AbbVie Inc. ($ABBV)

[Audio Gap] company presenter at the BofA Global Healthcare Conference here in Nevada or Las Vegas. So thank you. We've got the AbbVie team and Scott Reents, EVP, CFO; and Roopal Thakkar, research and development and CSO. My name is Jason Gerberry. I cover pharma and biotech at Bank of America. And so I've got a discussion that I think is a good mix of CFO questions and R&D questions because I know that there's a lot to hit on here.

Maybe my first question for you, Scott, is just thinking about the P&L. And you've -- you guys are in a great place in terms of having a long LOE runway. And you're still pretty bullish about the growth that your core engines can provide, SKYRIZI and RINVOQ. And so I think consensus estimates, an incremental $15 billion of revenue, I think, by 2031 on SKYRIZI and RINVOQ. So maybe talk about operating leverage dynamics because you're at such a high watermark from a revenue perspective. And I can't imagine there's a lot of incremental investment to support the brands from here, but maybe I'm wrong. And the reason I ask is I look at Street up margins kind of topping at 52%. And that was kind of where op margins topped the year before, HUMIRA went LOE. So I'm just sort of curious, do you think that there is a potential upside to how the Street is modeling the operating leverage in the business.

Sure. Thanks, Jason. We're excited to be here, excited to talk about some of the things that we've done, but even more excited to talk about the future. So happy to we look out -- and we have mentioned when we look at the consensus numbers, and you mentioned '31, there's strong growth, and we feel very confident in our ability to exceed those numbers that are out there. SKYRIZI and RINVOQ, in particular, you mentioned we're driving a lot of growth through those through market expansion, share growth and just looking at the dynamic products that we have in the place in those markets. But it's not just an immunology story where that growth is driven by our neuroscience business, a leading neuroscience business, growing at high teens this year. In fact, we have a great pipeline in oncology, which I'm sure we'll get to. And the aesthetics business will continue to grow over that period as well. So with that growth and your question on operating margin, when we look at it, we have an industry-leading operating margin today. We've talked about on the R&D line, continuing to invest in R&D. We've increased by over 1/3 since 2022, our R&D spend over $3 billion, this year, we're spending just shy of $10 billion in R&D, a little over 14% of sales from a profile perspective. And we feel very good about the funding and all the activity we have in the pipeline that everything is well funded, and we're doing the right things in terms of investment for the long term. So I think you can think about that number being in that 14% to 15% range over time, continuing to grow, absolutely, but that's the profile. We will, of course, suggest that every year as we go through our planning cycles to make sure that we are funding properly for the future. And so the operating margin expansion that you mentioned is going to be coming from the SG&A line. Certainly, we're going to get a lot of sales leverage. We expanded operating margin this year to 48.5%. And was the initial guidance before we had any IP R&D. We're well on track to accomplish that. And you're going to see us steadily increase our operating margin over time. Now I'd say, over the next couple of years, 2, 3 years, you'll see that we'll be up in the 50% range. And we'll continue to do that. I think from a longer-term perspective, that 50% is not the cap, but we're not -- we haven't really given guidance. I think we just need to make that decision to invest in the future, make sure we're doing it. Certainly, you mentioned the HUMIRA times. I would say that these markets and the landscape and the competitive landscape is much more dynamic than it was even back then. And so we're making sure that we're not shortchanging anything,; we're doing the right investments in our DTC side, also to make sure we're generating the right amount of evidence and really driving that business going forward in light of the competitive landscape and the strength of the products that we have and the breadth of indications that we have SKYRIZI and RINVOQ certainly offer more indications than HUMIRA did. So we'll continue to drive that. We'll continue to grow operating margin at a steady clip. And then we'll see where it ends up at the high watermark, but we're going to hit 50% in the next couple of years.

Okay. Maybe let's talk about M&A. And you guys laid out your core focal therapeutic areas, right, on the most recent earnings call. And I imagine that the gating variables in those TAs differs, right? In neuroscience, maybe want something with more near-term revenues to replace VRAYLAR with obesity, maybe you need more assets to round out portfolio and then you can make riskier early stage bets for something that's going to be transformative. But do I have a general sense of kind of how you're approaching the thought process with M&A in these kind of core TAs where you're looking to add to the business?

Yes. I think it's twofold. One, as you mentioned, we filled out a lot of things. We've done 30 transactions in the last 2 years, invested over $8 billion in external innovation to fill up the pipeline across not just I&I, but also in the neuroscience area, oncology, and we're going to continue to do those types of transactions. I would say there is filling it out from a therapeutic area, we have also looked at adjacencies. We added an obesity asset, which we're excited about last year as well. we're going to continue to invest, but it's also the second piece of it is, where do we see distinctive assets, where do we see what we feel are differentiated assets that can raise the standard of care, irrespective of the area that it's in and finding those assets is going to be important as well. So if we're faced with finding an asset that we're excited about, has a compelling opportunity, whichever area that is or if it's in an adjacency, we will move on that asset and try to drive that growth because the growth certainly what we're looking for, for a long-term basis. And we have the advantage of having a great runway for growth, high single digits through the decade, limited LOE exposure really very large. The next is the big 1 in 2030. And so we've had some nice runway. Our key products, we have a nice runway on as well. And so we're just going to continue to focus not only in augmenting the areas, the adjacencies new areas where appropriate, but also making sure we're bringing the right assets.

And we don't specifically constraints early in 1 therapeutic area or middle or late. If we see something that's attractive, that's early or middle mid-stage, the team is free to go look at that. And if there's something late stage or even on market that we think could be a good fit and complement the rest of our portfolio -- there's no constraints.

That's exactly right. Roopal. Certainly, the balance sheet capacity and our ability to manage that balance sheet well, that's also not a constraint. So we're in constraint from that perspective as well.

Yes. Okay. obesity is an area that I think you guys have been vocal more to come, I think, in terms of bringing in other assets that could complement your Amlin. So I guess my question is twofold, which is one, how comfortable are you with the assumption that innovation is going to get rewarded in obesity from a pricing standpoint because the million dollar question for most investors on Lilly is pricing around GLP-1. And is that a race to the bottom? And then secondarily, do you wait for more data for AB-9 before you make decisions on rounding out the portfolio to see what you have as an anchor asset.

Yes. A couple of comments and Scott can weigh in as well. When we started looking at the original deal model and the asset from Gruber, our 295 asset, we did map out what we thought the future would look like. And part of that did include different pricing assumptions that we would anticipate seeing in the future, especially around cash pay. So a lot of that was built in. And the reason that made sense to us was also knowing that we had our aesthetics business, which is all cash pay. And many of these clinics also manage weight loss along with facial aesthetics, let's say, or body contouring. So that was, I would say, built in. So none of this is unexpected, and I would say it was well predicted. That being said, we don't need any particular outcome that we're waiting for to execute other deals if we wanted to in obesity. We think it's a very large market continues to be underpenetrated. And we think that new assets are going to be needed because people continue to rotate in and rapidly rotate off. So these don't have the durability for something like Late SKYRIZI, for example, people stay on sometimes only for a few months and they stop. So when we looked at 295, we saw that as an opportunity to enhance tolerability and durability and also assume that many of the patients that we would capture would be those that have already come off of incretin class. So if we see something that, let's say, is in incretin class or a novel class or helps with muscle preservation or bone preservation, oral, extended half-life, all of these parameters is something that our teams would be looking in to bring in. If there's an opportunity to combine with our existing asset, we would look at that very carefully as well because where we sit today coming out of the early Phase I work in a non-obese population, BMI recall was 29, majority male with almost a 10% delta in a population that really doesn't need to lose weight. So what we're going to look at now is the right population, higher BMIs, greater proportion of women and also looking at a higher dose than we've already studied. So the goal there being continued enhancement of weight loss and assessing tolerability looking at every other week dosing and even monthly dosing.

Okay. Maybe shifting to I&I. And first question is just the new competition to Skyrizi in the way of J&J's iscotide. I think many investors that we talk to are now kind of coming to the realization that cotide is more market expanding than competing with the biologics, particularly in psoriasis. But what I wonder is, Skyrizi, the incremental patient that might go on Skyrizi, are you competing for that incremental patient with cotide, which I imagine is somebody that is with the community derm that might have gotten a topical or another oral therapy. So do you get a lot of naive to bio therapy as new starts for Skyrizi? And is there a competitive dynamic at some threshold withcotide?

I think there's a unique profile that we've seen formed with Skyrizi in psoriasis. And I think many of our prescribers recognize that. And our sales team and medical team have been very effective of communicating that. And that is best-in-class efficacy that there's no oral that can match that. Quarterly dosing, which is extremely convenient. And when we've done head-to-head against orals, when we ask the patients, they actually, in our studies, prefer having a quarterly dosing, especially if they have to remember taking a pill every day or worrying about when they're going to eat their meals. It's very simple to take it quarterly and not worry about it. Also, we're able to communicate statistical significance across palmer planter, genital and scalp, difficult-to-treat areas that people know that they can trust Skyrizi to really drive high levels of efficacy. We're also able to communicate 5 years of psoriatic arthritis, radiographic prevention. We have long-term data in PSA, which is very important for many prescribers to know as 30% of patients with -- in this category of moderate to severe will go on to develop PSA. So that's another important consideration. So that profile will continue to be very competitive. And if someone is considering an oral I think they already know the profile of the patient that they're considering. So they may have now an extra choice in oral. That being said, we agree, and I think the way Scott and the team have modeled it is anticipating some effect on share. But as the market continues to expand and people continue to recognize the profile we have with Skyrizi, it is very unique. And again, the orals are not oral Skyrizi. They are oral.

Yes. And when we look at the year, Roopal is exactly right. We spent a lot of time when we provided the guidance -- we increased our guidance after the first quarter results by $100 million for Skyrizi. So it's still very early days with ICO, but we'll see -- we made some very good assumptions, some very prudent assumptions. I think that the guidance contemplates some share uptake by the ICO in general, some market expansion, certainly as the strong share -- leading share position that we have in that space, a little bit of that share is encompass, but it's very modest. And we are -- we feel well on track and remain very confident in our 2026 numbers.

Okay. And now thinking about the Skyrizi Crohn's subcutaneous induction regimen that you'll roll out in 2027, how much of the new patient funnel is IV site constrained? I just trying to get a sense of how impactful you think the rollout of the subcutaneous induction will be to the business.

Do you want to start with that?

I can start. So maybe I'll make some comments on the data, and then we can talk about the IV subcu dynamic because many of our sites, maybe half or more have access to IV. So we don't see that as a major constraint, but we do see an opportunity with subcutaneous. Now the data that we've observed, particularly in treatment-naive or frontline, which is where Skyrizi has been very effectively positioned, the data that we saw 45-point deltas versus placebo in key endpoints was higher than we had originally anticipated. So this further confirms and supports our frontline positioning, I think, which is very important. And we anticipate having that launch this year now. So in around 6 months. So that's why the team is very excited. And why the frontline makes sense for our portfolio is that Rinvoq is approved in Crohn's and UC, and we had a recent label update last year that allows for utilization post biologic and doesn't necessarily have to fail an anti-TNF. It's up to the clinician to decide. So that means you could have someone frontline Skyrizi. There's going to be a few patients that maybe need more support aren't doing well, then they can immediately go to Rinvoq. So we have stronger second-line positioning. And when the subcu arrives, then they'll have a clear choice of either IV or a subcu. And if you want convenience after that, you have an oral, which is also best in category for a JAK inhibitor.

Yes. I mean we're seeing in the market, the strength continues for Skyrizi in terms of new patient share, we're getting over 50%, call it, 55% plus or minus on the week you're looking at it. Of that -- those new patient starts, that's very strong. I think it's a testament to all the strength of Skyrizi as a whole. And then once we do have the UC -- I'm sorry, the CD subcu induction, that's only going to further strengthen our position, especially given the nice data that we've seen.

Yes. that's right. And behind that, we have a combination with Skyrizi with our own alpha 4 beta 7, very strong data there. So that's coming in even after these 2 assets.

Yes, I'm going to jump to that. I may come back to Skyrizi and Ro but I want to make sure we can get to the combinations just given your interim update J&J's recent Phase II update as well in IBD. And so very interesting data for your IL-23 integrin combination. And so maybe can you just speak to the additional clinical work that you're going to do, pushing dose? Is there -- I mean, obviously, there's always going to be safety risk dynamics like as you assess how much incremental benefit might be worth going after? Is there a certain step-up in efficacy threshold in your mind, needed to kind of push a dose higher on the -- it's on the integrin side that you'd be put.

Yes. That's right. So we have what we believe are 2 safe well-characterized mechanisms that we've studied. The alpha 4 beta 7 on the Integra side is our own unique asset, 3 to 4x more affinity binding than via and we did leave the Fc portion of it as active. And that could explain the strength of the data that we've observed in Crohn's disease because typically, we see alpha 4 beta 7 shine better in ulcerative colitis than we've seen in Crohn. We've actually seen failed studies in IBD for that class. So you have these 2 unique assets, you know that we know the strength of SKYRIZI already in the space, and we know the safety profile. So 1 thing that we did see in the combination was a very robust favorable safety profile. So no concerns there. And the increasing the dose appears based on our exposure response data, looking at serum PK that there is continued room to go on the alpha 4 beta 7 and we don't anticipate any safety concerns there. So the next step is to study the higher dose with SKYRIZI to see if we can drive incremental endoscopic remission or because healing. And if we do see that, then we would pivot to the higher dose moving forward into Phase III, we anticipate that by 2028. And recall the data that we showed was a doubling of effect of SKYRIZI, which is already very strong, and it was in a very broad treatment population. We didn't have to seek out any particular subgroup for notable efficacy. It was in an all-comers population, which had multiple failures of biologics including SKYRIZI failures and vedolizumab failures and a majority of which would also have already failed anti-TNFs and we see that in IBD where a majority of patients have already been through an anti-TNF. So it made sense for us knowing HUMIRA to combine something not requiring an anti-TNF. And by combining those 2, we sell broad-based efficacy and we anticipate taking that type of population forward to solve the needs of as many patients as possible in the future.

So to confirm, you weren't seeing any additive effects on the frequency of known AEs or the severity of those AEs? And then no. How important is it to push efficacy even higher in light of, say, what you've seen with say the DUET trial that your-- 1 of your competitors has, and there are a lot of other players out there that are actively seeking to push combination approaches. So obviously, you don't know where the bar is at the moment.

Well, we'd like to -- well, that's why we dose optimize and not just arbitrarily select the dose and move forward. And that's why we saw good data. We think we have a Phase III ready to go. But we do think it's important for the future, especially if you want to differentiate from SKYRIZI and RINVOQ and provide a safe option that greater differentiation will be important. And that's essentially how we developed SKYRIZI and RINVOQ to begin with, and both are very successful, especially if you look at head-to-head. So we want to, again, give it some time to see if we can get several more points of efficacy. And if we can, we'll go. Now if there is a safety concern for sure, then we would back down but we think we can answer these questions relatively soon and be ready for Phase III in 2028.

And I believe on past calls, you've talked about the desire to have co-formulated subcutaneous Lato injector and be the preferred form factor here. Maybe -- some of your competitors will say, maybe there's an ease, I don't know if it's from a development perspective or a commercial perspective to go after a bispecific versus a co-formulation. And so where are you in terms of more holistically thinking about combinations, even beyond IBD settings where you feel like combinations or plateaus or initially. I imagine psoriasis is a setting where, clearly, there's not you've got such high efficacy that combinations probably don't make sense, but there are other settings where it does. That's right.

So IBD is a good place. I think rheumatoid arthritis is a good place. The reason co-formulation makes sense to us because these assets are available to us now. And 1 advantage of the co-formulation combination approach is that you can optimize the ratio of the assets because with the bispecific, it would be locked in. That being said, we don't think there's anything fundamentally wrong with that. Just for our program, we're ahead on these because we have a ready to go alpha-4-beta-7 we have a ready to combine TL1A, and at the end of this year, hopefully, a TREM1 that's ready to go. That being said, behind that, we do have an I-1IL-23-TL1A bispecific that we could study. And we'll be able to then compare it with the data that we're deriving from a co-formulation and make that call. I don't think we know which approach would be better. It's simpler and potentially faster to have a bispecific because you are not having to demonstrate contribution of components. And potentially, if it's high concentration, maybe there's less volume, But then the lingering question would be is that ratio the right ratio? And would you been better off with the co-formulation, what I would say for AbbVie is we're doing all of the above. And then we have combinations in rheumatoid arthritis, multiple combinations in Crohn's and ulcerative colitis, where we think it's important. And then on the bispecific side we are bringing to the clinic this year into Phase I and IL-1331 bispecific with the extended halfway and an IL-13 18 bispecific with an extended half-life if we're talking about atopic dermatitis, which is still an area which is still very underpenetrated.

Yes. And I think you've talked a little bit on the most recent earnings call about maybe what the desired dose frequency would be with some of these combination approaches, whereas with SKYRIZI quarterly dosing has been very advantageous. How do you think about the benefit of quarterly versus monthly when you go to the improved efficacy profile that these combinations could offer?

Yes. I think if you're driving high efficacy, monthly is going to be acceptable but it has to be high efficacy, and that's what we're going to deliver. SKYRIZI and IBD is every 8 weeks. And as you stated, in psoriasis is quarterly. We do have an extended half-life version IL-23, hoping to double or maybe 2.5x. We think it's a sweet spot of the half-life of SKYRIZI. We are not interested in ultra long half-life. One thing that we've learned talking to all of our clinicians over the last 20 years is if something has a very long half-life in your indication where there could be ongoing flare tolerability concerns or loss of response, that's actually a disadvantage if you wanted to alter therapy or stop therapy, an ultra-long half-life won't let you turn it off or add on, you may have concerns. So that's why we would like to develop for all types of prescribers across indications. So with the extended half-life if we can get in and stretch it out, that's great. We combine it with our TL1A if it goes to every 8 weeks or quarterly. Going beyond that, we don't think is a good option in psoriasis, every 6 months makes sense actually with SKYRIZI. We already have data in label that if you stop it and wait 6 months, majority of the patients have the efficacy. So tweaking that half-life a little bit can get you to every 6 months. and probably to every year, but with a constrained half-life because we have a very long pharmacodynamic effect that's independent of PK with SKYRIZI, and we saw that in IBD, and we see that in psoriasis. So we think that could be that could resonate with a variety of clinicians that may have some nervousness of having it too long of a half life.

Okay. You guys have been pretty vocal about Capstan and your in vivo CAR T program and data later this year. This is an based products and not a line viral. So maybe just talk about sort of helping investors think through the importance of the update in clinical data later this year on the safety hurdle is lower than, say, a leoviral-derived product. And any sort of early efficacy signals we could see in either of the lupus or RA settings?

Yes. This is an in vivo CD19 CAR-T, no lymphodepletion required no virus, no integration of genomic DNA. It's mRNA-based. So that means it's transient. So we were thinking about safety when we originally were assessing the landscape for these assets. So the -- in healthies, it's delivered, we see rapid B-cell depletion, and then the CAR is only transiently expressed because it's generated by mRNA. So then the car goes away, the B cells are depleted, and the naive B cells that are nonpathogenic repopulate and hopefully driving remission or cure like. So we've seen that in healthies, the pattern we would like to see. And now as you stated, we're going into patients with lupus and rheumatoid arthritis. And we should be able to get a small number but if we're seeing high levels of efficacy by the end of this year and we have a reasonable idea of dose, then that may allow us to pivot much more rapidly in the pivotal studies. And you tend to have to study less patients to get -- if you're driving high levels of efficacy against a comparator, you could see that relatively quickly. And I think even in single-arm studies, if you're seeing very high levels where you traditionally don't see efficacy that would also give us robust data to allow us to make a very well-informed decision to go into pivotal study. So we expect some patient readout this year and much more into next year. And that's why we like this construct so much.

Okay. The update and then the no-go in IBD. How big of a setback is that for the Lodi story? I know there's a lot of focus on this as 1 of your I&I assets that some look to maybe be a key asset for you. And you still have the HS data coming any read across the other settings?

That's right. So we saw very strong data in HS in Phase II. And that's why we looked at some selected indications and brand Phase IIs there. Now in this setting in IBD, we saw much stronger data with the alpha4beta7. So it made sense to take that horse forward. But I would see this as independent indications because we already had very strong Phase II data. That's why we made the decision to go to Phase III for LUDI and HS, and we'll see that later this year, along with RINVOQ data, which sets up a similar dynamic that we have established now in IBD where you have a frontline asset, SKYRIZI today in IDD, hopefully, and HS and then a second line asset, RINVOQ, where we see that in IBD potentially also in HS under penetrated market, probably in the 20% or so with advanced therapies and a prevalence that's not inconsistent with IBD prevalence.

Okay. Probably have time for 1 last question. games -- so just thinking about the landscape, there's a lot of policy updates regarding development of psychodelix. I imagine the goal here is to make for something that's easier to administer and more durable than [indiscernible] which is the, I guess, the most advanced, most commercially successful agent in that space. Do these updates from a development standpoint in terms of governmental push to get psychodelex available, change the urgency how quickly you think you can get to market with these approach?

Yes, it could be certainly a tailwind, especially if they're able to review our briefing packages faster, give us rapid advice. Ultimately, if we have strong data, they can review that quickly. Also, if there is openness to more broader patient populations that could certainly help the field. And what we see with this asset is limited duration of the second deliclucination experience, it's limited. So that way, in the office, patients can be turned over pretty rapidly and go home and not have a flashback. And also in the early data, we saw durable efficacy, which is very important. And the other unique aspect of this molecule is that, yes, it's a 5-HT agonist, which is where we see the efficacy for some of these classes. But it is actually a 5-HT2B antagonist. And the concern with many of these, if it agonizes that receptor, that's the same 1 we observed years ago that was responsible probably for the cardiovascular valvular issues we saw with Finfit. So the other benefit we could have is potential for chronic dosing. spaced out, and we would like to get away from once a week or twice a week dosing greater intervals, I think, would be helpful for patients in these clinics that have been set up. So that's why we're excited about this asset. And we see the government mindset as a tailwind for, I think, everyone to develop in the psychodelic space.

Great. We're out of time. So gentlemen, thank you so much for joining us.

Thank you.

Thank you.