AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Okay. So. Thank you and good morning. Thanks for coming. So we're delighted to have AbbVie at 44th Annual Healthcare Conference and representing the company, we have a number of members of management. Rob Michael, who is President and COO; and of course, incoming CEO; Jeff Stewart, who is Executive Vice President and Chief Commercial Officer; and Roopal Thakkar, who is Senior Vice President, Chief Medical Officer of Global Therapeutics. Also here is Scott Reents, who is Executive Vice President and CFO. So thank you so much for making the journey. Lots to talk about at AbbVie. There's always great stuff going on. But let's start out with kind of a big picture, Rob -- question, Rob. So as the incoming CEO, what should investors expect relative to changes at AbbVie, if any?

Well, Steve, as you know, I've been with AbbVie since our inception. So my goal is to make it as seamless as possible for investors that I have actually been part of, developing the strategy, running the business and building the culture. And so as I think about the transition, because I've been part of all of that, I would expect it to be a seamless as I can possibly make it. When I look at the business, in a very strong position to deliver on the high single-digit growth CAGR that we expect for this decade. So it's really about driving continued strong execution for AbbVie. And then we're very focused on developing the assets that will drive growth in the next decade. We're doing things like investing more in R&D internally. You've seen us actually increase that investment over the last couple of years despite the fact that we've seen our earnings decline. We've actually put more behind R&D because we're very excited about the programs in our pipeline as we think about the drivers of growth in the next decade, but also continuing to invest in external innovation. You saw this obviously with ImmunoGen and Cerevel late last year. The focus now is really more on early-stage assets, smaller-sized deals that can help drive growth in the next decade, in really the 5 key growth areas we've talked about before: immunology, oncology, aesthetics, general science and eye care. And so I would say expect more of the same. I think we've performed exceptionally well. We've delivered top-tier performance since AbbVie's inception. We're known for our execution. We're excited about the portfolio we have in place that we've assembled over the first 11 years. So [Technical Difficulty] about focusing on developing assets that can drive growth in the next decade.

[Operator Instructions] So let's move to -- we want to talk about the growth products in the future, but let's talk about Humira as well because it's, of course, still a big part of your business. It certainly has been impressively resilient in 2023. What has -- and it has surprised us. What has surprised you the most? And maybe, Jeff, this is the best question or maybe your best answer?

Overall, it was fairly consistent with what we had thought. We knew in '23 that we had to think about 2 phases of the biosimilar launches, sort of the first phase where there was one major competitor and then the second half of the year. And I think we made some good decisions as we thought about that relative to our contracting with our payers because recall that being parity or on an equal footing with biosimilars was the goal. And so as you may remember, we had differential rates of concessions in the first half versus the second half. And so I think that, that worked very well for us. I mean, that was a very predictable approach. I would have to say that as the year went on, we did see some more resiliency on volume. But overall, I think we envisioned our strategy. We executed very well against it with the payer contracting. And so not too many surprises other than we did start to see some beats on the overall volume or a percent of continued capture rate for Humira as the year went on, Steve.

We're nearly 1/3 -- we're nearly through the first quarter of 2024. Are things progressing as the company had envisioned?

Yes, things are right on track in terms of how we thought about this second year of the biosimilar competition. And I would say that we see the volume and pricing playing out as we predicted again, which gives us some significant comfort. So first, we knew that there were certain segments of the market that would start to adopt biosimilars. And we've seen that in managed Medicaid. We've seen some of that in the IDNs. We saw that last year with Kaiser. We're seeing it in certain segments of the templated business at CVS. So no surprises in terms of where we sit overall. And while we will see some of that volume degradation, we still see the majority -- the vast majority of the business will remain at a parity position with these biosimilars over the course of 2024.

I think it's an important year, and it's tracking as we expect. But if you think about it, it's the first full year with biosimilars on the market. We now have 10 biosimilars on the market. We now have an approved interchangeable for the most high-volume presentation of Humira. We're going to go through another round of payer contracting later this year. And so we'll start to understand as we go through this year, heading into next year as we think about the longer-term tail, which I would say, we're going to take this year to study it and understand those dynamics. And also then I think we'll be in a position in the '25 timeframe to start to articulate what that looks like. I wouldn't expect a tail [Technical Difficulty] '25 timeframe, but I think in '25, we'll have a better sense of what that looks like. I would say we're obviously very pleased with the amount of parity access that we were able to retain this year, which drove some of the upside that you're referring to. And so we saw, frankly, more volume retention than we expected. But it's played out as we expected. We've been, I think, contracting well to maintain a parity access. We've obviously conceded price to deliver that. But I think what's important for investors to keep in mind is we should be in a position sometime next year to really articulate what that tail looks like, but I wouldn't expect that tail to really start to emerge until the '26 time frame.

And what are the factors that produce a tail in the first place? We investors have witnessed a lot of massive patent expirations. And yes, there's always residual sales, but it just seems like Humira is going to retain more than most. What is the -- what are the factors that lead that to occur?

Well, I would say some of the factors are going to be what ultimately where the prices settle. And we can see, just like we saw in Europe, that the [ facing ] prices were determined very quickly. I mean we saw those by the middle of the year. So [Technical Difficulty], they see [ facing ] prices of the low list price biosimilars of which there's many, between 80% and 86%. So that gives you some sense of maybe where 4 discounting may go, okay? So that's one dynamic there thing to think about. I think the second thing that we're going to watch over time is that the -- we believe the biosimilar market, particularly in the pharmaceutically reimbursed place or pharmacy benefit space, will not act like a small molecule market where you see huge channel dynamics in terms of orange book, automatic substitution because even though there's interchangeables, it will be a little bit different, Steve. So what I mean by that is these are different pens. They have different caps. They have different loading mechanisms, right? So there's still going to be a lot of education where something has basically changed for that individual patient or that specific doctor despite the fact that it might have hit an interchangeable designation. So when we look at that way, there's always going to be, I think, some resistance in terms of where that volume may come out because it's small-molecule, purely interchangeable, orange book type, AB-rated material. So those are several factors, to Rob's point, that we're going to continue to study and understand as we move through '24 and probably early '25 to have a better analytical understanding of where that tail ends up.

I'm forgetting why this number is in my mind. But if we assume the tail was going to be $5 billion-ish? Has the company ever said that? Or is that something that...

We have not articulated a tail.

Okay. It seems like a good number, though. I mean you had to come up with a number already. Okay. Let's move on. We have so many things to talk about in terms of what's on the market now, but I would like to ask Roopal a question. We're also waiting the full pivotal Phase II data for telisotuzumab. What should we expect or what should we look at first when we see the presentation?

Sure. Well, I would say a lot of the key data we already have in front of us. Fuller data will be forthcoming this year at a congress and publication. But the key there is in those patients, there are EGFR wild type and have elevations in c-Met. What we've observed in the high expression is a 35% ORR, which is doubling or 3x of what we would see as chemotherapy being able to perform. And what we've also observed is -- what we initially saw was a 6-month duration of response. And with the latest data cut, it's 9 months. So 35% ORR, 9-month DOR. And when we look at median overall survival at that cut of data from last year, which we've already -- we've talked about, I think it was press release, is a little over 14 months. So taken together, we feel that there's an opportunity to take that package to the health authority FDA to discuss potential for accelerated approval. Those conversations will happen in the first half of this year. While that's happening, the Phase III that would be in a similar patient population against chemotherapy is currently ongoing. It's been ongoing for some time and that's enrolling nicely.

And what should we think about the potential of this product, if everything goes well?

Well, I think it's really exciting if we're able to get this thing out the door, get it into patients' hand. We will see it in the high potentially initially. The Phase III is in high and intermediate. There's also potential, and I'll come back to it in a second with 400. But before I go there, there is potential, when we look at patients in the mutant -- EGFR mutant population commonly prescribed osimertinib, when those patients progress, there's a higher expression of c-Met -- 50% of those patients that progress will have elevations in c-Met and our early data has shown an ORR 50%. And very strong data consistent with the wild type. So that's the next step in potential and also earlier lines of therapy. I mentioned 400 initially, that's our next-generation c-Met antibody, has a different warhead, which is a topoisomerase I warhead. Very stable linker, very nice drug properties. And that one has shown very strong efficacy in colorectal cancer. And we'll see data in lung and GEA middle of this year. At that time, we'll start looking at 400 in Teliso-V together and make some decisions if one or the other, potentially using in sequence because there are different warheads. There's been initial data that's been published in other tumor types that suggest you can do that. And then the other potential opportunity is actually combining them and having a chance in early lines of therapy to replace chemotherapy. So that's the work that's going to be progressing. And in CRC, we will kick off a Phase III study as monotherapy in third line plus. And then next year, we'll look to see a combination therapy with 400 in CRC, while we're waiting the other tumor types to read out.

Great. Questions from the audience? Let's talk about another pipeline drug, and that is emraclidine and Phase II data -- pivotal Phase II data, we're awaiting in schizophrenia, second half of this year. What should be our expectations for this data? So investors need to have expectations going into event. Help us craft that expectation?

Yes, absolutely. So I would say it starts with the Phase Ib data for emraclidine. And I just said Phase Ib, but it was 80 patients. So it was a very large Ib and it had placebo and had 2 different doses. And when we looked at that data, it performed as well as anything has ever performed in schizophrenia, looking at positive symptoms and negative symptoms. And that's what was one of the triggers that gave us confidence to look at this company and all their assets much more carefully, obviously, leading up to the proposed transaction. Now what would we look for in the Phase II? Well, first of all, call it, Phase II, but each study is over 370 patients and it's against placebo. So we see these 2 studies as pivotal. The second piece, along with the efficacy that we saw in Phase Ib, we would like to see something similar, recognizing the efficacy was very high in Ib. And when you look across studies, when there's movement from proof-of-concept data to Phase III data, you do see a step down 10%, 15%, maybe a little bit more. But even if you do see that, it is still among the highest efficacy that we've seen comparing favorably with the large atypical class that's been entrenched for decades. So that's the efficacy side of it. But really what's key here is the safety aspect. When we look at how these patients are treated today, the tolerability is very challenging, the compliance is very challenging, especially if you consider if they would have to get a therapy more than once a day. There's a strong metabolic effect, weight gain, movement disorders, sedation, with other competitors, anticholinergic effects, especially in the gastrointestinal side of things. So when we're looking for the emraclidine data, as we saw in Phase Ib in blinded data, we're seeing very low level of adverse events that would be consistent with how the current market treats these patients today. And then the convenience, I think, is a key aspect of this. Once a day, no requirement for another asset to deal with adverse events and then in the future -- or not the future, but present and the future will see it. But the work simplified for a long-acting injectable because it's a singular asset with very strong tolerability. Usually, physicians will want to see how they do on an oral. And if the patient tolerates it well, then you convert them to a longer acting. If they're not tolerating, you do not want to give them something with a very long halfway. So I would say those are the key facets of emraclidine that have us excited and something that hopefully we'll be able to show here at the end of the year -- by the end of the year.

We're obviously very excited about the Cerevel transaction. I mean clearly, emraclidine extends our presence in psychiatric beyond Vraylar. We also have a very interesting opportunity. And I think 932 would be another compound I would certainly pay some attention to as we think about our psychiatry franchise. But also with the core antagonist that Cerevel has, the opportunity there on major depression. Tavapadon, if you think about our own Parkinson's franchise. We're very excited about Vraylar and PRODUODOPA in the European markets and Israel. Previously, we talked about 951, certainly can continue to drive strong growth in Parkinson's. So as I think about how Cerevel fits with AbbVie and really helping us drive that long-term growth in neuroscience, I think it was a very nice transaction for us.

Great. We'll come back to the pipeline, but let's move back to some of the current growth drivers. Maybe we'll start with Skyrizi. In 2024, what indications are going to be the primary drivers of growth and what on the other end will be those that grow less robustly?

Yes. If you look at Skyrizi and our guidance this year, we expect to grow about $2.7 billion, really very robust growth; $1.7 billion of that is in psoriatic. We're seeing extremely strong in-place share, still around 50%. Our TRx share is in the mid-30s. You can see there's a lot of headroom for growth continuing in psoriatic. That would be, I think, approximately 25% growth rate. So pretty robust. But IBD, we expect about $1 billion of growth. That's 100%. That's a doubling of sales. And we're just seeing, especially since we revealed the head-to-head data [Technical Difficulty] Stelara. We've seen an inflection in in-place share. I think in-play share is around 22% now. It's in the, TRx share, mid-single digits. So tremendous growth in Crohn's, and then we anticipate the UC approval in the middle of this year. So as we look at that overall portfolio, for Skyrizi between psoriatic and IBD, we obviously increased our long-term guidance expectations for that on the Q4 call, but we're seeing very nice performance from the asset.

The UC data didn't look as competitive as we would have liked, given the fact that the maintenance data in biologically experienced patients seem less than that of your competitors. Why is that not the right conclusion?

Yes, I can talk about that. Let me go back to Crohn's just for a moment and lead up to a more complete response. In Crohn's, we saw very, very strong efficacy. And you could be challenged by comparing that data to another trial because one thing that we have seen in Crohn's is a so-called control arm or placebo arm, was still pretty high in the maintenance data. I want you to hold on to that thought. And the reason for that is when you do these certain types of trials in IBD, everyone gets induction therapy. So I mean all the patients got Skyrizi. And then 2 groups continued Skyrizi with the 2 doses and the other group stopped, but they already had Skyrizi on board. And what we observed was it took 30 or 40 weeks or so for the withdrawal patients to actually start to settle down, okay? And what we're observing is something very similar in the ulcerative colitis data where Skyrizi is so powerful that it's maintaining the placebo patients way out to week 52. Now how do you put this into context? Well, you look at the head-to-head data of Crohn's against ustekinumab. That way, cross-trial comparisons are unnecessary. And when we did that, you saw either a doubling [Technical Difficulty] of all of our efficacy endpoints, which is actually a very dramatic difference in efficacy against a very strong competitor. So you have that set up. So now when we go to ulcerative colitis and we look at a setting where context is more simple, which I would say is the bio-naive context, you look at the induction data, and it beats any competitor to date. And another competitor in the '23 space has now failed their Crohn's data head-to-head. And when we look at that one and you see in the naive data, you see very high efficacy and extremely high efficacy in the maintenance data. Now back to the bio-IR. What happened there was, is we studied in the UC study, probably the toughest to treat population ever in a Phase III program in ulcerative colitis. 75% of the patients in the maintenance study had seen a previous biologic or advanced therapy like a JAK inhibitor. In fact, we had no cap on the number of biologics. And as you sequence through biologics or a JAK inhibitor, efficacy continues to step down. More than 1/3 of the patients had been on 3 or more biologics or JAK inhibitors, the 360 arm had 15% of patients that had already been on a JAK inhibitor. We had the highest levels of extensive disease or pan colitis ever studied in a Phase III. So what that does is puts a little bit pressure on the top line data. And because Skyrizi is so strong, it brings up the control a little bit. But if you look at in total, it is still very strong efficacy. And when a clinician will use it like they do with Crohn's very often, they'll see the very strong efficacy that we're talking about here.

And Steve, Jeff, from a commercial perspective, it's very, very attractive because as Roopal highlighted, the naive data is absolutely spectacular for UC. And so the way that we come at the market, particularly given the sequencing that we have to do for Rinvoq is our representatives will be able to highlight really best-in-class efficacy [Technical Difficulty], which is clearly in the data. And then, of course, you can sequence in Rinvoq over time. So you have a very nice sort of commercial ability to manage the portfolio, to maximize both share between Skyrizi and Rinvoq. So that's how we plan to communicate this nice data for UC.

Questions from the audience? Okay. Let's move to another important growth driver that being Rinvoq. So you're doing this head-to-head level up study of Dupixent plus Rinvoq, sequential therapy versus Rinvoq alone in second-line AD. What is -- how would you define a big win for AbbVie out of this trial?

Yes. So let me just talk briefly about the design. So this will be a head-to-head with Dupixent, and we will start with the labeled initiation dose, which is 15 milligrams. And then within the trial, they'll be able to use it like they do clinically, which is starting at 15 milligrams and then being able to titrate up. So that's the design of the study, and that will come after a systemic therapy. So [Technical Difficulty] now what are we looking for. We've designed this in a way so we can see skin clearance, this is the easy score, and in particular, itch, getting down to itch score in 0 to 1 range. Now these endpoints will be shown separately and together, and we will see high levels of achievement. So consistent with what we've observed with psoriasis over the years, we're initially talking about PASI 50 and 75, then 90, then 100, raising the bar on those standards. What we anticipate delivering with this data set is raising the bar on the standard of care of what can be achieved in atopic derm becoming more consistent with what can be achieved with psoriasis. So that's one key driver in itch in particular. The other aspect is this will have endpoints at week 2 and week 4. So we can show the rapid onset, which for many patients is within a day or 2, they're telling us how they can finally sleep at night because they don't have the itch along with this clean clearance. So those data sets is what will be read out. And because it will be on label, once the data are available, we'll be able to more robustly speak about that to prescribers.

And [indiscernible] is a very important study commercially because we've never been able to really uniquely, to the United States, really frame the perspective of the performance of Dupixent versus Rinvoq. So for example, if you think of our capture rate, so the capture rate in the United States is roughly in the high teens, 17%, 18%. So we're sort of a deep second to Dupixent, which still has the majority of that. If you look in the international markets where we've been able to highlight the original head-to-head trial, our capture rate is in the 20s, 30s, in some cases, the 40s. So having a study that's uniquely tailored to what the U.S. label looks like and the way that you have to rotate through the doses, start with the 15 higher end points. We think it's going to be very important to expand our capture rate in the U.S., which while it's not bad, it lags other parts of the world.

Questions from the audience?

[indiscernible]. So what's your expectation of how we [indiscernible]?

So the question is about the safety profile and the head-to-head study. What should be our expectation and how will that be communicated?

Yes. So in all the original atopic dermatitis data, the safety profile has been very strong. So it's given as a monotherapy, it's not combined with the methotrexate, if you're referencing the rheumatology outcomes with tofacitinib. These patients are not in their 60s. They're quite young. And what we've observed is a very nice tolerability and a very favorable safety profile. So we expect to see that be consistent with the original Phase III data.

Probability that ultimately, the label warning is removed from Rinvoq is what -- what is that probability?

Well, Rinvoq, along with many other biologics in the class, will have a boxed warning due to potential infection risk and future malignancy...

Cardiovascular safety.

Cardiovascular safety. Well, we don't have an outcome study. We were never required to do one. So we won't be able to reverse it there because that data that's in our label is driven by tofacitinib. So unless something changes there, the agency would then shift it there. That being said, I would say since a few years post launch, clinicians are becoming more and more comfortable. And the reason for that is and what we are told is they're not seeing the adverse events that are in the box warning, whether they're cardiovascular or thromboembolic, they're not seeing that. So if they're not seeing that, they have more confidence in using it. And plus they're seeing very high benefit and efficacy in particular in inflammatory bowel disease, where similar to atopic dermatitis, the patients are substantially younger than they are in rheumatoid arthritis. And it's utilized in general as a monotherapy and efficacy in Crohn's and ulcerative colitis like what we see with Rinvoq, whether it's a naive populations and jurisdictions where that's on label or in bio-experience is the highest that's ever been achieved. So there is a lot of uptake, and it continues to grow very strongly, I would say.

Just to add to Roopal's point, I think it's important, which is while it's very unlikely that you're going to see a change of the sequencing or the loss of frontline that happened with oral surveillance in the JAK class, we basically pivoted the positioning into second line plus and every single indication now, as the end of last year, whether it's atopic dermatitis, I mentioned Crohn's, you see every single rheumatology indication. We are now at Rinvoq, the leading second-line plus product there. So we've done very, very well. And the second and third line are now bigger than many of the frontline indications as more and more innovations come into the market and so it's quite attractive, and that's what's really driven -- we grew Rinvoq almost by 60% last year. So we're able to continue to have a very, very strong engine here despite that loss of the frontline access in some of those indications.

I think despite the label change, I think we managed that very well. And obviously, we did take up our long-term guidance for Rinvoq. So we didn't have that in our original guidance. So I think Jeff and his team have done a remarkable job. If you think about the power of having both Skyrizi and Rinvoq, we've been able to make those adjustments in the U.S. market and continue to grow the business.

We're actually out of time, but please allow me 3 more questions. So we'll keep this short. So Botox, not an infrequent investor question, is about these long-acting competitors. AbbVie has said from time to time that it's working on long acting, it's working on short-acting. Apologies if I missed it, but I don't remember ever seeing anything from the company on those programs. So what's going on with it?

Can I mention a little briefly. So on the long acting, there is quite a bit of work on the formulation side, but that is like the long acting. It is a longer-term strategy, but that's ongoing. However, what a need really appears to be, maybe more so in aesthetics than a long-acting, because we've seen how that's played out, is a short-acting. And the reason for that is there's many patients, individuals on the sidelines that aren't sure they want to start using it because they're afraid of an unnatural outcome. And once they get it, it's hard to reverse it. So you have that maybe for 2, 3, 4 months. What [indiscernible] allows is someone to dip their toe in to decide if they like that outcome or even use it for an event. You got a high school reunion or something coming up, you can use it. Now how does that work? It's injected and within hours, you see the onset of efficacy, and it peaks at day 7 to the same level that we have seen Botox and then degrades off quickly over the next week or 2 weeks. That data has been shared and we are in the midst of that -- assembling that application and finishing off the CMC work, and that submission will actually go in this year. So that will be in people's hands to access the number of patients that don't want to try it yet because once they do, they like it and then Botox is there for them.

Okay. It seems like it's progressed and I missed that. That's great. Very briefly, Vraylar Phase III autism spectrum disorder data coming. What do you want our expectations to be?

So what I'd like you to think about is that one is a very small indication in pediatrics and it's specifically on the irritability side of it, consistent with other approvals. So it's a very small sort of niche indication. But I think what we'd like folks to think about is the very strong data we see in full spectrum bipolar and in adjunctive MDD and the growth we're going to continue to see there. And the 932 data, which we're going to start generating this year, which is a follow-on to Vraylar, which will lean the molecule more towards the D3 receptor than D2, will be kicking off studies in bipolar and generalized anxiety disorder, which we generally don't access today with Vraylar and that will allow us to also potentially move into unipolar depression, maybe even as a monotherapy, but those Phase IIs will start this year.

Last question for Rob. You know what investors think the future of AbbVie is. You can see we publish it and so forth. What are we missing? What's going to be better than expected? Is it the current products, they become bigger? Is it the pipeline, is going to blossom and we don't see it? Is it that Humira tail? What is it that we don't -- aren't seeing?

I would have told you 6 months ago, I'd say a big driver was the growth platform, and we took up our guidance and we've seen as this street move up, which is nice. There's more belief now in the high single digits. So I think we've gotten a lot closer there. So I think what's remaining is more credit for the pipeline. And you will see as more data emerges, we do get some level of criticism around internal R&D, but I would point to the ability to return to growth very quickly 1 year after the LOE was driven by our own internal Rinvoq asset as well as the work we did on Skyrizi. A lot of excitement. We didn't get a chance to talk about the BCMA CD3 bispecific, 383, that's got tremendous potential. 400 has tremendous potential. So I'd say what will emerge from the pipeline, I think, will surprise the upside.

Great. Sounds exciting. Thank you so much. Thank you to the audience for staying.