The investor's view
+6.0%
growth in revenue a year, FY2020 to FY2025
- Five fundamentals, each ranked against the Health Care companies covered
- A peer map of growth against margin
- Where the profit is made
Most of the margin jump is missing deal charges
Q3 FY2026, the quarter to Sep 30, 2026 · 10-Q filed Nov 3, 2026
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.1
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.1
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.1
AnalysisAnalysis: 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.
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.1
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.1
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.1
AnalysisAnalysis: 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.
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.1
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.1
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.1
AnalysisAnalysis: 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.
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Member research, then your own questions on ChatGPT.
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Business Lens describes AbbVie from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.