AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Cowen conference again this year. We have 4 members of management. By the way, I don't have a mic, so I'm just going to talk loudly Hopefully, you can all hear the questions. But we have 4 members of management here with us, Rob Michael, who is Vice Chairman and President; Scott Reents, who is Executive Vice President and Chief Financial Officer; Jeff Stewart, who's Executive Vice President and Chief Commercial Officer; and Roopal Thakkar, who is Senior Vice President of Development and Regulatory Affairs as well as Chief Medical Officer. So a lot's going on Abbas, so let's jump right in.

In no particular order, let's start out with the kind of the future-looking type of question. What new indications and pipeline programs could generate Phase III and go no-go decisions this year that we as investors can look forward to as milestones?

Well it's Roopal. So I'll start. Are you guys hearing me, okay? Okay. Sorry about that. Here we go. I'll start out with RINVOQ just to say that we've covered rheumatology IBD should be complete disease by the midyear as we start seeing approvals there. And then there's another wave that we're looking at starting this year, and that is in the Phase III setting. So alopecia areata, hidradenitis suprativa and lupus. So those are 3 other ones that will come, and then we'll get a Phase II readout in the vitiligo space around the middle of this year and potentially move that into Phase III. So that's in immunology, also a readout for RISA in ulcerative colitis will also occur this year. And then in the oncology space, we have a CME targeting antibody called Teliso-V which can cover up to 25% of non-small cell lung cancer in the wild-type EGFR space. So we'll get a readout of that through the end of this year for a potential for an accelerated approval. And we have an ongoing Phase III for that setting. And then in the mutant EGFR space will initiate a Phase III program here for those who progress on Tagrisso in combination. In that setting, we see roughly 50% of those patients have overexpressed cMet. So that's quite a bit happening in immunology and oncology in that later-stage setting.

And one thing that may -- investors may not appreciate is those remote indications can add a couple of billion dollars in the second half of this decade. So those are ones that aren't necessarily captured in our 2025 guidance, and we've talked about the potential for RINVOQ and SKYRIZI to exceed HUMIRA peak, but those indications will certainly help, and they could be sizable.

By the way, I should have mentioned this at the outset, should you have questions anywhere along the line, raise your hand, and we'll follow up on you. So we saw the step-up in R&D just recently, is that to facilitate the initiation of Phase III trials? Or is that more early-stage R&D oriented? Obviously, a lot's going on in your pipeline. There's a lot to support it. So what would be the focus of that?

Well, usually, when you see fluctuations in the R&D budget is more late stage, and certainly that's the case this year. I mean epcoritamab would be -- and if you think about the key drivers, I think roughly evenly split between epcoritamab, the RINVOQ programs that Roopal mentioned as well as mid-stage programs like GARP and PTK7. So it's not so much -- the early stage is usually a fairly consistent investment. It's the late stage. In certain years, you'll see that rate depending on where we progress to.

Okay. Let's pose a few questions on HUMIRA. So you've given some guidance relative to your expectation in 2023. It happened to have been at the lower end, meaning lease worse end of your initial kind of a process on the outlook. What were the factors that led to that kind of upside as we might say?

So if you think about the 35% to 55% that was really based on the Europe experience, we saw erosion of 45% in that first year. And you have markets, tender markets like the Nordics, where you have nonmedical switching. So I'd say there's more of a volume component than what we saw in Europe. And so if you look at where we are now with the 37% and where we are in terms of parity access, for lives, I mean greater than 90% parity access. And so there's less of a volume component in the U.S. in year 1 than we would have seen in Europe. And so that's the big difference between the 37% in that 45% or plus or minus 10%.

Okay. Is it known what the biosimilars can supply in the marketplace now? Is that a known are those known facts? Or is that still an uncertainty?

That's a good question. I mean when we talk to the payers, I think, in general, we see that the major suppliers have had a very good understanding of when they can supply. And so we've seen that internationally. They've been able to scale. We haven't seen, at least with 4 or 5 big biosimilar companies that are also coming to the United States, that there's been supply constraints. I would say though that it is absolutely a consideration of the big U.S. payers. So for example, Steve, I believe that, that's one of the reasons why you see some of the comments of they say up to maybe 3 biosimilars they're trying to sort of balance how close those biosimilars may look to HUMIRA in terms of the overall offering, the citrate free, the high concentration, the pen, the presentations and also continuity of supply. One of the manufacturers did run into a manufacturing issue. And I can tell you that the heads of many of the payers sort of raised up in terms of making sure that was a big consideration. So overall, we think that the combination of these players can supply the market as the market develops. But it's certainly an important consideration for the payers risk assessment.

Okay. So that is also a factor that gave you some confidence to come in at the lower end of the erosion curve, I guess, because now you have kind of more certainty as to what those biosimilars can supply. Is that...

I wouldn't say that, that was something where we had profound visibility to exactly that dynamic. I would say that the reason was really where Rob highlighted, which is we were able to secure volume based on conceding price and basically really the timing of when they would come in was really the largest determinant versus, let's say, supply considerations.

And we have good visibility obviously we know what our rebates are. We know the gating of those rebates. And we've said that as you think about the first half, second half dynamic, you'll see greater erosion in the second half because, one, in some cases, we have rebates stepping up. We also have 7 and 9 biosimilars coming in, in the middle of the year. So we expect a little bit more of a volume impact in the second half of the year. Those are things that really influence the way we thought through the guidance less so the considerations of biosimilar supply.

Let's stick with HUMIRA, look at a little bit more. So I think it's generally the perception that there will be a pretty durable tail, correct me if I'm wrong, to HUMIRA as we go beyond the next couple of years. What do you perceive to be the magnitude of that tail? And what facts lead you to that conclusion?

Well, we haven't really guided to that tail. And I can say it's something that Rob and I and the team were studying carefully. We're looking at the different analogs. We certainly see, as we look in the European markets that there actually is a switchback component. So we see actually, for example, in the U.K., 11% of patients ultimately switch back to HUMIRA. When we look across the waves in the international markets, we're still retaining roughly 40% or so of a tail. Now having said that, the competitive intensity in the U.S. market is quite different. So you really never got over about 4 players in the international markets. You may be up to 10 in the U.S. market. So it's something that we're watching very carefully and studying and ultimately, as we get a more firm understanding we certainly will highlight what we think that tail would be. We certainly think that it will start to appear more in the '25, '26 time frame. That's when that tail is going to basically declare itself because we see, obviously, the initial hit we've guided to in '23 and then the carryover effect through '24.

We've said many times, there's no port analog for the U.S. But if you just look at the Wave 1 markets in Europe and where we are now versus where we were pre LOE for HUMIRA, it's the revenue base is about 33 -- about 1/3 of what it was pre LOE, just give you a sense. Obviously, the dynamics will be different in the U.S. and when we're ready to provide more guidance on the tail we will. But I think in terms of timing is a good way to think about it, '25, '26 time frames when you start to see that stabilize.

This concept of patients switching back is a really interesting one. What's driving that? Is that inability of them to get drug that is not for an HUMIRA or is it because of some lack of tolerability on the part of the patients, what's driving that switch back?

Yes. When we've studied this a little bit and it's a little bit all of the above. So there's some anxiety over the idea that you've been stable on a brand and you're switching okay? The other thing that we've seen, and I think, Steve, it's been primarily more concentrated in the gastroenterology space, for example, where you may get an adverse event that, that physician didn't like, and then you go back if HUMIRA is available and typically, it is in all the European markets. So loss of efficacy in some cases, an adverse event. Now look, overall, personally, I think those are random interpatient or individual patient experiences. But you do see this dynamic, which I think is quite different versus, let's say, a small molecule market that develops over time.

Let's move on to another important franchise of AbbVie, and that's the aesthetics franchise. So it's been roughly a month since you reported. And I think at that point, correct me if I'm wrong, you were saying that you've felt the aesthetics market might gain some traction a year goes on and maybe be more kind of more normal acting in the second half of the year? Is a month later, month in now? Is that thought process holding? Or is there any change to that?

So we've said for the guidance for '23 is we've assumed really no recovery in the U.S. in '23. And I think that's appropriately prudent given we're not sure as we look at inflation, is there a risk of a recession. That said, we have seen stability in the U.S. market. And we look at, I'd say, the economic indicators that are probably most correlated with aesthetics would be consumer confidence, real personal consumption. So we're keeping a close eye on that. Google searches are a good leading indicator as well, and we're seeing a nice uptick there. So we're certainly a reason to be optimistic, but it's way too early to be calling the year, especially if you think about what happened last year, we had very robust growth in the first quarter, and we saw a pretty rapid slowdown in the May time frame. And so, the way to think about it is we'll -- year-over-year will decline because we haven't quite lapped the event up until the May time frame and then more stability. In China, what we've said is the COVID impact we'd see that basically -- we'd start to see a recovery over the first half and then probably by the middle of the year, be fully recovered in China. Now I will say the early returns, we spirit about a 40% to 50% market recovery index in December, January. We've seen most recently a nice bounce back. So certainly, the trends are positive, but certainly too early to call in terms of what the year looks like.

Questions in the audience? Okay. Let's move on to another important IV franchise, and that's Imbruvica. Why does we expect them to occur this year with less pressure in 2024 and beyond? What's the dynamic that's driving that and expectation?

Yes. So we look at the basically competitive entrants. So as we've highlighted in our discussions previously, we can see that AZ's product, follow-on BTK took significant share. Imbruvica also lost share to our own Venclexta in the CLO market. But really, you have the big third player come in with Brukinsa. Brukinsa has a good profile. It was just approved at the beginning of the year, really launched at the beginning of the year. So when we do our market analytics, we feel that we are going to have some more share pressure. It's not all going to come to Imbruvica, but that's the big reason why we've highlighted what we think in our sales guidance is the pressure from Imbruvica and Brukinsa incremental as well as a market that's not fully recovered from COVID. So that gives you some sense. Now once we see the Brukinsa market share penetration play out, we're going to see some more stability going forward in '24 and '25.

And what we've said is the overall oncology franchise will be stable. So you're going to see some level of it's not necessarily saying Imbruvica is going to be flat. It may still decline slightly, but you'll see Venclexta offset it over the next few years. And so Venclexta is growing. So we would see that trade off until the pipeline kicks in, and we'd see a return to growth in '26.

For both RINVOQ and SKYRIZI, what will be the top 2 growth drivers this year and next?

Yes. So basically, we're happy with the momentum across the board. But I think one of the data points that we start to see emerging and we highlighted this with the new guidance or Rob did was the inflammatory bowel disease space is very, very dynamic. And we are seeing significant ramps with both SKYRIZI in Crohn's and also RINVOQ in ulcerative colitis. So the adoption rates are very, very fast on both of those. And that's because the performance of both of those brands in their respective approved indications is really remarkable. So very high levels of remission, especially endoscopic remission. So it's healing the bowel at a much higher rate than we've seen in the historical first generation of products. So I think that's still underappreciated. Again, all of the indications are growing. With RINVOQ, we are clearly becoming the second-line agent across most of the major indications because of the way that the indication works in the U.S. after TNF, but I think IBD is a very compelling story. It's also important to note, I think Roopal highlighted it that we are going to start to see the global approvals for RINVOQ in Crohn's that come in the middle of the year to start to fill out that IBD space. So that gives some flavor of how we're thinking about those 2 very important agents.

I mean if you look at it from a growth rate perspective, clearly, IBD is going to be the highest growth rate, but all the indications are growing in terms of actually the revenue contribution, you're seeing it really across all the indications. .

On all the indications you have for RINVOQ [indiscernible] how confident are you that I already want to have [indiscernible]?

So if IRA was select -- I'm sorry, RINVOQ was selected, right, the first year would be 2028, right? And if you look at the Medicare mix of the business, obviously, in room, it's a little bit higher. But as you look at all the indications, if you think about the age split between different indications, you're looking at in the U.S. probably by that time frame of Medicare mix of probably around 10%, okay? So that -- certainly, that part could be impacted in '28, but you've got the other 90% and a lot of growth happening from the new indications. So we've analyzed that. Obviously, we've given guidance through '27 for the combined RINVOQ, SKYRIZI. We haven't really talked about in '20, but I would say there's going to be robust growth for RINVOQ even during the IRA years.

Let's move to migraine, and this is an important franchise for actually, Pfizer participated in the dinner last night, and it was pointed out to them that their peak guidance for their migraine franchise is $6 billion, and AbbVie's is $2 billion. yet they would appear to be kind of an equal footing relative to their capabilities. So the question arose why isn't AbbVie more optimistic or why is Pfizer so optimistic, so maybe you can put some color...

I'll start and then Jeff can expand. So I think to make it apples-to-apples, you have to also consider the chronic migraine business that we have in Botox Therapeutics. So think of that as roughly $2 billion. And then you've got greater than $1 billion. It's not $1 billion. We said greater than $1 billion peak or you're building [indiscernible]. So when you add that all together, you'd say greater than $4 billion. But Jeff, why don't you expand on the franchise?

Yes, I think it's a great franchise where we have 3. We said greater than ability and plus we throw in our Botox where we're going to continue to expand in episodic. So if you add all of it together, it gets pretty close. I mean, I think the big catalyst that we see moving forward. Certainly, this year, our product lift for preventative migraine, we will be the only oral CGRP that will have chronic migraine. So that will be an important signal to the market. And certainly, that's a linchpin for us to actually expand internationally, not just ultimately in Japan and Asia, but also in Europe. So that's a big piece of our story moving forward. And you're right. If you look at the performance, I mean, since Pfizer has acquired Biohaven basically, we're largely splitting the market. I mean if I look at the actual data, we probably have about 55% of the new prescriptions when you add everything up, and that doesn't include Botox. So we're competing very well. And I think the key message here is that there's so much unmet need that the big story, I think, over the next half decade or more is going to be the market growth with both firms in this market around the world, basically sort of enhancing the growth of those oral CGRPs. So there's plenty of space for both companies to compete effectively and also expand the access to the drugs.

I think that competitor has been in the market maybe about 4 or 5 months now. What changes has the market incurred by virtue of them?

Well, what we see -- we do see that from a competitive standpoint that they have put more share of voice against Nurtec. Now it hasn't translated into any improved performance at this point, but they clearly are moving to other types of primary care segments. And that's something that we monitor and watch. Those are right now less productive segments. But we certainly, as we look at how this marketplace will develop over time, we sort of monitor where would the next dollar might be spent, is it concentrated in the headache specialists to gain share? Could you expand into certain emerging segments? And that's something that we monitor. I think the key point is what I highlighted before, it's a nice market to compete in and it really is going to be 2 large players that will shape this over time.

Okay. Questions in the audience? One question on Vraylar. So we're pretty excited about the MDD indication and think it could be big. That's what our physician experts think. Where do we stand? And it's been port? So where do we stand in the rollout and when are we going to start seeing the results of this indication being in the later?

Yes. Thank you. So we are very encouraged with the early results. I mean we essentially started full promotion in early January. And we are seeing a very nice. When we predicted it because there was no access constraints, for example, for Vraylar for this particular indication. So we've seen a significant uplift in our new prescriptions. And so over time, those will start to grow. So it's absolutely on track. And I would say it's a little bit above our expectations, which were quite high. So again, why is that? Number one, you have a big physician base that knows that drug and likes that drug with a core bipolar disease, and then this is a significant new indication. So it's something they know and they like it. The label also turned out very well. So you had a very simple starting dose, which is the 1.5 milligram, which is the same starting dose that you have for bipolar. So it's easy for the physicians to start patients, and we were very happy that the FDA also approved the drug for patients that are suffering from depression with or without anxiety. So that also sends a very good signal in terms of the overall efficacy. So we're very pleased with the first month or so of results. And we have a couple other big things that we're going to see. We're going to start a major direct-to-consumer program to continue to educate patients that if they're not getting the relief of their primary antidepressant, you can safely and effectively add Vraylar. That will start in the April time frame. And we have, over the last years getting ready for this. We have a dedicated sales force that calls on psychiatrists and primary care that we anticipation of this launch. So we think we have the right investment mix and we're very pleased with the first weeks of the prescription data.

We saw Vraylar pick up half a share point last year in a highly genericized market. In our guidance for this year, we've assumed those base indications would pick up half a share point. We've also assumed another half a share point. So I think on share point gain this year and for Vraylar, but half of it is the new indication half is the base indications. And we also updated the long-term guidance from approaching $4 billion of peak approaching $5 billion at peak because of the AMDD approval.

Great. Let's spend the next few minutes talking about the pipeline. So you have a follow-on BCL-2 inhibitor in development 453. How is this different than Venclexta? And is Roche involved in this asset in?

This is 453. This is a wholly owned AbbVie asset, and we see much greater potency with the new one relative to venetoclax and easier amount to load drug into the tablet. So potentially a little bit better bioavailability and allows a decreased hill size, so greater potency, maybe different ability to drive efficacy with this one. And if you look at we'll take a look at maybe a more convenient ramp-up versus venetoclax and then still opportunities in, say, multiple myeloma expansion.

Another exciting asset you have in development is epcoritamab. Where do you expect this drug will be used in DLBCL, what's setting? And what types of combinations?

So I'll start and then maybe Jeff can move on. So this is our dual engager, CD20, CD3. And what we're looking at now is an accelerated approval strategy that will come by midyear, and we're globalizing that as quickly as we can with the submissions. We see very strong data in a CAR-T naive setting where you see ORR rates at 70%, CR rates in the 42% or so. And then even post CAR-T, which around 40% of the patients, we're seeing 50-plus percent ORR and 34% or 35% CR rates in that population. And the same goes for double hit and triple head, which are very difficult to treat. We're seeing the same type of efficacy. So we see it pre and post as an opportunity in third line plus. And where we would want to move that obviously, is in the second and frontline, which those Phase IIIs are gearing up now and likely initiate next year, combinations that we're looking at are R-CHOP and our Square across large B-cell lymphoma and follicular lymphoma as well.

And then we've done a lot of research with hematologists around the world, and it's very interesting because you have as Roopal highlighted this extremely positive effect in a post CAR-T environment. However, that's not where the hematologists believe it will position. It's almost like it would democratize the stool engager and be used ahead of a pretty burdensome CAR-T that's very still limited in terms of access around the world and even in the U.S. So the belief is that these are going to be very widespread agents as the indications expand or the lines of therapy expand and will be used ultimately ahead of the CAR-Ts based on their potency and convenience. Epcoritamab is a fairly simple subcu injection. And so you can rapidly start to treat these patients in the various lines. So it's a very nice profile. So we're super pleased and happy with epcoritamab development.

And low single-digit CRS, grade 3 or above to add to what Jeff was saying around tolerability.

Maybe we could chat about our products in the pipeline, which is a fascinating concept, but I must admit, I'm not exactly clear on where it stands within AbbVie, and that's ABBV-154. So it didn't quite work down in RA, but you're continuing to explore it in other indications. What's the appeal of the other indications relative to this?

Sure. So this is an anti-TNF with a steroid ADC. In rheumatology, we saw high levels of efficacy, but didn't see it really differentiating from RINVOQ. And then at the highest doses started to see cortisol suppression. So maybe start seeing some of that steroid effect. The purpose here would be a lower amount of steroid that's targeted the TNF expressing cells. So at lower doses, we don't see that, but then in something like RA the efficacy starts to drop, let's say, below RINVOQ. We're still studying in polymyalgia rheumatica where patients are all on steroids already. And we're also looking at Crohn's disease, which many patients that are refractory were still beyond corticosteroids. And there, we would be looking at other doses and see if we don't see steroid-related effects, we don't see systemic effects even in RA. We just saw the biomarker tickle, so meaning what do I mean by systemic systolic blood pressure, diastolic blood pressure, hemoglobin A1C, fasting blood sugar, weight, no changes in 6 months of therapy. So the hypothesis there seems to be playing out where if you deliver the steroid in a targeted way, you don't really have the systemic effects.

We have 2 more minutes. We'll try to get 2 more questions in. So you have a BCMA bispecific in development. So how is it different than the competition?

Yes. So that's ABBV-383. What's unique about this is the way it was developed. It certainly binds BCMA with high affinity and a bivalent way. And on the other side of the asset binds to CD3 but that's a univalent binding and also low affinity. So the point here is getting to the malignant cells and sort of generally bringing in CD3 to drive down adverse events in CRS. So we're seeing 60% to 70% ORR in early data, fourth line plus in multiple myeloma and similar to epco low single digits of CRS Grade 3 and beyond. So that's how it was designed, and then we have some opportunities there across multiple myeloma teams even looking at a combination with the 453 asset that you brought up before. So we have that opportunity with multiple assets that we could combine internally.

Final question. So you probably have a pretty good idea of what investors view have been likely to be in, say, 8 to 10 years. What do you think will be the biggest surprise to investors that you think AbbVie will deliver, but we don't quite get? Will it be the breadth of the pipeline? Will it be the magnitude of SKYRIZI and RINVOQ? Will it be HUMIRA retail? Will it -- will it be the sheer size of the aesthetics business or maybe something completely other than that?

When we look at -- we've obviously talked about high single-digit growth for this business, '24 to '29. Clearly, when we look at sell-side consensus isn't quite there. So I do think there's an element of -- I think SKYRIZI, RINVOQ can be bigger than investors expect, and maybe we've talked about some potential new indications for RINVOQ that probably isn't an investor's radar. So I would point to that. I think, certainly, we're excited about what's in the pipeline. There's probably not a lot of value being ascribed to the potential, particularly in oncology on some of these programs. I'd say that would potentially be another area aesthetics, we still believe we're going to exceed $9 billion in 2029. Sell side doesn't believe that. I'd say probably almost like $1 billion below us. Vraylar, we said approaching $5 billion cell sides, probably around $43 million. So that certainly can surprise the upside. And so -- and then you look at this business, post '23, our LOE exposure is by far the lowest in the industry. It's something like 1% of 2021 sales. And so -- and we have a lot more financial flexibility now that we pay down the debt very rapidly. And so I think when you look at the company to set up with the growth drivers, the low LOE exposure, the flexibility, I think all those things can surprise the upside.

Great. Sounds like it's throughout the future. We appreciate you telling us about it. And with that, we'll conclude.

Great. Thanks.

Thanks.

Thank you.