AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Good morning, and welcome to Day 3 of the Barclays Global Healthcare Conference. We're in the home stretch here. My name is Carter Gould. I cover U.S. BioPharma. I'm very pleased to welcome AbbVie to the stage. We have a full house here incoming CEO, Rob Michael, is here; as well as Scott, Jeff and Roopal across finance, commercial and development. Thank you all for joining us.

Thank you for having us.

Plenty to dig into here. AbbVie was 1 of our top picks for the year. So we're absolutely excited to have you guys on stage. Maybe Rob to start historically, AbbVie, I think, has been characterized as under investing in R&D, at least as relative to its sales. We've talked in pretty forceful language around how that's changed more recently. I think 1 of the questions is that now as you kind of move out of this Humira trough and return to growth on the top line, how is that R&D line going to evolve? And sort of where should we anchor the sort of the pre-Humira world, the appropriate anchor point? Or is it going to be something different?

Yes. I think the best way to think about it is we view R&D investment the same way we view business development is really driving investment to identify assets that will grow in the next decade. And so that's been our philosophy. And this year, about half of the increase is really coming from internal programs like 400, which is our next-generation ADC targeting c-Met with the Topo1 warhead, 383 or BCMA CD3 bispecific for multiple myeloma, a very exciting program there. Lutikizumab in immunology with the lead indication HS has potential in IBD as well, as well as the next wave of Rinvoq indications, which could collectively add several billion dollars in peak sales, which would -- you'd see that come through in the next decade. We'll see a ramp towards the second half of the decade, but really that people hit in the 2030s. The other half of the increase is coming from Cerevel and ImmunoGen. Now given that we've returned to revenue growth just 1 year after the U.S. Humira LOE event, and we expect robust revenue growth starting next year through the end of the decade, we're in a very strong position to continue increasing our R&D investment, which we plan to do. But we should be able to do that and maintain that profile today is around 14%. Now there'll be some years where it could be higher depending on the volume that's going through Phase II. But I think it's a decent way to model it. We'll continue to increase our R&D investment. We have the sales growth to support that, and we feel like that's really the right way to approach the business as we think about the growth drivers in the next decade.

And maybe it's helpful to think about operating margin in the context of that profile, Rob mentioned for R&D. So as we think about operating margin, we've talked about it being relatively flat for '23 and '24. For '24, we provided the guidance consistent with that of 46.5%. But when we return to robust sales growth in '25, we'll see that operating margin begin to expand, and will expand over the next several years. So with R&D profile being relatively flat as a percentage of sales, gross margin, we've talked about it's going to stabilize where it is today, around 84%. So that means that operating margin expansion is really going to come from leveraging the SG&A line from driving efficiencies in SG&A, which I think we've done a very good job of in the past. So that's where we see that expansion coming from over the next several years. And it's worth just mentioning that operating margin profile we have even today before it continues to expand, is industry-leading. So it's a top-tier operating margin as it is.

Okay. So I want to spend some time digging in the oncology side. You highlighted some of the programs. You've got ImmunoGen closed, lots going on. You touched on 383 and certainly, BCMA is top of mind here. We've got some AdComs in the CAR-T arena kind of coming in the next 24 hours. How do you think about 383 ability to both take share from the CAR-Ts, but also defend it within its class around some competitors, some of which are ahead of you?

Yes, that's right. Thanks for the question. In this space, I would say, with our BCMA asset, it will be driven by the profile. And obviously, what's happening with competition in the environment will certainly start I think, supporting that a little bit. We'll see what happens this week. But when you look at that data, there will be a question mark on the CAR-T side. But what do I mean by the profile? . Well, first of all, we're seeing very high levels of efficacy based on the design, which is high affinity for BCMA and low affinity for CD3. And when I say low affinity for CD3, we're seeing that play out on the safety side of this, which means lower levels of CRS. So we're having almost single-digit grade 2 CRS. The rest of it is grade 1. And that so far has been without a step-up dose. So for many of these patients, they want to start treating them fairly quickly. And if you have to do multiple step-up doses and keep coming into the hospital, that can be a challenge, this would be a singular dose thus far, the data I'm describing to you once a month, and that's another large advantage. And when you have lower CRS and you can stretch it out, you may even -- what we're observing is even lower levels of neutropenia. So now you have strong efficacy, strong safety, great tolerability in a very nice dosing regimen and off the shelf compared to CAR-T. So very accessible in academic centers, in the community, and especially we have to think about globally as well. CAR-Ts are very much of a U.S. type of therapy. We are seeing some more uptake. But largely, if you think about the globe, it's been very challenging for uptake. So I think when you consider that whole profile, it's going to -- we believe it's going to be very competitive in the space, whether it's before CAR-T, after CAR-T comparing with CAR-T, and this safety profile I described may even allow us to access more of the frail populations, and then serves as a, I would say, a best-in-class combination partner. So we're able to move up in lines of therapy relatively rapidly. That being said, we're going to keep off a Phase III in third line this year and then look in the following years to going into earlier line of therapy.

And maybe, Jeff, how do you think about sort of the pace at which the community will come along on this journey here?

Carter, it's a great question. I can't understate how excited the community is about this profile. I mean the existing BCMA bispecifics are clumsy, right, or later lines, lots of step-up dosing, hospitalization and the profile that Roopal described is it's perfect for the community. And you still have a very, very significant amount of myeloma that is served by the community. And so the day-to-day hematologists are just incredibly excited about it. I mean Roopal highlighted it, but the level of intensity over, we want to do these studies, we want to get our hands from this once a month, no step-up dosing, very, very potent off-the-shelf product is really palpable. So I think it's going to be fantastic. I mean, CAR-Ts are going to be self limiting. I mean, until you're really going to an ability to certainly in this country, solve the manufacturing or go to the insight to or whatever. So when you look at a profile like we've described the 383, it's going to be very, very popular in the community.

Maybe switching gears a bit, ImmunoGen deal has recently closed. Can you talk about the integration and specifically the momentum that ImmunoGen had that, that's continuing even now in your heads?

Yes, it's early days, but we're very, very pleased with what we see with the team. So the team is being integrated. In fact, entire sales and marketing team, the field team is out in San Diego at a major [ company ] right now with our AbbVie management team. And it's super excited. We're very impressed with how they've gone to their go-to-market. And when you look at how they've designed their infield team, how they connect with medical affairs, how they thought about the account management, where they targeted, very, very sophisticated. And so it's not surprising when you look at the running rate of this ADC, they've executed very, very well. So we like the talent. We like how they've gone to the market, and it's quite impressive. And you highlighted the momentum that we see. We certainly see, as we study -- and we believe that when we did our diligence and now we know that testing is not a barrier at all. Like the awareness levels of the testing is about 90% to 95%, which is a very fast adoption in terms of what -- of how testing sort of goes into the community and the experts. The second thing that we've seen is just this quarter in January, we continue to see nice recognition of the science. So we've had 2 upgrades in the NCCN Guidelines on both platinum-sensitive and platinum-resistant, which is positive. And I think probably most importantly here, early second quarter, we think it's going to be early April, we will have the definitive label update for the MIRASOL study. And that MIRASOL study, as you know, was the 1 that -- study that shows that survival benefit. And so as you see these cascading positive aspects, we think the momentum is going to continue to be quite strong as we start to build the clinical trials that you highlighted.

I think we're very excited about what ImmunoGen represents for AbbVie. If you think about it, this gave us an early entry in the solid term space. We also have our own ADC programs with Teliso-V and 400. And then when you look at their pipeline, their next-generation ADC targeting for alpha can expand into other solid tumor types, certainly gives us, again, another growth driver for the next decade as well as PBAC in blood cancers, which we obviously have a presence in hematology. So we're very pleased with the transaction and the early days...

Maybe 1 more question on sort of [indiscernible] ImmunoGen platform and -- maybe the next step in that cascade, Roopal [indiscernible] data is -- at least ImmunoGen have been messaging that would be coming in the not-too-distant future. Are you still sort of supporting those time lines? And how should we think about that potentially driving a label expansion, accelerated approval?

Yes. So these data will be in platinum-sensitive third line plus, and we still anticipate midyear readout. I think they've highlighted last year, they're anticipating ORR above 40%, which -- that is more than double of what you would anticipate for single agent chemo down the road, especially because these patients that were in the old are more platinum sensitive, but had been through either 1 or 2 lines, either had an allergic reaction or the physician has determined they are no longer platinum candidates. And then DOR will come out at that same time. So we'll look at that data set. And obviously, we'll have a conversation with the agencies. I think for sure, it will be impactful from a guideline standpoint that people will want to understand that. From an agency standpoint, it's a slightly different population because it is sensitive. So we'll have to take that data population and clearly articulate that to a health authority and see how they feel about it because they may feel it should have been a head-to-head with a platinum or not. But that's a conversation we'll have, and a lot of that will be driven by the data. But the other piece of it, there is a formal confirmatory Phase III and running in platinum sensitive that will read out later in the decade to make sure it will enable labeling [indiscernible] the data.

You brought it up, when you think about Teliso-V and ABV-400, certainly driving some of the R&D expense. But when you think about key decisions you need to make this year on both programs, how do you find that the focus?

Yes. So for Teliso-V that's our first antibody that's c-Met targeting, that has [indiscernible] warhead. That one, we've shown our luminosity data, which is in lung cancer and the EGFR wild type, strong data, duration of response was more than 9 months and the overall survival was more than 14 months. That package in the first half of the year, will get in front of the FDA and have a discussion around potential for accelerated approval. Similar to what I described for [ Eli ] here, there's already an ongoing Phase III. That being said, we have our next-gen c-Met antibody, as Rob mentioned, as a Topo warhead. That 1 might have a better therapeutic index. But we're going to see readouts this year in gastroesophageal and in the lung as well. And then I think to your point, what are the decisions we make. I think we look at both assets together and make some calls on do we pivot to one? Do we stay with the other, the other option is do you even potentially combine the 2 up in earlier lines and replace chemo along with the PD-1, which we have at the moment. So those are some of the things that we're thinking about. The other critical element here, the 400 is the data we've seen in colorectal cancer, which is very strong in the third line plus setting. We're really honestly there, nothing really works and it's very similar to what you see here [indiscernible] here playing in ovarian cancer, where you have these later stages, where it's just single-agent chemo, maybe bevacizumab, but the ORRs are in the single-digit percentages, and we're in the 20% range in CRC, but that market is bigger than the ovarian market. So the decision we're going to make this year has been going to Phase III in that subset, probably a c-Met high to drive ORR a little bit higher, capturing maybe roughly 20% to 30% of that population. So that will be a monotherapy Phase III. Now the other interesting thing we've observed is c-Met is expressed a majority of those patients, and we're seeing deeper responses. So the other thing we're going to play in the combination with 400 and BEV and then next year potentially going to all comers in those later lines of therapy to round it all out as a combo. Then what we're also doing is combining that with upfront chemo and essentially replacing irinotecan where this [ ADC ] can come in, hopefully, better depth of response, better tolerability, better safety and a chemo replacement in second line and in frontline. So those Phase IIs will be running. So there's a lot of activity there.

I think that part, just if I could take 1 minute here, that's really underappreciated by investors. I mean if you look at this ovarian cancer structure, the market structure, and basically the ability to bring in ADC and start to basically work across these lines of therapy where you just basically have chemo or Avastin. And then you look at what we have, as Roopal described, with 400 in colorectal cancer, it's the same market structure, except colorectal cancer is even bigger than ovarian. So it's quite exciting as he's described, particularly when we see that the potency in the later lines already with our 400.

It's amazing how much we've just spent on oncology, I think, I went back to our conversation last year, and I think we got on oncology for about 30 seconds. So pretty transformative. Maybe let's move on to neuroscience. Obviously, the Cerevel deal got announced late last year. You recently got a second request. I don't think that was a major surprise to most investors, certainly in line with some of your commentary. But regulatory interactions in any way, shifted your confidence in getting the deal closed?

No. I mean if you look at it, we have a very small share of schizophrenia, and it's a totally different mechanism of action. So we don't see this transaction as being anticompetitive, we still very confident in closing the transaction. And note that we did not change our close timing. We maintained that at the midyear because as we assessed this we had the conversation last year quite a bit, if you look at the landscape with the FTC, we're seeing more second request. The reason we'll assume that they would take more time to review the transaction. We're still holding to that middle of the year time frame. We're having good conversations as we move forward, and we're still very confident with close transaction.

I'm going to push you on that one bit, and that is just is there any indication the FTC is looking about this beyond sort of the narrow kind of like market overlap that analysis we usually do and taking a broader view for whatever reason?

There's always a whole host of considerations you make. I mean, if you think about it, the FTC always starts with a pretty wide and the second request tends to be a pretty wide range of information. And you work with the FTC closely to narrow it down to what we would consider to be a reasonable scope. There's nothing different that I've seen in this transaction versus what we've seen in the past. And so we're working productively to work through that process. And that's why we're sitting here in March. We're talking about sometime in the middle of the year close. That's a process that we're working through now with the FTC.

Okay. Great. Maybe you do have an approval coming up with 951, hopefully. Can you maybe help you've talked about 1 billion-plus potential. Can you help think about the addressable population here. On 1 hand, the numbers out there are very large. On the other hand, we see sort of the modest penetration of deep brain stimulation devices. How do you think about that?

Yes. We're very excited about 951, which is called [indiscernible] in the U.S. and Japan and PRODUODOPA in the international markets. We've launched in Japan for about 6 or 8 months in Germany, more recently in the European markets, and the market response is very favorable. It's exceeding our expectations, obviously, early days. So the way that we think about it is we're creating a whole new market segment. So globally, there's about 500,000 -- over 500,000 advanced Parkinsonian patients. And if you think about the market structure is pretty simple, about 85% stay on hold and they just rotate and rotate to use more and more [ orals ] and about 15% really go to, as you highlighted, deep brain stimulation, which is a surgery or our own Duopa, which is a gastric surgery. So there's like a barrier. It's like a surgical barrier between the [ orals ] that are not working. And so what we've done with 951 at subcu that works for 24 hours, it can be exquisitely titrated and patients that have trouble frozen, they wake up on [indiscernible] so it's very good benefit. So what we're doing is we're creating a subcu market between those [ orals ] [indiscernible] and the surgeries. And so a whole new market space, we believe, will open up and drive that greater than a billion dollar opportunity. So it's no longer hope because we can see a major large business units that neurologists and Parkinson's experts, motor disorder experts are adopting quite well. So we're pleased.

Great. So we have 5 minutes left, and we haven't touched on I&I which I think is -- shows the transformation that AbbVie had over the past year. As we think about HUMIRA into '24, we saw -- in '23, it was sort of dominated by this first half or second half and even into a greater sense sort of later second half king of phasing dynamics -- are we going to see a similar situation this year when you think about other payers taking different actions and different segments playing out?

Yes. I think '24, as you said, '23 was a partial year you had last summers coming in, obviously, 1 in early February, several middle of the year. For '24 the erosion that we guided to $7.8 billion, around 36%, very similar to '23, but it's driven by price, again, so the vast majority surprised. The price has new dynamics. If you think about '23 versus '24, there's a pretty big price annualization effect. So the price -- about 1/3 of the price drivers annualization. The remainder will be an additional price. And then you will have volume. I would say that volume is going to continue throughout the year. You'll see more volume as the year goes on. .

It is a little bit different dynamic. The midyear step down you saw last year was unique to the circumstances of having the [indiscernible] market. We do not have that dynamic...

I was talking more about the pricing dynamics, but [indiscernible]. When we think about SKYRIZI and RINVOQ, 1Q has traditionally been a challenging for AbbVie as it is for a number of companies. Anything you can kind of call out as we think about the very near term kind of dynamics that people proud clearly care about?

So we spend a lot of time, obviously, this year, you get even more granular in the past, we're pretty granular in the first quarter call with therapeutic area guidance. We now gave you a specific product level guidance within immunology, given the dynamics last year. We've reiterated that this year, we said the price erosion is low single digits versus last year was high single digit. There was the reason why it was by single digit. We had 7 new indications. We gained very rapid access. We've got significant volume growth. If you think about Skyrizi and Rinvoq, Skyrizi I think growing 50%, Rinvoq growing 60%. So it's tremendous revenue growth despite having high single-digit volume erosion last year. This year, again, low single-digit price you would again expect like you see every year with specialty pharmacy destocking happening in the first quarter, that same dynamic, given that the rate of volume growth year-over-year comp, you have a, I'll say, high single-digit impact year-over-year because it's a growing business. That's all factored into the guidance that we gave at a product level. And so -- and we're seeing very robust volume growth. So I think hopefully, we don't have a repeat of what happened last year with some mismodeling, misunderstanding of the first quarter dynamic. We saw the rest of the year played out as we had guided, we actually beat those estimates. But this year, I think first quarter, hopefully, we've given enough clarity to the Street that we don't have a repeat of that in the first quarter.

Okay. So for the current approved indication for Rinvoq and Skyrizi, I think generally, people have different assumptions, but I think there's definitely a good handle on it. But in terms of the next wave of Rinvoq indications, I think there's maybe an underappreciation of some of those. As you think about those commercially [indiscernible] Jeffrey to jump in, sort of what do you think is underappreciated by the Street, which of those is potentially more impactful. Any commentary there?

Maybe I'll quickly comment, and then Jeff. So there are several, of all of them, the smallest is the GCA. Let's park that for a second. The other ones are lupus, HS, Vitiligo, alopecia areata. Now for the first 2, lupus and HS, those are places that physicians already know to prescribe their established markets. In fact, Jeff and his team established the HS market years ago with Humira. So that 1 with Rinvoq will be post anti-TNF. So they'll be able to take advantage of these patients that are not responding as well. And we've seen strong responses in the failure population. So that will be a nice spot. And then lupus, you have a couple of biologics not always very satisfactory outcomes and can take a long time to work. Rinvoq being a small molecule has a very rapid onset. But that will be a nice spot already, and people will have a non-biologic option. And these are pretty large spaces. And then alopecia areata and vitiligo will be a little bit newer. However, the benefit is that Rinvoq will have been known to prescribers for many, many years, and we'll have the largest database from a safety standpoint, more than any other competitor given that they are newer markets and newer spaces. We feel we'll have that really nice advantage again with the data that no one will be able to match.

Roopal highlighted it very, very well. So they're all -- those 4 that you highlighted are all reasonably balanced in terms of what we see the commercial revenue. If you were here today to bet on established markets, as you highlighted, you had on lupus and HS, we've got a nice setup across all 4.

Appreciate the color. Okay. We're out of time AbbVie. Best to walk us here. Thanks very much for joining us.

Thank you Carter.