 2017 were misleading because they omitted the conduct alleged in the
Department of Insurance’s complaint. In November 2018, the Pippins case was voluntarily dismissed.
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
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related to three AbbVie patents covering methods of treatment of rheumatoid arthritis using adalimumab.
In these proceedings, the PTO reviewed the validity of the patents and issued decisions of invalidity in May,
June and July of 2017. AbbVie’s appeal of the decisions is pending in the Court of Appeals for the Federal
Circuit.
In March 2017, AbbVie filed a lawsuit, AbbVie Inc. v. Novartis Vaccines and Diagnostics, Inc. and Grifols
Worldwide Operations Ltd., in the United States District Court for the Northern District of California against
Novartis Vaccines and Grifols Worldwide seeking a declaratory judgment that eleven HCV-related patents
licensed to AbbVie in 2002 are invalid.
AbbVie is seeking to enforce certain patent rights related to adalimumab (a drug AbbVie sells under
the trademark HUMIRA(cid:4)). In a case filed in United States District Court for the District of Delaware in
August 2017, AbbVie alleges that Boehringer Ingelheim International GmbH’s, Boehringer Ingelheim
Pharmaceutical, Inc.’s, and Boehringer Ingelheim Fremont, Inc.’s proposed biosimilar adalimumab product
infringes certain AbbVie patents. AbbVie seeks declaratory and injunctive relief.
Pharmacyclics LLC, a wholly owned subsidiary of AbbVie, is seeking to enforce its patent rights relating
to ibrutinib capsules (a drug Pharmacyclics sells under the trademark IMBRUVICA(cid:4)). In February 2018, four
separate cases were filed in the United States District Court for the District of Delaware against the
following defendants: Fresenius Kabi USA, LLC, Fresenius Kabi USA, Inc., and Fresenius Kabi Oncology
Limited; Shilpa Medicare Limited, Sun Pharma Global FZE and Sun Pharmaceutical Industries Ltd.; Cipla
Limited and Cipla USA Inc.; and Zydus Worldwide DMCC, Cadila Healthcare Limited, Teva Pharmaceuticals
USA, Inc., Teva Pharmaceutical Industries Ltd., Sandoz Inc., and Lek Pharmaceuticals D.D. In November 2018,
Pharmacyclics filed a fifth suit in the United States District Court for the District of Delaware against Hetero
USA Inc., Hetero Labs Limited and Hetero Labs Limited Unit-I and Unit-V. In each case, Pharmacyclics alleges
the defendant’s proposed generic ibrutinib product infringes certain Pharmacyclics patents and seeks
declaratory and injunctive relief. Janssen Biotech, Inc. which is in a global collaboration with Pharmacyclics
concerning the development and marketing of IMBRUVICA, is the co-plaintiff in these suits.
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
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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)
2018
2017
2016
Immunology
HUMIRA
United States
International
Total
Hematologic Oncology
IMBRUVICA
United States
Collaboration revenues
Total
VENCLEXTA
United States
International
Total
HCV
MAVYRET
United States
International
Total
VIEKIRA
United States
International
Total
Other Key Products
Creon
United States
Lupron
United States
International
Total
Synthroid
United States
Synagis
International
AndroGel
United States
Duodopa
United States
International
Total
Sevoflurane
United States
International
Total
Kaletra
United States
International
Total
All other
$13,685
6,251
$12,361
6,066
$10,432
5,646
$19,936
$18,427
$16,078
$ 2,968
622
$ 2,144
429
$ 1,580
252
$ 3,590
$ 2,573
$ 1,832
$
$
247
97
344
$ 1,614
1,824
$ 3,438
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3
175
178
928
726
166
892
776
726
469
80
350
430
74
317
391
55
281
336
319
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
89
33
122
277
213
490
61
723
784
831
669
160
829
781
738
577
61
294
355
78
332
410
71
352
423
876
$
$
$
$
$
17
1
18
—
—
—
342
1,180
$ 1,522
$
$
$
$
$
$
$
$
$
$
$
$
730
663
158
821
763
730
675
37
256
293
80
348
428
116
433
549
$ 1,199
Total net revenues
$32,753
$28,216
$25,638
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Net revenues to external customers by geographic area, based on product shipment destination, were
as follows:
years ended December 31 (in millions)
United States
Japan
Germany
United Kingdom
France
Canada
Italy
Spain
The Netherlands
Brazil
All other countries
Total net revenues
2018
2017
2016
$21,524
1,591
1,292
855
783
730
652
611
352
350
4,013
$18,251
764
1,157
807
730
659
475
521
362
410
4,080
$15,947
770
1,104
776
713
624
523
589
352
355
3,885
$32,753
$28,216
$25,638
Long-lived assets, primarily net property and equipment, by geographic area were as follows:
as of December 31 (in millions)
United States and Puerto Rico
Europe
All other
Total long-lived assets
2018
2017
$1,993
599
291
$1,862
621
320
$2,883
$2,803
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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 (loss)(d)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Cash dividends declared per common share
2018
2017
$ 7,934
6,007
2,783
$ 1.74
$ 1.74
$ 0.96
$ 8,278
6,344
1,983
$ 1.26
$ 1.26
$ 0.96
$ 8,236
6,401
2,747
$ 1.81
$ 1.81
$ 0.96
$6,538
4,922
1,711
$ 1.07
$ 1.06
$ 0.64
$6,944
5,415
1,915
$ 1.20
$ 1.19
$ 0.64
$6,995
5,379
1,631
$ 1.02
$ 1.01
$ 0.64
$ 8,305
6,283
(1,826)
$7,739
5,458
52
$ (1.23) $ 0.03
$ (1.23) $ 0.03
$ 0.71
$ 1.07
(a) First quarter results in 2018 included an after-tax benefit of $148 million related to the change in fair
value of contingent consideration liabilities partially offset by after-tax litigation reserves charges of
$100 million. First quarter results in 2017 included after-tax costs of $84 million related to the change
in fair value of contingent consideration liabilities.
(b) Second quarter results in 2018 included after-tax charges of $500 million as a result of a collaboration
agreement extension with Calico and $485 million related to the change in fair value of contingent
consideration liabilities. Second quarter results in 2017 included an after-tax charge of $62 million to
increase litigation reserves and after-tax costs of $61 million related to the change in fair value of
contingent consideration liabilities.
(c) Third quarter results in 2018 included after-tax litigation reserves charges of $176 million and
$95 million related to the change in fair value of contingent consideration liabilities. Third quarter
results in 2017 included after-tax costs of $401 million related to the change in fair value of contingent
consideration liabilities.
(d) Fourth quarter results in 2018 included an after-tax intangible asset impairment charge of $4.5 billion
partially offset by an after-tax benefit of $375 million related to the change in fair value of contingent
consideration liabilities. Fourth quarter results in 2017 were impacted by net charges related to the
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December 2017 enactment of the Tax Cuts and Jobs Act, including an after-tax charge of $4.5 billion
related to the one-time mandatory repatriation of previously untaxed earnings of foreign subsidiaries,
partially offset by after-tax benefits of $3.3 billion due to remeasurement of net deferred tax liabilities
and other related impacts. Additional after-tax costs that impacted fourth quarter results in 2017
included $244 million for an intangible asset impairment charge, $221 million for a charge to increase
litigation reserves, $205 million as a result of entering into a global strategic collaboration with Alector
and $79 million related to the change in fair value of contingent consideration liabilities.
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Report Of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AbbVie Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AbbVie Inc. and subsidiaries (the
Company) as of December 31, 2018 and 2017, 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, 2018, and the related notes (collectively referred to as the ‘‘financial statements’’). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2018, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31,
2018, 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 27,
2019 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-16
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for
the income tax consequences of intercompany transfers of assets other than inventory in 2018 due to the
adoption of Accounting Standards Update (ASU) No. 2016-16, Income Taxes (Topic 740): Intra-Entity
Transfers of Assets Other Than Inventory.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures to respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
Chicago, Illinois
February 27, 2019
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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, Robert A. Michael, evaluated the effectiveness of AbbVie’s disclosure
controls and procedures as of the end of the period covered by this report, and concluded that AbbVie’s
disclosure controls and procedures were effective to ensure that information AbbVie is required to disclose
in the reports that it files or submits with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified
in the Commission’s rules and forms, and to ensure that information required to be disclosed by AbbVie in
the reports that it files or submits under the 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, 2018.
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, 2018. 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, 2018, based on the COSO criteria.
The effectiveness of AbbVie’s internal control over financial reporting as of December 31, 2018 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, 2018.
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
To the Stockholders and the Board of Directors of AbbVie Inc.
Opinion on Internal Control over Financial Reporting
We have audited AbbVie Inc. and subsidiaries’ internal control over financial reporting as of
December 31, 2018, 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).
In our opinion, AbbVie Inc. and subsidiaries (the Company) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated balance sheets of AbbVie Inc. and subsidiaries as of
December 31, 2018 and 2017, 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, 2018, and the related
notes and our report dated February 27, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s 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 are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations on Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Chicago, Illinois
February 27, 2019
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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 2019 AbbVie Inc. Proxy Statement. The 2019
Definitive Proxy Statement will be filed on or about March 22, 2019. 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 Vice Chairman, External Affairs
and Chief Legal 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 2019 AbbVie Inc. Proxy Statement under the headings ‘‘Director
Compensation,’’ ‘‘Executive Compensation,’’ and ‘‘Compensation Committee Report’’ is incorporated herein
by reference. The 2019 Definitive Proxy Statement will be filed on or about March 22, 2019.
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, 2018 about AbbVie’s equity compensation
plans under which AbbVie common stock has been authorized for issuance:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights(1)
16,004,640
—
16,004,640
(b)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights(2)
$55.05
—
$55.05
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))(3)
68,259,802
—
68,259,802
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(1)
Includes 1,005,389 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, restricted
stock awards and performance shares that have no exercise price.
(3) Excludes shares issuable upon the exercise of stock options and pursuant to other rights granted
under the Stemcentrx 2011 Equity Incentive Plan, which was assumed by AbbVie upon the
consummation of its acquisition of Stemcentrx, Inc. As of December 31, 2018, 286,634 options
remained outstanding under this plan. The options have a weighted-average exercise price of
$14.52. No further awards will be granted under this plan.
(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
2019 AbbVie Inc. Proxy Statement. The 2019 Definitive Proxy Statement will be filed on or about
March 22, 2019.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
.....................................................................................................................................................................................................................................................................................................................................................
INDEPENDENCE
The material to be included in the 2019 AbbVie Inc. 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 2019 Definitive Proxy Statement will
be filed on or about March 22, 2019.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
.....................................................................................................................................................................................................................................................................................................................................................
The material to be included in the 2019 AbbVie Inc. 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
2019 Definitive Proxy Statement will be filed on or about March 22, 2019.
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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 51
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
set forth in Item 15(b) below.
(b) Exhibits:
Exhibit
Number
2.1
2.2
2.3
2.4
3.1
3.2
4.1
4.2
4.3
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).
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Exhibit
Number
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Exhibit Description
*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).
*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 4.1 of the company’s Current Report on Form 8-K filed on November 17, 2016).
*Supplemental Indenture No. 5, dated September 18, 2018, between AbbVie Inc. and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.2 of the company’s Current
Report on Form 8-K filed on September 18, 2018).
*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 4.2 of
the company’s Current Report on Form 8-K filed on November 17, 2016).
*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 Performance Incentive Plan, as amended and restated (incorporated by reference to
Exhibit 10.4 of the company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2015).**
*AbbVie Deferred Compensation Plan, as amended and restated (incorporated by reference to
Exhibit 10.5 of the company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2016).**
*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 for the fiscal year ended
December 31, 2015).**
*AbbVie Supplemental Pension Plan (incorporated by reference to Exhibit 10.7 of the company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2016).**
*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 for the fiscal year ended December 31,
2015).**
*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. 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).**
10.10
*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).**
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Exhibit
Number
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Exhibit Description
*Form of AbbVie Inc. Non-Qualified Stock Option Agreement (incorporated by reference to
Exhibit 10.2 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 10.3 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 10.4 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 10.5 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 10.6 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 10.7 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 10.8 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2016).**
*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, 2017).**
*Form of AbbVie Inc. Non-Qualified Stock Option Agreement (incorporated by reference to
Exhibit 10.2 of the company’s Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2017).**
*Form of AbbVie Inc. Performance Share Award 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, 2017).**
*Form of AbbVie Inc. Performance-Vested Restricted Stock Unit Agreement (incorporated by
reference to Exhibit 10.4 of the company’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2017).**
*Form of AbbVie Inc. Performance Share Award Agreement (incorporated by reference to
Exhibit 10.25 of the company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2017).**
*AbbVie Non-Employee Directors’ Fee Plan, as amended and restated (incorporated by reference
to Exhibit 10.26 of the company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2017).**
10.24
*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).**
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Exhibit
Number
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
Exhibit Description
*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 filed on May 4,
2018).**
*Form of AbbVie Inc. Performance Share Award Agreement (incorporated by reference to
Exhibit 10.2 of the company’s Quarterly Report on Form 10-Q filed on May 4, 2018).**
*Form of AbbVie Inc. Non-Employee Director RSU Agreement (US) (incorporated by reference to
Exhibit 10.3 of the company’s Quarterly Report on Form 10-Q filed on May 4, 2018).**
*Form of AbbVie Inc. Non-Qualified Stock Option Agreement (incorporated by reference to
Exhibit 10.4 of the company’s Quarterly Report on Form 10-Q filed on May 4, 2018).**
*Form of AbbVie Inc. Non-Employee Director Non-Qualified Stock Option Agreement (incorporated
by reference to Exhibit 10.5 of the company’s Quarterly Report on Form 10-Q filed on May 4,
2018).**
*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 31, 2018, among AbbVie, the lenders and other
parties party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by
reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed on September 6,
2018).
*364-Day Term Loan Credit Agreement, dated as of May 17, 2018, among AbbVie, the lenders and
other parties party thereto, and Bank of America, N.A., as administrative agent (incorporated by
reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed on May 18, 2018).
*First Amendment to 364-Day Term Loan Credit Agreement, dated as of August 31, 2018, among
AbbVie, the lenders and other parties party thereto, and Bank of America, N.A., as administrative
agent (incorporated by reference to Exhibit 10.2 of the company’s Current Report on Form 8-K
filed on September 6, 2018).
*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).
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Exhibit
Number
10.37
21
23
31.1
31.2
32.1
32.2
101
Exhibit Description
*Underwriting Agreement, dated September 13, 2018, by and among AbbVie Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and
BNP Paribas Securities Corp. (acting for themselves and as representatives of the several
underwriters named therein) (incorporated by reference to Exhibit 1.1 of the company’s Current
Report on Form 8-K filed on September 18, 2018).
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, 2018 filed on February 27, 2019, 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. 2019 Definitive Proxy Statement will be filed with the Securities and Exchange
Commission under separate cover on or about March 22, 2019.
*
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.
Exhibits 32.1 and 32.2, above, are furnished herewith and should not be deemed to be ‘‘filed’’ under
the Securities Exchange Act of 1934. 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.
ITEM 16. FORM 10-K SUMMARY
.....................................................................................................................................................................................................................................................................................................................................................
None.
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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 27, 2019
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 27, 2019 in the capacities indicated
below.
/s/ RICHARD A. GONZALEZ
Richard A. Gonzalez
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ BRIAN L. DURKIN
Brian L. Durkin
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/ EDWARD J. RAPP
Edward J. Rapp
Director of AbbVie Inc.
/s/ GLENN F. TILTON
Glenn F. Tilton
Director of AbbVie Inc.
/s/ ROBERT A. MICHAEL
Robert A. Michael
Senior 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/ MELODY B. MEYER
Melody B. Meyer
Director of AbbVie Inc.
/s/ REBECCA B. ROBERTS
Rebecca B. Roberts
Director of AbbVie Inc.
/s/ FREDERICK H. WADDELL
Frederick H. Waddell
Director of AbbVie Inc.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
27FEB201905175455
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 3, 2019
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 3, 2019, at 9:00 a.m. CT for the following purposes:
•
•
•
•
•
To elect three directors to hold office until the 2022 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 2019 (Item 2),
To vote on an advisory vote on the approval of executive compensation (Item 3),
To vote on a management proposal to eliminate supermajority voting (Item 4), and
To transact such other business as may properly come before the meeting, including consideration of three
stockholder proposals, if presented at the meeting (Items 5, 6, and 7).
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, 6, and 7 on the proxy card.
The close of business on March 8, 2019, 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 2019 Proxy Statement and 2018 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 26, 2019. 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 22, 2019
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PROXY STATEMENT
1MAR201923121518
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 Outstanding Equity Awards at Fiscal Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 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 to Eliminate Supermajority Voting (Item 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Proposal on Lobbying Report (Item 5)
Stockholder Proposal on Compensation Committee Drug Pricing Report (Item 6) . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Proposal on Independent Chair (Item 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
9
9
9
9
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9
10
10
10
10
10
11
16
21
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26
26
44
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PROXY STATEMENT SUMMARY
1MAR201923121649
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 3, 2019, 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 2018 Annual Report before voting.
2019 Annual Meeting of Stockholders
.................................................................................................................................................................................................................................................................................................................................
Date and Time: May 3, 2019 9:00 a.m. CT
Location: Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, Illinois 60601
Record Date: March 8, 2019
How to Vote: Stockholders as of the record date are entitled to vote via the 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 to Eliminate Supermajority Voting
Item 5
Item 6
Item 7
Stockholder Proposal on Lobbying Report
Stockholder Proposal on Compensation Committee Drug Pricing Report
Stockholder Proposal on Independent Chair
Board Recommendations
FOR All Nominees
FOR
FOR
FOR
AGAINST
AGAINST
AGAINST
Business Overview and Performance Highlights
.................................................................................................................................................................................................................................................................................................................................
Business Overview
Since becoming a public company in 2013, AbbVie’s mission has been to create an innovation-driven, patient-
focused specialty biopharmaceutical company capable of achieving sustainable top-tier performance through outstanding
execution and a consistent stream of innovative new medicines. AbbVie’s adjusted revenue and adjusted earnings per
share growth in 2018 ranks the company at the very top of its peer group and reflects the continued strength of its
execution across business priorities. Collectively, the new medicines that AbbVie has introduced since inception—
including new therapies in hematologic oncology and hepatitis C virus—represented nearly a quarter of AbbVie’s total
sales in 2018 and will be important contributors in 2019 and beyond. With the launch of several new products in 2019,
combined with a robust mid- and late-stage pipeline, AbbVie remains well-positioned to deliver on its long-term vision
for the company, including sustainable, top-tier performance along with increasing returns to stockholders.
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2019 Proxy Statement
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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; metabolic diseases, including thyroid disease
and complications associated with cystic fibrosis; pain associated with endometriosis; as well as other serious health
conditions. AbbVie’s pipeline includes more than 60 compounds or indications in development across important medical
specialties such as immunology, oncology and neuroscience, with additional targeted investments in cystic fibrosis and
women’s health.
Business Performance Highlights
AbbVie has Delivered Robust Financial Results since Inception
Performance from 2013 Inception to 2018 Year End
11.7%
Adjusted net revenues - compound annual growth rate*
20.3%
Adjusted diluted earnings per share - compound annual
growth rate*
830
Basis points
Operating margin expansion, adjusted*
235.2%
6-year total stockholder return
~$82BN
Increase in market capitalization
Added significant stockholder value
168%
Increase in quarterly dividend
Raised quarterly dividend to $1.07 per share from $0.40 per share at inception
60+
Active clinical development programs
More than 30 new products or indications in mid- and late-stage development or under regulatory
review
27FEB201905175734
The measures set forth above were calculated as of December 31, 2018.
* Net revenues, diluted earnings per share and operating margin are adjusted to exclude certain
specified items and are non-GAAP measures, 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 is committed to a robust return of capital to stockholders with an increase of 168% in its quarterly
dividend since 2013 as part of a balanced and disciplined capital allocation program. AbbVie’s total stockholder return
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2019 Proxy Statement
2
(TSR) since inception of 235.2% also places AbbVie at the top of its Health Care Peer Group, and more than
136 percentage points above the Standard & Poor’s 500 Index and more than 152 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
Adjusted Net Revenues*
Adjusted EPS*
CAGR = 11.7%
CAGR = 20.3%
$22.8
$18.8 $19.9
)
N
B
$
(
$32.7
$28.2
$25.6
$7.91
$5.60
$4.82
$4.29
$3.14 $3.32
2013 2014
2015
2016
2017
2018
2013 2014
2015
2016
2017
2018
27FEB201905174692
*Net revenues and diluted earnings per share are adjusted for specified items
and are non-GAAP measures, which are reconciled in Appendix B.
AbbVie has Delivered Outstanding Results, Ranking First or Second on Nearly Each of the Below Financial Metrics
% Revenue Growth
ABBV Rank vs. Peer Group (1)
% Adjusted EPS Growth
ABBV Rank vs. Peer Group (1)
Total Shareholder Return
ABBV Rank vs. Peer Group (1)
Period
2018
3 Years
('16,'17,'18)
5 Years
('14,'15,'16,'17,'18)
Rank
Period
Rank
Period
#1 of 10
2018
#1 of 10
2018
#1 of 10
#2 of 10
3 Years
('16,'17,'18)
5 Years
('14,'15,'16,'17,'18)
#2 of 10
#2 of 10
3 Years
('16,'17,'18)
5 Years
('14,'15,'16,'17,'18)
Rank
#7 of 10
#1 of 10
#2 of 10
27FEB201905174538
(1) AbbVie’s peer group above includes: Amgen, Inc., Bristol-Myers Squibb Company, Eli Lilly and Company, Gilead
Sciences, Inc., GlaxoSmithKline plc, Johnson & Johnson, Merck & Company, Inc., Novartis AG and Pfizer Inc.
AbbVie also Delivered Strong Business Performance in 2018
AbbVie has built a strong foundation for its business and 2018 was an exceptional year, as evidenced by a
number of business highlights:
• Net Revenues: AbbVie reported full-year net revenues of $32.8 billion on a GAAP basis and adjusted net
revenues of $32.7 billion, an increase of 15.2% over 2017, excluding the impact of foreign exchange. This
places AbbVie at the top of its Health Care Peer Group.
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PROXY STATEMENT SUMMARY
•
•
•
•
•
•
HUMIRA: AbbVie delivered global HUMIRA sales of $19.9 billion, an increase of 8.2% on a reported basis,
or 7.4% excluding the impact of foreign exchange. HUMIRA’S performance was driven by continued biologic
penetration across therapeutic categories and geographies.
IMBRUVICA: Global IMBRUVICA net revenue was $3.6 billion, an increase of 39.5%, driven by market share
growth in front-line chronic lymphocytic leukemia (CLL) and other approved indications.
Gross and Operating Margins: In 2018, AbbVie reported a gross margin of 76.4% on a GAAP basis or 80.6%
of net revenues on an adjusted basis. AbbVie’s operating margin was 19.5% on a GAAP basis or 44.6% of
net revenues on an adjusted basis.
Earnings Per Share: AbbVie reported full-year diluted EPS of $3.66 on a GAAP basis and adjusted diluted
EPS of $7.91, up 41.3%. This reflects growth in the very top tier of AbbVie’s Health Care Peer Group. For
2019, AbbVie provided a diluted EPS guidance range of $7.39 to $7.49 on a GAAP basis and $8.65 to $8.75
on an adjusted basis. The midpoint of the adjusted guidance represents growth of 10% over 2018, reflecting
strong operating dynamics in the underlying business.
Regulatory Milestones: AbbVie also achieved a number of regulatory milestones in markets worldwide for
several key products, including regulatory approvals for VENCLEXTA in combination with RITUXAN (rituximab)
in relapsed/refractory chronic lymphocytic leukemia (CLL); conditional approval for VENCLEXTA in
combination with azacitidine or decitabine or low-dose cytarabine in newly diagnosed acute myeloid
leukemia patients ineligible for intensive chemotherapy; IMBRUVICA in combination with rituximab as the
first chemotherapy-free combination treatment for Waldenstrom macroglobulinemia; and ORILISSA for the
management of moderate to severe pain associated with endometriosis.
Pipeline Development: With more than 30 programs in mid- and late-stage development, AbbVie made
significant pipeline advancements in 2018. AbbVie announced data from nearly a dozen pivotal trials,
initiated a number of important phase transitions across our key development programs and made multiple
regulatory submissions. AbbVie completed registrational studies and submitted regulatory applications for
the company’s next-generation immunology assets, upadacitinib and risankizumab, in rheumatoid arthritis
and psoriasis, respectively. In addition, the company initiated several Phase 3 programs for these assets
including studies for upadacitinib in atopic dermatitis and ulcerative colitis, as well as risankizumab in
Crohn’s disease. AbbVie reported positive data from Phase 3 studies in other areas of the pipeline including
ELAGOLIX in uterine fibroids, VENCLEXTA in front-line CLL, and results from several trials evaluating
IMBRUVICA in front-line CLL.
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 pages 34-35), AbbVie’s board of directors:
•
•
approved a management proposal to eliminate supermajority voting in this proxy statement (Item 4) to
seek stockholder approval to amend the company’s Amended and Restated Certificate of Incorporation to
provide for a simple majority of shares outstanding for all provisions previously subject to a supermajority
provision, as described in Item 4 and previously submitted a declassification management proposal to a
stockholder vote in 2018, 2017, and 2016;
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;
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PROXY STATEMENT SUMMARY
•
•
•
shared our board skills matrix beginning in 2016, which contains the skills considered by the 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;
incorporated an overview of AbbVie’s corporate responsibility approach and initiatives in the proxy
statement beginning in 2018; and
reviewed detailed feedback from AbbVie’s investor engagement program, which reaches out to
stockholders holding approximately 45% of the company’s outstanding shares.
Highlights of our governance practices include:
Governance Practice
For more information
Independent lead director with robust responsibilities is selected
by the board
Ten of AbbVie’s eleven 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
Broad clawback authority to recover incentive plan awards
For inclusion on the board, the nominations and governance
committee considers diversity of ethnicity, gender, and geography
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
p. 16
p. 16
p. 19
p. 77
p. 44
p. 43
http://www.abbvie.com/responsibility/
transparency-policies/corporate-political-
participation.html
p. 44
p. 19
p. 75
Certificate of Incorporation and By-Laws
p. 10
p. 66
Corporate Governance Guidelines
Corporate Governance Guidelines
http://www.abbvie.com/responsibility/
home.html
Corporate Responsibility 2018 Highlights
.................................................................................................................................................................................................................................................................................................................................
At AbbVie, we strive to make a remarkable impact on patients and drive sustainable growth by discovering and
delivering a consistent stream of innovative medicines that address serious health problems. Our corporate responsibility
commitments guide the ways in which we advance that vision.
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PROXY STATEMENT SUMMARY
Commitment: Use our expertise to improve health
.................................................................................................................................................................................................................................................................................................................................
Creating real health improvement is our mission. To be a leading healthcare innovator, we must attract, retain
and support a diverse workforce and invest in their collaborative efforts to develop medicines that bring value for
patients. Key 2018 advancements include:
Equality, diversity and inclusion:
• We were again widely recognized for our leading diversity practices. In the United States, we were named a
top 10 member of the Working Mother 100 Best Companies list and further recognized by DiversityInc and
Fortune 100 Best Companies to Work For. AbbVie also received a perfect score on the Human Rights
Campaign Corporate Equality Index. Globally, we were named to over 40 Great Place to Work and top
employer lists.
• We further enhanced our commitment to equality, diversity and inclusion by creating a dedicated vice
president role to lead our efforts. 47% of our management positions globally are held by women, and a
new global Women’s Leadership Program will help women in management build the skills and perspectives
needed to advance even further in the company. In the United States, 31% of our workforce is made up of
historically underrepresented populations.
•
Each organization within AbbVie established new equality, diversity and inclusion plans to address identified
areas of opportunity through talent attraction, acquisition, engagement, development and retention.
Innovative medicines that offer significant health benefit:
•
In 2018, we advanced the treatment of blood cancers with approval of our chemotherapy-free, fixed-
duration treatment for relapsed and refractory chronic lymphocytic leukemia.
• We also introduced the first FDA-approved oral treatment in over a decade for the management of
moderate to severe pain associated with endometriosis, a condition impacting an estimated one in 10
women of reproductive age.
• We provided over 80,000 U.S. patients free access to these and other AbbVie medicines through our patient
assistance programs.
Addressing the health needs of the underserved:
•
In 2018, over 400 AbbVie scientists gave nearly 40,000 pro bono hours to conduct preclinical and clinical
research on potential treatments for diseases that disproportionately affect developing countries, including
onchocerciasis (river blindness), tuberculosis, and malaria.
• We also announced a royalty-free licensing agreement with the Medicines Patent Pool (MPP) for our
pan-genotypic hepatitis C virus (HCV) medicine, covering more than 90 low- and middle-income countries
and territories. Through this agreement, AbbVie will grant licenses to World Health Organization prequalified
generic manufacturers to manufacture and supply generic versions of the medicine, while maintaining the
highest quality and production standards. AbbVie has a long history of working together with the
community to ensure broad and long-term access to care for our virology medicines worldwide.
6
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28FEB201906030953
PROXY STATEMENT SUMMARY
Commitment: Steward our ethical and sustainable business
.................................................................................................................................................................................................................................................................................................................................
To participate over the long-term in the provision of healthcare, we must earn and maintain the trust of
patients, healthcare providers, regulators, policymakers and the public. Key 2018 advancements include:
Human rights and workplace safety:
•
In 2018, AbbVie was the Dow Jones Sustainability Index (DJSI) leader in occupational health and safety
across the biotechnology and pharmaceutical industries. Overall, the Index ranked AbbVie #2 in the
biotechnology sector, and once again named the company to the DJSI World and North America indices.
Environmental sustainability:
• We made progress against our aggressive environmental targets in 2018, including expanding the proportion
of our energy purchased from renewable sources.
Robust ethics and compliance program:
•
Each year, all of AbbVie’s employees must read and certify adherence to our extensive AbbVie Code of
Business Conduct, which sets forth our core guidelines and requirements for ethical behavior.
Commitment: Support long-term community strength
.................................................................................................................................................................................................................................................................................................................................
We support well-being, resilience and growth in our current markets and help lay the foundation for broader
economic development using our unique resources.
In addition to our ongoing support for education and community programs, independent medical and patient
education, and employee vitality and volunteerism, in 2018 AbbVie made an additional $350 million in charitable
contributions to support U.S. non-profit organizations making long-term impact on community strength.
Community resilience and economic growth:
•
•
For example, as a committed employer in Puerto Rico for nearly 50 years, AbbVie is supporting long-term
efforts that will move the community from recovery to resilience in the wake of Hurricane Maria. With
AbbVie donations of $50 million each, Direct Relief will rebuild and strengthen the primary healthcare
system, while Habitat for Humanity will repair and rebuild homes, making them better able to withstand
future hurricanes.
As a technology innovator, we want to help narrow the educational gap for children in underserved areas.
Our gifts of $30 million to Communities In Schools, $10 million to City Year and $15 million to the
University of Chicago Education Lab will grow programs focused on improving graduation rates, reducing
dropout rates and increasing college and career readiness for children in kindergarten through grade 12—
with an emphasis on those in high-poverty neighborhoods.
Public health and well-being:
•
Sick children and their families often experience emotional and financial burdens. We are working with
leading organizations that help alleviate those burdens so that families can focus on healing. Our donations
totaling $155 million: $100 million to Ronald McDonald House Charities, $50 million to St. Jude Children’s
Research Hospital and $5 million to Family Reach, will help them expand services and create physical spaces
that will improve health and well-being in a holistic way.
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PROXY STATEMENT SUMMARY
• We are partners in the global movement toward the elimination of HCV and actively support a wide range
of efforts to help elevate HCV elimination on the global agenda. In 2018, we launched micro-elimination
pilot projects in several countries, with the goal of demonstrating the impact of elimination among targeted
geographies and populations, and identifying scalable elimination strategies.
The commitments discussed above are also aligned with global priorities as defined by the United Nations’
Sustainable Development Goals (SDGs). We focus on the key aspects of these SDGs that relate most closely to our
activities: Securing Good Health & Well-Being (SDG 3), Quality Education (SDG 4), Gender Equality (SDG 5), Decent
Work & Economic Growth (SDG 8), Responsible Production and Consumption (SDG 12), and Climate Action (SDG 13).
For more information about our corporate responsibility efforts, please visit abbvie.com/responsibility.
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.
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.
Designed to be competitive with market and industry norms, and to reflect individual performance
Base Salary
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
Short-Term
Incentives
Long-Term
Incentives
Plan utilizes non-GAAP financial goals as
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 annual 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
Targets are based on expected business, market and regulatory
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
Annual award design incorporates multi-year performance periods and
multiple performance metrics, including relative total stockholder
return
1MAR201916331085
28FEB201906030953
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INFORMATION ABOUT THE ANNUAL MEETING
27FEB201905174821
Who Can Vote
Stockholders of record at the close of business on March 8, 2019 will be entitled to notice of and to vote at the
Annual Meeting. As of March 8, 2019, AbbVie had 1,478,164,719 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 2019. 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 three 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 three 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 to eliminate
supermajority voting, and AGAINST each of the stockholder proposals.
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INFORMATION ABOUT THE ANNUAL MEETING
The board of directors is not aware of any other issue that 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.
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 to eliminate supermajority voting, 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 to eliminate supermajority voting, 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 that 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 Alliance Advisors LLC to aid in the solicitation of proxies, at an estimated cost of $15,000
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)
27FEB201905174956
The board of directors consists of three classes currently comprised of three directors in Class I and four
directors in Classes II and III. Directors of one class are elected each year for a term of three years. The Class I directors
are presented for re-election to hold office until the expiration of their term at the 2022 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 2018 Annual Report on Form 10-K. All of the nominees
are currently serving as directors.
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.
28FEB201906525124
Committees:
Audit
Nominations &
Governance
Key Contributions to the Board: Through his experience with The Boston Consulting Group,
Mr. Burnside contributes knowledge and understanding of corporate finance and capital markets
matters to the board, as well as global and domestic strategic advisory experience across a broad
base of industries.
Director since: 2013
Age: 67
Brett J. Hart
8MAR201622161098
Committees:
Nominations &
Governance
Public Policy
Director since: 2016
Age: 49
Executive Vice President and Chief Administrative Officer, United Continental Holdings, Inc.
Mr. Hart is the executive vice president and chief administrative officer of United Continental
Holdings, Inc. (UAL) and United Airlines, Inc. He served as executive vice president, chief
administrative officer and general counsel between May 2017 and March 2019 and as executive
vice president and general counsel between February 2012 and May 2017. 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.
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INFORMATION CONCERNING DIRECTOR NOMINEES
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. He is currently a member of the University of Missouri College of Business
Strategic Development Board. Mr. Rapp previously served as a director of FM Global.
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: 61
Class II—Directors Whose Terms Expire in 2020
.................................................................................................................................................................................................................................................................................................................................
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, Tricida, Inc. and 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: 68
17JAN201314191789
Committees:
Compensation
Public Policy
Director since: 2013
Age: 73
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
26FEB201816111894
Committees:
Audit
Public Policy
Director since: 2017
Age: 61
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. Ms. Meyer is also a director at BP p.I.c. and National
Oilwell Varco, Inc.
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 to the board on financial and operational
matters faced by a complex international company.
Frederick H. Waddell
Former Chairman of the Board and Chief Executive Officer of Northern Trust Corporation and The
Northern Trust Company
Mr. Waddell served as chairman of the board of Northern Trust Corporation and The Northern
Trust Company from November 2009 until his retirement in January 2019. He previously served as
chief executive officer from 2008 through 2017, as president from 2006 to 2011 and again from
October to December 2016, and chief operating officer from 2006 to 2008. Mr. Waddell is also a
director of International Business Machines Corporation.
Key Contributions to the Board: As former chairman and chief executive officer of Northern Trust
Corporation and The Northern Trust Company, Mr. Waddell contributes broad financial services
experience with a strong record of leadership in a highly regulated industry.
17JAN201314192826
Committees:
Audit
Compensation
Director since: 2013
Age: 65
Class III—Directors Whose Terms Expire in 2021
.................................................................................................................................................................................................................................................................................................................................
Roxanne S. Austin
17JAN201314185859
Committees:
Audit
Compensation
Director since: 2013
Age: 58
President, Austin Investment Advisors
Ms. Austin is president of Austin Investment Advisors, a private investment and consulting firm,
and chairs the U.S. Mid-market Investment Advisory Committee of EQT Partners. Previously,
Ms. Austin also served as the president and chief executive officer of Move Networks, Inc., a
provider of Internet television services. Ms. Austin served as president and chief operating officer
of DIRECTV, Inc. Ms. Austin also 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 to the
board, including financial expertise and knowledge of financial statements, corporate finance and
accounting matters.
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INFORMATION CONCERNING DIRECTOR NOMINEES
Richard A. Gonzalez
2MAR201807275172
Director since: 2013
Age: 65
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.
Rebecca B. Roberts
Retired President of Chevron Pipe Line Company
Ms. Roberts served as president of Chevron Pipe Line Company from 2006 until her retirement in
2011. She previously served as the president of Chevron Global Power Generation from 2003 to
2006, in addition to various technical and management positions during her thirty-six year career
with Chevron. Ms. Roberts began her career as a chemist and research scientist. Ms. Roberts
currently serves on the board of directors at Black Hills Corporation and MSA Safety Incorporated.
Ms. Roberts served as a director of Enbridge, Inc. from 2015 to 2018.
Key Contributions to the Board: Ms. Roberts brings management, operational, safety, and strategy
development expertise with a scientific background and extensive global experience at Chevron.
She provides an informed perspective to the board on regulatory and operational matters faced by
a complex international company.
25FEB201801543127
Committees:
Nominations &
Governance
Public Policy
Director since: 2018
Age: 66
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INFORMATION CONCERNING DIRECTOR NOMINEES
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.
17JAN201314185103
Committees:
Compensation
Nominations &
Governance
Lead Independent
Director
Director since: 2013
Age: 70
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
27FEB201905180481
The Board of Directors
.................................................................................................................................................................................................................................................................................................................................
The board of directors held nine meetings in 2018. All directors attended one-hundred percent of the board and
committee meetings in 2018. AbbVie encourages its board members to attend the annual stockholder meeting. All of
AbbVie’s directors attended the 2018 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, Ms. Roberts, 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 reviews enterprise risks and discusses them with our senior management on a
regular basis. AbbVie’s risk management program focuses on issues relevant to AbbVie’s business, reputation, and
strategy, including but not limited to pipeline advancement, healthcare industry dynamics such as pricing and patient
access, manufacturing, regulatory and compliance matters, and others. For more details about committee responsibilities
and oversight, please see the committee discussion on pages 19-21.
The board also oversees AbbVie’s culture, employee engagement, and overall management of human capital.
This oversight ensures that AbbVie is attracting, developing, and retaining best-in-class employees dedicated to making a
remarkable impact on patients’ lives around the world.
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 with a board appointed lead independent 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.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
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.
leads the board’s evaluation of the CEO;
6.
7.
8.
leads the annual board and committee evaluation process, including discussing evaluations with each
director individually;
encourages effective director participation by fostering an environment of open dialogue and constructive
feedback among independent directors;
if requested by major stockholders, ensures that he or she is available for consultation and direct
communication as needed;
9
if required, represents independent board members externally; and
10. performs such other duties as the board may determine from time to time.
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 and its committees conduct self-evaluations to determine whether they are functioning
effectively. The full board, led by the lead independent director, discusses the evaluation reports to determine what, if
any, action should be undertaken to improve the board and its committees.
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
the 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.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
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.
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)
(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)
(cid:5)
Corporate
Governance
and Public
Company
Board
(cid:5)
(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)
(cid:5)
Dr. Alpern
Ms. Austin
Mr. Gonzalez
Mr. Burnside
Mr. Hart
Mr. Liddy
Ms. Meyer
Mr. Rapp
Ms. Roberts
Mr. Tilton
Mr. Waddell
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2019 Proxy Statement
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
Board Diversity
.................................................................................................................................................................................................................................................................................................................................
AbbVie is committed to diversity in its workforce and on its board of directors. 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, age, and geography and assesses the effectiveness of the process in achieving that
diversity. More details about our workforce diversity are available in the ‘‘Corporate Responsibility Highlights’’ section of
this proxy statement.
45%
Members of AbbVie’s board who are women or ethnically diverse
individuals
4MAR201915432341
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
27FEB201905175323
27FEB201905175323
R. Alpern
27FEB201905174382
R. Austin
W. Burnside
B. Hart
E. Liddy
M. Meyer
E. Rapp
R. Roberts
27FEB201905175083
G. Tilton
F. Waddell
27FEB201905174016
27FEB201905175323
27FEB201905175323
27FEB201905175323
27FEB201905175323
Number of meetings
6
27FEB201905175323
27FEB201905174016
27FEB201905175323
27FEB201905175323
4
27FEB201905175323
27FEB201905175323
27FEB201905175323
27FEB201905174016
27FEB201905175323
27FEB201905175323
27FEB201905175323
27FEB201905174016
27FEB201905175323
4
4
27FEB201905175083
27FEB201905174016
27FEB201905175323
27FEB201905174382
Lead Director
Chairperson
Member
Financial Expert
Audit Committee
The audit committee is governed by a written charter. The charter sets forth the purposes of the audit
committee, identifies qualifications required for the audit committee members, and describes the committee’s authority
and responsibilities. The audit 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, including a review of significant accounting policies, the independent auditors’ qualifications,
independence, and 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
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19
THE BOARD OF DIRECTORS AND ITS COMMITTEES
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 2018.
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 16-17. 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, governmental affairs, healthcare compliance, and social responsibility and environmental matters that affect
or could affect AbbVie. Other topics within the committee’s purview include but are not limited to ethics and compliance
matters, government and regulatory trends relevant to AbbVie’s business, political contributions, and corporate
philanthropy.
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
27FEB201905174140
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’ 2018 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
($)
$107,917
$189,947
$0
$27,741
$25,000
$350,605
132,917
113,917
107,917
127,917
113,917
133,917
64,167
152,917
113,917
189,947
189,947
189,947
189,947
189,947
189,947
189,947
189,947
189,947
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5,565
328,429
25,000
25,000
328,864
322,864
0
317,864
25,000
25,000
25,000
26,463
25,000
328,864
348,864
279,114
369,327
328,864
Name
R. Alpern
R. Austin
W. Burnside
B. Hart
E. Liddy
M. Meyer
E. Rapp
R. Roberts
G. Tilton
F. Waddell
(1) Under the Non-Employee Directors’ Fee Plan as in effect until the 2018 annual meeting of stockholders,
non-employee directors earned $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
received $25,000 per year for service as chair of that committee and the other members of the audit committee
received $500 for each month of service as a committee member. The lead director received $25,000 per year for
service in that role. The Non-Employee Directors’ Fee Plan was amended, effective as of the 2018 annual meeting
of stockholders, to change the annual non-employee director fee to $110,000 based on the recommendation of the
compensation committee’s independent compensation consultant following review of AbbVie’s Health Care Peer
Group market practices and trends. 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),
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
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13NOV201221352027
2019 Proxy Statement
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DIRECTOR COMPENSATION
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 2018, 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 2018 annual stockholder meeting received under the AbbVie 2013 Incentive Stock Program vested
restricted stock units with a target grant date value of $190,000. In 2018, this equated to 1,899 restricted stock
units (after rounding the award down to the nearest whole unit), with a reportable value of $189,947. 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, 2018: R. Alpern, 23,688; R. Austin,
31,351; W. Burnside, 15,129; B. Hart, 7,643; E. Liddy, 19,115; M. Meyer, 4,669; E. Rapp, 15,129; R. Roberts, 1,899;
G. Tilton, 27,335; and F. Waddell, 15,129. 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, 2018.
(4) The totals in this column include reportable interest credited under the AbbVie Non-Employee Directors’ Fee Plan
during 2018.
(5) Charitable contributions made by AbbVie’s non-employee directors are eligible for a matching contribution (up to
$25,000 annually). For 2018 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; M. Meyer, $25,000;
E. Rapp, $25,000; R. Roberts, $25,000; G. Tilton, $25,000; and F. Waddell, $25,000. This column also includes
reimbursement for certain taxes.
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2019 Proxy Statement
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SECURITIES OWNERSHIP
27FEB201905180232
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,
2019, by each director, the chief executive officer, the chief financial officer, and the other executive officers listed in the
Summary Compensation Table, 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
R. Roberts
G. Tilton
F. Waddell
W. Chase
R. Michael
L. Schumacher
C. Alban
M. Severino
Shares
Beneficially
Owned(1)(2)(3)
290,854
Stock Options
Exercisable
within 60 days
of January 31, 2019
580,904
23,688
38,195
15,129
7,643
20,250
4,669
20,743
1,899
40,085
17,129
105,364
6,876
134,322
137,994
82,281
0
0
0
0
0
0
0
0
0
0
516,353
20,430
263,683
457,803
352,952
Stock
Equivalent
Units
0
6,222
0
0
0
21,768
0
14,296
0
30,293
0
0
0
0
0
0
All directors and executive officers as a group(4)
1,116,294
2,908,161
72,579
(1) The table includes shares held in the executive officers’ accounts in the AbbVie Savings Plan as follows: all executive
officers as a group, 3,942. 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, 7,615; G. Tilton,
350; W. Chase, 501; C. Alban, 40,442; and all directors and executive officers as a group, 53,034.
(4) The directors and executive officers as a group own less than one percent of the outstanding shares of AbbVie.
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13NOV201221352027
2019 Proxy Statement
24
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,
2018 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 and The Vanguard Group on February 14, 2019 and by BlackRock, Inc. on February 4,
2019. Capital Research Global Investors reported that it had sole voting power with respect to 173,568,243 shares,
shared voting power with respect to 0 shares, sole dispositive power with respect to 173,568,243 shares and shared
dispositive power with respect to 0 shares. The Vanguard Group reported that it had sole voting power with respect to
1,864,360 shares, shared voting power with respect to 346,076 shares, sole dispositive power with respect to
118,412,949 shares and shared dispositive power with respect to 2,170,476 shares. BlackRock, Inc. reported that it had
sole voting power with respect to 82,367,981 shares, shared voting power with respect to 0 shares, sole dispositive
power with respect to 95,788,899 shares and shared dispositive power with respect to 0 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.
55 East 52nd Street
New York, NY 10055
173,568,243
11.5%
120,583,425
8.0%
95,788,899
6.4%
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EXECUTIVE COMPENSATION
27FEB201905174260
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, Finance and Administration
Robert A. Michael
Senior Vice President, Chief Financial Officer
Laura J. Schumacher
Vice Chairman, External Affairs and Chief Legal Officer
Carlos Alban
Vice Chairman, Chief Commercial Officer
Michael E. Severino
Vice Chairman and President
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 Performance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Engagement
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
27
27
28
33
33
34
35
35
35
36
36
36
36
37
37
37
40
42
43
43
43
43
43
44
44
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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 to have a remarkable impact on patients’ lives, 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’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; metabolic diseases, including thyroid disease
and complications associated with cystic fibrosis; pain associated with endometriosis; as well as other serious health
conditions. AbbVie’s pipeline includes more than 60 compounds or indications in development across important medical
specialties such as immunology, oncology and neuroscience, with additional targeted investment in cystic fibrosis and
women’s health.
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2019 Proxy Statement
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EXECUTIVE COMPENSATION
Business Performance Highlights
AbbVie has Delivered Robust Financial Results since Inception
Performance from 2013 Inception to 2018 Year End
11.7%
Adjusted net revenues - compound annual growth rate*
20.3%
Adjusted diluted earnings per share - compound annual
growth rate*
830
Basis points
Operating margin expansion, adjusted*
235.2%
6-year total stockholder return
~$82BN
Increase in market capitalization
Added significant stockholder value
168%
Increase in quarterly dividend
Raised quarterly dividend to $1.07 per share from $0.40 per share at inception
60+
Active clinical development programs
More than 30 new products or indications in mid- and late-stage development or under regulatory
review
27FEB201905175734
The measures set forth above were calculated as of December 31, 2018.
* Net revenues, diluted earnings per share and operating margin are adjusted to exclude certain
specified items and are non-GAAP measures, 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 is committed to a robust return of capital to stockholders with an increase of 168% in its quarterly
dividend since 2013 as part of a balanced and disciplined capital allocation program. AbbVie’s total stockholder return
(TSR) since inception of 235.2% also places AbbVie at the top of its Health Care Peer Group, and more than
136 percentage points above the Standard & Poor’s 500 Index and more than 152 percentage points above the NYSE
Arca Pharmaceutical Index over the same time period.
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AbbVie also Delivered Strong Business Performance in 2018
AbbVie has built a strong foundation for its business and 2018 was an exceptional year, as evidenced by a
number of business highlights:
EXECUTIVE COMPENSATION
• Net Revenues: AbbVie reported full-year net revenues of $32.8 billion on a GAAP basis and adjusted net
revenues of $32.7 billion, an increase of 15.2% over 2017, excluding the impact of foreign exchange. This
places AbbVie at the top of its Health Care Peer Group.
•
•
•
•
•
•
HUMIRA: AbbVie delivered global HUMIRA sales of $19.9 billion, an increase of 8.2% on a reported basis,
or 7.4% excluding the impact of foreign exchange. HUMIRA’S performance was driven by continued market
penetration across therapeutic categories and geographies.
IMBRUVICA: Global IMBRUVICA net revenue was $3.6 billion, an increase of 39.5%, driven by market share
growth in front-line chronic lymphocytic leukemia (CLL) and other approved indications.
Gross and Operating Margins: In 2018, AbbVie reported a gross margin of 76.4% on a GAAP basis or 80.6%
of net revenues on an adjusted basis. AbbVie’s operating margin was 19.5% on a GAAP basis or 44.6% of
net revenues on an adjusted basis.
Earnings Per Share: AbbVie reported full-year diluted EPS of $3.66 on a GAAP basis and adjusted diluted
EPS of $7.91, up 41.3%. This reflects growth in the very top tier of AbbVie’s Health Care Peer Group. For
2019, AbbVie provided a diluted EPS guidance range of $7.39 to $7.49 on a GAAP basis and $8.65 to $8.75
on an adjusted basis. The midpoint of the adjusted guidance represents growth of 10% over 2018, reflecting
strong operating dynamics in the underlying business.
Regulatory Milestones: AbbVie also achieved a number of regulatory milestones in markets worldwide for
several key products, including regulatory approvals for VENCLEXTA in combination with RITUXAN (rituximab)
in relapsed/refractory chronic lymphocytic leukemia (CLL); conditional approval for VENCLEXTA in
combination with azacitidine or decitabine or low-dose cytarabine in newly diagnosed acute myeloid
leukemia patients ineligible for intensive chemotherapy; IMBRUVICA in combination with rituximab as the
first chemotherapy-free combination treatment for Waldenstrom macroglobulinemia; and ORILISSA for the
management of moderate to severe pain associated with endometriosis.
Pipeline Development: With more than 30 programs in mid- and late-stage development, AbbVie made
significant pipeline advancements in 2018. AbbVie announced data from nearly a dozen pivotal trials,
initiated a number of important phase transitions across our key development programs and made multiple
regulatory submissions. AbbVie completed registrational studies and submitted regulatory applications for
the company’s next-generation immunology assets, upadacitinib and risankizumab, in rheumatoid arthritis
and psoriasis, respectively. In addition, the company initiated several Phase 3 programs for these assets
including studies for upadacitinib in atopic dermatitis and ulcerative colitis, as well as risankizumab in
Crohn’s disease. AbbVie reported positive data from Phase 3 studies in other areas of the pipeline including
ELAGOLIX in uterine fibroids, VENCLEXTA in front-line CLL, and results from several trials evaluating
IMBRUVICA in front-line CLL.
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EXECUTIVE COMPENSATION
The graphs below illustrate AbbVie’s growth of net revenue and diluted EPS in 2018 versus 2017.
Adjusted
Net Revenues*
$32.7
$28.2
Adjusted EPS*
$7.91
$5.60
)
N
B
$
(
2017
2018
2017
2018
28FEB201910051741
* Net revenues and diluted earnings per share are adjusted for specified
items and are non-GAAP measures, which are reconciled in Appendix B.
Performance Relative to Peer Group
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 2018.
Metric
GAAP Sales Growth
Adjusted Operating Income Growth
Adjusted EPS Growth
GAAP Operating Cash Flow Growth
Adjusted Return on Equity
AbbVie Percentile Rank − 2018
0th
25th
50th
75th
100th
100%
100%
86%
88%
100%
28FEB201906084965
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In addition, AbbVie has delivered industry-leading performance over the longer term, as demonstrated in the
chart below reflecting the company’s five-year performance relative to its Health Care Peer Group.
AbbVie Percentile Rank – 2013-2018
EXECUTIVE COMPENSATION
0th
25th
50th
75th
Metric
GAAP Sales Growth
Adjusted Operating Income Growth
Adjusted EPS Growth
GAAP Operating Cash Flow Growth
Adjusted Return on Equity
100th
95%
97%
91%
92%
100%
28FEB201906084820
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EXECUTIVE COMPENSATION
Total Stockholder Return (TSR) Performance
Since becoming a public company in 2013, AbbVie has delivered a total stockholder return of 235.2%, which
places AbbVie at the top of its 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,
2018. 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
$350
$300
$250
$200
$150
$100
1/2/2013
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
Period Ending
AbbVie Inc.
S&P 500 Index
NYSE Arca Pharmaceutical Index
28FEB201910051899
AbbVie’s TSR for calendar year 2018 was (cid:6)1.0%, which did not reflect the company’s top tier operational and
financial performance. As the chart above indicates, despite this 1-year result AbbVie’s returns since launch significantly
exceed industry comparisons.
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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:2)(cid:2)ve with market and industry norms, and to reflect
individual performance
Individual salaries are established rela(cid:2)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:2)ng budget
Short-Term Incen(cid:2)ves
Performance Incen(cid:2)ve Plan (PIP)
Based on non-GAAP performance measures such as:
— Net revenues
— Income before taxes
— Opera(cid:2)ng margin
— HUMIRA sales
— Return on assets
— Strategic and leadership goals
Long-Term Incen(cid:2)ves
80% Performance shares and performance-vested restricted stock units
20% Non-qualified stock op(cid:2)ons
1MAR201916330806
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.
2018 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 2018 performance goals. The specific weightings for each NEO 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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EXECUTIVE COMPENSATION
Financial Goals
Goal and Expected Result(1)
2017 Actual
2018 Target
2018 Target vs.
2017 Actual
2018 Actual
2018 Actual vs.
2018 Target
A. Non-GAAP Net Revenues
A.
$28.1BN(2)
$31.5BN
112% $32.3BN(2)
B. Non-GAAP Income Before
Taxes
C.
Adjusted Return on Assets
D. Non-GAAP Operating Margin
E.
HUMIRA Sales
B.
C.
D.
E.
$11.2BN(2)
$13.0BN
17.0%
20.9%
$12.1BN(2)
$14.0BN
$18.3BN(2)
$20.1BN
116% $13.3BN(2)
123% 23.9%
116% $14.4BN(2)
110% $19.7BN(2)
103%
102%
114%
103%
98%
(1) Results achieved reflect certain specified items, which are reconciled in Appendix B.
(2) 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 2018 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.
•
•
•
Robert A. Michael: Implement key financing and cash flow improvement initiatives; achieve financial
planning and month end close optimization and standardization; develop and assess future state Finance
Services operating models (goals reflect Vice President, Controller position).
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.
Carlos Alban: Achieve key product milestones; and successfully adapt and execute market strategies relative
to external considerations.
• Michael E. Severino: Achieve key research and development milestones per company strategy; and achieve
proprietary pipeline enhancement objectives.
Stockholder Engagement
2018 Say on Pay Results
At our 2018 Annual Meeting, the say on pay proposal received support from 95% of our stockholders. The board
and compensation committee are encouraged by the continued, consistent stockholder support for our executive
compensation program.
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EXECUTIVE COMPENSATION
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 2018 AbbVie approached and engaged stockholders holding approximately 45%
of the company’s outstanding shares. In these discussions, the aggregate feedback acknowledged the alignment of our
executives’ pay with AbbVie’s performance and expressed support of our compensation program, consistent with the
level of stockholder support for our say on pay proposals since inception. 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.
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:
(cid:5) Long-term incentive design emphasizing multiple, relative performance metrics and multi-year performance
periods
— Uses a multi-factor model for performance metrics
— Incorporates relative total stockholder return
— Dividends on outstanding equity awards are paid only at vesting and only on earned shares
(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) Robust stock ownership guideline of 5x annual fees for non-employee directors
(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) Equitable pay across genders and ethnicities
(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
or material breach of the AbbVie Code of Business Conduct
(cid:5) Proactive stockholder engagement process
II.
Executive Compensation Process
Commitment to Performance-Based Awards
The majority 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. The elimination of the performance-based compensation deduction under Code Section 162(m) has not
altered the commitment of the company and the compensation committee to performance-based compensation
principles. A discussion of the decision-making criteria for each pay component follows.
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EXECUTIVE COMPENSATION
Committee Process for Setting Total Compensation
Each February, the committee, with the assistance of its independent compensation consultant and AbbVie’s
management team, determines 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 compensation levels based on each NEO’s
individual performance, leadership, and contributions to AbbVie’s business and strategic performance.
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, in collaboration with its independent compensation consultant, identified no material risks in AbbVie’s
compensation programs in 2018.
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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
8%
Base Salary
20%
Short-term
Incen(cid:2)ves
58%
Long-term
Incen(cid:2)ves
15%
Base Salary
27%
Short-term
Incen(cid:2)ves
27FEB201905201213
27FEB201905201758
72%
Long-term
Incen(cid:2)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 measured at the company and individual levels. AbbVie’s PIP
structure is designed to align NEOs’ interests directly with AbbVie’s annual operating strategies to advance our mission,
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
followed by qualitative assessments of clearly defined strategic progress and leadership behaviors.
NEO target incentive amounts are set as a percentage of base salary. Mr. Gonzalez’s target is 150% of base
salary. For the 2018 performance year, the target for the other NEOs (besides Mr. Michael) was 110% of base salary,
based on the positions they held at the time their performance goals were established. Mr. Michael’s target was set at
100% when he was appointed Senior Vice President, Chief Financial Officer. The maximum potential payout under the PIP
is capped at 200% of target for all participants.
Determining actual incentive amounts is a multi-step process. First, an initial performance score is calculated for
each NEO based on performance against weighted financial and strategic/leadership goals. This performance score results
in a preliminary award amount of up to 100% of target only. Final awards are determined by the compensation
committee based on a qualitative assessment of holistic performance. A formal payout matrix based on net revenues and
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EXECUTIVE COMPENSATION
operating margin guides the committee by capping the range of final awards at or below the plan maximum of 200% of
target. This process is more fully described below:
Illustration of 2018 Incentive Calculation
Target
Award
x
Performance
Score
=
Preliminary
Award
Final Committee
Decision
=
Final
Award
Plan Governance:
Maximum
100% of Target
per plan design
2018 Performance results:
Capped at 175% of Target per payout matrix
(below 200% plan maximum)
28FEB201905372867
Initial Performance Score
Initial performance scores are calculated for each NEO based on performance against weighted financial and
strategic/leadership goals. The goals and their respective weightings are summarized in the chart below. The specific
goals and weightings for each NEO (including 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.
Richard A. Gonzalez
William J. Chase
Robert A. Michael
Laura J. Schumacher
Carlos Alban
Michael E. Severino
Net Revenues,
Income
Operating Margin,
Before HUMIRA Sales and
Return on Assets
Taxes
R&D/
Business
Innovation Development Other
20%
20%
40%
20%
20%
20%
60%
60%
20%
20%
50%
20%
20%
30%
50%
10%
10%
10%
10%
40%
20%
30%
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 2018,
specified adjustments consisted of intangible asset amortization, milestones and other research and development
expenses, acquired in process research and development, acquisition-related impairment, charitable contributions, change
in fair value of contingent consideration, litigation reserves, tax-related items, and other items, as described in
Exhibit 99.1 to AbbVie’s Form 8-K filed on January 25, 2019.
Annual Incentive Payout Matrix and Final Committee Decisions
The annual incentive payout matrix establishes a potential range of final incentive outcomes based on net
revenues and operating margin performance. For 2018, actual net revenue performance was 103% compared to target,
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EXECUTIVE COMPENSATION
while actual income before taxes was 102% compared to target. As a result of this performance, the annual incentive
payout matrix capped the annual incentives at 175% of target, below the plan maximum of 200% of target.
Annual Incentive Payout Matrix
2017 Actual
2018 Target
2018 Target vs.
2017 Actual
2018 Actual
2018 Actual vs.
2018 Target
Net Revenues
Income Before Taxes
$28.1BN
$11.2BN
$31.5BN
$13.0BN
112%
116%
$32.3BN
$13.3BN
103%
102%
2018 Payout Matrix Result
Capped at 175% of target
(below 200% plan maximum)
Final awards are determined by the compensation committee based on a qualitative assessment of holistic
performance. While the committee relies heavily on objective, quantitative metrics to determine PIP awards, this
qualitative element ensures the review is comprehensive and includes all individual, strategic, and leadership goals for
which assessment is not dictated solely 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.
Richard A. Gonzalez
William J. Chase
Robert A. Michael
Laura J. Schumacher
Carlos Alban
Michael E. Severino
Target
Award
Actual Award
Paid
Actual Award
as a % of
Target
$2,475,000
1,150,380
850,000
1,150,380
1,130,800
1,226,500
$3,898,125
1,954,549
950,000
1,954,549
1,836,219
1,818,200
158%
170%
112%
170%
162%
148%
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EXECUTIVE COMPENSATION
Long-Term Incentives
The LTI program design aligns 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 2018, NEOs
received annual grant LTI awards with the following characteristics:
Long-Term Incentive Program
Award Type
40% Performance Shares
40% Performance-Vested Restricted Stock
20% Non-Qualified Stock Options
Metric
Performance Period
EPS 3-Year Relative TSR Modifier
Relative Return on Equity
Stock Price Appreciation
3 Years
3 Years
10-year term
•
•
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 period 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.
Performance Share and Performance-Vested Restricted Stock Performance Targets and Results
Performance targets and results associated with the 2018 annual grant 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.
Performance Objective
Adjusted Diluted EPS
Relative TSR
Relative ROE
Threshold
$7.33
Target
$7.38
Maximum
$7.53
Result
$7.91
Impact on Payout
200%
Relative TSR is measured over a 3-year performance period and used as a modifier
50th - 75th
percentile
75th - 90th
percentile
>90th
percentile
>90th
percentile
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 2018 annual grant was $114.36. The high, low and closing prices of an
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EXECUTIVE COMPENSATION
AbbVie common share on the grant date (February 15, 2018) were $116.33, $112.38, and $114.90 respectively. All LTI
awards are subject to a minimum vesting period of 12 months.
AbbVie granted performance shares in 2016 that were subject to a 3-year performance cycle that ended
December 31, 2018. The table below describes the performance objectives, outcomes, and shares earned.
Performance Objective
Threshold
Target
Maximum
Actual
Relative TSR
15 pts below
index
Equal to index
performance
15 pts above
index
60.3 pts above
index
Performance
Modifier
125%
See the 2018 Option Exercises and Stock Vested table for the shares earned as a result of the performance
described above.
2019 Compensation Decisions
The compensation committee’s typical practice is to make decisions related to NEO pay at its February meeting,
including adjustments to base salary, an annual incentive payment for the prior year’s performance, and establishment of
a long-term incentive award value. In making its decisions, the committee considers the performance achieved compared
to previously established goals as well as changes in industry practice reflected in compensation benchmarking data. The
committee made the following decisions about the compensation for Mr. Gonzalez in February 2019: (i) his base salary is
unchanged compared to 2018; (ii) his annual incentive payment for 2018 performance was $3,898,125; and (iii) his 2019
long-term incentive award grant value was $11,500,000. The resulting changes in total direct compensation from 2018 to
2019 are shown in the following chart:
Change in CEO Total Direct Compensation 2018 - 2019
Total Direct Compensation
$20,251,104
LTI Award Grant Value
$14,269,854
Annual Incentive*
$4,331,250
Base Salary
$1,650,000
2018
Total Direct Compensation
$17,048,125
LTI Award Grant Value
$11,500,000
Annual Incentive*
$3,898,125
Base Salary
$1,650,000
2019
4MAR201917334931
*
The annual incentives shown in the table above are included in the year such awards were paid for the prior year’s
performance.
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EXECUTIVE COMPENSATION
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.
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.
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EXECUTIVE COMPENSATION
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 60 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.’’
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
Robert A. Michael
Laura J. Schumacher
Carlos Alban
Michael E. Severino
Stock Ownership Requirement
Requirement Met?
6x Base Salary
3x Base Salary
3x Base Salary
3x Base Salary
3x Base Salary
3x Base Salary
Yes
Yes
Yes
Yes
Yes
Yes
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EXECUTIVE COMPENSATION
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
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 or circumstances where an executive officer engages
in misconduct that would constitute a material breach of the AbbVie Code of Business Conduct. Nevertheless, 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 incentive awards. Further, the company is committed to disclosing in
its annual proxy statement the occurrence of any recoupment regarding an executive officer when the underlying
violation has already been publicly disclosed in company filings with the SEC. For more details, AbbVie’s Code of Business
Conduct is available in the corporate governance section of AbbVie’s investor relations website at
www.abbvieinvestor.com.
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 Legal department 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
Compensation Risk Assessment
.................................................................................................................................................................................................................................................................................................................................
During 2018, 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
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44
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:
EXECUTIVE COMPENSATION
•
•
•
•
•
•
•
•
•
•
In 2018, AbbVie completed a review that found salaries to be equitable across genders and ethnicities
among U.S. employees.
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 2018, 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 or based on a material breach of the AbbVie Code of
Business Conduct.
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, 2018.
The following table summarizes compensation awarded to, earned by and/or paid to AbbVie’s NEOs in connection with
their service to AbbVie during 2018, 2017 and 2016, as applicable. Mr. Michael was not an NEO before 2018. The section
of this proxy statement captioned ‘‘Compensation Plan Elements’’ describes in greater detail the information reported in
this table.
Name and Principal Position
Richard A. Gonzalez
Chairman of the Board and
Chief Executive Officer
William J. Chase
Executive Vice President,
Finance and Administration(7)
Robert A. Michael
Senior Vice President,
Chief Financial Officer(7)
Laura J. Schumacher
Vice Chairman, External Affairs
and Chief Legal Officer
Carlos Alban
Vice Chairman, Chief Commercial
Officer
Michael E. Severino
Vice Chairman and President
Salary
($)
Bonus
($)
Stock
Awards
($)(1)
Option
Awards
($)(2)
$1,650,000
1,638,462
1,600,000
1,038,773
1,008,526
979,369
553,654
1,043,582
1,008,526
979,369
1,016,526
947,469
920,077
1,100,605
1,004,460
960,969
$0
0
0
$11,509,090
9,606,360
9,318,854
$2,760,764
2,559,270
2,360,323
0
0
0
0
0
0
0
0
0
0
0
0
0
4,134,594
3,681,906
3,483,919
724,041
4,134,594
7,681,631
2,864,483
4,005,388
3,522,250
2,916,922
4,176,037
3,681,906
3,359,376
991,720
980,980
882,450
173,724
991,720
980,980
725,663
961,216
938,350
738,798
1,002,105
980,980
850,908
Year
2018
2017
2016
2018
2017
2016
2018
2018
2017
2016
2018
2017
2016
2018
2017
2016
Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings
($)(4)(5)
$463,205
3,496,704
3,232,531
309,063
4,223,300
1,697,232
679,532
2,739,969
2,957,506
1,627,686
821,930
4,832,949
1,884,312
359,057
653,582
375,080
Non-Equity
Incentive
Plan
Compensation
($)(3)
$3,898,125
4,331,250
3,600,000
1,954,549
1,954,549
1,626,000
950,000
1,954,549
1,954,549
1,626,000
1,836,219
1,836,219
1,510,000
1,818,200
1,955,069
1,596,000
All Other
Compensation
($)(6)
Total
($)
$990,685
993,197
859,216
$21,271,869
22,625,243
20,970,924
296,087
195,332
162,406
37,937
8,724,786
12,044,593
8,831,376
3,118,888
518,745
396,164
394,498
341,800
257,751
246,809
151,355
119,279
101,530
11,383,159
14,979,356
8,217,699
8,983,079
12,334,988
8,216,918
8,607,359
8,395,276
7,243,863
(1)
(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 generally 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. The grant date fair value of performance shares with a
TSR market condition are determined using the Monte Carlo simulation model.
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. 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 2018,
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
2.67%
5.4
27.79%
3.74%
$21.63
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EXECUTIVE COMPENSATION
(3) The compensation reported in this column for 2018 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
Compensation Plan Elements section of this proxy statement.
(4) The plan amounts shown below are reported in this column, except as described in this paragraph. The amounts
shown beside each NEO’s name are for 2018, 2017 and 2016, respectively, as applicable. Negative amounts under
the AbbVie Pension Plan and the AbbVie Supplemental Pension Plan are excluded from this column in accordance
with SEC rules.
AbbVie Pension Plan
R. Gonzalez: $(111,651) / $(38,501) / $(70,521); W. Chase: $(48,439) / $234,110 / $74,428; R. Michael: $(46,048);
L. Schumacher: $72,009 / $170,782 / $86,510; C. Alban: $(33,817) / $296,728 / $98,476; and M. Severino:
$11,833 / $37,394 / $22,663.
AbbVie Supplemental Pension Plan
R. Gonzalez: $(1,790,327) / $3,157,627 / $3,016,444; W. Chase: $(65,476) / $3,759,943 / $1,463,791; R. Michael:
$725,580; L. Schumacher: $2,027,233 / $2,244,142 / $1,093,415; C. Alban: $432,490 / $4,195,321 / $1,520,208; and
M. Severino: $210,855 / $535,907 / $306,868.
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: $463,205 / $377,578 / $286,608; W. Chase: $309,063 / $229,247 / $159,013; L. Schumacher:
$640,727 / $542,582 / $447,761; C. Alban: $423,257 / $340,900 / $265,628; and M. Severino: $136,369 / $80,281 /
$45,549.
(5) 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 2018, interest rates
increased and the discount rates used for the Pension Plan and the Supplemental Pension Plan were increased to
reflect that change. An increase in the discount rate decreases the present value of participants’ pension benefits
while actual payments to be made to participants are not changed. The discount rate used for 2018 was 4.62% for
the Pension Plan and 4.58% for the Supplemental Pension Plan. The discount rate used for 2017 was 3.91% for the
Pension Plan and 3.87% for the Supplemental Pension Plan, while the discount rate used for 2016 was 4.67% for
the Pension Plan and 4.59% for the Supplemental Pension Plan. The mortality assumptions that apply for actuarial
purposes also affect pension values.
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.
(6) The amounts shown below are reported in this column for 2018, 2017, and 2016, respectively, as applicable.
Earnings for Non-Qualified Defined Benefit and Non-Qualified Defined Contribution Plans
R. Gonzalez: $246,041 / $159,056 / $149,512; W. Chase: $180,182 / $109,261 / $84,680; L. Schumacher: $420,337 /
$304,784 / $310,138; C. Alban: $266,141 / $182,139 / $173,948; and M. Severino: $66,157 / $34,853 / $20,104.
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EXECUTIVE COMPENSATION
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
Supplemental Pension Plan and the AbbVie Supplemental Savings Plan. These amounts include earnings net of the
reportable interest included in footnote (4).
Employer Contributions to Defined Contribution Plans
R. Gonzalez: $82,500 / $81,923 / $80,000; W. Chase: $51,939 / $50,426 / $48,968; R. Michael: $13,750;
L. Schumacher: $52,179 / $50,426 / $48,968; C. Alban: $50,826 / $47,373 / $46,004; and M. Severino: $55,030 /
$50,223 / $48,048.
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 2018 Compensation
The totals shown in the table include the cost of providing a corporate automobile less the amount reimbursed by
the NEO: R. Gonzalez: $21,030; W. Chase: $22,022; R. Michael: $17,687; L. Schumacher: $19,803; C. Alban: $14,833;
and M. Severino: $20,167. 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 other than
Mr. Michael, whose 2018 allowance was $6,500. 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: $598,447;
W. Chase: $31,945; and L. Schumacher: $16,426. 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 $32,666 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 and in
accordance with the AbbVie security program. AbbVie imputes income to Mr. Gonzalez, if required, and he pays
taxes in accordance with tax regulations without gross-ups.
The NEOs also are eligible to participate in an executive disability benefit, which is described on page 60 of this
proxy statement.
(7) Mr. Chase was appointed Executive Vice President, Finance and Administration, and Mr. Michael was appointed
Senior Vice President, Chief Financial Officer, effective October 19, 2018. Mr. Chase served as Executive Vice
President, Chief Financial Officer before assuming his current role. Mr. Michael served as Vice President, Controller
before assuming his current role.
Required Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and
Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total
compensation of our employees and the annual total compensation of our CEO, Richard Gonzalez. The pay ratio included
in this information is a reasonable estimate calculated in a manner consistent with Regulation S-K Item 402(u). The ratio
of Mr. Gonzalez’s annual total compensation for 2018, as reported in the Summary Compensation Table in this proxy
statement, to the median employee annual total compensation determined on the same basis was 143:1. For 2018, the
annual total compensation of our median employee (other than Mr. Gonzalez) was $148,823. To identify the median
employee, we prepared a list of all active AbbVie employees throughout the world as of December 28, 2018. The
consistently applied compensation measure used to identify the median employee was annual base pay and target
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EXECUTIVE COMPENSATION
bonus, using hours worked during 2018 for hourly employees and base salary for the remaining employees. This process
resulted in a median group consisting of several employees and a representative employee was selected in accordance
with SEC guidance, taking into account demographic characteristics that best represent a typical AbbVie employee,
including tenure, location, employment status and applicable compensation and benefit programs.
2018 Grants of Plan-Based Awards
.................................................................................................................................................................................................................................................................................................................................
The following table summarizes the equity awards granted under the AbbVie 2013 Incentive Stock Program to
the NEOs during 2018.
Estimated Future
Payouts Under
Non-Equity
Incentive Plan
Awards(1)
Grant
Date
Target Maximum
($)
($)
Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards
Target
(#)
All Other
Option
Awards:
Numbers of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/Sh)
Closing
Market
Price on
Grant
Date
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
2/15/2018
47,210(2)
47,210(3)
16,960(2)
16,960(3)
2,970(2)
2,970(3)
16,960(2)
16,960(3)
16,430(2)
16,430(3)
17,130(2)
17,130(3)
127,610(5)
$114.36
$114.90
45,840(5)
114.36
114.90
8,030(5)
114.36
114.90
45,840(5)
114.36
114.90
44,430(5)
114.36
114.90
46,320(5)
114.36
114.90
Grant Date
Fair Value
of Stock
and Option
Awards
$6,110,390(4)
5,398,700(4)
2,760,764(6)
2,195,133(4)
1,939,461(4)
991,720(6)
384,407(4)
339,634(4)
173,724(6)
2,195,133(4)
1,939,461(4)
991,720(6)
2,126,535(4)
1,878,853(4)
961,216(6)
2,217,136(4)
1,958,901(4)
1,002,105(6)
Name
R. Gonzalez
W. Chase
R. Michael
L. Schumacher
C. Alban
M. Severino
(1) During 2018, each of the NEOs participated in the AbbVie Performance Incentive Plan. The annual cash incentive
award earned by the NEO in 2018 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 2018
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 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
2018, AbbVie’s EPS performance resulted in the banking of the award on February 28, 2019 at 200% of target, with
vesting to be determined based on the company’s relative TSR performance following the three-year performance
period that ends December 31, 2020. 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 period based on AbbVie’s return on equity (ROE) articulated
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EXECUTIVE COMPENSATION
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 2018, AbbVie’s
relative ROE performance resulted in the vesting on February 28, 2019 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.’’
(4) The grant date fair value of stock awards is generally 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. The grant date fair value of performance shares with a TSR market condition is determined using the
Monte Carlo simulation model. 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, subject to satisfaction of the service requirements set forth in the award
agreements. 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 (2)
to the Summary Compensation Table.
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2018 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
EXECUTIVE COMPENSATION
Name
R. Gonzalez
W. Chase
R. Michael
L. Schumacher
C. Alban
M. Severino
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Number of
Shares of
Stock That
Have Not
Vested (#)
Market
Value of
Shares of
Stock That
Have Not
Vested ($)
Option
Exercise
Price ($)
Option
Expiration
Date
109,097
170,113
87,050
—
19,600
115,830
92,740
110,770
63,600
33,367
—
6,760
3,807
—
103,220
52,300
33,367
—
115,830
81,500
101,960
53,247
31,917
—
74,309
104,480
61,327
33,367
—
—
85,057(3)
174,100(3)
127,610(3)
—
—
—
—
31,800(3)
66,733(3)
45,840(3)
3,380(3)
7,613(3)
8,030(3)
—
26,150(3)
66,733(3)
45,840(3)
—
—
—
26,623(3)
63,833(3)
44,430(3)
—
—
30,663(3)
66,733(3)
46,320(3)
$58.8800
54.8600
61.3600
114.3600
29.2265
35.8800
51.4200
58.8800
54.8600
61.3600
114.3600
54.8600
61.3600
114.3600
58.8800
54.8600
61.3600
114.3600
35.8800
51.4200
58.8800
54.8600
61.3600
114.3600
54.4400
58.8800
54.8600
61.3600
114.3600
2/18/2025
2/17/2026
2/15/2027
2/14/2028
2/16/2022
2/13/2023
2/19/2024
2/18/2025
2/17/2026
2/15/2027
2/14/2028
2/17/2026
2/15/2027
2/14/2028
2/18/2025
2/17/2026
2/15/2027
2/14/2028
2/13/2023
2/19/2024
2/18/2025
2/17/2026
2/15/2027
2/14/2028
6/1/2024
2/18/2025
2/17/2026
2/15/2027
2/14/2028
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares
or Other
Rights That
Have Not
Vested (#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares
or Other
Rights That
Have Not
Vested ($)
75,830(3)
142,515(3)
94,420(3)
$6,990,768
13,138,458
8,704,580
28,350(3)
54,621(3)
33,920(3)
2,613,587
5,035,510
3,127,085
3,013(3)
6,231(3)
5,940(3)
23,309(3)
54,621(3)
33,920(3)
23,736(3)
52,254(3)
32,860(3)
277,768
574,436
547,609
2,148,857
5,035,510
3,127,085
2,188,222
4,817,296
3,029,363
27,336(3)
54,621(3)
34,260(3)
2,520,106
5,035,510
3,158,429
(1) Five 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.
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EXECUTIVE COMPENSATION
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.
As a result of the Separation, one NEO held the following Abbott equity awards as of December 31, 2018:
•
C. Alban: Vested options to purchase 16,033 Abbott common shares with an exercise price of $27.03 per share.
(2) Except as noted, the stock options are fully vested.
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52
(3) The vesting dates of AbbVie unexercisable stock options and unvested performance share and restricted stock/unit
awards outstanding at December 31, 2018 are as follows:
EXECUTIVE COMPENSATION
Option Awards
Number of
Unexercised
Shares
Remaining
from
Original
Grant
Number of
Option
Shares
Vesting—
Date
Vested 2019
Number of
Option
Shares
Vesting—
Date
Vested 2020
Number of
Option
Shares
Vesting—
Date
Vested 2021
Number of
Shares of
Restricted
Stock or
Units
Stock or Unit Awards
Number of
Shares of
Restricted
Stock or
Units
Vesting—
Date
Vested 2019
Number of
Shares of
Restricted
Stock or
Units
Vesting—
Date
Vested 2020
Number of
Shares of
Restricted
Stock or
Units
Vesting—
Date
Vested 2021
Name
R. Gonzalez
W. Chase
R. Michael
85,057
174,100
127,610
85,057—2/18
87,050—2/16
42,537—2/15
87,050—2/16
42,536—2/15
42,537—2/15
31,800
66,733
45,840
31,800—2/18
33,366—2/16
15,280—2/15
33,367—2/16
15,280—2/15
15,280—2/15
3,380
7,613
8,030
3,380—2/18
3,806—2/16
2,677—2/15
3,807—2/16
2,676—2/15
2,677—2/15
L. Schumacher
26,150
66,733
45,840
26,150—2/18
33,366—2/16
15,280—2/15
33,367—2/16
15,280—2/15
15,280—2/15
C. Alban
M. Severino
26,623
63,833
44,430
26,623—2/18
31,916—2/16
14,810—2/15
31,917—2/16
14,810—2/15
14,810—2/15
30,663
66,733
46,320
30,663—2/18
33,366—2/16
15,440—2/15
33,367—2/16
15,440—2/15
15,440—2/15
47,397
28,433
90,369
52,146
47,210
47,210
17,720
10,630
34,635
19,986
16,960
16,960
1,883
1,130
3,951
2,280
2,970
2,970
14,569
8,740
34,635
19,986
16,960
16,960
14,836
8,900
33,134
19,120
16,430
16,430
17,086
10,250
34,635
19,986
17,130
17,130
(a)
(b)
(c)
(d)
(e)
(f)
(a)
(b)
(c)
(d)
(e)
(f)
(a)
(b)
(c)
(d)
(e)
(f)
(a)
(b)
(c)
(d)
(e)
(f)
(a)
(b)
(c)
(d)
(e)
(f)
(a)
(b)
(c)
(d)
(e)
(f)
(a) These are performance shares that remained outstanding and unvested on December 31, 2018 from an award
made on February 18, 2016. The award had 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
program, AbbVie’s EPS performance resulted in the vesting on February 28, 2017 of two-thirds of the award at
166.7% of target. The remaining one-third of the EPS adjusted award vested on February 28, 2019 after a
125% adjustment based on the company’s relative TSR performance during the 3-year performance period that
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EXECUTIVE COMPENSATION
ended December 31, 2018. In aggregate, this award vested at 180.6% of target (out of a maximum of 250% of
target) based on the application of all performance adjustments.
(b) These are performance-vested restricted stock units that remained outstanding and unvested on December 31,
2018, 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 period 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 2018, AbbVie’s relative ROE performance resulted in the vesting on February 28, 2019 of one-third
of the award at 150% of target.
(c) These are performance shares that remained outstanding and unvested on December 31, 2018 from an award
made on February 16, 2017. The award has the potential to vest at 0% to 250% of target during a 3-year
performance period 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 2017, in connection with the phase-in of the redesigned long-term incentive program, AbbVie’s EPS
performance resulted in the vesting on February 28, 2018 of one-third of the award at 173.3% of target, and
the remainder of the award has been banked for vesting to be determined based on the company’s relative
TSR performance during the 3-year performance period that ends December 31, 2019.
(d) These are performance-vested restricted stock units that remained outstanding and unvested on December 31,
2018, from an award made on February 16, 2017. The award has the potential to vest at 0% to 150% of
target, in one-third increments, during a 3-year performance period 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 2018, AbbVie’s relative ROE performance resulted in the vesting on February 28, 2019 of one-third
of the award at 150% of target.
(e) These are performance shares that remained outstanding and unvested on December 31, 2018 from an award
made on February 15, 2018. The award has the potential to vest at 0% to 250% of target during a 3-year
performance period 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 2018, AbbVie’s EPS performance resulted in the banking of the award at 200% of target, with
vesting to be determined based on the company’s relative TSR performance during the 3-year performance
period that ends December 31, 2020.
(f)
These are performance-vested restricted stock units that remained outstanding and unvested on December 31,
2018, from an award made on February 15, 2018. The award has the potential to vest at 0% to 150% of
target, in one-third increments, during a 3-year performance period 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 2018, AbbVie’s relative ROE performance resulted in the vesting on February 28, 2019 of one-third
of the award at 150% of target.
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2018 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 2018:
EXECUTIVE COMPENSATION
Name
R. Gonzalez
W. Chase
R. Michael
L. Schumacher
C. Alban
M. Severino
Pension Benefits
Option Awards
Stock Awards
Number of
Shares
Acquired On
Exercise (#)
Value
Number of
Shares
Realized On Acquired On
Vesting (#)
Exercise ($)
Value
Realized On
Vesting ($)
— $
—
182,143
$21,540,231
32,400
2,870,347
66,935
7,915,733
—
94,140
48,100
—
—
9,040
853,277
3,968,873
4,088,134
—
175,357
17,400,079
61,450
65,305
7,267,077
7,722,969
During 2018, 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.
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.
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EXECUTIVE COMPENSATION
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, Mr. Chase, Ms. Schumacher and Mr. Alban 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.
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.
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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:
EXECUTIVE COMPENSATION
•
•
•
•
•
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, Mr. Chase, Ms. Schumacher and Mr. Alban 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, an eligible NEO who became an officer prior to 2009 may have the entire
amount of his or her vested plan benefits funded through a grantor trust. An eligible NEO who became an
officer after 2008 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.
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.
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EXECUTIVE COMPENSATION
Pension Benefits Table
Name
R. Gonzalez
W. Chase
R. Michael
L. Schumacher
C. Alban
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
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
30
30
26
26
28
28
32
32
5
5
$280,981
17,049,866
$0
1,469,580(2)
712,679
8,629,366
0
3,722,402(2)
493,154
1,678,316
957,305
12,955,752
0
0
0
822,706(2)
1,089,415
12,166,774
0
2,332,873(2)
106,372
1,419,828
0
0
(1) AbbVie calculated these present values using: (i) a discount rate of 4.62% for the Pension Plan and a discount rate
of 4.58% 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 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 MP2018 mortality improvement scale), but do not include a factor for preretirement termination, mortality, or
disability.
(2) During 2018, 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(1)(2)
W. Chase
L. Schumacher
Deferred Compensation Plan
Deferred Compensation Plan
Executive
contributions
in last FY
($)
Registrant
contributions
in last FY
($)
Aggregate
Aggregate
earnings withdrawals/
distributions
in last FY
($)
($)(3)
$0
0
$0
0
$(3,575)
(30,960)
$0
0
Aggregate
balance at
last FYE
($)(4)
$87,090
473,817
(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
2018, the weighted average rate of return credited to the accounts was (3.9)% for Mr. Chase and (6.1)% 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, 2018. 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 trust earnings and fees and the period over which the trust assets were distributed.
Based on current earnings rates, if the trust assets were distributed over a 10-year period, the NEOs would receive the
following average annual earnings payments over such 10-year period: Mr. Gonzalez, $755,093; Mr. Chase, $547,998;
Ms. Schumacher, $1,040,072; Mr. Alban, $712,236; and Dr. Severino, $286,411. 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, $0; Mr. Chase, $1,072,191; Ms. Schumacher, $2,903,787; and Mr. Alban, $1,612,223. As of
December 31, 2018, Mr. Gonzalez, Mr. Chase, Ms. Schumacher and Mr. Alban 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 respective NEO also would have received,
in addition to AbbVie’s standard disability benefits, a monthly long-term disability benefit in the following amount:
Mr. Gonzalez: $194,906; Mr. Chase: $97,727; Mr. Michael, $47,500; Ms. Schumacher: $97,727; Mr. Alban: $91,811; and
Dr. Severino: $90,910. 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, restricted
stock or unit awards and performance shares would have vested on December 31, 2018 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, 2020, 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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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, 2018, immediately followed by one of the covered
circumstances described above, Mr. Gonzalez, Mr. Chase, Mr. Michael, Ms. Schumacher, Mr. Alban, and Dr. Severino
would have been entitled to receive the following payments and benefits under the change in control agreements:
EXECUTIVE COMPENSATION
• Mr. Gonzalez: cash termination payments—$15,857,250; additional Supplemental Pension Plan benefits—
$1,770,732; welfare and fringe benefits—$78,140.
• Mr. Chase: cash termination payments—$4,761,486; additional Supplemental Pension Plan benefits—
$1,364,162; welfare and fringe benefits—$79,890.
• Mr. Michael: cash termination payments—$4,210,962; additional Supplemental Pension Plan benefits—
$763,429; welfare and fringe benefits—$79,136.
• Ms. Schumacher: cash termination payments—$8,069,547; additional Supplemental Pension Plan benefits—
$3,278,470; welfare and fringe benefits—$65,446.
• Mr. Alban: cash termination payments—$7,595,778; additional Supplemental Pension Plan benefits—
$3,171,654; welfare and fringe benefits—$61,231.
•
Dr. Severino: cash termination payments—$8,176,814; additional Supplemental Pension Plan benefits—
$1,316,087; welfare and fringe benefits—$80,794.
The amounts shown for Mr. Chase’s cash termination payments and additional supplemental pension plan
benefits reflect reductions of $3,293,633 and $943,623, respectively, which would have applied under cutback provisions
in the agreements as described above.
Equity Awards
The AbbVie 2013 Incentive Stock Program was approved by AbbVie’s stockholders and covers approximately
9,000 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 January
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, 2018 and the surviving company did not assume, convert
or replace any of the awards granted in or 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) 386,767 unvested AbbVie stock options with a value of $8,542,682,
(ii) 162,911 AbbVie restricted stock units with a value of $15,018,719, and (iii) 252,468 AbbVie performance
shares with a value of $23,274,997.
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EXECUTIVE COMPENSATION
• Mr. Chase would have vested in (i) 144,373 unvested AbbVie stock options with a value of $3,244,473,
(ii) 60,715 AbbVie restricted stock units with a value of $5,597,270, and (iii) 94,279 AbbVie performance
shares with a value of $8,691,590.
• Mr. Michael would have vested in (i) 19,023 unvested AbbVie stock options with a value of $360,884,
(ii) 8,010 AbbVie restricted stock units with a value of $738,442, and (iii) 12,343 AbbVie performance shares
with a value of $1,137,872.
• Ms. Schumacher would have vested in (i) 138,723 unvested AbbVie stock options with a value of
$3,033,559, (ii) 57,880 AbbVie restricted stock units with a value of $5,335,911, and (iii) 90,341 AbbVie
performance shares with a value of $8,328,520.
• Mr. Alban would have vested in (i) 134,886 unvested AbbVie stock options with a value of $2,961,808,
(ii) 56,419 AbbVie restricted stock units with a value of $5,201,222, and (iii) 87,895 AbbVie performance
shares with a value of $8,103,047.
•
Dr. Severino would have vested in (i) 143,716 unvested AbbVie stock options with a value of $3,202,029,
(ii) 60,343 AbbVie restricted stock units with a value of $5,562,975, and (iii) 93,776 AbbVie performance
shares with a value of $8,645,235.
The value of stock options shown is based on the excess of the closing price of one share of common stock on
December 31, 2018 over the exercise price of such options, multiplied by the number of unvested stock options held by
the NEO. The value of restricted stock units and performance shares shown is determined by multiplying the number of
units or shares that would vest as of December 31, 2018 in accordance with the applicable equity award agreement
terms and the closing price of one share of common stock on December 31, 2018.
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RATIFICATION OF ERNST & YOUNG LLP AS ABBVIE’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(ITEM 2)
27FEB201905175994
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 11, 2018, the audit committee appointed Ernst & Young LLP (the independent auditor) to
perform independent audit services for the fiscal year ending December 31, 2019. Ernst & Young LLP has served as our
independent auditor 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 auditor.
Although the audit committee has sole authority to appoint the independent auditor, it would like to know the
opinion of the stockholders regarding its appointment of Ernst & Young LLP for 2019. For this reason, stockholders are
being asked to ratify this appointment. If the stockholders do not ratify the appointment of Ernst & Young LLP for 2019,
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 auditor 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 2019.
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AUDIT INFORMATION
27FEB201905173890
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, 2018 and December 31, 2017, and fees for other services rendered to AbbVie by Ernst &
Young LLP for those periods.
Audit fees:(1)
Audit related fees:(2)
Tax fees:(3)
All other fees:(4)
Total
2018
(millions)
2017
(millions)
$10.3
0.7
2.3
—
$13.3
$11.0
0.3
2.0
0.6
$13.9
(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 and tax advisory services.
(4) Other fees in 2017 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 (the independent auditor) and its related
affiliates.
Prior to engagement of the independent auditor 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 auditor 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 auditor for additional services not contemplated in the original pre-approval. In those instances,
the audit committee requires specific pre-approval before engaging the independent auditor.
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
.................................................................................................................................................................................................................................................................................................................................
The audit committee is comprised of five non-employee members of the board of directors. Each audit
committee member meets the independence requirements of the New York Stock Exchange and Rule 10A-3 of the
Exchange Act. The committee operates under a written charter adopted by the board of directors. Consistent with the
responsibilities set forth in its charter, the audit committee assists the board of directors in its oversight of AbbVie’s
accounting, auditing and financial reporting practices.
The audit committee has reviewed and discussed the audited financial statements contained in the 2018 Annual
Report on Form 10-K with AbbVie’s management and its independent registered public accounting firm (the independent
auditor). Management is responsible for the preparation and integrity of AbbVie’s consolidated financial statements. The
independent auditor 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. Periodically, during
the year, the audit committee reviewed and discussed with AbbVie’s management, internal auditors, and independent
auditor the effectiveness of AbbVie’s internal control over financial reporting and the overall quality of AbbVie’s financial
reporting.
The audit committee has discussed with the independent auditor the matters required to be discussed pursuant
to the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 1301, Communication with Audit
Committees. In addition, the audit committee has received the written disclosures and the letter from the independent
auditor regarding its independence required by PCAOB Ethics and Independence Rule 3526, Communications with Audit
Committees Concerning Independence, and has discussed with the independent auditor 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 auditor and concluded the independent auditor’s independence has not been
impaired.
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, 2018 filed with the Securities and Exchange Commission.
Audit Committee
R. Austin, Chair, W. Burnside, M. Meyer, E. Rapp, and F. Waddell
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SAY ON PAY—ADVISORY VOTE ON THE APPROVAL OF
EXECUTIVE COMPENSATION (ITEM 3)
27FEB201905180113
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 TO ELIMINATE SUPERMAJORITY
VOTING (cid:3)ITEM 4(cid:4)
27FEB201918171589
Currently, AbbVie’s Amended and Restated Certificate of Incorporation (the ‘‘Certificate of Incorporation’’)
provides that certain amendments to the Certificate of Incorporation or AbbVie’s Amended and Restated By-Laws (the
‘‘By-Laws’’) require the affirmative vote of shares representing no less than 80 percent of AbbVie’s outstanding shares of
stock entitled to vote generally in the election of directors. We refer to these provisions listed below as the
‘‘Supermajority Voting Requirement.’’
Specifically, Article VIII of the Certificate of Incorporation provides that any stockholder-approved alteration,
amendment, or repeal of any of the By-Law provisions listed below, or the adoption of any stockholder-approved By-Law
provision inconsistent with those By-Law provisions, must be approved pursuant to the Supermajority Voting
Requirement. The By-Law provisions covered by the Supermajority Voting Requirement are in regards to:
•
•
•
•
special meetings of stockholders and written consents by stockholders (Article II, Sections 2.2 and 2.12,
respectively);
board size and tenure, classes of directors, board vacancies, and director removal (Article III, Sections 3.2,
3.3, 3.10 and 3.11, respectively);
indemnification of directors and officers (Article VII); and
amendments to the By-Laws (Article X).
Article XI of the Certificate of Incorporation provides that any alteration, amendment, or repeal of any of the
provisions of the Certificate of Incorporation listed below, or the adoption of any provision inconsistent with those
provisions, must be approved pursuant to the Supermajority Voting Requirement. The provisions covered by the
Supermajority Voting Requirement are in regards to:
•
board size, classes of directors, board vacancies, and director removal (Article VI, Sections 1, 2, 3 and 4,
respectively); and
• written consents by stockholders and special meetings of stockholders (Article VII, Sections 1 and 2,
respectively).
After reviewing the advantages and disadvantages of the Supermajority Voting Requirement at this time, the
board approved, and recommends that stockholders approve, the amendment and restatement of Articles VIII and XI of
the Certificate of Incorporation to remove the Supermajority Voting Requirement contained therein. If approved, future
stockholder-approved amendments to the By-Law and Certificate of Incorporation provisions listed above will not be
subject to the Supermajority Voting Requirement and will instead require the affirmative vote of a majority of AbbVie’s
outstanding shares of stock entitled to vote generally in the election of directors.
The proposed Certificate of Amendment to the Certificate of Incorporation is attached to this proxy statement as
Appendix A, which the company would file promptly following the 2019 Annual Meeting if our stockholders approve the
amendment. 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. The board has approved certain conforming changes to the company’s By-Laws, contingent on the
effectiveness of the proposed amendment to the Certificate of Incorporation.
The board of directors recommends that you vote FOR the management proposal to amend and restate the
Certificate of Incorporation to eliminate supermajority voting.
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STOCKHOLDER PROPOSALS
27FEB201905180359
Three 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-filers Congregation of Sisters of St. Agnes, First
Affirmative Financial Network, LLC, Friends Fiduciary Corporation, and Sisters of Charity of the Blessed Virgin Mary have
notified AbbVie that it intends to present the following proposal at the Annual Meeting and that they collectively own at
least 19,269 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 its 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 Public Policy Committee and posted on AbbVie’ s website.
Supporting Statement
Investors urge transparency and accountability in the use of corporate funds to influence legislation and
regulation, both directly and indirectly. AbbVie spent $26.23 million from 2013 - 2017 on federal lobbying
(opensecrets.org). This figure does not include lobbying expenditures to influence legislation in states, where AbbVie also
lobbies but disclosure is uneven or absent. For example, AbbVie had at least 79 lobbyists in 19 states in 2017
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STOCKHOLDER PROPOSALS
(followthemoney.org) and spent $1,935,362 on lobbying in California from 2013 - 2017. AbbVie’s lobbying on Humira has
attracted media scrutiny (‘‘Humira Deaths Put AbbVie on FDA’s Radar,’’ Drugwatch, May 10, 2018). Investors are
concerned that AbbVie does not publish total state and federal lobbying expenditures.
AbbVie is a member of the Chamber of Commerce, which has spent over $1.4 billion on lobbying since 1998,
and sits on the board of the Pharmaceutical Research and Manufacturers of America (PhRMA), which spends millions
lobbying against drug pricing measures (‘‘PhRMA Spends Record Amount on Lobbying Amid Drug Pricing Fights,’’ The Hill,
April 20, 2018). AbbVie does not disclose the portions of its payments to trade associations that are used for lobbying.
AbbVie’s membership in PhRMA and the Chamber could present significant reputational risk when the groups’
lobbying activities contradict AbbVie’s public positions. For example, AbbVie believes patients need access to affordable
medicines, yet it helps fund PhRMA’s opposition to lower drug price initiatives. And AbbVie supports smoking cessation,
yet the Chamber has worked to block global antismoking laws. As shareholders, we believe that companies should
ensure alignment between their own positions and their lobbying, including through trade associations.
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 which are 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 Vice Chairman, External Affairs and Chief Legal Officer, who reports directly to the CEO, and our Vice
President, Government Affairs, each review and approve AbbVie’s lobbying strategy and all plans for
corporate political contributions 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 as a
leader 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 medical advances.
In part due to the extensive disclosures described below, AbbVie has been recognized as a leader in
providing the highest level of political transparency and accountability. In 2018, AbbVie was recognized as a
‘‘trendsetter’’ in this area by the CPA-Zicklin Index, the highest ranking a company can receive. This index,
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which is produced by the non-profit Center for Political Accountability in conjunction with the Zicklin Center
for Business Ethics Research at The Wharton School at the University of Pennsylvania, benchmarks the
political disclosure and accountability policies and practices of leading U.S. public companies. AbbVie was
also ranked in the top tier of companies in 2017, 2016, 2015, and 2014.
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
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, we 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.
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 on Compensation Committee Drug Pricing Report (Item 6 on Proxy Card)
.................................................................................................................................................................................................................................................................................................................................
United Church Funds, and co-filers, including Bon Secours Mercy Health, Sisters of Charity of Saint Elizabeth,
Sisters of Providence, Mother Joseph Province, and Trinity Health have notified AbbVie that they intend to present the
following proposal at the Annual Meeting and that they collectively own 86,219 AbbVie shares.
RESOLVED, that shareholders of AbbVie Inc. (‘‘AbbVie’’) urge the Compensation Committee (the ‘‘Committee’’) to
report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are
integrated into AbbVie’s incentive compensation policies, plans and programs (together, ‘‘arrangements’’) for senior
executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation
arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring
commitments about pricing, that incorporate public concern regarding the level or rate of increase in prescription drug
prices; and (ii) such concern is considered when setting financial targets for incentive compensation arrangements.
Supporting Statement: As long-term investors, we believe that senior executive incentive compensation
arrangements should reward the creation of sustainable long-term value. To that end, it is important that those
arrangements align with company strategy and encourage responsible risk management.
A key risk facing pharmaceutical companies is potential backlash against high drug prices. Societal anger over
exorbitant prices and pressure over limited patients’ access due to unaffordability may force price rollbacks and harm
corporate reputation.
We applaud AbbVie for committing not to increase prices by more than 10% for 2018, yet we are unaware of a
like commitment for 2019 or beyond. Moreover, we are concerned that the incentive compensation arrangements
applicable to AbbVie’s senior executives may undermine any such commitment.
AbbVie uses net revenue, income before taxes and Humira sales as metrics for the annual bonus and earnings
per share (EPS) as a metric for certain long-term incentive awards to senior executives. (2018 Proxy Statement, at 31) A
2017 Credit Suisse analyst report stated that ‘‘US drug price rises contributed 100% of industry EPS growth in 2016’’ and
characterized that fact as ‘‘the most important issue for a Pharma investor today.’’ The report identified AbbVie as a
company where price increases accounted for at least 100% of EPS growth in 2016. (Global Pharma and Biotech Sector
Review: Exploring Future US Pricing Pressure, Apr. 18, 2017, at 1.) It has been noted that the company’s 2018 9.7% price
increase for Humira could add $1.2 billion to the U.S. healthcare system (https://www.fiercepharma.com/pharma/drug-
price-hikes-a-few-bad-actors-or-widespread-pharma?mkt_tok=eyJpIjoiWWpZeFltRTBOM1ZoTkRJNSIsInQiOiJhckk2U0NgNXBx
N0x2UCtvdVdIdzZVZXRIUHlrS0xZOVRBNXdTVlF0eVNBSDMxb3NWUGJsRWtNcFROZmlPYmM5d2hXd3VuV0kldG1CelBTYmk2).
In our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially when
price hikes drive large senior executive payouts. We believe that the company’s strategy to use ‘‘nursing support,’’ which
the California Department of Insurance claims in its suit against the company to be largely a kickback scheme to boost
Humira sales, may have been better managed by leadership if Humira sales were not an explicit part of the payment
incentive plan (https://www.law360.com/articles/1084008).
The disclosure we request would allow shareholders to better assess the extent to which compensation
arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to
long-term value creation. We urge shareholders to vote for this Proposal.
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Board of Directors Statement in Opposition to the Stockholder Proposal on Compensation Committee
Drug Pricing Report (Item 6 on Proxy Card)
.................................................................................................................................................................................................................................................................................................................................
The board of directors recommends that stockholders vote AGAINST this proposal. AbbVie has demonstrated a
commitment to both balanced, appropriate executive compensation programs and to responsible drug pricing. The
preparation and maintenance of the proposed report would not provide meaningful information to stockholders, would
not be a good use of AbbVie’s resources, and is unnecessary.
AbbVie’s compensation programs effectively account for responsible risk management.
In collaboration with the compensation committee’s independent compensation consultant, AbbVie conducts an
annual in-depth compensation risk assessment with respect to its compensation policies and practices. The results of this
assessment, including the major factors used to arrive at the results, are already published in this proxy statement. This
comprehensive risk assessment appropriately evaluates AbbVie’s compensation risk exposure and its potential impact on
compensation outcomes, resulting in compensation decisions that are aligned with creating stockholder value and
improving company performance without undue risk-taking. A report specifically focused only on drug pricing risk would
be redundant to, and much less meaningful than, the broader compensation risk assessment already conducted by
AbbVie.
Executive officers are evaluated based on quantitative financial metrics and qualitative factors, such as individual,
strategic and leadership achievements, as well as relative accomplishments and/or developments in the company and the
marketplace. The use of both quantitative and qualitative metrics effectively mitigates the impact of a single risk, such as
dependence on drug pricing, on overall compensation. In addition, AbbVie’s compensation programs use both short-term
and long-term metrics, which mitigates the potential risks of over-reliance on short-term actions, such as excessive
increases in prices, and encourages strategies that result in long-term value creation.
Further, AbbVie’s current compensation policies and practices provide the compensation committee, comprised
entirely of independent directors, with the authority to exercise discretion to substantially adjust incentive payments, if
needed.
AbbVie is committed to responsible drug pricing.
AbbVie evaluates specific pricing decisions on an annual basis with careful consideration of a variety of factors.
In 2019, as in 2017 and 2018, AbbVie has publicly committed to taking no more than one, single-digit price increase, as
part of our ongoing commitment to acting responsibly with regard to drug pricing. Indeed, the proponents acknowledge
and ‘‘applaud’’ AbbVie’s commitment. This commitment is factored into our long-range plan and executive performance
metrics are set in advance. Therefore, AbbVie already limits the risk of extreme price increases being used to
inappropriately meet performance goals.
AbbVie’s strategy is to address some of the world’s toughest health challenges by developing innovative
therapies that have a meaningful impact on patients’ lives. Our strategy does not rely on price increases. Since the
company’s inception, AbbVie has launched more than 15 new products or indications across key therapeutic areas,
including in indications for which there was previously substantial unmet medical need. AbbVie has also developed one
of the strongest late-stage pipelines in the industry with several programs positioned for market leadership.
In summary, given our responsible compensation program design, existing compensation risk assessment,
responsible drug pricing and other practices, the proposal would not provide meaningful information to stockholders,
would not be a good use of AbbVie resources, and is unnecessary.
The board of directors recommends that you vote AGAINST this proposal.
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Stockholder Proposal on Independent Chair (Item 7 on Proxy Card)
.................................................................................................................................................................................................................................................................................................................................
The Employees’ Retirement System of Rhode Island and co-filer Vermont Pension Investment Committee have
notified AbbVie that they intend to present the following proposal at the Annual Meeting and that they collectively own
125,458 AbbVie shares.
RESOLVED:
Shareholders request the Board of Directors adopt as policy, and amend the bylaws as necessary, to
require henceforth that the Chair of the Board of Directors, whenever possible, be an independent member of the
Board. This independence policy shall apply prospectively so as not to violate any contractual obligations. 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.
This policy would be phased in for the next CEO transition.
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 have an inside director act as Chair.
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.
We believe that AbbVie’s Board should adopt best practice governance policies, including having an independent
board chair. Taking this step is in the long-term interests of shareholders and will promote effective oversight of
management.
As of October 2018, 50% of the S&P 500 have separated the role of Chair and CEO. Furthermore, 31% of
S&P 500 firms have an independent chair.
In order to ensure that our Board can provide rigorous oversight for our Company with greater independence
and accountability, we urge a vote FOR this resolution.
Board of Directors Statement in Opposition to the Stockholder Proposal on Independent Chair (Item 7 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.
We believe the proposal would unnecessarily restrict the board’s ability to exercise its fiduciary duty to
determine the board leadership structure most appropriate for the company given the specific circumstances and
leadership needs at any particular point in time. The company’s robust governance framework ensures that board
leadership is balanced with independent participation given the extensive involvement of the lead director and his
oversight. Therefore, adopting a proposal that would limit the board’s ability to exercise decision making on the
appropriate leadership is not in stockholders’ best interests.
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AbbVie’s existing leadership structure and corporate governance practices provide strong independent oversight.
Since its inception in 2013, AbbVie has had a robust lead independent director role. The lead independent
director has significant authority and responsibilities and works directly with the Chairman and CEO, as well as the
independent directors, to ensure meaningful oversight of the board. Among other duties, our lead independent director:
•
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•
•
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•
•
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;
leads the board’s evaluation of the CEO;
leads the annual board and committee evaluation process, including discussing evaluations with each
director individually;
encourages effective director participation by fostering an environment of open dialogue and constructive
feedback among independent directors;
if requested by major stockholders, ensures that he or she is available for consultation and direct
communication as needed;
if required, represents independent board members externally; 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. Our directors are also subject to majority voting as set forth in our By-Laws.
The board periodically considers AbbVie’s leadership structure and has determined that its needs are best met through
the existing structure.
In light of the lead independent director authority and responsibilities and other corporate governance practices,
which are highlighted in our Governance Guidelines (available at www.abbvieinvestor.com), the board has determined
that its current leadership structure, in which the offices of Chairman and Chief Executive Officer are held by one
individual, along with a strong and independent Lead Director, ensures the appropriate level of oversight, independence,
and responsibility is applied to all board decisions and is in the best interests of AbbVie and its stockholders.
The board of directors recommends that you vote AGAINST the proposal.
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27FEB201905173760
Corporate Governance Materials
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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:
•
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•
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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Section 16(a) Beneficial Ownership Reporting Compliance
.................................................................................................................................................................................................................................................................................................................................
AbbVie believes that during 2018 its executive officers and directors timely complied with all filing requirements
under Section 16(a) of the Securities Exchange Act of 1934.
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 with respect to awards granted before
November 2017. In connection with such awards, the compensation committee expects to take appropriate steps to
preserve deductibility, but has 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 approve components of compensation for certain executive
officers that are not deductible.
As described in other sections of this proxy statement, the company’s compensation programs are designed to
align executive officer pay with the performance of the company and the executive officers. The elimination of the
performance-based compensation deduction under Code Section 162(m) has not altered the commitment of the
company and the compensation committee to performance-based compensation principles.
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
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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
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The board of directors knows of no other business to be transacted at the 2019 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 2020 Annual Meeting Proxy Statement
.................................................................................................................................................................................................................................................................................................................................
Stockholder proposals for presentation at the 2020 Annual Meeting must be received by AbbVie no later than
November 19, 2019 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 2020 meeting.
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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.
A stockholder entitled to vote for the election of directors at an Annual Meeting and who is a stockholder of
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 in 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 2020 Annual Meeting, this written notice must be received by AbbVie no later
than February 3, 2020.
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)
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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 2020 Annual
Meeting, this written notice must be received by AbbVie no later than November 19, 2019 and must include the specific
information required by, and otherwise comply with the requirements of, our By-Laws.
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, 2018 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.
78
13NOV201221352027
2019 Proxy Statement
78
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 26, 2019.
An admission card admits only one person. A stockholder may request two admission cards, but a guest must be
accompanied by a stockholder.
ADDITIONAL INFORMATION
By order of the board of directors.
LAURA J. SCHUMACHER
SECRETARY
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2019 Proxy Statement
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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:
1. Articles VIII and XI of AbbVie’s Amended and Restated Certificate of Incorporation are amended to read as follows:
ARTICLE VIII
AMENDMENTS TO BY-LAWS
In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the By-laws
of the Corporation (the ‘‘By-laws’’) may be altered, amended or repealed, in whole or in part, and new By-laws may be
adopted, (i) by the affirmative vote of shares representing a majority of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors; provided, however, that any proposed alteration,
amendment or repeal of, or the adoption of any By-law inconsistent with, Sections 2.2, 2.12, 3.2, 3.3, 3.10 or 3.11,
Article VII or Article X of the By-laws (in each case, as in effect on the date hereof), or the alteration, amendment or
repeal of, or the adoption of any provision inconsistent with this sentence, may only be made by the affirmative vote of
shares representing not less than eighty percent (80%) of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors; and provided further, however, that in the case of any such
stockholder action at a meeting of stockholders, notice of the proposed alteration, amendment, repeal or adoption of
the new By-law or By-laws must be contained in the notice of such meeting, or (ii) by action of the Board of Directors of
the Corporation; provided, however, that the case of any such action at a meeting of the Board of Directors, notice of
the proposed alteration, amendment, repeal or adoption of the new By-law or By-laws must be given not less than two
days prior to the meeting.
* * *
ARTICLE XI
AMENDMENTS
The Corporation reserves the right to amend, alter or repeal any provision contained in this Amended and
Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are subject to this reservation. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware as they presently exist or may hereafter be amended, subject to any limitations contained
elsewhere in this Amended and Restated Certificate of Incorporation, the Corporation may from time to time adopt,
amend or repeal any provisions of this Amended and Restated Certificate of Incorporation; provided, however, that any
proposed alteration, amendment or repeal of, or the adoption of any provision inconsistent with, Article VI and
Article VII of this Amended and Restated Certificate of Incorporation (in each case, as in effect on the date hereof), or
the alteration, amendment or repeal of, or the adoption of any provision inconsistent with this sentence, may only be
made by the affirmative vote of shares representing not less than eighty percent (80%) 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.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Amended and Restated
day of
Certificate of Incorporation to be executed by the undersigned officer, duly authorized, as of the
2019.
AbbVie Inc.
By:
Name:
Title:
A-1
2019 Proxy Statement
13NOV201221352027
A-1
Appendix B
AbbVie Inc.
Reconciliation of GAAP Reported to Non-GAAP Adjusted Information
Year Ended December 31, 2018
(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)
2018
2017
2016
2015
2014
2013
$32,753
(20)
$28,216
—
$25,638
(78)
$22,859
(40)
$19,960
(81)
$18,790
—
2018-2013
CAGR
11.7%
$32,733
$28,216
$25,560
$22,819
$19,879
$18,790
11.7%
The 2018 specified revenue item represents a milestone payment received under a previously announced collaboration.
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
Earnings Per Share
Operating Margin
Expansion
As reported (GAAP)
Adjusted for specified items:
As adjusted (non-GAAP)
2018
2013
$3.66
4.25
$2.56
0.58
2018-2013
CAGR
2018
2013
2018-2013
Expansion
7.4% 19.5% 30.1% (1,060) bps
1,890 bps
25.1%
6.2%
$7.91
$3.14
20.3% 44.6% 36.3%
830 bps
3. Net Revenues Increase and HUMIRA Sales Growth over 2017
As reported (GAAP)
Adjusted for specified and other items:
Adjusted for foreign exchange:
As adjusted (non-GAAP)
Net Revenues HUMIRA Sales
16.1%
(0.1)%
(0.8)%
15.2%
8.2%
—%
(0.8)%
7.4%
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2019 Proxy Statement
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B-1
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
Calico collaboration
Stemcentrx-related impairment
Charitable contribution
Acquisition related costs
Shire transaction and termination costs
Change in fair value of contingent consideration
Litigation reserves
Intangible asset impairment
Venezuela devaluation loss
Revaluation due to Section 987 tax law change
Impacts related to tax law changes
Other
2018
2017
2016
2015
2014
2013
$ 3.66
$ 3.30
$3.63
$3.13
$1.10
$2.56
0.69
—
0.09
0.27
0.32
2.66
0.18
—
—
0.31
0.18
—
—
—
(0.49)
0.04
0.38
0.51
—
0.09
0.20
—
—
—
0.03
—
0.39
0.18
0.15
0.05
0.12
—
—
—
0.16
0.20
— 0.13
0.26
0.09
—
—
—
0.25
— 0.10
—
— 0.08
—
—
—
— 0.18
—
— 0.12
—
—
0.05
0.04
0.71
0.04
0.14
0.18
0.24
0.48
0.15
—
—
—
—
1.12
—
—
—
—
—
—
0.05
0.23
0.10
—
0.21
—
—
—
—
—
—
—
—
—
—
—
0.04
As adjusted (non-GAAP)
$ 7.91
$ 5.60
$4.82
$4.29
$3.32
$3.14
2018 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
$32,753
(20)
(444)
$32,289
$ 5,197
8,260
(156)
$13,301
$ 6,383
8,210
(150)
$14,443
$19,936
—
(265)
$19,671
The calculation of Adjusted Return on Assets reflects Adjusted Net Earnings and Adjusted Net Assets.
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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 3, 2019
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 3, 2019.
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 26, 2019. 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
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 also is listed on
the Chicago Stock Exchange.
Annual Meeting
The Annual Meeting will be held on
Friday, May 3, 2019, 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
EQ Shareowner Services
P.O. Box 64874
St Paul, MN 55164-0874
www.shareowneronline.com
877.881.5970
651.450.4064
About AbbVie
AbbVie is a global, research and
development-based biopharmaceutical
company committed to developing innovative
advanced therapies for some of the world’s
most complex and critical conditions. The
company’s mission is to use its expertise,
dedicated people and unique approach to
innovation to markedly improve treatments
across four primary therapeutic areas:
immunology, oncology, virology and
neuroscience. In more than 75 countries,
AbbVie employees are working every day to
advance health solutions for people around
the world. For more information about
AbbVie, please visit us at www.abbvie.com.
AbbVie's Commitment to
AbbVie’s commitment to corporate responsibility
Corporate Responsibility
We strive to make a remarkable impact on patients and drive sustainable growth by discovering and delivering a consistent
stream of innovative medicines that address serious health problems.
Creating real health improvement
is not only our mission, but also how we
stay competitive. To be a leading health
care innovator, we must attract, retain and
support a diverse workforce and invest in
their efforts to develop medicines that
bring value for patients.
We recognize that health is of fundamental
importance to all people. To participate
over the long term in the provision of health
care, we must earn and maintain the trust
of patients, health care providers,
regulators, policymakers, and the public.
For any business to be successful, it
must operate in strong, resilient and
growing markets. We have the opportunity
to use our unique resources to support
well-being, resilience and growth in our
current markets, and help lay the foundation
for broader economic development.
Commitment: Use our expertise to
improve health
Commitment: Steward our ethical and
sustainable business
Commitment: Support long-term
community strength
• Develop a diverse, inclusive workforce
• Maintain high standards of ethics, quality
• Advance public health and patient
• Make innovative medicines that offer
significant health benefit
and safety
well-being
• Protect human rights and workplace safety
• Support employee vitality
• Address the health needs of the
• Prioritize environmental sustainability
• Support community resilience and
underserved
long-term economic growth
2018 Highlights
Using our expertise to address the health needs of the underserved
39,945
pro-bono hours given by
AbbVie scientists to research
neglected diseases, malaria,
and tuberculosis
90
+
low- and middle-income countries
covered by a royalty-free license to
the Medicines Patent Pool for our
pan-genotypic HCV medicine
Developing a diverse and inclusive culture
47%
of management
positions are held
by women globally
31%
of our US workforce is made up
of historically underrepresented
populations
Supporting long-term community strength
Advancing
sustainability
and environmental
stewardship
20%
of our electricity was
purchased from renewable
sources in 2018
2018 was a significant year in our efforts to build long-term community strength. In addition to our ongoing support
for education and community programs, independent medical and patient education, and employee vitality and
volunteerism, in 2018 AbbVie made an additional $350 million in charitable contributions to support US non-profit
organizations making long-term impact on community strength.
For more details, please see back cover.
For more on our corporate responsibility efforts, visit abbvie.com/responsibility.
Printed on recycled paper
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2018 Annual Report
on Form 10-K
2019 Notice of Annual
Meeting & Proxy Statement
AbbVie
1 North Waukegan Road
North Chicago, IL 60064
U.S.A.
abbvie.com
Copyright© 2019 AbbVie.
All rights reserved.
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Laura J. Schumacher
Vice Chairman, External Affairs and Chief Legal Officer
We live a culture of giving back.
In 2018, we pledged an additional $350 million in charitable contributions to nonprofits based in the United States supporting
long-term community strength. We focused our contributions in three areas that align with our priorities, and on nonprofits
that are making a real impact in communities in need.
Helping families thrive
Supporting disaster relief
Strengthening K-12 education
• Ronald McDonald House Charities
will add 600 new guest sleeping rooms and
family-centered spaces in 32 locations
• Habitat for Humanity expects to directly
assist 13,000 hurricane-affected residents
in Puerto Rico
• Communities In Schools will increase
reach to 143 schools and serve 100,000
more at-risk kids
• St. Jude Children’s Research Hospital
will serve 8,500 patients each year in the
new Family Commons space and add 6.5
new acres of green space
• Family Reach will expand and accelerate
its programs and reach 25 new hospitals
in 23 states
• Direct Relief will support 60 community
• City Year will expand in Chicago to reach
health centers in Puerto Rico
schools that serve 18,000 students
• University of Chicago Education Lab
will generate evidence to guide policy in
Chicago and cities nationwide
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#AbbVieGivesBack