AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Well, great. Good morning, everybody, and thanks for joining us for the next session. Very pleased to have AbbVie with us for the session. Before we get started, I just need to read a quick disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. So pleased to have the full team here from AbbVie with us. I'm going to turn it over to Richard Gonzalez, the CEO, and let him make some opening comments, and then we can jump into Q&A.

All right. Well, thank you, Matthew. We appreciate being invited to the conference. We're excited to be able to participate. I'll start with just a brief overview of how the AbbVie business is performing and talk about our expectations going forward. First, what I'd say is I feel very good about how the company is performing and what our prospects look like. We're off to another excellent year of performance. As you know, we've exceeded our expectations in both of the first 2 quarters and the business remains very strong. We're seeing robust performance across all of the major business franchises: immunology, hemoc, neuroscience, aesthetics and eye care. And that's the kind of diversity that we like to see across the business. The Allergan integration has gone exceptionally well, exceeding our expectations for accretion and synergies as well as driving significant revenue synergies well above our expectations that we had in the deal model. And certainly, I think as now that we're 16 months or so into the acquisition and the integration, I think it's clear that the Allergan acquisition has accomplished exactly what we were looking for. If I look at AbbVie today, it's a much stronger and much more diverse business than it was pre-Allergan. The strong performance across the business continues to give all of us high levels of confidence in delivering the long-term performance expectations that we have for the business. The Aesthetics business is delivering excellent performance with BOTOX Cosmetics and JUVEDERM both growing very robustly. Neuroscience, UBRELVY is performing extremely well and atogepant will give us additional growth over the long term in the migraine space. BOTOX Therapeutics is also growing very well. VRAYLAR continues to grow rapidly, and we anticipate seeing the MDD data later this year. Our hem/onc business, overall, is delivering double-digit growth. IMBRUVICA remains the clear market leader in CLL across all lines of therapy. VENCLEXTA continues to grow nicely. And this franchise is really positioned well for long-term growth potential, with the expansion of VENCLEXTA in additional areas like -- additional areas of AML, MDS and multiple myeloma as well as our expanding oncology pipeline, with assets such as the Genmab collaboration, our CD47 program, TNB-383 in multiple myeloma and navitoclax in myelofibrosis. I'd also tell you that we're very excited about the long-term potential of Teliso-V in non-small cell lung cancer. Our immunology business continues to deliver excellent double-digit growth, with SKYRIZI and RINVOQ demonstrating outstanding performance. With the breadth of indications of these 2 assets and their clinical profiles, we can expect excellent long-term growth from these important medicines. As you know, the FDA recently announced the oral surveillance data, and we're working with the agency on labeling. We have modeled RINVOQ across all of the indications using the most conservative labeling assumptions. And I can tell you, we remain confident that RINVOQ will be a major contributor to our long-term growth and will be a major blockbuster asset for AbbVie. We've obviously been asked about RINVOQ guidance, and what I'd tell you is it's too early to comment, specifically on RINVOQ alone. We'd like to see what those final labels look like first. But what I can tell you is this, based on the company's broad portfolio of growth assets, we remain confident that we can deliver strong growth leading into the U.S. Humira LOE in 2023, rapidly return to growth in 2024 and maintain high single-digit growth through the end of the decade. And this is inclusive of those conservative assumptions that I talked about a moment ago on RINVOQ. So we feel good about the overall performance of the business, and we certainly feel good about the growth prospects going forward. With that, I'll turn the discussion back over to Matthew.

Perfect. Perfect. Thank you for that and thank you for the comments. Probably not surprisingly, we'll delve in to RINVOQ a little bit more detail, and then we can move on. So maybe, I guess, obviously, as you said, you can't comment on guidance specifically yet. But maybe you could talk a little bit about how you see some of the outcomes driving one way or the other. So for example, what are you looking for? What are the potential scenarios in the final label you're thinking about? And then maybe just remind people about what the RA marketplace looks like right now and how much of a post-TNF label has an impact or not?

I think if you look at the book ends, and what I was describing to you is you can take the most conservative assumptions on these indications and you can model against what those look like. Fundamentally, when you look at RINVOQ, though, the clinical performance of this asset is extremely strong. So it's a question of where are you going to position the asset and what do those markets look like. And so I think I'd ask Jeff to comment because RA is a very good example of where our original go-to-market strategy was really designed to go after naive patients as well as switching patients. And we've obviously done well with that strategy. If the label were to be restricted to TNF inadequate responders, that's where we ultimately would end up as the most conservative position on that particular label, then what does that market look like. And I think Jeff can talk through both the breadth of data that we have in that market, the size of that market. And it's important to remember that most patients end up failing TNFs over time. So they all -- or the vast majority of those patients will end up rotating to a high-efficacy agent. It's a question of when. So Jeff, maybe you can comment more specifically around that.

Sure. I think that one of the things that we've done very precisely is take a look at how these markets are structured and how they've developed over time. So I'll give you some flavor on the RA market. So right now, today, about 60%, or just over 60% of the RA dynamic market, so the in-play market, is actually in second-line-plus. And the minority is naive. So you'd say, okay, that's interesting. And we actually see, over time, as we sort of flow through the dynamics, you'll really see in a few years, probably a 50-50 split. And some of this is based on physician behavior, as Rick had mentioned. So for example, years ago, when the markets were first developing, you didn't have a lot of options, and you certainly didn't have high efficacy options. And so as we look at our initial go-to-market strategy, it was really to position for naive with head-to-head data versus Humira, with head-to-head data in the naive population. And basically, we knew that you would get a significant amount of naive business. But initially, most of the business would be second-line-plus anyway. And so Matt, that's how it exists today, about 70%, just over 70% of our RINVOQ business is in second-line-plus. So we have to consider, based on the safety communication from FDA, that it's likely we will be after TNF. I think that's a reality that we're actively managing. And so we have to pivot and reposition the brand. Now we have the ability to do that. And I'd highlight that, one, the market structure is encouraging, that it's still very, very substantial; number two, RINVOQ has exceptionally strong data in second0line-plus with multiple biologic failures. We have a head-to-head trial against ORENCIA, which is the leading second-line agent in the market today. And when we look at our database, we've done significant amount of work in this second-line-plus market. So we would be able -- we have the raw material and the great data sets to be able to make that pivot and continue to drive significant value for RINVOQ. So that's how we're thinking about the market. And that's what we're prepared to do as we ultimately see the final labels that we will get with the discussions with the agency.

Okay, perfect. And then, obviously, potential approval for AD is coming up. And I think people, after the commentary around post biologic for RA, are sort of wondering, well, is post biologic a potential reality in AD, too? So maybe you could just comment on what you think are the potential scenarios for there and sort of the outlook in AD.

Well, this is Mike. I'll take that. We remain very confident in our package in AD. We think we've demonstrated a strong benefit risk across a wide range of patient types, across both doses that are in the file. We have head-to-head data that are very strong. So we feel very confident about the file. Obviously, it's a little bit early to be talking about potential labeling outcomes because those discussions are still ongoing. When one looks at the safety communication that the agency put out on RA, one has to consider the possibility that there will be some degree of restriction, potentially, in the label in AD ultimately. But the AD landscape is very different. The therapies that are used are very different, so we'll have to see how that evolves as those labeling negotiations continue.

And maybe, Matthew, I can add to the structure, given my previous comment. So in atopic dermatitis, really, there is no second line plus market. It just hasn't developed at this point, because you have this large Dupixent market, right? And so we see the second-line market develop quite rapidly. And I'll give you some flavor of what we see in the marketplace and why we're why we're confident that there's still a very substantial opportunity for a brand like RINVOQ. We can see that up to 20% to 25% of patients that have tried Dupixent over the years simply objectively fail. They're no longer taking the medicine. They're still connected to dermatologists, and they're waiting. So in some ways, we believe that there's been a warehouse because there hasn't been new innovation that's come in atopic derm for many years, and RINVOQ, we believe will come. Second, we think that an additional maybe 15% to 20% of patients just simply aren't getting a very good response with Dupixent, meaning they have high residual itch. They still have significant skin lesions. It's just the best that they can do today. And so again, as we look at our long-range plan, we certainly see that, that second-line market, just like it did in RA and IBD, is going to be very, very dynamic. And when we look at our data set, we think we can be a very significant player even if we were put after a systemic agent.

Okay. Great. Good. Maybe there's a handful of other things that I think people are interested in that we could go through. So why don't we talk about IMBRUVICA. Obviously, you had more clarity on the patent outlook there now. So as you think about growth in that brand, especially as you get more BTK competitors on the market, maybe you could talk more broadly about the combo strategy and how you think that could continue dominance in the CLL landscape.

Well, we've generated very strong data across a wide range of combinations, both with IMBRUVICA and VENCLEXTA. So we think when you look at the suite of offerings that we bring to the table. We have the most active regimens, both in the frontline setting and in second-line setting. And so if you look at our ability to control disease long term with a variety of products, not just with IMBRUVICA, but also with VENCLEXTA and with combinations of those agents and with CD20s, we think we have the ability to cover that entire landscape. And when you look at growth in CLL, I think you need to look at growth across lines of therapy and across our portfolio. And we believe we have the data to continue to drive the standard of care with superiority against a wide range of regimens, particularly with our IMBRUVICA regimens against things like FCR and VR, the most active agents in the field previously. And we see growth across those lines of therapy for our hem/onc portfolio.

And can you just talk about what you're seeing competitively in the marketplace? Obviously, you have one BTK approved, probably a second one coming. One has run sort of direct head-to-head trials, just maybe give us your thoughts on how you think about those agents competing in the marketplace.

Yes. What we've seen in the marketplace, I think it's important to start off with IMBRUVICA remains the leader across all lines of therapy. And to the point that Mike made and you highlighted with the potential for the combination therapy, when you add VENCLEXTA and IMBRUVICA, we have well over 40% share across all lines. So we have a very, very strong position. What we see in terms of the competition, which has included head-to-head trials, is we are accruing about 2/3 on any given week of all patients in the market to IMBRUVICA. That's our latest sort of run rate data. If you look at the share curves, we see that Calquence has largely taken about the same share from -- in the total market as we saw with the earlier launches in MCL, for example. So it's performed about to expectation with what we've looked at. Now we're seeing a couple of dynamics. It is going to get more competitive. And so that's why the concept of having VENCLEXTA as a stand-alone as well as in potential combination is a very important concept to our leadership. The second thing that we've seen, I think, unfortunately for patients is that over the COVID time period, and we've highlighted this before, the market has been suppressed. So the overall CLL market has been significantly down. These are very fragile patients. Many of them have actually succumbed, not just to their leukemia, but to COVID. And so that's another dynamic that we're watching very carefully. We believe it will start to come back, and it is getting marginally better. But those are the 2 big dynamics we see in the marketplace. But we're confident that we have the data set and the asset to continue to be the leader across the board in hematology.

Okay. Great. Good. A couple of the readouts sort of end of this year, next year that I think people are focused on, Richard, on VRAYLAR at the beginning. But clearly, that's a focus for investors. So what -- can I -- I mean, I guess the question is, how confident are you in being able to get an MDD -- a positive MDD study out? And how do you think about that market opportunity, just given the number of generic options that are there?

Well, it's an important market opportunity because unfortunately, a large number of patients with major depressive disorder are not controlled on monotherapy, and the combination market is about as large as the monotherapy market. About 50% of these patients require polytherapy, polypharmacy. And agents like VRAYLAR, so atypical antipsychotics, but particularly those that are partial agonist that seems to be very important for delivering a benefit here. And in VRAYLAR's case, we believe there's an additional benefit in that it has D3 preference. And it's really the only agent that demonstrates that clinically. And associated with that is this brightening effect that is demonstrated clinically and described by a number of observers that you just don't see with other agents. Most atypical antipsychotics have a flattening effect on affect. And so we think that is a real positive. We think it absolutely has the right profile to have an effect in MDD. We do have 1 positive study in hand already, so we only need 1 of the 2 ongoing studies to be positive. So if one or both are positive, that would be sufficient to gain the indication. We think it stands a very good chance. Now we recognize that MDD is a challenging area. So the MDD indication is not something that we built in certainly into our deal model, and we talked about that at the time of the Allergan acquisition. It's not something that we've built into our guidance about the molecule or about the area, but we think it represents a very attractive upside. And we've done a deep dive into the program and into the study design. We think it's very well designed. We think the rationale is strong. So we think we stand a very good chance of capturing that upside, and we'll know at the end of this year.

And maybe just comment on one other factor, which I've heard from other companies looking into depression, but there was an influx of patients due to COVID. And there's sort of this debate, I think, around, are those patients like other typical depressed patients? Or are they sort of unique and could they skew outcomes? So I don't know if you have a view or a thought on that as people think about potential for a successful study.

Well, we've looked at that question within our own program. And obviously, we can only look at the aggregate data, so the blinded data. But we can see baseline characteristics, we can see baseline scores, we can see variability in measures on an aggregate basis without any penalty and without the need to unblind the study, which of course, wouldn't be done until the end of the year, as I described. And when we look at all of those measures, we see the studies performing exactly as we would have expected. So in other words, there's no change in variability. There's no change in aggregate response. There's no change in any of the baseline features in terms of severity or other characteristics in the period pre to post-COVID. So we don't see an impact on our study, certainly from COVID in that respect.

Okay. Great. Maybe if we could go back to some sort of more high-level topics. There are a couple of things in the industry, one of which is what's happening in D.C., and I think it's obviously unclear to many of us because we don't really know what's potentially even going to show up in the reconciliation package. But I don't know if you have some thoughts you'd want to share on just how to think about the risk, or lack thereof, that the industry might face from a reconciliation bill?

Well, I think it's a fluid situation right now. There are obviously more moderate Democrats that have put forward bills around drug pricing that, as an example, just came out, I guess, it was Friday or so. They have a more moderate point of view versus like an H.R.3, we have the Senate Finance Committee proposal of a year or so ago, and we have H.R.19. I think as you step back and you look at where could we end up, I think, ultimately, we could end up in a situation where we -- I hope at least, we end up trying to reduce the burden for -- particularly for Medicare Part D patients, their out-of-pocket costs. I think that's critically important. If that were resolved in a fundamental way, I think it would take a tremendous amount of the pressure off. Those proposals all have some level of capping of the overall cost. Most of them have some level of smoothing, a mechanism by which you can smooth. I think personally, we could end up with something that's between an H.R.19 or a Senate Finance Committee kind of an approach to H.R 3. I don't think we'll end up with something that's as dramatic or negative as H.R.3. And I think what we're seeing come forward from the more moderate house democrats and, certainly, in the Senate, it's likely that we'll end up with something that's more moderate in that area. The only other thing I would say is whatever comes out of the House, it's probably important not to overreact to that because the real battle will ultimately, I think, be in the Senate. And we're going to have to see, I think, over the next 60 days or so, we'll be able to get more clarity. But I think, hopefully, we end up with something that reduces out-of-pocket costs and allows Medicare patients to have more affordability to these medicines. I don't know, Jeff, anything you'd add?

No. Just to reiterate that I think that we'll see some tougher language come out of the House, the House markups, but the real battle will be where the Senate lands. And there are significant moderate voices that are now starting to express significant discomfort with the idea of -- it's really not negotiation because there's a substantial negotiation that takes place today, obviously. That negotiation is a guise for direct price setting by the government through a foreign reference price dynamic. And that's the most harmful, very harmful part of H.R.3. And so the moderate voices will start to become heard, as Rick mentioned, over the next 60 days. It is very fluid.

Okay. Perfect. I guess one other sort of macro topic that also obviously comes up all the time is business development and how you're thinking about capital deployment more broadly. I guess I was also hoping, I think it comes up more often now, just as people think about some scenarios with RINVOQ, maybe if you could also just directly address, are there any scenarios with RINVOQ, which would change the way you think about business development?

Maybe I'll cover the last part. Maybe capital allocation, Rob, you can make some comments. And Mike, you can make some comments on BD. I would tell you that we have modeled -- we've done sort of first pass modeling, as I said in my comments, on what we consider to be the most conservative labeling options that could come out of RINVOQ. None of those fundamentally changes the trajectory of AbbVie over the long term. So I would tell you, there's no scenario by which I see RINVOQ impacting our overall business development strategy going forward. And that's a good thing, right? In the end, when you look at RINVOQ, I can tell you under any of those scenarios, RINVOQ is going to be a very, very big product. And it's going to be a big product for a couple of reasons. One is, if I look at the clinical profile of that asset, it is significantly differentiated to anything else that it competes against in these indications. The second, I would tell you that there's -- and I don't want this to come across the wrong way, but I think it's factually correct, is no one's better immunology than we are. When I look at our go-to-market strategies, when I look at our market access strategy, when I look at our patient support programs, all of those kinds of things that are necessary to be able to gain significant share in this market, combined with a highly efficacious agent like RINVOQ, that is something that we have the wherewithal to be able to drive. And so, certainly, we would like the broadest label possible, but we may end up with a reduced label. And if so, then as Jeff mentioned in some of his comments, it's a question of repositioning the asset. Unfortunately, when we did the clinical studies, as both Jeff and Mike said, we were wise enough to do a broad range of studies that we now have data in second-line-plus that's extremely powerful data. We haven't rolled that out because we're really positioning RA more to the naive population, and our second part of the strategy would have evolved over time to the second-line-plus strategy. We can just move that up now if that's where we end up with an indication, which I think is the most likely scenario. We can move that strategy up. And so nothing in the RINVOQ situation would fundamentally change the trajectory of the business going forward.

Yes. I would just reinforce, as Rick mentioned earlier, I mean, we still have confidence in the long-term outlook of the business. So we expect to return to growth in '24, high single-digit growth in '25 and beyond. So we'll generate a tremendous amount of cash. We can grow the dividend, as we've said in the past. We'll pay down debt, we'll allocate $2 billion to BD. I mean just the amount of cash we generate allows us to deploy capital across those priorities.

And with respect to BD, specifically, we have the $2 billion allocation that Rob just mentioned. You've seen us get a number of deals done over the past few years. Certainly last year and this year, We've done some very attractive deals across a range of areas, principally active in oncology. That's obviously one of the most fertile hunting grounds for deals. But also, very recently, announcing a very attractive addition to our eye care franchise, which is a business that I think is a very good fit for what we're good at as a company. It's a disease that is taking care of AMD, the area in which we just did this deal, by a group of highly specialized physicians that are driven by data and where there are some very good scientific opportunities to make a difference. So I think that's a good fit for our company. And I think you'll see us continue to be active in the areas where we have been active in the past. So principally, oncology, neuroscience, with a broader footprint following the Allergan integration that would include neuropsychiatry, an area that had previously not been a focus. We'll continue to scour the landscape in immunology, an area that we know very well and have tremendous expertise. There aren't as many opportunities there, but we think we're well positioned to evaluate and ultimately to go after deals that are attractive in that space. And then areas like eye care, as I just mentioned, and aesthetics, will be areas in which we're active.

Perfect. Perfect. Great. Maybe in the last couple of minutes, we can just hit on some earlier-stage programs that seem to have High Street focus on. So maybe we could talk about CF for a minute or 2. Obviously, large market opportunity there, and you have a wide range of molecules. I think 2 questions that I get a lot are, one, are the assays that you're using to validate these compounds improved over the assays that you inherited from Galapagos? And how much confidence do you have in those assays? And then secondly, I think there seems to be some confusion around whether or not you've actually dosed patients yet in your Phase II program. So maybe you could just comment on where you are in terms of actually dosing patients.

Yes. So I'll take the second part of that first because that's very simple. Yes, absolutely, we've dosed patients in the Phase II. The Phase II proof-of-concept study, which is an FEV1-based study we'll read out at the end of this year internally, and then we'll communicate the data externally as rapidly as that is practicable. We're looking for something that has best-in-category efficacy, and we think we have the ability to achieve that with the triple that we have in the clinic now. Obviously, we'll need those clinical data to confirm it. With respect to the assays, assays in this space are very good. And the challenge with the prior regimen was not the assays. The challenge with the prior regimen was 2 things. It was principally a potentiator that was used early on, which our assays would tell us, was not likely to lead to best-in-category efficacy; and the absence of a C2 corrector, that would provide the opportunity for best-in-category efficacy. We restructured the Galapagos partnership to take direct control so that we could bring forward assets that we think had the potential to deliver on that objective. We have a very good potentiator. We believe we have a best-in-class C1 corrector. That was never the problem. But the problem of having -- not previously having a C2 corrector that could deliver best in category was addressed by an internal chemistry effort. So since we restructured the collaboration, we put an internal chemistry effort on this, we've identified a number of promising C2s that we think fit the bill. We've advanced the best and the leading C2 corrector into this triple combination. And we'll get proof-of-concept data at the end of this year.

Great. Great. Good. And then maybe just to finish this off, on the last quarter, you talked a little bit about early-stage efforts in Neuro, obviously, given approvals on Alzheimer's therapy, neuro is back on the focus for people. So maybe if you wouldn't mind, sort of at the end here, just highlighting 1 or 2 programs that you think you're excited about in Neuro?

Sure. Well, there are some very interesting programs in neuro. They're not early stage, but MDD and 951, our advanced Parkinson's therapy, which are both Phase III programs. They're very attractive. Looking at early phase, I would point to a couple of things. One is we are preparing to advance into the clinic an antibody targeted at Abeta, which we think has the potential to drive more rapid clearance of amyloid than existing agents, and also has the potential to do it through epitope selection in a way that should reduce the incidence of area, this imaging abnormality that is associated with the clinical syndrome that is dose-limiting and very troublesome to a number of patients that can also impact efficacy, we believe. And we have a candidate that we think has those attributes. We'll be advancing that to the clinic rapidly. It will enter the clinic at the end of this year, the very beginning of next year. And we have a number of promising technologies in Alzheimer's in addition to that. We have neuroinflammation programs targeting CD33 and TREM2 in the clinic, moving through early development. And we have some very novel technologies that are still preclinical, but moving towards the clinic that can knock down intracellular aggregates or clear intracellular aggregates of things like TAL, alpha-synuclein, which would be relevant to Parkinson's but another severe neurodegenerative condition. And so all of these are moving forward within our pipeline.

Great. Well, perfect. Thank you, all. Thank you for being here. I appreciate the time and the answers to the questions.

Thank you.