AbbVie 2013 Annual Report Download - page 23

Laws and regulations affecting government benefit programs could impose new obligations on AbbVie, require
it to change its business practices, and restrict its operations in the future.
The health care industry is subject to various federal, state, and international laws and regulations
pertaining to government benefit programs reimbursement, rebates, price reporting and regulation, and
health care fraud and abuse. In the United States, these laws include anti-kickback and false claims
laws, the Medicaid Rebate Statute, the Veterans Health Care Act, and individual state laws relating to
pricing and sales and marketing practices. Violations of these laws may be punishable by criminal
and/or civil sanctions, including, in some instances, substantial fines, imprisonment, and exclusion from
participation in federal and state health care programs, including Medicare, Medicaid, and Veterans
Administration health programs. These laws and regulations are broad in scope and they are subject to
change and evolving interpretations, which could require AbbVie to incur substantial costs associated
with compliance or to alter one or more of its sales or marketing practices. In addition, violations of
these laws, or allegations of such violations, could disrupt AbbVie’s business and result in a material
adverse effect on its business and results of operations.
AbbVie could be subject to increased monetary penalties and/or other sanctions, including exclusion from
federal health care programs, if it fails to comply with the terms of the May 7, 2012 resolution of the
Department of Justice’s investigation into sales and marketing activities for Depakote.
On May 7, 2012, Abbott settled United States federal and 49 state investigations into its sales and
marketing activities for Depakote by pleading guilty to a misdemeanor violation of the Food Drug &
Cosmetic Act (FDCA) and agreeing to pay approximately $700 million in criminal fines and forfeitures
and approximately $900 million to resolve civil claims. Under the plea agreement, Abbott submitted to
a term of probation that was initially set at 5 years, but was shortened to 3 years upon the separation
of Abbott and AbbVie. The obligations of the plea agreement have transferred to and become fully
binding on AbbVie. The conditions of probation include certain reporting requirements, maintenance
of certain compliance measures, certifications of AbbVie’s CEO and board of directors, and other
conditions. If AbbVie violates the terms of its probation, it may face additional monetary sanctions and
other such remedies as the court deems appropriate. On October 2, 2012, the court accepted the guilty
plea and imposed the agreed-upon sentence.
In addition, Abbott entered into a five-year Corporate Integrity Agreement (CIA) with the Office
of Inspector General for the United States Department of Health and Human Services (OIG). The
effective date of the CIA is October 11, 2012. The obligations of the CIA have transferred to and
become fully binding on AbbVie. The CIA requires enhancements to AbbVie’s compliance program,
fulfillment of reporting and monitoring obligations, management certifications, and resolutions from
AbbVie’s board of directors, among other requirements. Compliance with the requirements of the
settlement will impose additional costs and burdens on AbbVie, including in the form of employee
training, third party reviews, compliance monitoring, reporting obligations, and management attention.
If AbbVie fails to comply with the CIA, the OIG may impose monetary penalties or exclude AbbVie
from federal health care programs, including Medicare and Medicaid. AbbVie and Abbott may be
subject to third party claims and shareholder lawsuits in connection with the settlement, and AbbVie
may be required to indemnify all or a portion of Abbott’s costs.
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. Sales outside of the United States make up approximately 46 percent of AbbVie’s
net sales. The risks associated with its operations outside the United States include:
• fluctuations in currency exchange rates;
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