Abbvie Inc (ABBV) — Q1 2019 Earnings Call Transcript

Good morning and thanks for joining us. Also, on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Michael Severino, Vice Chairman and President; Bill Chase, Executive Vice President of Finance and Administration; and Rob Michael, Senior Vice President and Chief Financial Officer. Before we get started, I would like to remind you that some statements we make today are or may be considered forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Additional information about the factors that may affect AbbVie's operations is included in our 2018 annual report on Form 10-K and in our other SEC filings. AbbVie undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments except as required by law. On today's conference call as in the past, non-GAAP financial measures will be used to help investors understand AbbVie's ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions. So, with that, I'll now turn the call over to Rick.

Thank you, Liz. Good morning, everyone, and thank you for joining us today. I'll discuss our first quarter performance and highlights, as well as our full year guidance, which we are raising this quarter. Mike will then provide an update on recent advancements across our R&D programs and Rob will discuss the quarter in more detail. Following our remarks, we will take your questions. I'm pleased to report that we're off to an excellent start in 2019, reinforcing our confidence in the long-term fundamentals of our business. We are seeing strong momentum across all aspects of our operations, with excellent growth from our hematological oncology portfolio, continued robust growth from HUMIRA in the US, and international biosimilar impacts trending within our expectations for 2019. And importantly, our late-stage pipeline continues to deliver, with the recent approval of SKYRIZI in major markets globally. We delivered first-quarter adjusted earnings per share of $2.14, representing growth of more than 14% versus the prior year, and once again exceeding our guidance. Total revenues of more than $7.8 billion were also ahead of expectations for the quarter, with several key products contributing to that growth. We saw excellent performance from our hematological oncology business, with global operational sales growth of more than 43%. US HUMIRA grew more than 7% versus last year, driven by continued robust demand. International HUMIRA sales were down 23% on an operational basis, reflecting the impact of direct biosimilar competition in Europe and other international markets. The international biosimilar trends and dynamics have been consistent with our expectations. We also saw substantial contributions from several other products in our portfolio, including Mavyret, Creon, and Duodopa. We're certainly pleased with our commercial performance and our financial results for the quarter, and we remain well-positioned to deliver double-digit earnings growth once again in 2019. As noted in our earnings release, we are raising our full-year 2019 guidance and now expect adjusted earnings between $8.73 and $8.83, reflecting growth of 11% at the midpoint. In addition to the strong financial results, we have continued to make significant progress, building a pipeline that will allow us to maintain a growing and vibrant business. Since our inception, we've put tremendous effort and resources toward developing new therapies that advance the standard of care across a spectrum of important disease states. With special emphasis on doing so in a broad range of immune-mediated diseases, our central focus has been on advancing new medicines that will raise the bar and address important therapeutic needs for patients. We believe that risankizumab and upadacitinib have achieved the objectives that we set forth. Both of these therapies have demonstrated differentiated clinical profiles versus HUMIRA, as well as other mechanisms on the market or those in development. This profile coupled with our strong commercial execution gives us tremendous confidence that both will be the new standard of care in their respective indications. We recently announced the approval of risankizumab, now known as SKYRIZI, in the US and Japan for the treatment of adult patients with moderate to severe plaque psoriasis. These approvals mark a major milestone for AbbVie and further demonstrate our commitment and leadership in immunology. We're certainly pleased with the approved label for SKYRIZI, which reflects its best-in-category efficacy, favorable benefit-risk, and quarterly dosing. As you know, we also have a highly experienced team, including the leading immunology marketing team and sales force, which will support this launch. Given its compelling product profile, we expect to secure rapid and broad formulary coverage for SKYRIZI, with more than 50% commercial access by the end of July, a 90-day access metric not achieved by any other recent launch in the psoriasis category. SKYRIZI represents a significant long-term opportunity for AbbVie, with multi-billion dollar peak sales potential. We have also been planning and preparing for the forthcoming regulatory approval and commercial launch of upadacitinib, our JAK1-selective inhibitor in rheumatoid arthritis. We've been extremely encouraged by the level of efficacy and benefit-risk profile observed across the entire upadacitinib clinical program, including its clear superiority versus HUMIRA, the current gold standard for the treatment of RA. Based on the data generated across our program, we believe upadacitinib will offer meaningful advantages over other products on the market today for those in development, and we remain on track for a US regulatory decision in the third quarter. With a robust and differentiated data we produced from our assets and the launch of several new products now underway, we remain confident that the strategy we have in place is working extremely well. We're excited to see the evolution of our pipeline assets from promising late-stage development compounds to successful on-market products. SKYRIZI marks the 12th new product or major indication approval for AbbVie in the last five years, demonstrating the productivity of our R&D investments, which is vital for the long-term success of any innovation-driven biopharmaceutical company like ours. So, in summary, I'm extremely pleased with the strong execution and pipeline advancement we're seeing, leading to our increase in expectations for 2019. We are off to an exceptional start of the year, followed by several years of market-leading performance, and we're well-positioned to continue to deliver top-tier financial performance in 2019 and beyond. With that, I will turn the call over to Mike for additional comments on our R&D programs.

Thank you, Rick. I'll start with immunology, where, as Rick noted, we've made significant progress with both of our late-stage assets. We recently received approval in the US and Japan for SKYRIZI in moderate to severe plaque psoriasis and expect an approval decision in Europe very soon, based on the positive CHMP opinion we received at the end of February. These approvals are supported by a broad clinical development program, where SKYRIZI demonstrated a very strong profile in Phase 3 studies across more than 2,000 patients. We are pleased with the SKYRIZI label, which reflects the efficacy and safety profile demonstrated across our program. As we evaluate the available biologic treatment options, we believe SKYRIZI has a best-in-disease product profile, with differentiated attributes across the categories that physicians and patients find most important, including skin clearance, durability of response, and dosing, with a favorable benefit-risk profile. In our Phase 3 studies, SKYRIZI demonstrated very high rates of durable skin clearance, with more than 80% of patients achieving PASI 90 and 60% of patients achieving PASI 100 or complete skin clearance at one year. Importantly, the proportion of SKYRIZI-treated patients who achieve these high levels of response increased over time. In fact, the level of complete skin clearance at the one-year mark is the highest reported in a Phase 3 program to our knowledge. In psoriasis, both speed and durability of response are important considerations for optimal therapy, as loss of efficacy is a key concern for both patients and physicians. Our clinical trials demonstrated clearance after just a single dose of SKYRIZI, as measured by the mean change in PASI score. The average skin clearance following the first dose was 58%, increasing to 91% after two doses and 95% after five doses. SKYRIZI also provides a best-in-category dosing profile, with convenient quarterly dosing and flexibility for in-office or home self-administration. We look forward to bringing this new treatment option to psoriasis patients. We also continue to make good progress with the development programs for SKYRIZI in several other immune-mediated conditions, with late-stage studies ongoing in several follow-on indications. We look forward to providing updates on these programs as the data mature. Moving now to our other late-stage immunology asset, upadacitinib, where regulatory applications are currently under review for its initial indication, rheumatoid arthritis. Our regulatory submissions are based on a comprehensive Phase 3 program. In our program, upadacitinib demonstrated strong results across a wide range of patients, including patients early in the treatment paradigm, who are naive to methotrexate, as well as patients who are heavily pre-treated with biologics. Upadacitinib is the only JAK1-selective inhibitor to meet all primary and secondary endpoints across all registrational trials. Importantly, upadacitinib demonstrated clear superiority versus HUMIRA across all key measures evaluated in a head-to-head study, as well as clear structural benefit in two Phase 3 studies. Upadacitinib also performed extremely well as monotherapy, which we view as another important differentiator because although methotrexate is commonly used as a first-line therapy, many patients do not respond to or cannot tolerate methotrexate treatment. Based on the data generated across our clinical program, we remain confident in the benefit-risk profile for upadacitinib and believe that it will offer meaningful advantages over other therapeutic options. We continue to anticipate a regulatory decision in the third quarter and look forward to bringing this new therapy to the market. Moving now to our hematologic oncology portfolio. In the quarter, IMBRUVICA received FDA approval for its 10th indication for use in combination with GAZYVA in front-line CLL. This represents the first approval for a chemotherapy-free combination regimen in treatment-naive patients with CLL. The approval is based on results from the Phase 3 iLLUMINATE study, in which treatment with the combination of IMBRUVICA and GAZYVA demonstrated a significant improvement in the risk of progression or death compared to treatment with Chlorambucil and GAZYVA. The iLLUMINATE trial is one of several important Phase 3 studies that have demonstrated treatment with IMBRUVICA alone or in combination significantly prolongs progression-free survival compared to therapies such as FCR, BR, and GC in previously untreated CLL patients. These studies add to the breadth of data supporting IMBRUVICA, providing physicians more evidence of its compelling clinical benefits in the front-line setting. The data from three of these studies have been reflected in the NCCN Treatment Guidelines for front-line CLL, which now position IMBRUVICA as the only preferred regimen in the major segments of this market. We anticipate submitting data from other Phase 3 studies in front-line CLL for label augmentation later this year or early next year. Moving now to VENCLEXTA, where our supplemental NDA in front-line CLL is currently being reviewed by the FDA under its real-time oncology review program. In conjunction with this submission, VENCLEXTA received priority review, as well as a fifth breakthrough therapy designation. If granted, this approval will provide physicians and patients an important new treatment option and substantially expand the addressable population for which VENCLEXTA is approved in CLL. We anticipate a regulatory decision later this year. Last month, we disclosed top-line data from the Phase 3 Bellini study in patients with relapsed-refractory multiple myeloma. While the study met the primary endpoint of progression-free survival, a higher proportion of deaths was observed in the VENCLEXTA arm compared to the control arm. Based on these data, the FDA placed a partial clinical hold on all trials evaluating VENCLEXTA in multiple myeloma. We're working with the FDA to further analyze these results. But based on the data we have produced to date, we continue to believe there is a potential role for VENCLEXTA in the biomarker-defined myeloma population. We will provide updates on the multiple myeloma program as they become available. Moving now to the area of women's health, where we're nearing completion of our pivotal program for Elagolix in uterine fibroids. Our registrational program evaluated nearly 800 women with heavy menstrual bleeding associated with uterine fibroids in two pivotal studies. The results of the two pivotal studies demonstrated that Elagolix in combination with low-dose hormone add-back therapy significantly reduced heavy menstrual bleeding compared to placebo. Current non-surgical treatments are limited in this area, and women suffering from uterine fibroids need more therapeutic options. The results from these studies represent a significant advancement for women suffering from uterine fibroids, and approval in this disease would represent an attractive follow-on indication. We remain on track to submit our regulatory application in the middle of this year. And in neuroscience, we are in the process of initiating a Phase 3 trial to support registration of ABBV 951, our innovative subcutaneous levodopa/carbidopa delivery system. Continuous delivery of levodopa/carbidopa has proven to be very effective in managing motor fluctuations in patients with advanced Parkinson's disease. Duopa has helped to establish AbbVie's presence in this market, and by providing patients with a less invasive non-surgical delivery option, this next-generation approach has the potential to broaden the treated patient population and help strengthen AbbVie's position in the advanced PD market. In summary, we're extremely pleased with the productivity of our R&D organization as we continue to invest in our pipeline to develop innovative medicines and support our long-term growth. We're seeing progress across all stages and in all therapeutic areas of our pipeline, with many important catalysts expected over the next 12 months to 18 months. With that, I'll turn the call over to Rob for additional comments on our first-quarter performance.

Thanks, Mike. As Rick mentioned, we had another quarter of outstanding performance. We reported adjusted earnings per share of $2.14, up more than 14% compared to the prior year and $0.08 above our guidance midpoint. For the first quarter, net revenues were up 0.4% on an operational basis, excluding a 1.7% unfavorable impact from foreign exchange. Strong growth from several key products offset the impact of the first full quarter of international biosimilar competition. US HUMIRA sales were $3.2 billion, up 7.1% compared to the prior year, driven by continued strong demand. Wholesaler inventory levels remained below half a month in the quarter. International HUMIRA sales were $1.2 billion, down 23% operationally, reflecting biosimilar competition across Europe and other international markets, and in line with our expectations. Hematologic oncology global sales were $1.2 billion, up 43.2% on an operational basis, driven by continued strong growth of both IMBRUVICA and VENCLEXTA. IMBRUVICA global net revenues were more than $1 billion, primarily driven by continuous uptake in the front-line CLL segment. In CLL, IMBRUVICA remains the market leader across all lines of therapy, with new patient share of more than 25% in the front-line setting. VENCLEXTA revenues were $151 million, driven by continued progress in the broad relapsed refractory CLL segment and our recent launch in first-line AML. We continue to be pleased with our strong global position in HCV. In the US, HCV revenues were up more than 17%, reflecting higher market share versus the prior year quarter. Our International business has also experienced positive share dynamics. But given patient de-warehousing in select markets during the prior year quarter, International HCV revenue declined approximately 25% on an operational basis, consistent with our expectations. We also saw continued strong operational sales growth for both Duodopa and Creon. Turning now to the P&L profile for the first quarter. Adjusted gross margin was 83.3% of sales, up 310 basis points compared to the prior year, including a 280-basis-point benefit related to the expiration of HUMIRA royalties. Adjusted R&D investment was 15.3% of sales, supporting our pipeline programs in oncology, immunology, and other areas. Adjusted SG&A was 20% of sales, consistent with our expectations. The adjusted operating margin was 48.1% of sales, an improvement of 400 basis points versus the prior year. Net interest expense was $325 million, and the adjusted tax rate was 7.9%. As mentioned earlier, based on our strong performance year-to-date, we are raising our full-year adjusted earnings per share guidance to between $8.73 to $8.83, reflecting growth of 11% at the midpoint. Excluded from this guidance is $1.47 of known intangible amortization and specified items, as well as a non-cash charge for contingent consideration related to the recent approval of SKYRIZI. We plan to communicate details about this charge on our second-quarter earnings call. This revised guidance continues to contemplate full-year revenue growth of approximately 1% on an operational basis. At current rates, we now expect foreign exchange to have approximately 1% unfavorable impact on full-year reported sales growth. As Rick and Mike noted, we're pleased with the recent approval of SKYRIZI. Given the quarterly dosing schedule and our free goods program to bridge patients to commercial access, we expect a very modest sales contribution from SKYRIZI in the second quarter. For the full year, our revenue guidance includes approximately $150 million of SKYRIZI sales, which will predominantly occur in the second half of the year. All other full-year 2019 forecast assumptions for our key products remain unchanged. Turning now to the P&L for 2019. We now expect an adjusted gross margin ratio approaching 83%, and we now expect the adjusted operating margin to be just above 47%, roughly 250 basis points above the prior year and inclusive of the required investments for our new product launches. All other full-year 2019 guidance assumptions remain unchanged. As we look ahead to the second quarter, we expect adjusted earnings per share between $2.20 and $2.22, excluding approximately $0.30 of non-cash amortization and other specified items. As mentioned earlier, this guidance excludes a non-cash charge for contingent consideration related to the approval of SKYRIZI. We anticipate second-quarter adjusted revenue above $8.1 billion. At current rates, we would expect foreign exchange to have an unfavorable impact on reported sales growth of approximately 1.5%. For US HUMIRA, we expect sales growth of approximately 7%. We expect International HUMIRA sales of approximately $1 billion, assuming current exchange rates. And for IMBRUVICA, we expect global sales approaching $1.1 billion. Moving now to the P&L for the second quarter. We are forecasting an adjusted operating margin ratio comparable to first-quarter results. We anticipate higher spending in the second half of the year related to new product launches. And we expect the adjusted tax rate to be in line with our full-year guidance, which is just above our 2018 rate. In summary, AbbVie has once again delivered an excellent quarter, with results well ahead of our expectations. Our strong growth prospects have enabled us to position the business for another year of double-digit earnings growth in 2019, despite biosimilar dynamics and the required investments to support several major product launches. We are very pleased with AbbVie's strong performance. And with that, I'll turn the call back over to Liz.

Thanks, Rob. We will now open the call for questions. Operator, first question please.

Thank you. I have a few questions. First, raising guidance after the first quarter is clearly a sign of confidence in the outlook. I believe AbbVie raised after Q1 last year on its way to a great full-year performance. How many times in its history has AbbVie raised guidance after the first quarter? Secondly, on the gross profit margin. Was quite strong. You mentioned the royalty relief. Were there any other one-time benefits in the quarter? And then, lastly, AbbVie has an exciting late-stage pipeline but also an expansive early to mid-stage pipeline. Within the early to mid-stage pipeline, what products look most interesting and promising? Thank you.

Hi, Steve. This is Rick. I'll take the first question. I mean, obviously, we feel good about how the year started, and I said we've started with a tremendous amount of momentum. Certainly, as we look at the performance of the hematological oncology business and US HUMIRA, and many other products are performing extremely well. And so, that's certainly driving the level of confidence that we're seeing. As well as, we've now seen a substantial period of time that I think we can measure the impact of biosimilar competition outside the US and feel good about how that is tracking against our expectations. Specific to your question, we raised guidance three times in the first quarter, and we've raised guidance, I think, 13 out of the 25 quarters that we've reported. And certainly, we do not raise guidance in the first quarter unless you had a level of confidence that you could deliver that or greater performance across the year. That would just be a foolish position to take. So in both of the prior years where we raised in the first quarter, those ended up being years where we outperformed significantly. So I think it is a good indication of the level of confidence that management has in the business, whether it be our business or any other business, I think demonstrates a level of confidence, otherwise, we wouldn't choose to do that. And certainly, I am extremely pleased with how we've come out of the blocks in 2019, and I'm pleased with how the pipeline has continued to deliver, and obviously, we'll be launching two major products this year, SKYRIZI and ultimately we anticipate being able to launch upadacitinib this year in addition to the products we've already launched recently and are driving a tremendous amount of growth. So I have a lot of confidence in how the business can perform. With that, I will turn it over to Rob to answer your second question.

Hi, Steve. It's Rob. So we feel very good about our progress in gross margin. We just printed a new high. The lion's share of improvement you're seeing comes from the termination of HUMIRA royalties. We do have efficiencies in foreign exchange helping cover the impact of partnership accounting. But as you can see from our full-year guidance, we feel very good about the progress we've made in gross margin. So I wouldn't anticipate a lot of one-time impacts.

Mike, why don't you answer that?

Sure. So, this is Mike. We have obviously invested considerably in our late-stage pipeline. But we've also paid a large amount of attention and invested to make sure that we have a broad and promising early to mid-stage pipeline as well. So I'd highlight programs from a couple of areas. Although, it's a late-stage program, I think, it's one that doesn't get a lot of attention, and so, I think, it's worth mentioning, which is Depatux-M, which used to be known as ABT-414, which is our EGFR targeted ADC in EGFR-amplified glioblastoma multiforme. That has delivered very interesting mid-stage data in the second-line patients with GBM and is in a randomized Phase 3 study with overall survival as a primary endpoint now in front-line GBM. So, I think that is potentially a very interesting opportunity, because there really are very limited treatment options available for these patients. And so that's one that I think we can keep an eye on. Turning to our early pipeline. I would highlight in oncology. Our work in apoptosis, which is really an extension of what we learned discovering and developing venetoclax or BCL-2 inhibitor. We have a Phase 2 study ongoing now with the different molecule with the venetoclax, which inhibits both BCL-2 and BCL-XL, and that combination inhibition, that pattern of inhibition has potential in myelofibrosis, and can specifically address the clone that drives that very serious hematologic disorder. There are really only one pathway currently that treat that disease. The current standard-of-care is Jakafi. In our Phase 2 study, we're looking at patients who failed or didn't respond to Jakafi. We're looking at a pretty resistant population and even early on, we're seeing some very interesting responses. And I think there's also real potential that we could address the underlying pathophysiology and therefore be disease-modifying in the bone marrow fibrosis. So that study is accruing by the end of this year, early next year, we will be in a position to make a decision to advance that program into later stage development. We also have a number of other programs that are just a little bit behind that one in apoptosis. Programs like our TRAIL program, which is an apoptosis-related program that has promising solid tumors including things like colorectal cancer and pancreatic cancer, and we're seeing some very interesting responses in good PK-PD relationship in our early studies there. And we have a BC-XL targeted delivery for solid tumors also that add about the same stage of development. If we shift to immuno-oncology, we've done a lot of work to advance our pipeline there. And one of the most novel programs in that area is a program called GARP, which is now ABBV-151. That modulates TGF-beta and T-reg function, which is thought to mediate the tumor immunosuppressive environment. So that's a program I think has a lot of solid science behind it is now in the clinic and we have a number of other novel IO programs in the clinic as well. If we now shift our focus to immunology, a couple of things I would point to our TNF steroid ADC that has a promise to deliver very high levels of response to patients because we know that steroids are highly effective at managing the symptoms of RA and other immunological mediated diseases, but they cannot be given at high doses for long periods of time. So this program attempts to deliver a novel steroid directly to the immune effector cells in RA without systemic consequences or systemic adverse effects. What we know from the early studies is we are able to dose this molecule in the range where we would expect to see efficacy without seeing those widespread steroid-like effects, and we're now moving into a randomized study that will give proof-of-concept and should read out next year. We've invested in other programs in immunology as well, like our CD40 antagonist and our jack BTK combination program. So a lot of data to come there. The last area I focus on is neuroscience. People are familiar with our TAL antibody, which is in Phase 2, but we've built a broad pipeline behind that and our two neuroinflammation assets that we're developing in partnership with Alector are now in the clinic, and so those are some very interesting programs. So there's a lot of data to come over the next 12 months to 18 months.

Thank you.

Thanks, Steve. Operator, next question please.

Great. Thanks very much for the questions. My first one was on SKYRIZI and just how we're thinking about that launch ramp. I guess, historically, we've seen some of the newer psoriasis agents having relatively gradual ramps and then maybe a few years to really gain momentum. I guess, is that fair to think about in this situation, or when we think about the higher payer access you cited in the commercial infrastructure you have, should we think about all the different dynamics here? And your second question, just kind of building on that is, how are you thinking about HUMIRA dynamics in dermatology with this launch and with a range of new agents coming in. I know that business remained fairly healthy, but should we think about the growth slowing in that indication over time? And maybe the final one was just on business development priorities, just latest thoughts on how you're thinking about business development, and I guess, specifically, how you're prioritizing revenue growth potential versus diversification as you think about potential deals that you'd be looking at? Thanks so much.

Hi, Chris. This is Rick. If you examine SKYRIZI and its growth trajectory compared to past launches, one of the challenges historically has been achieving broad market access in a timely manner. Access is crucial for a successful launch, and companies often provide free goods temporarily until they secure access. However, no one has achieved access like we anticipate here. Thus, we expect this access to enhance SKYRIZI's growth. It will take a few months to reach the level of access we're discussing, so don’t expect significant revenue from SKYRIZI this quarter, as we will heavily rely on free goods during this time. Access should improve significantly by the end of the quarter and into the next one, leading to a more pronounced ramp-up, especially since it takes time for physicians to become comfortable with new treatments. I believe SKYRIZI will ramp up more effectively than previous products. Regarding HUMIRA, consider SKYRIZI's profile in the treatment landscape. It offers exceptional PASI 90 and PASI 100 scores and has a favorable benefit-risk profile. This will create confidence in its safety, and patients will only need to inject it quarterly, which is a significant convenience. Given these advantages, it makes sense to position it as a front-line treatment. We will promote it as suitable for naive patients and for those switching from less effective therapies. HUMIRA will continue to serve a large number of well-maintained patients, and it's not advisable to switch those who are stable. Nevertheless, I expect HUMIRA's growth in the psoriasis market to slow as SKYRIZI gains traction. Now, on the topic of business development, our business remains robust. We've launched a considerable number of products in recent years, and this has led to balanced growth across IMBRUVICA, HUMIRA, Mavyret, and to a lesser extent, VENCLEXTA. This diversification is evident, and we’re continuing to launch more assets, including SKYRIZI and upadacitinib, which will further diversify our portfolio over time. Our business generates significant cash flow, and our primary focus is to reinvest that back into the business. We evaluate all types of transactions—small, medium, and large—based on whether they strategically enhance our long-term performance and offer a satisfactory return on investment. When we identify such opportunities, we take action, and we have the financial capacity to do so. This approach remains consistent with our historical perspective on business development.

Thank you.

Thanks, Chris. Operator, next question please.

Hi. Good morning. Thanks for taking my questions. I guess just first one on the EU HUMIRA guidance. I think the 2Q guidance was for $1 billion, which is about 40% down. So I was just wondering if you could help square that for us in terms of the 30% erosion for the full year. And then also help us reconcile, I think Biogen yesterday mentioned that there's about 35% biosimilar share in Europe. So just trying to put these data points together, it would seem like, perhaps, the erosion profile might be a little bit worse in Europe than you would than the last guidance. So if you can provide a little clarity there that would be helpful? And then, I guess, just second question, just on the ORILISSA launch. Can you just give us a little color how this is progressing? Is it progressing according to plan? Are there some early challenges that may be a little greater than initially anticipated? That would be helpful as well. Thanks.

Okay, Jason, this is Rick. I'll address your questions. Firstly, regarding the erosion we mentioned, it was reported at 30% against the total international base. Within the segment focused on biosimilars, the erosion was around 40% to 44%. This aligns with what we discussed earlier, and I can confirm that our guidance remains unchanged and we feel confident about it as things develop. Specifically about Biogen, they indicated that the share was in Germany, which falls in line with their statements. I don't recall the exact figure they cited, but I do know Germany has a quota system whereby 40% of prescriptions written by doctors should be for biosimilar products, and they're close to achieving that target. This is expected. When looking across Europe as a whole, the share of biosimilars currently sits at about 16% for the first quarter, and we anticipate an increase throughout the year, which aligns with our planning. We expect rising share and additional price erosion as we move towards the fourth quarter, and our forecast reflects that. Biogen and Amgen have been the most proactive in the market so far, and based on Biogen's reports, I have no reason to doubt their accuracy regarding shares in Germany. We're gaining more experience and feel comfortable with the performance of biosimilars. Regarding ORILISSA, the launch is proceeding as we anticipated. We've invested significant effort into educating physicians, as this is a population that hasn't had new medications in this area, although they already prescribe similar treatment options. The reception from physicians has been very positive, and the feedback from patients has been encouraging, with many experiencing rapid pain relief even at the 150-milligram dose. This is a good sign, and patients also appreciate the drug's profile. We initiated our direct-to-consumer campaign a few months ago, which is a vital part of this launch. It’s crucial to recognize that our target patients are generally younger women who don't visit their doctors frequently; usually, it's once a year. Engaging them and informing them about available therapy is a significant aspect of building this market. The launch is performing well against our expectations. The drug currently has a running rate of about $60 million and is growing, which aligns with our forecasts. Long-term, we still expect this product will be substantial for us, although its growth may be slower compared to other products like HCV that experienced rapid ramps.

Got it. Thank you.

Thanks, Jason. Operator, we'll take the next question please.

Hi. Thanks for taking my questions. I have a question for Bill and another for Rick. Bill, with the increase to your operating margin guidance to 47% for 2019, how confident are you in your 2020 operating margin guidance of 50%? What is driving that 300 basis points increase? Now for Rick, the Pharma Group has faced significant pressure over the last few weeks, mostly tied to concerns about Medicare for all, along with the IPI and rebate rule. There are many proposals and discussions ongoing. Rick, can you help us understand the practical hurdles beyond the political ones related to broader reform like Medicare for all? Regarding the rebate rule, what are your expectations for next year if implemented? How will that affect AbbVie's ability to navigate a marketplace that has been significantly influenced by how payers position products? Thank you.

Hi, Navin. This is Rob. So we're in the process of developing our LRP right now. So I'm not going to give you 2020 guidance. But let me tell you how to think about it. If you think about the 2019 profile, we're up about 250 basis points, despite the investment for new product launches and flat sales. In 2020, you should see increased P&L leverage as those new products ramp and the overall top-line grows. So that's the way I would model it.

There is an ongoing significant debate regarding healthcare and medicine affordability. Ultimately, it revolves around ensuring that patients can access necessary medicines at prices that are affordable and justified by their pharmacoeconomics. It is hoped that this debate will be addressed, and it likely will. When considering patients' access to medicine, it is crucial to understand the challenges involved. As an example, our extensive patient assistance program supports individuals earning up to 600% of the federal poverty level, around $150,000 a year for a family of four. This program enables patients who cannot afford their medicines to obtain them, in some cases at no cost. We provide considerable amounts of medication to those in need, covering both commercially insured and uninsured patients, ensuring that no one in that category lacks access to AbbVie medicine due to financial constraints. However, there may be instances where people are unaware of these resources. We are investigating this and might initiate awareness campaigns to inform patients about how to access the program. We monitor the number of patients who don't qualify based on their income and continuously review the eligibility criteria to cover as many patients as possible. Thus, those patients should generally find adequate support. For commercially insured patients, the industry also offers substantial co-pay assistance, so that should not pose any difficulties. The main challenge lies in Medicare Part D, where out-of-pocket costs are significantly higher, especially for specialty medicines. A Medicare Part D patient, compared to other types of insured patients, faces out-of-pocket expenses for medications like HUMIRA that are over 50 times greater. This represents a considerable financial strain for these patients. We believe it is the industry's duty to help alleviate some of this burden alongside the government to make medicines more affordable for patients on Medicare. Addressing access to these medicines for this group is our focus. In terms of the costs associated with the Medicare Part D plan, it has been competitive, with insurers and pharmacy benefit managers negotiating effectively, leading to substantial rebates and discounts in the program. However, there is an ongoing debate about the allocation of these rebates — whether they should reduce drug costs directly or lower premiums. Regarding the proposed rebate rule, we support allowing manufacturers to apply discounts at the point of sale so that patients pay based on the rebated price rather than the list price. We believe this is fair. Regardless of whether the rebate rule passes in its current form or sees modifications, we have analyzed its potential impact and determined it won't significantly change how we operate, as rebates and discounts ultimately serve the same purpose. A potential concern with Medicare for All is that switching from other programs to Medicare could lead to significantly higher out-of-pocket expenses for patients. This change might not be well-received, making it a noteworthy challenge that needs resolving to ensure patients have affordable access to their needed medications. Moreover, drugs like HUMIRA require that patients first try less expensive options before obtaining approval, indicating a very low risk of misuse. This context is important as we engage in these discussions regarding access and affordability.

Thanks, Navin. Operator, we'll take the next question please.

Thank you for addressing my questions. I would like to clarify some points regarding guidance. During the fourth quarter call, you mentioned that ORILISSA would reach around $200 million this year. Is that still on track, or could it take a bit longer to meet that target? Additionally, I want to follow up on your response to Jason's question about the OUS HUMIRA guidance, which is projected to decline by 40% year-over-year in the second quarter. You discussed the expected decline in Europe, but the OUS projection remains at a 40% drop. Could you elaborate on this and reconcile it with the initial global ex-US guidance of 30% for the year? Thank you.

So on ORILISSA, this is Rick. I would say that we are tracking against that number, so we're not changing our guidance. It currently has a running rate of about $60 million, and it's ramping significantly from that. Based on everything we know today, we're comfortable with that ramp. I'm not completely sure I understood your second question, but Rob, you mentioned something about a 40% decrease in the second quarter?

So, Josh, this is Rob. If you look at the guidance and compare that to our total international sales in the prior year, that would put you at a 33% operational decline. So I'm not sure how you're getting your 40%.

And that would be in the second quarter. As you look at the gating of the impact around biosimilars recognized in Q4, we will be comparing against a quarter in the prior year that already had some biosimilars. Therefore, you would expect the year-over-year impact to be less than what we're seeing in the first three quarters. So it averages out to our overall guidance.

Okay. Thanks.

Thanks, Josh. Operator, next question please.

Good morning, everyone. Thank you for the question. I have a few inquiries. Mike, regarding VENCLEXTA and myeloma, the imbalance is likely surprising. What is your current hypothesis on this? It's unclear what distinguishes myeloma from CLR or AML in terms of specific safety and tolerability risks, and how does this impact your long-term valuation of the drug? Additionally, Rick, I have another question about capital allocation. You have expressed confidence in the long-term trajectory without a significant transaction. Are there any triggers that would prompt a change in that strategy? For instance, if OUS HUMIRA performs worse than expected later this year or next, or if your launches do not meet initial objectives, what would your next steps be, and how important is the payout in that situation? Thank you.

Okay. This is Mike. I'll address the first question regarding Bellini and the unexpected mortality imbalance we observed in the overall population. That situation was certainly a surprise to us and not something we anticipated. It's difficult to determine exactly what caused it, but I think it's crucial to compare this to CLL. We know that CLL is driven by BCL-2, which is evident in the efficacy results we've seen throughout our CLL program, beginning with early studies of 17p del from the MURANO study and all our efforts since then. When we look at multiple myeloma from a BCL-2 biology perspective, we identify essentially two groups. One group comprises about 20% of multiple myeloma cases, which are highly driven by BCL-2 biology. The broader population has a different hypothesis, primarily focusing on synergy with proteasome inhibitors that we've mechanistically observed and noted in previous studies. The Bellini results pertain to that overall non-selected group. While we can't definitively state what caused the outcome, we recognize the behavior in this group is distinct from other populations. For the highly BCL-2 driven group, early data indicates we should observe a positive effect, which is why we maintain that the drug has potential relevance for that population. We plan to collaborate with the FDA regarding the issues related to the partial clinical hold, but we remain optimistic about a long-term role for the drug in that population. This outlines the key differences between multiple myeloma and CLL. So, does this alter our long-term view on the asset's value? No, it doesn't change our long-term perspective on the asset or our view of CLL. We have always believed that the larger opportunity for VENCLEXTA in myeloma lies within the biomarker-driven population.

Geoff, this is Rick. To address your question, I think it's useful to consider this perspective. If we look back at 2019, it's a good reference point for our strategy's resilience in the face of significant loss of exclusivity. In that year, we faced nearly $5 billion from HUMIRA losing exclusivity and around $500 million from AndroGel. At the same time, we were in the early phases of launching several new products such as ORILISSA, SKYRIZI, and eventually upadacitinib. Initially, there isn't much benefit from these new launches; in fact, they might slightly weigh us down since pharmaceutical launches typically incur losses upfront due to substantial selling, general, and administrative expenses required to ramp up. Therefore, we are facing profit performance headwinds. Nevertheless, despite this, we reported positive revenue growth with earnings per share growth around 11%. While some of this includes share repurchases, even after adjusting for that, we are still experiencing high single-digit EPS growth. This signifies robust EPS growth despite the challenges. It showcases the strength of our underlying business, which was designed to handle such situations. However, these dynamics are not the primary factors influencing our approach to potential acquisitions. What really matters is having a strong business, since we need to maintain that strength. As we evaluate various transactions, we assess their strategic fit and whether we can achieve a good return on those assets. If our analysis indicates that we can, we pursue those opportunities, guiding our capital allocation decisions. I don't anticipate a significant shift in how international biosimilars perform, as we have enough experience to understand their behavior. Ultimately, our actions will be driven by whether acquiring an asset can contribute to building a stronger business, regardless of what that asset may be.

Thanks, Geoff. Operator, we have time for one final question.

Hi. Thank you for taking my questions. I have two regarding the product side. First, for upadacitinib, we are about four months away from the PDUFA date. I'm curious if you have any updated thoughts on the likelihood of an AdCom before the decision, especially in light of recent safety updates on XELJANZ that raised more questions about thrombosis risk with JAK inhibition. How do you think that might affect the review? Secondly, about SKYRIZI, you mentioned the dosing advantage over TREMFYA, but I've noticed that TREMFYA has a lower rate of immunogenicity. Approximately 14% of patients have antibodies that can be considered neutralizing. I'm wondering how physicians might weigh the benefits of more convenient dosing against the potential for higher immunogenicity in a chronic condition like psoriasis? Thank you.

Sure. So, this is Mike. I'll take those. With respect to upadacitinib, we are still in the relatively early stages of our review, but we are several months into it. With respect to the likelihood of an AdCom. What I've said before is that advisory committees are common for these sorts of applications. So for novel molecular entities and rheumatoid arthritis. So it wouldn't be necessarily surprising if we had one or concern to us if we had one. But based on what we're hearing today, we do not anticipate one. And so, obviously, as we get closer, we'll be able to provide additional color on that. With respect to XELJANZ and the safety finding that came out of their large-scale study. I'd say a couple of things. One, we need to see the data presented in full. We need to see how that translates through their label, but I would point a couple of features. One, that was at a dose that was higher than approved in RA for XELJANZ and it was in a very particular patient population because it was in their cardiovascular safety study. So these were patients who were selected to be at high risk for cardiovascular disease. So they were a little different than the broader patient population. Our program hasn't demonstrated an increased risk for VTEs for upadacitinib compared to essentially all of the competitors that we had in the trial, which include HUMIRA, includes methotrexate, and in our monotherapy studies, for a portion of time, it even includes true placebo. So we feel very good about our data set. With respect to SKYRIZI. What I would point to is the performance of the product. We have very, very strong performance. We are clearly covering the pathway very effectively and doing that with the favorable benefit-risk profile. We have skin clearance that's actually rising over time and very durable out to a year. And so I don't see that as a concern at all for us.

Okay. Thanks for taking the question.

Thanks, Vamil. That concludes today's conference call. If you'd like to listen to a replay of the call, please visit our website at investors.abbvie.com. Thanks again for joining us.