AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Well, good afternoon, and welcome to the AbbVie session of Cowen's 42nd Annual Healthcare Conference. We're very, very pleased to have the company back with us again this year. Representing the company are 3 members of senior management: Mike Severino, who is Vice Chairman and President; Rob Michael, who is Vice Chairman, Finance and Commercial Operations and Chief Financial Officer; and Jeff Stewart, who is the Executive Vice President and Chief Commercial Officer. There's always lots of ground to cover with AbbVie given a multitude of growth drivers, which seem to be delivering simultaneously. So let's dig right in, and I'll start it out with a look into the future.

So we're all obviously aware of the Humira patent expiration that's upcoming. But thereafter, it looks like a pretty vibrant second half to the decade, yet consensus kind of has earnings recovering at a rather modest pace. And that just seems wrong. It seems that without any major encumbrances that earnings should -- I would -- I guess I could use the word explode, you may not want to, but it should explode out of the gate. I'm just wondering how you would suggest to investors how they think about the trajectory of earnings, say, in the '25 to '30 period?

Yes. Steve, this is Rob. So I agree. I think we would expect a more vibrant recovery in the '25. We talked about high single-digit revenue growth from '25 to the end of a decade. We'll return revenue growth into '24. It will be more modest. But after '23 in the first year after, we'll essentially return to revenue growth. And then beyond that, that high single-digit growth will also come with that, as you expect operating margin expansion. So you would expect to see earnings growth that we've talked about the top line growing high single digits. And really, where I see the disconnect is in a few areas, but I'd say half of it is really coming from Skyrizi and Rinvoq. Earlier this year at the JPMorgan conference, we talked about peak sales for Rinvoq and Skyrizi exceeding the peak sales of Humira. So 2022 will be the peak year for Humira, approaching $22 million of revenue, we would expect Skyrizi and Rinvoq on a combined basis to exceed that. That's certainly not being reflected in the forecast we're seeing from consensus today. So I'd say that's a big driver in this. In '25, in particular, when I look at the consensus number, Skyrizi is actually in line with the 7.5 -- greater than $7.5 billion that we've communicated for Skyrizi in '25. But for Rinvoq, The Street models are still about $1 billion light of the greater than $7.5 billion that we communicated for Rinvoq. So '25, there's still a disconnect for Rinvoq. But for both Skyrizi and Rinvoq as we go beyond '25, that disconnect exists. I'd also say for Vraylar, we've said approaching $4 billion with currently approved indications. The Street models don't have Vraylar at that level. I think it's somewhere between $3 billion and $3.5 billion of peak sales in Street models as well. We have seen though positive movement in terms of aesthetics. We did recently provide a view of 2029 greater than $9 billion. We've been saying high single-digit growth over a year, but that didn't resonate as much as when we said greater than $9 billion in 2029. So we have seen Street consensus move up to approaching but not quite at $9 billion. I think it's around $8.8 billion now, but we're seeing those numbers come a lot closer. Migraine, I would say, is one area that where we see, The Street is very excited and in line with our greater than $1 billion of peak sales potential for both Ubrelvy and QULIPTA. And then when I look at the pipeline, not as much value being ascribed to our pipeline. We obviously have -- we're very excited about what the pipeline has to offer, but that's also another area of disconnect. So I think all those factors, we agree with you that we expect to see a very significant return to revenue growth as well as earnings growth given the operating margin expansion that will come with that, and we're very excited about our future.

Okay. Great. So we want to dig into all those topics. Let's start with Rinvoq. So the company has been very upfront about expecting a bit of a decline in prescribing post the label update. I think the company last said that about a month ago. So what has been the trajectory since then? Are you seeing the decline as you would expected? Is it more? Is it less?

Yes. Thanks, Steve. It's Jeff. And so it's actually progressing very similar, right on track to what our expectations were, and I'll give you some sense in the large rheumatoid arthritis market. So before the drug safety communication in September and then ultimately, the label change in December, we had achieved an in-play share, which is a combination of naive starts and switch starts of about 16%, and that was second only to Humira in the large RA market. And then basically, as doctors started to not prescribe as much frontline, they started to digest the safety communication, then ultimately, the label change. We see our most recent data sitting at 13.4%. So that difference is largely right at our expectations. And as we continue to progress with the repositioning of the brand as the leading second-line plus agent with the data we've generated as well as we start to build with the other room indications, first with PSA that's approved and ultimately with ankylosing spondylitis and then non-radiographic spa, towards the end of the year, we continue to see that we will shift towards growth in that in-play share from that 13.4% base. So in a nutshell, it's progressing as we anticipated. No surprises so far, and we're encouraged by the most recent trends that show stability in the platform for the growth into and through the year.

Has there been any unexpected events relative to the nature of prescribing? So say, more GPs, less GPs than expected, more specialists, less specialists than expected? Or a change in what was expected from indication or geography?

Yes. Good question. overwhelmingly, there's been no change in sort of the makeup of the physicians. So it's overwhelmingly a rheumatologist in the base indications, a specialty prescribing. Obviously, with Rinvoq being launched in atopic dermatitis in January, you're starting to see the exposure to the dermatology specialist, but again, no surprises are fundamental change in what we're seeing in terms of the makeup of the prescribers. I would say that in terms of our international momentum, you highlighted geography. We see continued strength in the international markets as we add these indications. It's almost like they act certainly synergistically. So if you go from one rheumatology indication like rheumatoid arthritis, then you get psoriatic arthritis, then you get ankylosing spondylitis, they build on top of each other, as you might expect as the markets developed. And so we see very nice strength in our international markets where we've launched those indications first around the globe.

Okay. Are there any studies underway, maybe they were underway for a long time or whatever, but any studies underway, which based on what the results show, AbbVie would take to the FDA in an effort to modify or even eliminate the box warning on Rinvoq?

Modifying the box warnings on Rinvoq with respect to things like PTE and MACE, for example, which came out of the oral surveillance study would require a similar level of evidence. So it require a large-scale outcome study. And when we look at that situation, it's just not practical, when one thinks about the time it would take to design and execute those studies. So those studies generally take at a minimum 7, 8 years to conduct and then there's a regulatory time frame on the back end of it. So we're really talking about a decade out. And at that point, I think the prescribing patterns and the market segmentation will be so entrenched that the value of that is not clear to us. And so while we have no concerns about what a study like that would show if we were to conduct one, there are practical limitations that make it very challenging to conduct one. So we don't have an outcome study underway at present, and we don't plan to conduct one.

Got it. Okay. One question on Skyrizi, I mean it's a drug that seemingly has no issues. And clearly, the leader in the classes was amply evidenced on our dermatology panel yesterday. But as you peer into the competitive landscape, do you see any products that have profiles that could rival Skyrizi?

We believe Skyrizi has a unique profile, and it really has a category-leading profile when you consider all aspects of its offering, benefit risk, dosing, frequencies, so quarterly dosing and the overall value proposition for patients and physicians. And if one looks at psoriasis, I think that's quite clear. Given the level of clearance, that has been demonstrated not only in the short term but in long-term studies, convenient dosing, very favorable benefit risk now translating into other areas as well, like psoriatic arthritis and strong inflammatory bowel disease as well. So we see it as a unique profile. We don't see any competitor on the landscape that offers all of those benefits. Certain assets would claim to have part of that picture, but also often with limitation. So for example, a fair amount of attention has been played to bimekizumab, the IL-17 in the psoriasis space, and one can get high levels of skin clearance with that, but there's also a trade-off with respect to benefit risk and the candidiasis infections that are seen with that agent and potentially other fungal infections with challenges around at least the potential for exacerbation of inflammatory bowel diseases. And we see, for example, where BIM is launched, they can -- competing principally within the IL-17 class and not competing more broadly with the 23s. There are oral agents in psoriasis coming forward. [indiscernible] have gotten a lot of attention, but they don't play in the same efficacy realm that Skyrizi does. They compete much more in our view in the future with other orals. And of course, we'll have to see how they're labeling turns out after FDA review. But we don't see any agent that offers the same overall benefit risk profile or overall value package as Skyrizi.

Okay. Let's move to Humira. A few questions on Humira. So you're going to -- AbbVie will garner a royalty on sales of biosimilars, to the best of my recollection. I mean that should be a pretty serious number, I would imagine, over time, collectively. So I'm wondering where will that be recorded in the P&L or perhaps in the Humira line? And will you break it out and you agree it will be a substantial number?

So Steve, this is Rob. I mean, the Humira royalty income, it will not be substantial. I don't expect it to be a substantial number, and therefore, we wouldn't break it out separately, but it's no different than any other royalty income stream we have. It doesn't make it into the top end of the key product categories. We don't break those sales out.

Okay. Does AbbVie have any strategies around Humira in its LOE, which you have not discussed with investors. And I'm not suggesting you start discussing them today, I'm simply asking if there are such strategies, which maybe will become evident in the next, call it, 8 months?

Yes. I think that what we've highlighted, Steve, is the -- is really the trade-off of the price and the volume. I mean, largely, what we've seen around the world, and we really don't think it's going to be that much different in the United States is how the volume and pricing moves. So what we've highlighted before is that we will compete to retain as much volume as we can within a reasonable price. And that's kind of what we've done in Europe, depending on the archetype of the country. So for example, we think that if we look at our degradation in terms of the 45%, plus or minus [ 10% and 23% ], we think that 2/3 of that will be price and 1/3 volume. And that's kind of what we've seen within the other archetypes. So the U.S. market is a little different. That's clear. There is a fragmented payer landscape, and it will be sort of a negotiation payer-by-payer in terms of what their interests are and what our interests are. Certainly, we would -- we think it's strategic to try to retain as much volume as we can at the right price. So that's kind of in a nutshell as how we see the market playing out as we approach '23.

Got it. Okay. One more question, then I'll turn it to Mike for some additional questions, and that is on Restasis. So we now have a competitor. I'm just wondering has that competitive launch progressed as you would have expected.

Yes. So we've seen, as announced, the competitor -- the generic competitor for Restasis from Mylan Viatris and they have launched. So they started to fill the channel and actually have had some pull through. There are also 2 authorized generics that have also entered the market, and those authorized generics were deals that Allergan signed many, many years ago. So there's 3 essentially generics in the Restasis market that are in play today. So if we look, Steve, at our weekly prescriptions, we can see an erosion from baseline in the high teens. So we are seeing the erosion. It's there, happening in the marketplace. And as time goes by, we would expect to start to see a very traditional generic-like curve because we have also confirmed, obviously, that all 3 are obviously AbbVie rated to the Restasis single-dose administration. So that's how we see it playing out. Really, no surprises so far and the market is proceeding as we would have expected.

Got it. I'll turn it to Mike for some additional questions.

Thanks, Steve. We'd like to probe some of the CNS franchises, which, as you mentioned, are an important growth pillar for AbbVie. And let's start with migraine. So how is the migraine franchise performing relative to your expectations initially? Which has greater potential between Ubrelvy and QULIPTA?

Yes. Thank you, Mike. We're very excited about the migraine franchise. And our strategy is pretty simple and clear. It's a strategy where we can bring assets into the different spectrum of the disease. So on the far end, the most chronic patients, we have Botox, which is very significant. Chronic migraine is our largest single indication of Botox Therapeutics, and it's the largest overall indication. And it works very, very well. We retain basically the highest in-play share even versus each individual monoclonal in that space. So that's exciting. Obviously, then we brought Ubrelvy, which is indicated for acute migraine, where if you know it's coming, you're getting it, you can take Ubrelvy and it will abort the migraine and then recently QULIPTA, let's say, in the mill for episodic migraine, which is quite significant. So we like the fact that we can tailor the individual assets with our targeted physicians for what they're facing in their clinics. Now in terms of which market is more attractive we like them all, and it's pretty interesting. If you look at the total prescription markets, they're almost the identical size. So for the acute migraine space, which is essentially the oral Gepants of which Ubrelvy is the leader, we see that's about an 18 million script-based market. And in the episodic and preventative market, we see that's about 17.5 million. So they're almost identically sized. So they're both fantastic opportunities that we now have one dedicated sales team that Botox is separate, that goes in and will represent Ubrelvy for acute migraine and with very much the same doctors, when you need to get to a first preventative choice, QULIPTA is a simple once-a-day oral. So we like all of the children, I guess, is what I'm trying to say, but we're excited overall, and we're on track. We are the leader in the novel oral space with Ubrelvy with about 54% of the NBRx share. And we are already #2 in terms of the preventative or episodic space just behind Emgality, which is Eli Lilly's monoclonal. So the performance is solid. It's a very nice franchise for us, and we're happy with the momentum thus far in the year.

Great. Let's move to Vraylar, which as you said, even under its current label has important growth implications for AbbVie. But the major depression trials were positive or some more. Has the major depression application been filed?

So we have submitted the application. We announced that just a little while ago, last month. The filing from a technical perspective comes about 60 days after that. So we're still in that window, but we feel very confident in that overall application. We've had very successful regulatory meetings about the nature of the file, and we feel very confident in the overall prospects and in that indication. And we think it will represent a very nice addition to Vraylar, overall. And of course, it will be important for these patients because there's really very few treatment options for adjunctive treatment of MDD and new therapies, particularly with those that have the kind of profile that Vraylar has that are needed.

In major depressive disorder, are there any agents that you view as the most likely competitors to Vraylar that they would -- that Vraylar would need to take share from or maybe some that are on the horizon that might enter the market after Vraylar launches?

There are very few agents that are approved in the syndication, and it's a big indication. So about half of patients with major depressive disorder fail to gain control with monotherapy with a single agent, typically an SSRI or SNRI. So there's a real need for these and there are limited number of agents that are approved. The majority are dopamine partial agonist as Vraylar is. But Vraylar has a unique mix to his pharmacology with its D3 preference and the activating properties that, that has. It's clinically described as a brightening effect. So when you look at the performance in the trial and the overall performance across major depressive disorder, when you look at the performance in other conditions, like the depression that is associated with bipolar disorder, we see that mix of pharmacology offering a real advantage, and we see it as a very strong profile. So we don't identify anything else out on the landscape that has the ability to deliver that same benefit.

Great. Thanks. Let's move out of the brain and into the lungs. We're expecting a readout near term from your cystic fibrosis efforts. Proof-of-concept data are due sometime soon. When might we see those data? And could you give us a sense of what next steps would be if the trial is a success? What -- is that what AbbVie have taken if the trial does not meet your expectations, what steps might?

Well, certainly, I think -- before we delve into the details there, it's important to keep in mind, this is a Phase I pre-proof-of-concept program. And so for a company of our size and scale, it doesn't meaningfully contribute to our view of the future of the company, certainly. But we recognize that folks are interested in the outcome of this trial. We've said that we are expected to make a decision this quarter, which it's obviously March now. So that would mean this month, we're still on track for that. So we would expect to make a decision by the end of the month. We haven't said exactly how because we have to get the data, make our determination before we decide exactly how we're going to communicate that. But I think you can expect us to communicate our overall decision in a reasonable time frame after we make that call internally. And then we would present more detailed data at an upcoming medical meeting as we always do. So it is a proof-of-concept study as you described. If it were positive, there's some additional dose ranging that would need to be done. So the C2 component is the newest component, and it's the component that we want to make sure we optimize because it's critical to delivering that overall efficacy. And so if it were positive, we have to do some additional dose ranging. We only have the highest dose of the C2 in the study. So we'd have to dose down and see whether the effect is maintained or whether that highest dose is, in fact, the selected dose for Phase III. That's work that would happen over the course of '22. If the study does not meet our expectations, we'll have to look at why that's the case. If, for example, we're principally the C2 that we thought needed to be improved. We know from experience in the field, that's the trickiest component to optimize, and it's taken others multiple attempts to optimize that. We do have other options, other programs that are in late preclinical or even early clinical development against that target, and we have other chemical matters. We have to look and see if we thought there was something that could be improved upon to decide the overall next steps in the event that the study doesn't meet our goals.

Great. Thank you. That's helpful. I'd like to touch on the -- sorry, go head, Steve.

And actually, I just saw up there. So Mike, just to be clear, do you have the data now?

No, we've not made a call, we've not reviewed the data. So we expect to see that by the end of the month.

Okay. So at the risk of sounding impolite, how do you know that additional dose ranging is needed if you haven't seen the data? Maybe when you see the data, it's going to look perfect based on the doses you've now studied?

We've only included 1 dose. So we couldn't know whether that was the optimal dose. We've included only the highest dose reached in Phase I in the proof-of-concept study. So if that were to give the effect that we had set as our go criteria, we would need to dose down to see if that effect was maintained at lower doses because you always need to identify the lowest dose that delivers maximal efficacy. And so the reason why we can say confidently that we need to do more dose ranging is because we haven't done it yet, and it would be required.

Got it. Makes sense. Last question, then I'll turn it back to Mike. But I mean this is a huge market, and there's one real competitor. So why doesn't it meaningfully contribute to AbbVie's future? Is it because you just perceive it as having a lot of risk? Or is there some other reason?

Because it's heavily risk-adjusted as a Phase I program.

Got it. Okay.

It's a Phase I pre-proof-of-concept study. So we would view it appropriately based on that stage of development.

We just want to be clear that we're not counting on that to deliver on the long-range numbers that we've put up.

Got it.

Let's move to an agent whose Phase I is very far in the rearview mirror, Imbruvica. All things considered, all things, should we expect Imbruvica to grow through to its patent expiration?

Yes. I think we've highlighted before, Michael, good question, on some of the dynamics around Imbruvica. And you've got a 2 pieces to the puzzle, let's say. First is, you've got the market effect. So the market has still after a couple of years of the pandemic and even more still has not recovered to the 2019 level. So you're getting new start pressure on the whole market. So to give you some sense the entire course of 2020 was down about 10% in 2021, probably when we look at the rearview mirror, may have been down even a little bit more not an additional 10%, but still flat. So you're getting a market effect. And as we look at the market, we think ultimately, over the long-range plan, it will recycle and come back. We just don't know when that's going to happen. Secondarily, we see competitive pressure, so market share pressure. We see market share pressure from the follow-on BTK for calcines we've highlighted and then also from our own agent, Venclexta. So when we start to put that in, we clearly see that Imbruvica will be under pressure. Venclexta continues to grow across all lines of therapy. We have multiple other significant indications coming for Venclexta as well. We have MDS or myelodysplastic syndrome, which is a cousin to the AML indication where we have a 60% to 65% global share of the ineligible population. We also are very excited about myeloma, which is the single largest hematology franchise and basically would be the first biomarker-driven drug for something called 1114. So when you start to add all that together and then you look at something that Mike Severino has highlighted before, we have numerous very exciting hematology assets behind that. So as we put that into the calculation, we do see significant growth over the LRP. Clearly, Imbruvica is under pressure, as I've highlighted.

Got it. Fair enough. Within immunology, one of the more exciting assets by our estimation and AbbVie's pipeline is the TNF steroid conjugate. Can you tell us when we might next see data for this program and in what context that might be?

So the next significant data readout for the program would be from the large-scale Phase IIb RA study that's now well underway. And those data would be available in the second half of the year. So that would be the most significant data readout. And then in the '23 time frame, we would expect to have data from some of the other Phase II programs that are also ongoing, although not quite as advanced as the RA study that would include things like PMR and inflammatory bowel disease, Crohn's disease particularly.

Got it. Great. We'll look forward to that. And I'll pass it back to Steve.

Two more questions before we conclude. First of all, given the very unfortunate situation in Eastern Europe, I'm compelled to ask what is AbbVie's business base in Eastern Europe, extensive clinical trials underway in regions of conflict? And are you sourcing any raw materials from that region, which might now be more difficult to obtain?

Well, Steve, obviously, our thoughts are with our colleagues in Ukraine across the region. It's a very unfortunate situation. Eastern Europe for AbbVie represents less than 1% of our global revenue. We don't have any manufacturing plants in the region. We obviously continue to monitor the safety of our employees. We've got about 90 employees in Ukraine. But our operations team always monitor supplier and distribution risks. We have plans in place to mitigate. So I wouldn't highlight that as a material risk for the company. So while it is -- we have great concern for the people in the region, there isn't a significant impact for our business, and I'll let Mike speak to the clinical trials.

With respect to clinical trials, we obviously run clinical trials in Russia and in Ukraine. Again, in the current state of conflict, one would expect some disruption in those particular countries. But we have a very broad clinical trials network, which is global in its reach. And as we did with COVID, we were able to bring up new sites, switch the allocation of patients from one region to another based on the situation on the ground. And so we feel we can manage it from the overall clinical trials perspective. But I would just echo what Rob said. Obviously, it's a very concerning situation overall in terms of the impact on people and we keep that in mind as well.

Certainly is. So we are out of time, but let me conclude with one last question, and we're actually concluding all our sessions with the same question. And that is when you look forward 10 years and you think about what AbbVie is going to look like in 10 years, what is the one thing or maybe there's 3 things. Maybe each of you have a different idea. But what is that one thing that is not visible to us externally that you see that you think will be a surprise? And maybe it's just the absolute success that AbbVie attains or maybe it's a pipeline, which we analysts just don't get. What is it that one thing that you think will surprise more than anything else?

I think if you look at the different screen, the internal view and the external view of our longer-term future, I think one of the biggest areas of disconnect is the growth that we can drive not only from our on-market products, and we've touched on that earlier in the session but also from our pipeline. And if you look at the progress we're making in hem/onc, we have built a broad pipeline behind our marketed products. And we're now also making great progress in solid tumors, an area that had not been as advanced as [ our tumor ] presence with programs like Teliso-V, in particular, with a breakthrough therapy designation in non-small cell lung cancer with high c-Met expression and a number of other programs beyond that. So I think the breadth of that pipeline, the breadth of AbbVie as an oncology player, not just a hematologic oncology player is something that would surprise people if they were to see our state at the end of this decade.

I don't think anyone expected us to essentially replace Humira within immunology, right? So we've been able to bring forward Rinvoq and Skyrizi to assets that have elevated standard of care and can essentially offset any decline in Humira, be bigger than Humira. And so we look at the rest of the portfolio. We're very excited about the diverse portfolio that we've built. But I don't think anybody expected us to be able to replace Humira just within immunology.

Great. Well, that's a great rundown. We thank you for all your comments. We look forward to watching AbbVie progress over the next decade, and we wish you a good rest of the day. So thank you so much.

Thanks, Steve.

Thank you, Steve.

Thank you, Steve, and thank you, Mike.