AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Okay. We're going to go ahead and get started. Thanks, everybody, for being here for day 3 of the Piper Sandler Healthcare Conference. My name is Chris Raymond. I'm one of the biotech analysts here at Piper Sandler. Very pleased to have with us our next company, which needs no introduction is AbbVie, of course, I have with me the Vice Chairman and President, to my left, Rob Michael, Jeff Stewart, EVP and Chief Commercial Officer; Tom Hudson, who is the Chief Scientific Officer; and Scott Reents, CFO. So we have a full complement of management here for our talk. So normally, we ask companies to give a 2- or 3-minute overview on the company. I don't think we need to sort of go into that. So maybe we'll just dive into Q&A.

And this is a fireside chat format meant to be very informal. If anybody has any questions, please raise your hand. I'll make sure it gets asked and answered effectively. So thanks again for being here.

Thanks for having us.

All right. So why don't we jump in? I'm sure you guys have spent a lot of time talking to investors about Humira. And I don't want to spend the entire fireside sort of going over the erosion curve, but I think you guys have been fairly clear that when you give your next update on the Q4 call, you'll be sort of talking about guidance, et cetera. Just in broad strokes, however, help us understand the difference, the dynamics for a biosimilar launch of a pharmacy benefit Part D drug versus past biosimilar launches. Maybe help us frame the discussion.

Yes, we've studied this a lot. And as we've highlighted before, there's no perfect model on the Part D or the pharmacy benefit side. So Humira will be sort of the first big one that goes, right? But we are able to look into the medical benefit or the Part B side because there have been biosimilars there. It's not perfect. You can glean some insights. I mean there's 3 big differences that I would say that when we look at that. The first is to see how you get the drugs approved, right? So it's approved through the medical departments through medical benefit. It's very different from how it works on the pharmacy benefit side, right? So it starts off slow, but there's just different prior authorization approaches and approval approaches. And so that's one big difference. The second big difference, which is a significant difference is since the Part B drugs are physician-administered, the reimbursement is very different. So you have basically cost recovery, you have ASP plus, you have buy-and-bill dynamics. -- some of the innovators are directly shipping to the offices, right? So you have a completely different sort of ecosystem around the physician payments and the reimbursement there that you just don't see on the pharmacy benefit side. And I'd say the last difference is the distribution, right? So the distribution are largely on the pharmacy benefit side are largely coming from captured owned pharmacies from the PBMs, like an accredo, for example, for an express script. Whereas on the D side, you have specialty distributors. Again, as I mentioned, sometimes they're directly shipped right from the manufacturers. For example, we have a Part B drug, where most of it is shipped right to urologists right from our factories, our distribution centers. So it's never perfect in terms of what that looks like. And obviously, what you have to understand is like there's incentives, there's disincentives, there's ways that the reimbursement will flow. You really need to understand as you assess the biosimilar landscape. What are the economics, what are the incentives of the full value chain. And when we see that, obviously, when we look to what we studied with Humira, which is, okay, how do you negotiate with a PBM, what does that formulary status look like? How will distribution work through their captured specialty pharmacy? So all of that needs to go into the understanding of how basically the market will evolve over time. So hopefully, that gives you some sense of the differences. Again, it's a little bit dangerous to look at the Part B modeling when you start to look at what may happen on the D side.

Helpful. Okay. And this whole topic actually, if you don't mind the segue to a more 30,000-foot strategic question, I have to ask. So just from an overall strategy of participating in the biosimilar space, a number of branded innovative manufacturers have taken the tack of developing a biosimilar business from a pure ROI standpoint, many have said it makes a lot of sense. And we've seen some of this in our survey work actually having a biosimilar comes from a trusted well-known manufacturer, really does matter. It's not just about price, especially in the biologics space. AbbVie has made a very specific purposeful decision not to do this. Sort of talk about that decision.

When we look at our model, we're looking to drive innovation that elevates standards of care, right? That's where we see the value coming from as we negotiate with payers. You look at how we've elevated standard of care for Skyrizi and Rinvoq. You've seen the uptake, certainly, the pricing power when you consider that. When I look at my biologic capacity, I'm very happy to utilize for Skyrizi versus a Humira biosimilar. So it's something we looked at, but what we're pursuing is really an innovation model that elevates the standard of care. And so we're not really interested in pursuing a biosimilar strategy. We looked at it. But again, given what we've been able to produce the Skyrizi and Rinvoq and those are 2 assets that will essentially exceed the Humira Peak revenue, we think it's the right strategy. You do raise a good point on your survey where, as we've highlighted, it's known, there may be up to 10 biosimilars by the middle of next year. They're not all going to win. I mean, it's not like they're going to split up the pie by 10. There's going to be some big winners, and I think quite a few losers here. And we hear the same thing from our customers every day. I mean we're directly involved in the negotiations. And it's very important when they think about what biosimilars do they select to compete in this market. They want to look as close to Humira as you can. So does it have a citrate buffer a non-citrate buffer? Is it a high concentration? Do you have the pediatric doses. So they want that and they want -- they do want, as you highlighted, they want a trusted manufacturer because they need to have that continuity of supply because any disruption there or [indiscernible] is a very significant risk for the insurance company.

Excellent. So at the risk of changing the subject from Humira. So maybe let's talk about Skyrizi and Rinvoq. I know you guys have maintained this $15 billion bogey. I know the mix has changed a little bit from when you originally provided that guidance. But we've seen a lot of outperformance, especially among Skyrizi. I know there's a lot of puts and takes here, but I guess you've got other indications coming online here for -- especially for Rinvoq. Maybe just talk about when you'll feel comfortable enough to provide maybe a little bit more granularity to the mix and maybe it's sort of the way points along the way to get to that $15 billion number.

Well, look, we're very pleased with the performance of Skyrizi and Rinvoq. Skyrizi alone this year, we've taken the guidance up $700 million. We took it up twice for a cumulative $700 million. What we really saw was with the PSA indication approval, another inflection in terms of the share ramp, both for PSA and for psoriasis. Early returns on [ Crohn's ] are very, very positive. We've gotten this question quite a bit on when we're going to update the guidance. If you think about we've done it, I'd say every it seems like every few years at the JPMorgan conference. We have had, I'll call off-cycle updates when we had the label update for Rinvoq. We provided in December of last year, an updated view different mix, but it's still like greater than $15 billion for 2025. It's something we're discussing likely at the JPMorgan conference, we would give a holistic view on a few different areas of the business, but that's there's really nothing holding us back. We just periodically update that long-term guidance at a logical time, but we're extremely pleased with the performance of Skyrizi and Rinvoq. You've seen -- we look at sell-side consensus, clearly, both assets have seen numbers come up in particularly for Skyrizi. I think the sell side is a little bit over $1 billion ahead of our 2025 number. So clearly, investors believe in the potential for Skyrizi we'll update that long-term guidance at the appropriate time.

So let's talk about Rinvoq. I've spent a lot of time, a lot of work looking at the various surveys that we've done across different therapeutic areas. But I know that atopic derm is not a massive driver now, but it seems like a pretty decent growth driver going forward. And one of the things that's been, I think, a pretty clear message we've gotten from doctors. They're not quite sure yet. Is this a long-term therapy or something that's used sort of to manage flare or as a short term for patients that are new to therapies. Just what are you guys seeing in the field maybe in terms of physician experience? And do you see any particular direction, especially in atopic derm? Again, I know it's not a massive driver of use now, but it seems like it could be.

Yes. I'll take that one. Look it's a very, very significant market. This is, I would say, as we look at the immunology markets, it's -- it's one of the most, if not the most attractive go-forward markets that there is. So it's a close cousin to the psoriasis market, but it's just 10, 15 years later in its development, and it's the same physicians, right? So we heard in our early research because basically the dermatology, global dermatology community had not been exposed to a JAK inhibitor before. Because if you remember the history, XELJANZ never made it in psoriasis. So they had a little bit of a bias there. And so you've got this idea over, well, maybe it's more of a, maybe I'd use it to manage flares because I'm comfortable with the first entrant, Dupixent, of course. But that's not what we see in the market now. As we look across the globe, this is clearly not a flare management. In fact, the payers wouldn't even allow that. This is a long-term chronic disease and the derm segments are using it as a chronic therapy to control terrible itch and very severe skin issues. And so that whole idea from our surveys and our work in the field was just more of the derms trying to process and understand how the new JAK innovation would come to the market, particularly in Rinvoq. So we see that, and I'll give some sense over -- you have to remember, the overall penetration into the moderate to severe atopic derm segment is about 3% or 4%. So it's far, far below penetration rates that we see globally in psoriasis, about 12% or 13% or in IBD at 30% to 40%. So there's huge runway here. So the key thing that we see when we look at our performance versus Dupixent, we have about in the U.S. in the mid-teens of an in-play share, okay? About 35% of that in-place share is from the segment of the derms that are using it before Dupixent. That's quite surprising to some of the onlookers because I think this will automatically be second line. In the international markets, we see in-play share that's in the 25% up to 35% with an even higher index towards frontline in front of Dupixent because the drug is very powerful, and it also works incredibly fast on that skin and itch. And once the patients are on it, they're like, this is really relieving my disease. So to answer your first question, we're going to see the global derm community really understand the importance of Rinvoq as a chronic therapy to control the condition. And it is, as I mentioned, a very attractive market that we're playing in and doing very, very well.

Yes. I think then the one surprise, I guess, we've had from our work is that common wisdom, I guess, before we really start delving into this is that derms generally are afraid of safety issues. The black box warning would have scared them off, and that doesn't appear to really have happened.

No, there is -- in general, no. I mean, again, they've never had a JAK. I mean, I can remember back when we launched psoriasis, right? And if you looked at the -- let's take the U.S., 8,000 or 9,000 derms. For many, many years, early a decade ago or more than a decade ago, you had only maybe 500 prescribers. So now the derms get comfort. They have initially more safety concerns. They need to basically sort of adopt and understand as they drive that adoption. And that's the type of adoption that we're seeing. If you look at an individual countries, we see in Japan, for example, very, very conservative physicians. Rinvoq has a 35% to 40% employee share. So as time goes by, they get comfortable with the mechanism. They get comfortable with Rinvoq unique data, we're going to see a very nice momentum here over time for Rinvoq and AbbVie.

Excellent. Maybe a development question on Rinvoq. So you guys are taking Rinvoq into Phase III for lupus. Just maybe talk about the confidence you have in that indication with Rinvoq. And maybe help us understand the next steps following discussions with regulators.

Very good. Well, we had our -- I mean our Phase II study, we designed with experts to identify -- we want to make sure we're going to get good results and be able to get to a Phase II study successfully. And you know some study -- many companies have had trouble getting those 2 studies moving forward. One of the major things that we've seen as the difficulty in past trials is the use of steroids, when people have flares, physicians give steroids, different doses. And when that happens, you're actually overwhelming or what the response is. So what we felt was important to actually develop protocols, which would have to be very careful in the titration of steroids, either going up when there's a flare or going down at a certain pace. So by having putting those controls on steroids, actually, we had very nice results, which we're going to present next year. But with SSRI, [ Big log ] the approved end points in the U.S. and Europe, and again, with a reduction in the use of steroids, but more importantly also is that just a reduction in flares, patients time to first flare, for example. So we have pretty -- the data is pretty robust. And I think we said [ below ] -- we had 24-week data, which is a primary endpoint. We waited to see the 48-week data before we made a decision, and we continue to see those robust signals. So I think from the way the study is designed and the endpoints, which will obviously discuss with the regulators, we feel we have actually a pretty robust plan.

Got it. Okay. Maybe back to a commercial question on pointed towards Skyrizi and [ Crohn ]. So I know you guys have been pretty bullish in your commentary around this opportunity. That actually matches some of the survey work we've done, and I know you guys haven't said this, but doctors said this to us that it may ultimately replace STELARA. Just given this feedback, help us understand, I think you have a head-to-head study, Skyrizi versus STELARA in this indication. How important is that? And then maybe a second question, STELARA, it remains to be seen if this will happen since there was recently some litigation action on the loss of exclusivity. But how do you think about that dynamic?

Yes. So Skyrizi, the early results from Crohn's, we've launched in the U.S. and are getting ready to launch in Japan early in the year. So our big markets are starting to roll. And what I would say is that when we talk to the key opinion leaders and the big gastros, it's very similar to your surveys. They love the simplicity of Skyrizi, but the thing that hits them the hardest is the endoscopic endpoints that were in our trial. So we basically designed the trials, Tom's team did to basically look at very, very rigorous endpoints, like is the colon clearing? Is there histology of no active disease. And what's happening globally in the community is like that is becoming the standard like you really have to think about clearing that colon to get the best remission. And so all of our studies show that and then we thought, as you highlighted, we heard from the market to say, look, I've got this IL-23, which is a big drug. But this drug Skyrizi looks like it's even better based on these end points. And so we believe that we have enough confidence to, as you highlighted, do a direct comparative trial against STELARA on the endpoints that the global community cares about, which are those key endoscopic endpoints. And that's been ongoing. We've completed enrollment. And at some point next year, probably in the latter part of the year, we'll be able to see that full data package. It's important to add on to the data set. It's similar to what we did in Skyrizi with psoriasis, where we did study versus Humira study versus an IL-17. And that benchmark of STELARA is pretty critical. So it helps us certainly bet in the differentiation of the drug with the gastroenterologists. And then it does a second thing, to your point, which is as biosimilar threats of STELARA come, we continue to basically elevate that care and have a differentiation versus a potential biosimilar. So it's an important study. It's one element of our strategy. And -- but net-net, I think when we look at the [indiscernible], it's not just Skyrizi and IBD, it's what's happening with Rinvoq and IBD. Which also is elevating the standards around endoscopic endpoints. So when our commercial and medical teams bring that to the market, it's a very, very nice setup for us over the longer-term plan.

Excellent. Okay. So we got a lot more to talk about and I'm sorry, we chewed up most of the time talking about inflam, as usual, I've got more questions and I have time. But maybe let's just jump to the neurology franchise and just a very quick sort of high-level question on migraine. You really [indiscernible], the overall oral CGR space -- CGRP space, really, I mean, I don't think anybody could have predicted the success 2, 3 years ago. But just thinking about the competitive set, we've done a decent amount of survey work in this space with both headache specialists and PCPs. And one of the things that really sort of jumped out at us that we didn't know before was how migraine patients tend to sort of toggle back and forth between acute and prevention. You've got a competitor that's got 1 drug label for both. Obviously, you've got QULIPTA and Ubrelvy that differentiated. Just sort of talk about how you compete with that dynamic? Is that a big deal? Is it not? How do you deal with it?

Yes, the way we look at it, I think the first we take the macro view, as you highlighted, this is an incredible category. I mean the way we see it over the next 5 to 7, 10 years is the oral CGRPs are going to be the -- that's the story. The story is no longer going to be the injectable mabs. You're not going to have the old generics, right? And you're going to see this rise of sort of more practical ways to prevent. That's where QULIPTA fits in. But if you look at that, there's absolutely huge space for both competitors to come in, right? And you're right? We see that there's certain headache specialists where they can clearly see that this individual is now in dire need of prevention. And remember, QULIPTA will be the only one next year that gets the chronic for an oral that gets the chronic migraine prevention. Then you have others. Some of them are certain segments of headache specialists and certainly some of the primary care physicians, where they're like, "I don't know exactly I lead a little bit more towards acute maybe if they need a little bit more, that's attractive if you think about the competitor". But net-net, this is going to be -- basically, we're splitting the market and the markets are growing quite quickly. And so we'll be able to go into segments and basically compete very effectively as we've been against the big competitor. But there's no question that there's a segment of particularly primary care physicians that might be easy to have 1 versus thinking about 2. Generally, those physicians have not fully embraced true preventative agents yet. So we'll see. It will be a nice tussle in the marketplace over time.

Excellent. And then maybe Vraylar and MDD, you have a forthcoming approval in that indication. Maybe just talk about that opportunity and the go-to-market sort of approach that you guys have come up with?

Yes. So Vraylar is a very attractive opportunity. We have a baseline of the bipolar 1 where we have 3 indications, which is very unique, and we're the typically the fastest-growing branded atypical antipsychotic in the market with the base business. So and we basically said that towards the back end of our LRP, we're going to have revenue approaching $4 billion. We're roughly $2 billion now. So it's a very, very attractive drug. We have a dedicated sales team, dedicated marketing team. It's one of the moves that we made after the Allergan integration because we saw the -- just the sheer blockbuster potential of the base business. And then this potential, which is really becoming very, very near term here, we're going to know in December, and we're highly confident that we get that [ AMDD ] approval. Very few drugs have ever gotten that approval. The last one was REXULTI about 10 years ago. And it's very, very nice. When we do our survey work with the physicians, it's going to be the same representatives. They've known for many years, bringing in a new substantial indication that we know now the drug will work across bipolar depression and adjunctive major depression, and we think we're going to see a very, very nice lift, and it's a significant commercial opportunity for us.

And you asked a question earlier on long-term guidance. That would be an example of one we've given that approaching $4 billion peak with the currently approved indications. If we get the [ AMDD ] approval, obviously, that would beg an update to the long-term guidance for Vraylar. So we're optimistic. We'll have a decision this month.

Excellent. okay. So I have another strategic question maybe. And I know you guys get asked around business development all the time. So I'm going to ask you, hey, what are you going to buy next? Because obviously, maybe you won't tell. So -- but it's been impressive though. Since the Allergan deal, you guys have paid down or will have paid down by the end of this year, some $30 billion in your net leverage ratio now more comfortable 1.8x, I think. But not to sort of ask the usual questions. I know you guys have talked about adding to your pillars of growth, immunology, oncology, aesthetics, neuroscience, et cetera. Are there -- when you're thinking about an area where it makes the most sense to bring in external innovation, is there one that stands out?

You've highlighted the 5 that we would focus on and we like the portfolio that we have, and we certainly don't feel I need to do something. We absolutely have more financial flexibility starting next year, given the balance sheet improvement. But those are the areas that the BD group does focus on. And so I'd say we look across, there's different needs if you kind of go through each of the areas. I mean, certainly, we're building out the discovery capability in eye care, but that's been one it's probably been more of an external innovation source for growth. In immunology, given that we've got a long runway in Skyrizi and Rinvoq we're doing, say, more earlier-stage deals, but that doesn't mean we're against doing something that's more mid- to late stage just as we've set up the immunology franchise, we have a very powerful franchise at Skyrizi and Rinvoq. So we have some optionality there. Clearly, there's a lot of activity in oncology and all players are in there. But we have the infrastructure now with neuroscience with the combination with Allergan. So something there makes a lot of sense. Then Aesthetics, clearly, we've demonstrated whether it was Soliton for the cellulite opportunity, Luminera for dermal fillers. Breadth of portfolio there is a strategic advantage. So I'd say aesthetic is another area. So we prioritize those 5 areas, but each have different needs.

Excellent. Okay. Well, I've got a ton more questions, but no more time. So thanks for the great talk guys.

Thanks, Chris.

Thank you.