AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

All right. Welcome, everyone. This is Gavin Clark-Gartner and Josh Schimmer from the Evercore ISI biotech research team, and we're very happy to be here with the AbbVie team. Full house, we have Rob Michael, who is the Vice Chairman and President; Jeff Stewart, Chief Commercial Officer; Tom Hudson, SVP of R&D and the Chief Scientific Officer; Scott Reents, Chief Financial Officer; and Roopal Thakkar, who's the VP of Regulatory Affairs and R&D Quality Assurance. Thanks for joining us, guys. So we only have 20 minutes today for our fire side. So we're going to dive right into Q&A.

And maybe a good place to start is with the Humira biosimilars. So recently, we saw that Optum is putting other biosimilars at parity to Humira. Do you expect more plans to manage biosimilars this way?

Gavin, it's Jeff. Thank you. Thank you for the question. We do. We expect that our strategy going into the biosimilar event would be to defend the volume, concede price as we need it to make sure that we would have a good formulary position or a preferred formulary position. So I think what you've seen with Optum's announcement is consistent with our primary strategy. And as we've highlighted before, we're projecting at least 80% of the market will behave like that. We haven't closed all of the deals, so that's in process. And we'll certainly -- by the end of the year, that will take place. But I think what you'll see is exactly as you highlighted with a co-preferred or a parity position across many of the major plans in the United States.

Yes. So given the choice, why would any provider or a patient choose a biosimilar then? Do you think there will be any type of financial incentives at play here?

Well, as part of these contracts, if you're a preferred product, the payers typically cannot sort of put together programs that would encourage the use of one preferred product versus another preferred product because the concessions and the formulary has been set. So for example, we don't anticipate, based on the contracts, that you would say, "Oh, well, you can use Humira or continue to prescribe Humira," but there's lower co-pay tiers, for example, on the biosimilar. They will be literally at parity, so an equal set. Now in terms of the question over why would physicians move away, I think you'll see a couple of things. I mean we know from some of the modeling we've looked at in some of the analogs that there are going to be physicians that will try and use the biosimilars that are on there, whether it's because it's a manufacturer that they trust, for example, Amgen. They may have samples, they may be curious. Now typically, those -- that volume will be on new patients, not necessarily the intent to sort of, let's say, try a new Humira or a follow-on Humira for existing patients, for example. So we do anticipate that there will be some volume degradation. Overall, we think it will be relatively modest. But that's how we sort of see the marketplace shaping up.

Yes. So I guess what I wonder is if this is the setup, at least for 2023, how would there be anywhere close to 45% erosion in the first year?

Well, it will depend on the price concessions that we had. And obviously, this is a unique marketplace. We haven't seen anything like this certainly around the world in our experience or I think in the history of biosimilars. So you have a first mover, right, in early February, which is a very sophisticated manufacturer with Amgen and AMGEVITA. They have the leading share globally with their products. So they know how to play in this area, not just with the immunology class but other biosimilars. So they're a sophisticated manufacturer. And they -- as you might expect, they will negotiate hard, okay? And then you have, in the middle part of the year, as we've highlighted before, up to 9 additional biosimilars. We've not seen that competitive intensity anywhere. When we launched in Europe, we had 3 and then another one, a fourth. So that's something that we have to deal with, and you can imagine with that level of competition, negotiation in terms of where your pricing position might be for your preferred or co-preferred formulary position has been quite intense. So the answer will be, if you're looking at saying a co-preferred position, the revenue approach will be based on what sort of pricing does AbbVie need to concede to have that type of volume of surety in '23. So that's something that we'll continue to navigate here towards the end of the year.

Yes. Got it. And maybe just a last question on Humira biosimilars. What's kind of the timing of the price concessions, the rebates over the year? Is it the type of thing where there will be kind of a big step down in Q1, and that will be more or less maintained for the year? Or will it be kind of a gradual onset or maybe step down and another step down halfway through the year as more competitors come online?

Yes, it's a great question. So we, obviously, in our contract negotiations contemplated sort of a first half, second half dynamic. And so while we would look at an annualized net price, that net price may change as the quarters move based on how we've done the contracting. And I think that's important, right? Because both the payers and AbbVie would have had to contemplate things like, well, what happens in the middle part of the year? Maybe there's more ferocious competition. We've already had some bids perhaps. So you'll see sort of that net price move over time based on how we've structured the contracts. And we've done that strategically to make sure we could close the annualized co-preferred position with the biosimilars, as you highlighted.

So when we give that full year guidance on the Q4 call, you shouldn't assume that the first part -- the first half of the year would replicate the second half. You would expect to see -- we'll have an average erosion for the year, but I would expect that second half erosion to be greater than the first half, given the mere entry of a number of competitors and the formulary negotiations.

Yes. That makes sense. And then how dependent are Rinvoq and Skyrizi on the Humira context? Both from like a gross-to-net perspective and also from a payer access perspective?

Well, initially, it was important as we started to establish Skyrizi and Rinvoq, but it's less and less dependent. The dependency is not very significant because of the size of those assets. As we look now, I mean the running rate on Skyrizi is very impressive. Also, I would say that Rinvoq, even after the label change, is a very unique animal in the later lines, okay? So it's not really -- it doesn't have full access anymore. It has second-line access. So in some ways, there's also a moat around Rinvoq given the size of its indications and more and more coming. So I think the way to think about it in terms of how you should think about both value and also access is look at the assets themselves, both together and individually. So we have 3 or 4 head-to-head trials against great standards of care for Skyrizi, where we have gross superiority we're able to promote in the market. Rinvoq in later lines is just absolutely exceptional. We also have head-to-head trials there that can clearly show it can rescue a TNF, and it's also superior to ORENCIA in a head-to-head trial. So we basically structured the clinical program so that these assets in the formularies can stand on their own.

I think through that differentiation as well as the time on market, obviously, both Skyrizi and Rinvoq, their lead indications were approved in 2019. You've seen a very nice ramp for both assets. And so as we look at payer's book of business, the rebate stream from those 2 products has grown in significance. And so they do kind of stand on their own over time. But the other thing I would highlight is it doesn't mean as these products kind of get larger and become a bigger book of the business that there won't be incremental rebates over time. So it's not to say that there won't be incremental rebates for Skyrizi and Rinvoq, but it's not because of the biosimilars towards Humira or other biosimilars that will come in the future.

I got it. So maybe the gross to net in the access side of things, put that to the side. As we kind of look to 2024, 2025 and beyond, when we'd likely start to lose some Humira patient volume, will there be any type of stumble or kind of hiccup for the Skyrizi and Rinvoq base kind of in terms of driving switches to the brand potentially?

Sorry, Gavin. I'm not sure I followed the last part of your question there.

Yes. I guess just the Humira volume starts to decline over time, do you lose any type of ability to drive switches from Humira to Rinvoq and Skyrizi?

Okay. Well, it's an interesting and important question. The way that we basically present those assets to the physicians is as follows. So in other words, we don't encourage to say something like, hey, you can take a Humira patient and put them on Skyrizi. What we are able to highlight is basically what we call sort of raising the standard of care. So we've got data from our clinical trials that show if you're not, let's say, at a PASI 75 or a PASI 90 in terms of your skin clearance, what happens when those people that aren't under full control, which is increasingly defined by the medical community as higher and higher levels of skin clearance, what happens to them if they move to Skyrizi? Well, they simply get better. And so we're, I think, appropriately raising the awareness of physicians to say, you don't need to sort of tolerate underperformance of the first generation of biologic or those assets when you have drugs that have proven superiority. So that's how we do it. We leave it up to the physician with the discussion of the patients. It's the same thing, for example, on Rinvoq, where we know that if you have a Humira patient that doesn't have their joints fully under control, their ACR scores aren't basically at the right level. They're not in what we would say as remission. We have data that we can highlight to say, hey, [Audio Gap] because anyway, this person is going to go into a deeper remission, if you think about Rinvoq for those patients that aren't doing well. For patients that are doing well, they should stay on the medication that their physician prescribed. So we do that today. We think we do that appropriately based on our label and our science. And so that's -- we don't see things dramatically changing as time progresses.

That makes sense. So thinking about Skyrizi a little more broadly. As we move through the decade, what do you see as the other potential obstacles that the brand may face, whether that's biosimilar store or in-class competition with TREMFYA, maybe some of the orals with [ PIK2 ], what do you see at least the potential barriers?

Well, I do think the perspective on Skyrizi over time is, first, is the IBD markets are probably underappreciated. So this gives us some significant momentum. And we're doing that right now. So we've launched Skyrizi in Crohn's in the United States. We've got a few months under our belt there. It's progressing rapidly in the international markets. And basically, Skyrizi for Crohn's and then you see it's going to be very, very meaningful. And this is a very special product given its efficacy, its endoscopic healing, its overall safety profile, convenient dosing. So we anticipate that's going to be a big catalyst. Now if you look at what the potential barriers could be, we thought about strategically the emergent potential biosimilar, which we think will come for STELARA. And we thought about that, and it drove one of our decisions to do a head-to-head trial against STELARA, even the higher doses of STELARA, because we believe that we can outperform that generation of products. So as we look at that, we think that, that -- again, that head-to-head trial, something a payer and a physician can get their hands around, will really help us sort of sustain the momentum in that space. In terms of other orals, we see in certainly psoriasis and PSA that there's what we -- almost like an oral pre-biologic market. But in some cases, those aren't the same patients. Those are just the patients that wouldn't sort of declare themselves ready for a biologic anyway. And so we still think that the orals are operating in different spaces. And so overall, look, we're always very wary of the competition. That's why we anticipated with some head-to-head trials against the biosimilar as I highlighted. But we've got a nice setup with this product. This is a very special drug, more and more indications coming. And again, as I highlighted, we've got a strong position. We're capturing 1 out of every 2 naive patients in the psoriasis market. That's substantial. And so that's just going to essentially allow our market share to continue to drive forward to a very, very nice level over time.

Yes. That makes sense. Maybe just one question on Rinvoq. How are payers managing the product in atopic dermatitis today? Are they requiring Dupixent use first? Or are they allowing after a systemic treatment, even if it's not Dupixent? And then secondly, how are the providers actually using the product today?

Yes. So thanks for the question on atopic dermatitis. So I think it's important that our utilization from our label, typically, payers will basically prior authorize the product consistent with the label. And so our label does not require a step-through Dupixent. It's a step-through through an oral systemic or a biologic. So it's not an and. So -- and basically, the payers don't demand to step through for Dupixent. Some of the more rigorous payers, they will basically declare it then say like, look, you got -- in addition to an oral systemic or a biologic, you have to show that you've gone through topical steroids or in some cases, even light therapy. So depending on the rigor, but those things happen for Dupi too, so it's relatively similar. Now in reality, what we see is at roughly a 35% to 65%, about 35% of the use of Rinvoq in the United States is frontline. So they have not been exposed to Dupixent. And about 65% is after Dupixent. So that's what's happening in the market, but that's typically a physician behavior effect, not necessarily at all a payer control effect.

Got it. So on the aesthetics franchise, let me just ask the question this way. Let's say that hypothetically, there is a pullback in demand in 2023 due to macro conditions and a weakening consumer. If that does happen, again, hypothetically, how do you think kind of the rebound in the demand may look?

Yes. So we studied this pretty carefully when we acquired Allergan, studying the global financial crisis '08, '09. We also then had the pandemic right around the time of the close of the transaction. So we've had 2 examples of seeing this type of pullback and studying the recovery. What we've seen is a very strong recovery as recently as [ June '20 ]. By the end of the summer, we saw a very robust demand bounce back. And so it probably takes the form of more of a V-shaped recovery once you start to come out of those conditions. In '08, '09 for about 5 quarters, the business declined by high single digits, but then the decade following grew mid-teens. And so we saw a very robust growth. And so probably the best way to think about it is when that occurs, there will be a fairly robust recovery, which is why we continue to be very confident in our long-term guide of high single digits, greater than $9 billion of revenue by the end of the decade. This is a business that's quite resilient, but we'll go through a transient period here with economic pressure and then bounce back very strongly.

For Imbruvica, how have providers been reacting to some of the recent Imbruvica data and evolving Calquence data? And what's going to be enough to return this franchise to growth?

Yes. So the reaction -- we haven't had much time to see the reactions with the large prescribers to the Brukinsa head-to-head trial. We'll know more over time, but that data is still just coming out now. What I would highlight is that the reaction to the recent changes in the NCCN or the U.S. guidelines has been largely consistent to what we saw when our label changed, so our label basically that highlighted the cardiovascular risks, which is a little bit more heavy than what we see with Calquence or certainly Brukinsa, which is not yet approved in certainly in CLL. That's largely consistent. I think what we can say is there's 2 dynamics that we see with Imbruvica. First is that because of the head-to-head trials, and certainly, this recent Brukinsa data will continue the trend, is we continue to lose basically new patient share to both Calquence and Brukinsa across our indications. At some point, that will stabilize, and we do have a pretty large installed base. We're not seeing any switching that's taking place once a person is stabilized on Imbruvica, and that's largely consistent with what the guidance has been from the regulators and the KOLs. So we've got that ongoing pressure on market share based on these head-to-head trials and the guidelines, et cetera. We also have a tough market condition where the market, the CLL market which is the big driver of Imbruvica, is still down about 20% from pre-COVID levels. So net-net, what we see is that Imbruvica will not be the same growth driver that we thought it was a couple of years ago, right? That growth, that lack of growth will be partially offset by Venclexta in terms of our overall heme franchise, which will also be encouraging where we look at high-risk MDS. You look at basically multiple myeloma, 1114 -- t(1114). And then we start to build, starting this year, with the new heme assets -- sorry, next year, I'm sorry, Gavin, in 2023 with epcoritamab and then basically with navitoclax and so forth. So we see stabilization, some decline with the core heme until we basically get this ramp back for growth with a very nice new indications and assets that we have in the pipeline.

So given that dynamic, likely for oncology, the way to think about it is in '23, '24, given Imbruvica will be declining and Venclexta won't be able to fully offset it, we'd likely expect a decline for '23, '24. And then '25, when we start to see the pipeline kick in through that -- through the end of the decade, strong growth in oncology once again. But the next couple of years, given the pressure on Imbruvica, it's fair to model a level of decline.

Yes, I got it. And maybe just one more question to close this off. We're kind of -- we're just out of time. It's kind of 2 questions rolled into one. But you're on the lower end in terms of the industry for R&D spend. And at the same time, it seems like the Allergan deal worked out really well. So I guess as we're moving through the next, call it, 3 to 5 years, how are you going to look at sourcing innovation internally versus externally and thinking about growing the business kind of beyond the end of the decade?

Yes. I mean look, we feel very good about the portfolio we have today with the combination with Allergan. We've got 5 [Audio Gap] long-term growth. So we're not in a position where we need to do something in terms of M&A to support that guidance. We base that long-term guidance on the portfolio we have today, what we have in our pipeline. We supplemented it with external innovation, putting that $2 billion aside for a few years. We're going to go into '23, we'll have more flexibility clearly because we'll pay down the debt to a level we'll have our balance sheet in a good position. And so we won't be limited by that $2 billion per year anymore, but we won't need to do it since we'll certainly have more flexibility. I'd say as we look at our R&D investment, we always look to fund the pipeline. We've more than tripled the investment since inception in terms of the internal investment for R&D. We supplement that with external innovation. I think at times, people focus on percent profile, but that's not necessarily the best metric. Because when you think about our large Humira revenue footprint, doesn't require really hardly any R&D resources other than on-market support. We think about aesthetics being a lower intensive R&D investment versus a traditional pharma investment. But that said, we're going in '23 with -- gross profit will be declining because of U.S. Humira. We're going to continue to invest in R&D. We're not going to cut investment. In fact, I would expect over time, we'll grow investment. But we always do it from the mindset of we're going to fund the pipeline to drive long-term growth. We have the luxury of having top-tier operating margin. So we can certainly -- we have the flexibility to invest more in R&D if we need to. We see those programs, we fund them. So that's certainly the way we think about R&D investment. We're very committed to growing that investment to support the long-term growth.

Yes. Got it. That makes sense. Thanks for the time, guys. Really appreciate you all joining us today, and hope everyone has a great rest of your day.

Thanks, Gavin.

Thank you, Gavin.

Thanks, Josh.

Thanks, Josh.