AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Good morning, and welcome to the Annual Meeting. I will now turn the call over to Rick Gonzalez. Please proceed.

Thank you, Operator. Good morning, everyone. I'm Richard Gonzalez, AbbVie's Chairman of the Board and CEO, and I'd like to welcome you to AbbVie's Annual Meeting of Shareholders. We certainly appreciate you joining us today. 2020 was a year like no other. Despite many challenges, we completed the Allergan acquisition, ensured continued supply of our medicines during a global pandemic, continued to advance our pipeline and took a firm stand against discrimination and bias. Our company's strong performance this past year demonstrates the resiliency and excellence that has positioned us well for 2021 and many years to come. Today, we're hosting our second virtual shareholder meeting. Last year's virtual meeting allowed more shareholders to attend. And we always appreciate the opportunity to engage with more of our shareholders. Once we have completed the discussion of the voting items, there will be an opportunity for shareholders to submit questions. I'll now call our meeting to order. Proxies in the form solicited by the Board of Directors have been received, representing 84.1% of the shares that are entitled to vote. More than the majority of outstanding shares are present in person or by proxy, therefore, we have a quorum. Today, we have 8 business items on the agenda. They include the election of the Class III directors, the ratification of our auditor, an advisory vote on the approval of executive compensation, the approval of the amended Incentive Stock Program, and the amended Employee Stock Purchase Plan, a management proposal regarding the elimination of supermajority voting; and finally, 2 shareholder proposals, one related to a Lobbying Report and another to require an Independent Chair. These items are now before our meeting. If you haven't voted and you joined the meeting using your control number, you may click the Vote Here button on the virtual meeting website and follow the instructions provided. And please remember, if you have voted by proxy, either by mail, phone, or over the Internet, your shares have already been voted as you have directed. Before I proceed further, I'd like to thank our Board of Directors for joining us today. Our directors are: Dr. Robert J. Alpern; Roxanne S. Austin; William H.L. Burnside; Thomas C. Freyman; Brett J. Hart; Edward M. Liddy; Melody B. Meyer; Edward J. Rapp; Rebecca B. Roberts; Glenn F. Tilton; and Frederick H. Waddell. Again, I want to thank the Board for joining us. And now I'd also like to introduce the members of our executive management team here with me today. Laura Schumacher, Vice Chairman, External Affairs, Chief Legal Officer, and Corporate Secretary; Dr. Michael Severino, Vice Chairman and President; and Rob Michael, Executive Vice President and our Chief Financial Officer. We will now turn to the meeting's business items. Following these business items, we will then close the polls, announce the preliminary voting results and open the meeting for questions. The first order of business is the election of the Class III directors. The Board of Directors has recommended you vote in favor of these directors. The next item on the agenda is the ratification of the selection of Ernst & Young as our auditor. The Audit Committee and the Board of Directors have reviewed the qualifications of Ernst & Young and recommended ratification of the firm's appointment. The next item on the agenda is the advisory vote on executive compensation. Shareholders are asked to approve the compensation of the AbbVie executives named in the proxy on an advisory basis. The Board of Directors has recommended a vote in favor of these executives' compensation. The next item on the agenda is the amendment of the Incentive Stock Program to increase the number of shares available and extend the term of the program. The Board of Directors has recommended a vote in favor of this amendment. The next item on the agenda is the amendment of the Employee Stock Purchase Plan for non-U.S. employees to extend the term of the program. Again, the Board of Directors has recommended a vote in favor of this amendment. The next item on the agenda is the management proposal to eliminate supermajority voting. The Board of Directors has recommended a vote in favor of eliminating supermajority voting. We will now move to the shareholder proposals. The first shareholder proposal is the Lobbying Report proposal detailed in the proxy statement. This proposal is submitted by Zevin Asset Management on behalf of William Creighton and the co-filers noted in the proxy. Patricia Karr Seabrook is on the line representing the proponent. Operator, could you please open Ms. Karr Seabrook's line? Ms. Karr Seabrook's, would you like to move the proposal forward?

Yes. I would. Can you hear me?

I can hear you well.

Okay. Great. My name is Patricia Karr Seabrook from Miller/Howard Investments. I am making this statement on behalf of Zevin Asset Management on behalf of William Creighton and co-filers Benedictine Sisters of Virginia, Congregation of Divine Providence Trust, Dana Investment Advisors, Dominican Sisters of Springfield, Illinois, First Affirmative Financial Network for the Jane M. Ritchie Trust, Miller/Howard Investments and Providence Trust. I hereby move Proposal 7, requesting a report on AbbVie's lobbying payments and policy. Lobbying transparency is in the best interest of AbbVie and its shareholders. Since 2013, the company spent more than $38 million on federal lobbying, and there is incomplete disclosure about state lobbying, where the company lobbies in at least 22 states. AbbVie is required to collect this information and could simply provide it to the shareholders in a report. Shareholders have no way to know how much of AbbVie's trade association payments are being used to lobby on its behalf as the company fails to disclose its trade association payments and the amounts used for lobbying. AbbVie lags the majority of its peers in this regard, which disclose their trade association lobbying payments. Information about the company's lobbying activities is decision-useful for investors striving to make informed strategic investment choices aligned with their preferred risk profile and to align their investments with personal priorities and value. In light of the events over the past few years, this is the time to push for transparency and good information. We know that certain U.S. politicians and groups provided cover and support to antidemocratic violence. When AbbVie suspended its political contributions indefinitely after the violence of January 6, it seemed to be conceding that some sort of an internal pause and review was in order. Corporations contribute millions to trade associations that lobby indirectly on their behalf without specific disclosure or accountability. AbbVie is a member of the Chamber of Commerce and serves on the Board of PhRMA, which combined, have spent over $2 billion on lobbies since 1996. AbbVie states its commitment and belief that patients need access to affordable medicines. Yet, it helps fund PhRMA's opposition to lower drug price initiatives. AbbVie publicly supports COVID-19 efforts, but the Chamber of Commerce directly lobbied against using the Defense Protection Act to speed production of personal protection equipment for workers. AbbVie states its commitment to addressing climate change, yet the Chamber of Commerce undermines the Paris Climate Accord. The track record of AbbVie's trade associations, acting in contrast to the company's stated values and positions heighten reputational risk. Without more comprehensive disclosures, stockholders cannot determine whether AbbVie is effectively able to prevent company funds from being used for lobbying efforts contrary to the company's stockholders -- to the company's and stockholders' objective and long-term interests. The request for disclosure is a call for transparency and accountability in the spending of shareholder resources, and I urge shareholders to vote for Proposal 7. Thank you.

Thank you, Ms. Karr Seabrook. The Board of Directors opposes this proposal for the reasons that we stated in the proxy statement. The final item on the agenda is the independent share, shareholder proposal detailed in the proxy statement. This proposal is submitted by The Employees’ Retirement System of Rhode Island and the co-filers noted in the proxy. Mr. Randy Rice is on the line, representing the proponent. Operator, could you please open Mr. Rice's line. Mr. Rice, would you like to move the proposal forward?

Thank you, Mr. Gonzalez, and members of the Board, members of AbbVie team and fellow shareholders. We appreciate the opportunity to move our independent share, shareholder proposal on behalf of Rhode Island Treasurer Seth Magaziner, the 60,000 members of our state pension fund as well as our co-filers, CommonSpirit Health and the Vermont Pension Investment Committee. As investors, we think that the company needs stronger Board governance. An Independent Chair very specifically eliminates the structural conflicts of interest caused by a combined CEO Board Chair and clarifies where the authority of the CEO ends and where the responsibility of the independent Board begins. We continue to be concerned by the numbers and types of patent litigation in which AbbVie and its wholly owned subsidiaries are involved. Since last year's annual meeting, the company has paid $24 million to settle charges of insurance fraud in California. The company still faces thousands of lawsuits from patients, investors, 20 states attorneys general as well as whistleblowers. In fact, AbbVie investors have paid out $3.2 billion in federal and state litigation and regulatory agency settlement since 2013 and, of course, following threats of a congressional subpoena, Mr. Gonzalez will appear before the U.S. House Oversight Committee on May 18 to discuss the company's pricing and marketing practices related to Humira. These considerations are particularly important in light of AbbVie's Board composition, its limits on investor rights and legal exposures related to anticompetitive market practices. And our Board, half of our directors served together at Abbott, either as Corporate Director or as an executive reporting to the Board. Several directors have a combined Board tenure between both Abbott and AbbVie of over 15 years. Further, our company's staggered Board allows investors to vote on only 1/3 of directors each year as opposed to electing all directors entirely, making it more difficult for investors to be able to voice our concerns to the company. AbbVie has stated that while its lead director reviews and provides input to the Board agenda, the lead director does not formally set that agenda or run the meeting. We believe that both of these paths are essential ingredients to foster an independent Board culture and that our Board must improve its oversight and governance of the company. An Independent Chair is vital to ensure that tough decisions of strategy, governance, culture, compliance, and risk are being adequately discussed and independently overseeing its Board level. This is why we have once again introduced Independent Board Chair proposal, and I appreciate the opportunity to present the proposal to other shareowners. Thank you.

Thank you, Mr. Rice. The Board of Directors opposes this proposal for the reasons that we've stated in the proxy statement. [Voting] The polls are now closed. We have a preliminary report from the Inspector of Elections, which shows that the nominees for the Board of Directors have been elected with an average of 94.3% of the vote in support. The appointment of Ernst & and Young has been ratified with 97.3% of the vote in support. The advisory vote on executive compensation resulted in 89.4% of the vote to support. The proposal to amend the Incentive Stock Purchase Program -- I'm sorry, the Incentive Stock Program has been improved with 94.7% of the vote in support. The proposal to amend the Employee Stock Purchase Plan has been approved with 96.9% of the vote in support. The management proposal regarding the elimination of supermajority voting resulted in 68% of the outstanding shares in support, which is below the necessary vote needed to approve the amendment. The shareholder proposal on a lobbying report has not been approved with 35.8% of the vote in support. And finally, the shareholder proposal to require an Independent Chair has not been approved with 27.1% of the vote in support. The final voting results will be available in our upcoming report on Form 8-K. Now that we have completed the voting portion of the meeting, we have time for a few questions. The virtual meeting website allows shareholders who joined the meeting using their control numbers to submit questions by filling out the Ask a Question box. We'll try to answer as many questions as possible before the meeting is scheduled to end and we have to move to our Board meeting. If we do not have time to respond to all of the questions or topics, a member of our engagement team will reach out to you following the meeting to respond, assuming you have provided your contact information when you joined the meeting. Jennifer, can I please have the first question?

Yes. Thanks, Rick. The first question is, what are AbbVie's views on access to pharmaceuticals in the United States?

I would say that AbbVie has strongly supported access for a number of years now as the debate has been ongoing. But I think it's important to step back and look at access in the United States because, obviously, the U.S. market is a complicated market where you have various types of providers of either insurance or other kinds of support, where pharmaceuticals are reimbursed through those mechanisms. I think if you step back and look, the vast majority of Americans have access to affordable medicines in the United States. In fact, the U.S. is the most efficient major market in the world when it comes to generic usage at over 90% of all prescriptions. And as you know, generics typically have very low out-of-pocket costs, making them affordable. The remainder of the prescriptions are branded drugs, and most patients who have commercial insurance have affordable access to those with affordable out-of-pocket costs because companies like ours have robust copay assistance programs. Patients on VA, DoD, Medicaid, or LIS, Medicare Part D plans also have very low out-of-pocket costs, making it very affordable for patients to access their prescription medicines. That leaves 2 groups that are uncovered. Uninsured patients, which, again, companies like ours typically have robust patient assistance programs that provide our medicines usually at no charge to those individuals who can't afford them and are uninsured. And finally, then you have the last group, which is the non-LIS Medicare Part D patients. This is the area where there is a significant challenge. In this program, the U.S. government prohibits companies like ours from providing any type of copay assistance for those patients. It also doesn't allow those patients to have any supplemental insurance to defray the costs. And therefore, the structure of this program is such that the out-of-pocket cost to these patients is, on average, 100x higher than any of those other patient groups I just described. So this is an area that definitely needs fixing. The government, industry, companies like ours, and healthcare plans need to come together and come up with solutions that will allow us to be able to absorb a significant portion of that out-of-pocket cost for patients, allowing Medicare Part D patients have access to affordable medicines, and that's something we stand for very firmly.

The next question is what was AbbVie's response to COVID-19?

That's an area where I would say I'm extremely proud of what our organization has done. I mean, we truly stepped up in the midst of this crisis. When the crisis began and we went into a lockdown, one of the things that we had to do as an organization was to make sure that we could ensure the uninterrupted supply of our medicines so the patients didn't go without the medicines. And I'd say our operations team came in every single day during that period of time to make sure we could continue to supply medicine to our patients. We also had a responsibility to make sure that all of our employees were safe. We did that through a significant portion of them going to remote working. And those that did have to come in, we implemented very strict safety procedures and PPE. We also took a very proactive approach because we are a healthcare company that has supply -- our own supply of PPE. We ended up donating millions of units of PPE to local hospitals to make sure that the healthcare workers within those hospitals were well protected. In addition, hundreds of our own medical staff volunteered to go out and help treat patients. We also donated $35 million to set up 27 field hospitals in the U.S. in the areas that were hardest hit to help with patient treatment, and we donated supplies overseas that were critically needed in areas like Europe and other areas around the world for things like oxygen concentrators. We set up for our own employees what we call the AbbVie Employee Relief Program to help employees that needed financial assistance. In many cases, as you can probably imagine, a spouse became unemployed because of the COVID crisis, and so we wanted to be able to provide our employees with an opportunity to be able to get financial assistance. In addition, we also set up another fund called the AbbVie Childcare Relief Fund to help our employees with childcare costs while their children were in remote learning. And our AbbVie Employee Giving Campaign, we increased the donation to 2:1. And I'm proud to say our employees donated another $20 million to non-for-profits associated with COVID-19. And finally, we wanted to be active in the area of vaccines and help with vaccinating particularly the underserved population in the areas that we had facilities. We have now vaccinated and set up a vaccine clinic in cooperation with the local public health departments, and we vaccinated 6,000 seniors in these areas. So I'm proud to say we stepped up in a very significant way. I think it demonstrates the fabric and the culture of our people and of this company.

Next question is, how is the Allergan integration progressing?

Well, we've made a tremendous amount of progress with the Allergan integration. But I'd start by saying, we're now almost a year into the integration. And I would tell shareholders, I couldn't be more pleased with the decision that we made to acquire Allergan. There's no question the combination of our 2 companies have now created a stronger and much more diverse company. And I think if you look at our first quarter results, it's clearly apparent. When you look at the strength of those results in the first quarter, the balanced performance across the major growth franchises within our business that we have created a much, much stronger organization. We're tracking well against the financial and operational commitments that we made, the synergy targets, we're exceeding those targets. And we're beating the accretion that we had originally projected. And so I'd say I'm very, very pleased with how the Allergan integration has gone. And I'd say it's gone virtually flawlessly despite the fact that we did it in the middle of the pandemic.

Next, we have -- thank you for Rick's open letter about racial justice. Can you give me an update on AbbVie's racial equality work?

Yes. That's a very important topic. I would say, again, when I talk about the culture of the company, I think all of us as individuals and as a company watched in horror the events that unfolded in Minneapolis and additional events that occurred beyond that. And we wanted to take a position that was very clear about where we stood around racism and bias. We're a company that firmly believes in diversity and inclusion. We believe and are highly committed to treating everyone with respect and with dignity. And we wanted to take a strong stand and really be a role model for equality, equity, and fairness. And so we took a number of steps in order to ensure that we would continue to advance that philosophy both within our company and outside of our company. We created a Chief Equity Officer as part of our executive leadership team. It's a full-time job. It's totally dedicated to driving the initiatives that we have in the company. We have done a significant amount of training of our employees over the last 9, 10 months. We were aggressive in activating our employee resource groups and allowing them to have greater funding to be able to help drive some of the initiatives. We donated $50 million to non-for-profit organizations to support black communities in areas like education and job training and healthcare. And we've recently seen, unfortunately, some violence against the Asian community, and we denounce that very clearly. We fundamentally do not support in any way hate and violence and bias. And so I'm proud of how this team has stepped up and been a role model in this area. I think we have time for probably one more question

Great. Next, we have are you offering vaccines to employees? And how is it going?

That's a very important point. And the answer -- the short answer is we are offering vaccines to our employees. I'll give you a little more detail on it. But I think one of the things that's most critical to think about across companies like ours is, it's absolutely critical that we get vaccinations as broadly utilized as possible across the U.S. population and really the global population, but I'll talk specifically here about the U.S. And so if we want to get to the level where we can get herd immunity, we're going to have a significant portion of the U.S. population vaccinated. And that is the philosophy that we tried to operate the company with. We proactively went out and worked with local public health departments in order to try to ensure that we could get our employees vaccinated. We have now vaccinated in the Lake County area, which is the main corporate facilities, about 6,500 of our employees. That's out of a base of a little over 10,000. And so we've -- so far, we've gotten a fairly significant part of our employee population vaccinated. We've also started vaccination approaches in Texas as well as a couple of other areas. So we're proactively going out and trying to help our employees access vaccines as quickly as possible. Okay. With that, I think we're going to need to move to our Board meeting. I want to take this opportunity to again thank all the shareholders for your trust, and the confidence that you place in us, and we look forward to updating you again next year. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.