AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Great. Let's go ahead and get started with our next session. Thanks to everybody for dialing in. Very pleased to have with us our next company presenting at the Piper Sandler Healthcare Conference. We have a company that needs no introduction. It's AbbVie. We have with us 3 folks from the executive team. We have Mike Severino, Vice Chairman and President; Rob Michael, CFO; and Jeff Stewart, who's the Executive Vice President and Chief Commercial Officer. So I was telling the folks before we went live, I've got about 2 hours' worth of questions that we're going to try to pack into our 25-minute session. So hopefully, we can move along here.

Maybe just sort of jumping in, guys. Mike, maybe to start, I know you guys aren't guiding yet to 2022, but just maybe from a high-level perspective, talk about the puts and takes maybe from a commercial setup as we head into the New Year.

Well, we have very good momentum in the business. And I think if you look at how the overall business is performing, the benefits of our integration with Allergan are really coming into view. We've transformed ourselves from a company that initially had only one growth pillar and really one product that was driving that growth pillar Humira to now a company that has 4 or 5 very strong pillars of growth. And they're all performing very well. Immunology has been a strength. We've diversified our immunology portfolio from Humira, as I said, to one that includes now a portfolio of products, Humira, SKYRIZI performing extremely well, RINVOQ performing extremely well. Obviously, some uncertainty around the FDA safety communication, but we would see that being resolved in the near future. We would certainly hope to have that resolved and expect to have that resolved this year, not only for RA, but for the important new indications like psoriatic arthritis and atopic dermatitis. We have an onc franchise that is performing very well. Folks understand the power of IMBRUVICA and Venclexta, but we built a pipeline behind that. It's progressing nicely. Our aesthetics business is performing very, very well. It continues to be a growth engine for the company, and it's an important area of strength and diversification. Neuroscience, which was just a nascent pillar or a nascent area for us, for Allergan, it's now a real strength. It's a robust franchise. It's growing. We reported VRAYLAR MDD data that we believe should support registration. We reported top line Phase III data for 951, our program in Parkinson's disease that's performing very well. And we continue to make great progress with eye care, which I think really has potential to drive growth. So we're hitting across all cylinders. We're ending the year with a lot of momentum. And I think that sets us up well for '22.

And we think about '22, Chris, I mean, we'll still grow Humira in the U.S. in '22. We'll see, again, say, moderate erosion internationally, but Humira will still grow. You've got RINVOQ, it's got new indications coming on, strong in-place share performance. You're going to see, as Mike mentioned, immunology continue to be a very strong growth driver. We've been very pleased with aesthetics. We've seen the U.S. toxins market, U.S. fillers market growing 40%. We've really seen that business respond to incremental investment. Very nice growth in China as well as we expand into the mid-tier cities in that market. And China and the U.S. basically make up about 3/4 of the global revenue for aesthetics. We were very, very pleased with the performance in neuroscience. I mean, VRAYLAR absolutely, we continue to tick up share there. We still believe in the approaching $4 billion peak potential with current indication. Certainly, adjunctive MDD can provide upside there. You look at now we recently got the approval for QULIPTA. UBRELVY grew 30%, almost 30% sequentially in the third quarter. So really nice performance. And we really believe in that migraine portfolio that we've assembled. And eye care, we assume in the deal model that we see a generic RESTASIS. We have not yet seen a generic. We recently got the FDA approval for VUITY. And so we're very excited about eye care as well. So when we think about the top line, the things that as you think about the setup for '22, certainly, we're very excited about the growth potential on the top line. And then certainly, we'll start to see things like operating margin expansion, synergies expansion, strong free cash flow generation. So there's a lot of, I think, very positive things to point to for '22.

Yes. And as somebody who didn't have the vision myself to see really the benefit of the Allergan deal, I got to say it's been stunning to see all the progress and levers now that have appeared. So maybe, Rob, on the Allergan integration, I know you guys talked about synergies ramping from, I guess, $0.8 billion this year to more than $2 billion next year, expanding operating margin. You've always talked about bringing the debt level down to 2x by year-end. So does that mean -- I know top line is, of course, a key variable. But beyond that, what are some of the other levers here in terms of reaching or even meaningfully exceeding that goal?

Sure, sure. So operating margin, I mean, we currently have 50% operating margin top tier in the industry. I would expect that to expand next year, and that's really driven by 2 things. One is the top line P&L leverage that we get, given the top line growth, and I covered the sources of that growth. But also the expense synergies, as you mentioned. We've done a very nice job generating those expense synergies. We upped that guidance to $1.8 billion on the third quarter call. In the early days, it's really driven by head count redundancies, R&D portfolio rationalization. But as we've been implementing our integration plans, things like systems integration as we make progress with manufacturing network optimization, as purchasing contracts come up for bid and we can really leverage our procurement spend, all those things contribute to higher synergies. So we're able to scale up synergies that way. We'll exit the year essentially at a $2 billion run rate. So we will generate greater than $2 billion next year, and we're very excited about the potential. And it's not just the expense synergies, the revenue synergies, which were not part of our deal model, as I mentioned, aesthetics, neuroscience, eye care, all contributing to revenue synergies, which ultimately manifests in operating margin leverage. And then when you think about free cash flow generation, on the call -- the Q4 call this year, I mentioned $21 billion of free cash flow. And that was inclusive of SKYRIZI royalties, which we account for differently under continued consideration rules. But that was inclusive of that. So -- and we've exceeded those expectations. So if you think about next year, we're going to grow free cash flow. And so we'll be in a position to continue to pay down debt. We're very much committed to growing the dividend. We just announced an 8.5% increase, grown it by more than 250% since inception. So we're still very committed to the dividend. We've been rapidly paying down debt. We've paid down $17 billion -- we will have paid down $17 billion of cumulative debt by the end of this year with further deleveraging. So I would expect us to continue to drive that net leverage, still expect at approximately 2x by the end of next year. And that's really driven by the performance of the business, our ability to really grow that free cash flow and apply that to debt pay down. And then obviously, we're very active with licensing. We put -- we've set aside $2 billion per year to access external innovation. So all of those things are on track, and we're very pleased with the performance of the business.

Awesome. Okay. Great. Maybe a question for Jeff. I know you guys have got a number of questions around COVID the last several quarters. So please excuse, maybe one more here. But one of the things that -- we've done a lot of survey work in spaces where AbbVie participates. And one of the things that really stood out to us is no matter the therapeutic category, AbbVie scores really well among docs, whether it's valuing their practice, knowledge base, quality of rep knowledge, et cetera. All these measures, it's been really consistent and really across the board, as I said, it doesn't matter which therapeutic category. So I guess one question is, I know you said that in-person engagement is still not back to pre-COVID levels, and you're using digital tools to sort of keep engagement going. But one comment, I guess, that kind of caught my attention is that you guys recently made that was that your share of voice in some instance is actually higher than pre-COVID levels. So maybe just wondering, again, high-level sort of answers what I'm looking for here, Jeff. But wondering if you could provide a little more color around what you're doing vis-à-vis your competitors.

Yes, it's a great question, Chris. I mean, we typically spend a lot of energy management time on the professionalism of the -- we call it the infield team, the sales force, our sales managers. It's just a very important cultural thing, and I think the market clearly sees that. Our customers see that. So across the board, we're typically #1, usually #1 or certainly in the top 2 across the major therapy areas. And obviously, you're picking that up in your research. So we do basically invest, we think, in the right way. And we typically invest for focus. I'll give you example. So for over the years, let's say, for IVD for Humira, we have 2 different sales force sleeves that are focused on the same physicians, one for Crohn's, one for UC. Some other companies might say, "Hey, we can get synergistic effects there." We actually didn't. We want focused effect. We want the right share of voice, the right messaging. And we've done the same thing in migraine and VRAYLAR recently. So we typically probably have usually a marginally or slightly heavier share of voice on principle to begin with. So when COVID hit and everything shut down, we were quite concerned that we would lose that face-to-face share of voice. And we did a couple of things. We reacted, like many of the companies like heavily into new digital technologies, as you highlighted. But the other thing we did is we got back into the field once it was safe, very, very fast. So we actually saw that the speed of our return to face-to-face plus the digital technologies actually gave us increased share of voice versus some of the competitors. And we see that across the board. It's clearly there in the U.S., but we particularly see it in the international markets. It's quite striking. And I think that's one of the reasons why, as Rob mentioned, we've seen incredible launch trajectories for indications, let's say, for RINVOQ or SKYRIZI that we launched during COVID, really unprecedented. So it's a big principle that we look at. We look at it every month. We didn't basically -- we anticipated since we did have that high share of voice, we didn't want to lose the edge. And I think the outcome was it actually got better across many of our areas. So I think the fast-mover and our principles helped us drive through this COVID effect.

Awesome. Well, let's jump in the $64,000 question that's still around RINVOQ, and I know you guys as well as everyone else sort of waiting on clarity, I guess, in terms of labeling. But maybe just a broader couple of questions here as we think about JAKs overall. Again, back to some of the survey feedback that we and others, I think, have seen is that docs -- I think it's interesting. Maybe Wall Street might view JAKs as a little bit less differentiated, but docs definitely don't, at least in terms of the feedback we've got. And that there's a distinct advantage as we ask. It really doesn't matter whether it's derms or rheums, around RINVOQ. Anyway, I guess I would assume you kind of get that feedback as well. I'm just kind of curious how you're feeling about that advantage once these labels are standardized across JAKs?

Well, we do see -- I'll have Mike address sort of the molecule differences, but we do see the same research. So when you look at the preference for products, and it's not just within the JAK class, it's actually across the choices you have for the rheumatological conditions, for example, right now. You clearly see that a significant proportion of the rheumatologists have the perception that RINVOQ is different. And some of that has come from the clinical program, the way the molecule actually acts, what sort of data we can show and represent to the physician. So to get to the crux of your question, going into these label adjustments, we think that, that's one of the reasons why RINVOQ will be very, very resilient because the market has seen, the physicians have seen the data, the power of the drug, how fast it works, the differences in remission rates that are reflected in the clinical data. So I think it's a combination of those things, but there's no question that the majority of the physicians around the world do see RINVOQ as the JAK player in the category.

And one thing I think that is important to keep in mind is that when we talk about differentiation, it's benefit risk. And nothing has changed in our benefit and our ability to speak about our benefit in some very important areas, whether it's the head-to-heads we've run across a number of areas, whether it's the strength of our TNF-IR data, which was really a bio-IR study because multiple patients had failed several biologics before entering that trial in our core program, the ORENCIA head-to-head study that we've run, the strength of our data across psoriatic arthritis and atopic dermatitis are all very compelling. And that clear benefit is coupled with a well-described safety profile. And we will have the totality of those data after we have a final label in RA and after we have approvals that we're quite confident in, in the indications that are under review. And so that benefit risk story remains very important, and the benefit remains very, very strong.

Excellent. Let me ask another sort of RINVOQ-tilted question, but maybe more strategic around how you're viewing one of the specific opportunities, which is atopic derm. So it's been interesting as we've done some of the checks with docs, I still get a sense that Wall Street doesn't really appreciate this. I get a sense that while obviously, Dupixent has been a great brand and has done really well. There seems to be a real desire among derms to have something that they can combine with Dupixent, which is a notion that I don't think many folks are particularly familiar with that you'd see a major derm indication becoming more of a combo. I guess maybe first and foremost, are you seeing any -- as you do your checks, Jeff, are you seeing any indication of that? And if so, as you think about your development strategy and maybe even business development strategy, how are you sort of balancing your approach to the market with Dupixent, obviously, being a relatively formidable competitor?

Yes. I think we did hear early on with some of the dermatologists as they started to think about a JAK inhibitor, they were quite impressed with the -- I mean, the speed of effect. I mean, you're talking about reductions of itch within a day or 2, quite remarkable speed. And that's what patients when initially exposed were shocked at the level of itch reduction. I mean, literally within a day or 2, as I mentioned. And so there was some consideration over one day a combination therapy market evolve. But we haven't heard as much of that. I mean, it's some speculation. But one of the things that we see is that you have to look at the JAKs in totality, right? So yes, you have speed. You have an incredible onset of skin relief, particularly the high PASI or EASI scores. It's the same thing as the PASI 90 as the EASI 90. And when you combine itch and skin at high levels of effect, it's quite -- they're remarkable drugs, particularly RINVOQ. And the market is going to see that as they've launched. So we don't necessarily see something like, "Hey, there's going to be widespread utilization in this case over an oral JAK inhibitor with Dupi," but I'll let Mike talk to anything more from the clinical side.

Well, I think one thing that's important to consider is that while Dupi has been a very successful drug, there are a number of patients who require additional therapy. And today, they are getting that through high doses of topical steroids. And we view that as an indicator of a patient population that's not getting sufficient relief from Dupi on its own and a real opportunity for a high efficacy agent like RINVOQ. And beyond that population, there's also a significant number of patients who have been exposed to Dupi and then come off of it. And of course, at an individual patient level, we don't know all the individual reasons. But I think it's safe to assume that some of the more common reasons would either be that they didn't achieve the relief that they were looking for or perhaps they didn't tolerate it from some of the things that are known with Dupi, like the conjunctivitis, which is another population that I think is ready-made for high efficacy agents like RINVOQ. So when you couple the features that Jeff talked about, the very rapid response to itch in particular, I mean, we had reductions in itch after 1 day or 2 days of therapy for the low dose -- for the high dose and the low dose, respectively, across our Phase III program, prominent reduction in that itch, high levels of skin clearance. We actually achieved significance on EASI 100 so complete skin clearance. Going into the program, we actually didn't know that any agent could achieve that, but we tested it because we thought it was important to describe. And we're actually successful there. So when you put all those attributes together, we think there's a very real opportunity in this marketplace. And it's also a very underdeveloped market. I mean, biologic penetration is still single-digit percentage compared to psoriasis in the teens and RA and IBD that are approaching 40% and beyond. So we think there's a real opportunity here.

Excellent. Well, let's pivot a little bit here as long as we're talking about commercial to the other -- one of the other major pillars, your neuroscience, neurology presence. And so obviously, you're really off to a great start. If you look to newly approved, obviously, it's going to contribute. Just on the competitive set here versus the other oral CGRP, one thing that, I guess, has kind of jumped out to us as we've done some work with headache specialists and even with PCPs is that patients tend to toggle back and forth between being acute and prevention. And so it's not a perfectly bifurcated market, if you will. So I know clinical data, obviously, is key. But there seems to be, at least from a simplicity standpoint, a built-in sort of advantage, I guess, if you've got one drug for both. And I know that's a key point -- selling point that your competitor raises. But just maybe talk about what you're seeing in the space. And Jeff, I'd love to see how you view the dual offering that you guys have.

Yes. Well, we -- when we do the insight work, Chris, with the headache specialists, when it comes down to it, they have a patient sitting in front of them, they're going to make a call over the intervention. And at the end of the day, it's "I need that headache to go away. I need to have something that either aborts the headache in the acute or it's gotten to the pivot point," where we need to think about I need to prevent it. And so as our team comes in with our offering, we really like the portfolio offering because it meets that need of give it the best chance, pick the right brand to do what you need to do. And so for example, on the UBRELVY side, you have a high dose, you have the ability, the only ability to give a second pill, actually, to fully suppress that acute event. And that's very, very unique and powerful in that acute market segment. If you look at QULIPTA, and I think it's quite clear, if you study the competitors, let's say, episodic preventative data, QULIPTA performed at the very high end of the preventative range. I mean, we are extremely pleased. And so in the early days, that's incredibly powerful. When that patient reaches that point where I have to think about prevention, you have a once-a-day oral. You don't have to take it every other day. You're on a high level of the endpoints on efficacy. So you get an almost 30% of patients that on QULIPTA will literally have no more headaches. That was on the primary -- or one of the secondary endpoints. So when we have that engagement with the customers, whether it's a headache specialist or a primary care, they like that message. And so we think over time, and right now in the current time, this is the right offering. And also, Chris, over time, we have the injector base with BOTOX. And so this idea of a portfolio and the ability to work across chronic, episodic and acute, we think, is a really nice offering as we enter into the market.

Excellent. Okay. Let's maybe pivot a little bit to the pipeline. Mike, so your CF effort, obviously, has got a lot of attention, maybe more from Vertex holders maybe than AbbVie holders actually. But still a pretty big contributor for you guys if all works out. And so I know there was a bit of a dust up, I guess, a couple of weeks ago regarding an update to clinic trials. But I know you guys are still guiding to proof of concept in the first quarter of next year, having the data in-house actually by year-end. But just broad strokes commentary. I know you've given it -- the hurdle is sort of as good or better than the Vertex combo, and you talked about other benefits, however, besides FEV1. Can you maybe talk about what these benefits are and just kind of give us a little bit more color on what we should be looking for?

Well, as you said, we'll have the data in-house around the end of the year, probably be in a position to communicate externally both the data and what it means sometime around the first quarter, exact timing to be determined. And that's proof-of-concept data for our triple. And those will be important data to tell us whether we have a program here that we can advance to late-stage development. There's been a lot of focus on the program. I think you're correct, a lot of that probably comes from interest in Vertex because from our perspective, this is an early program, pre-proof of concept, and it's very, very heavily risk-adjusted in our long-range planning. So it's not an important contributor in any way at its current risk adjustment. That would be very, very nice upside if it did advance to late-stage development because it is an area that is quite substantial and still has room for more innovation. So the hurdle that we would want to see from an efficacy perspective, as you described, is as good or better. And then the other sorts of advantages we're talking about could be things like DDI profiles, the ability to formulate and the like that with the right efficacy profile can become important. So we'd be looking at that whole package.

Great. Okay. One more pipeline question, I think we've got time for, and I'd like to maybe ask on 154, and this is the TNF steroid conjugate program for investors who are listening. So Mike, you've said a number of times, I think, how excited you guys are about this program. It doesn't seem to really catch the attention of investors, at least the ones that we talk to. And I know you're in a Phase IIb dose-ranging study, which I think you actually said is actually ahead of schedule, but timing is end of next year in terms of data. So maybe just talk about your expectations for that event. I know it's a year out or so. And maybe also mixed in with that, you guys pivoted from an earlier formulation. Maybe just walk through the logic around that pivot and then what to expect.

So as you say, the study that's ongoing right now in RA for 154 is a large Phase IIb. It's meant to be Phase III enabling. It will give very clear efficacy data. And I think that is the data that the external community really wants to see to understand the potential. And I think that study will deliver that clarity on the long-term potential of 154. That study is progressing very well. We would expect to have data in '22. And so we'll have much more to say when we have those data in hand. We've also started studies in polymyalgia rheumatica and are imminently starting a study in Crohn's disease. So those will be important readouts that will come after the RA readout. In terms of the switch from an earlier program, 3374 to 154, that was basically made to improve aspects, like manufacturability, the ability to concentrate a high formulation, which isn't as much of an issue in early development but can have important impacts on late-stage development and the ability to commercialize effectively. And so the difference between the 2 are minor changes in linker technology that allow for that high concentration formulation and improve the ease of manufacturability. So that was the rationale for the switch. Biologically, we view the 2 as essentially transferable.

Got it. All right. I have a ton more questions, but unfortunately, no more time. So guys, thanks so much for spending some time with you. I know you're busy. I appreciate you spending some time with Piper. So thanks, and have a great rest of your week.

It's a pleasure. Thanks.

Thank you very much, Chris.