# How AbbVie makes money

CXProWealth Business Lens · AbbVie (ABBV) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-11-03 with the SEC (accession 0001551152-26-000037): https://www.sec.gov/Archives/edgar/data/1551152/000155115226000037/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $17.4B (+10.3% on the year)
- Operating income: $6.3B (operating margin 36.0%)
- Net income: $4.2B (net margin 24.2%)
- Gross margin: 75.4%
- Free cash flow: $7.3B (42.0% of revenue)
- Cash conversion (operating cash flow / net income): 1.80x
- Capital expenditure: 1.7% of revenue

## Where the money goes (Q3 FY2026)

- Net revenues → Total operating costs and expenses: $11.1B
- Total operating costs and expenses → Cost of products sold: $4.3B
- Total operating costs and expenses → Selling, general and administrative: $4.1B
- Total operating costs and expenses → Research and development: $2.6B
- Total operating costs and expenses → Acquired IPR&D and milestones: $216.0M
- Other operating income → Total operating costs and expenses: $18.0M
- Net revenues → Operating earnings: $6.3B
- Operating earnings → Interest expense, net: $700.0M
- Operating earnings → Other expense, net: $738.0M
- Operating earnings → Earnings before income tax expense: $4.8B
- Earnings before income tax expense → Income tax expense: $609.0M
- Earnings before income tax expense → Net earnings: $4.2B
- Net earnings → Net earnings attributable to noncontrolling interest: $2.0M
- Net earnings → Net earnings attributable to AbbVie Inc.: $4.2B

## Key insights

### Most of the margin jump is missing deal charges

Lower charges for bought-in programs explain two thirds of the margin gain, so a single large license could reverse much of it.

Operating margin rose 23.94 points to 36.0%. Acquired IPR&D and milestones fell to $216M from $2.68B, cutting its share of revenue by 15.75 points, about 66% of the gain. Cost of products sold fell to $4.29B from $5.3B, worth a further 9.0 points. Those two lines together freed more than the whole gain; selling costs took a little back, up 0.86 points of revenue. _(from the filing)_
The filing says the year-earlier quarter carried upfront charges for the Capstan Therapeutics acquisition and a license from Ichnos Glenmark Innovation, and that cost of products sold then included impairment charges on the Resonic device and Durysta. This quarter it also credits lower amortization of intangible assets. The Apogee purchase, completed in September, was accounted for as a business combination, so its price sits on the balance sheet rather than in Acquired IPR&D. _(from the filing)_
A year earlier, deal charges of $2.68B were larger than that quarter's entire operating earnings of $1.9B. This quarter they were $216M against operating earnings of $6.27B. _(from the filing)_
Analysis: the underlying business improved as well, with revenue up 10.3% and research spending rising in step. But the size of this quarter's margin rests on a light deal calendar. Upfront charges land in a single quarter, so a large license could pull the margin back with no change in sales. _(analysis)_

### Free cash dwarfs reported profit, year after year

Non-cash charges from past acquisitions hold net income down; the dividend, the debt and new deals run on the cash.

In 2025 free cash flow was $17.82B against net income of $4.23B, 4.2 times. In 2024 it was $17.83B against $4.28B, also 4.2 times, and in 2023 the gap was wider still, $22.06B against $4.86B. Capital spending stays small: $1.21B in 2025 against revenue of $61.16B. _(from the filing)_
The gap is mostly accounting. The filing books amortization of acquired product rights inside cost of products sold, which is how free cash flow of $17.82B in 2025 could exceed operating income of $15.08B. Below operating income, the remeasurement of earn-outs owed to sellers runs through other expense each quarter. Neither charge uses cash when it is booked, though the earn-outs are paid in cash later as products succeed. _(from the filing)_
This quarter free cash flow was $7.3B against net earnings of $4.22B, and operating cash flow was $7.61B, 1.8 times. Quarters swing: in the second quarter of 2026 free cash flow of $3.11B was below net income of $3.61B. _(from the filing)_
Analysis: for a company built by acquisition, net income is a weak gauge of what it can pay out. The more useful test is whether free cash flow covers the dividend, the added debt and the next deal together, read across a full year rather than one quarter. _(analysis)_

### Deal charges cost twice: in expenses and in tax

The filing ties last year's high tax rate to deals and earn-outs, so net earnings swung far more than operating earnings.

A year earlier, income tax of $526M on pretax earnings of $714M was a rate of 73.7%. This quarter, $609M on $4.83B is 12.6%. The filing attributes the decrease primarily to "the decreased impact of business development activities and changes in fair value of contingent consideration", partly offset by changes in the impact of foreign operations. _(from the filing)_
So the two profit lines moved apart. Operating earnings rose to $6.27B from $1.9B, up 229%. Net earnings rose to $4.22B from $188M, more than twentyfold. Diluted earnings per share went to $2.37 from $0.10 on an unchanged share count of 1.77B. _(from the filing)_
Other expense still rose, to $738M from $523M, mostly earn-out remeasurement, which the filing says reflected "higher estimated Skyrizi sales and the passage of time, partially offset by higher discount rates". Interest expense, net was $700M, 11.2% of operating earnings. _(from the filing)_
Analysis: on the filing's own explanation, a large upfront charge costs this company more than its face value in reported profit, because such activity also lifts the tax rate. Net margin therefore tends to move more than operating margin when the deal calendar changes. This reads the filing, not a tax forecast. _(analysis)_

## For members

Signed-in members read, on the page: the investor's and the founder's views of AbbVie (its fundamentals against its peers, where the profit is made, how the model works, where every $100 of revenue goes against the industry, the path to scale), its performance over time with every line as filed, and the edge and the risks. Membership is free.

## Member research

Signed-in members read, on the page: what AbbVie's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- AbbVie 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/1551152/000155115226000037/ (2026-11-03)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-03 · as of 2026-11-03