AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

All right. Great. Thanks for joining us, everybody. I'm Terence Flynn, Morgan Stan's U.S. biopharma analyst. Very pleased to be hosting AbbVie. For important disclosures, please see Morgan Stanley's research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. As I mentioned, very pleased to be hosting AbbVie this morning. We have Rob Michael, the company's Chairman of the Board and CEO. We have Jeff Stewart, the company's EVP, Chief Commercial Officer; and Roopal Thakkar, the company's Head of R&D and Chief Scientific Officer. Thank you both -- or thank you all 3 of you for joining me today. Really appreciate it.

Great to be here.

So maybe first, I'll kick it off with a pipeline question. I know you guys have made a lot of progress over the last years or so on this front, and then we'll dive into it. But looking forward to the discussion.

Yes. Thanks, Terence. So I think this 1 RupandI will tag team. But I'm very excited about the state of the AbbVie pipeline as I sit here today. Now we're a couple of years into the -- into our next chapter and you look at the progress we're making across immunology, oncology, neuroscience and now entry into obesity, you're really starting to see the company. And it was really the strategy we had set out for the company as we thought about this next chapter of growth beyond HUMIRA. We've obviously returned to -- rapidly return to growth. In fact, our guidance this year will actually be almost $10 billion higher than our peak before HUMIRA. And that's with HUMIRA eroding by $18 billion from its peak, right? So we've had $18 billion of HUMIRA erosion and we've offset that with $28 billion of X-UMIRA growth platform delivery, particularly in immunology and neuroscience. That's really the areas that have really driven that growth. But as I look at it, whether it's the combination platform and immunology, obviously, very excited about Apogee. We look at lutakizumab, the new indications for RINVOQ. I mean I think we have a very robust immunology pipeline that will elevate the standard of care and really drive this company to grow beyond SKYRIZI Ron book. We have a very clear line of sight to growth, well into the next decade, but that pipeline will then carry us forward beyond that, really similar to what we accomplished by -- with the HUMIRA loss of exclusivity. We followed that with actually having Rinvoq -- it's Garett better agents which allowed us to continue investing in R&D. We increased R&D investment during that period. We rapidly returned to growth. I'd say the other area that doesn't get enough appreciation is in oncology. We're very excited about tend to me the opportunity that -- as well as the trispecifics we've brought in from the outside to really give us a long-term strong position in multiple myeloma, Tmab-A across several solid tumors. 969 in prostate cancer, 706 in small cell lung cancer as well as a PD-1 VEGF from RemaGen, which we shared some data last week at the Congress. And so I think, a lot of excitement around oncology and neuroscience. When I think about -- we've got 3 franchises that are $5 billion-plus peak franchises. We are now the leaders in neurosciences as you look across the revenue portfolio. And obviously, we have Rail. But beyond that, as we think about our pipeline, Bretasilsent, aracladine-932, I think a very deep pipeline in psychiatry. Obviously, we're very excited about Viv in Parkinson's, but we have Tavapadon which will hopefully be approved soon, which gives us a nice complementary asset in Parkinson's. Migraine, we don't get a lot of questions on migraine, but we are the leaders in migraine. As we look at the entire spectrum of the disease, we've got covered with BOTOX therapeutic and chronic migraine and then our oral CGRPs, Ubrand LIPA. And I'd say that's 1 where we've said, again, $5 billion-plus peak and at least sell-side consensus has it around 4, so another source of upside for us. So I think tremendous momentum in the pipeline. And then bringing in the Amblin from Gubra gives us an entry into obesity. We're obviously very interested in bringing other mechanisms in. We've been very active on the BD front. We haven't been compelled based on the data we've seen. But to the extent we see a differentiated asset, certainly we think about half-life matching, the opportunity to combine, there's a great opportunity. But as a growth driver for the company in the next decade and beyond as the way I see obesity. And then I briefly mentioned Apogee when I talk about immunology, but that gives us not only a late-stage asset in Zume with in atopic dermatitis. But we've talked a lot as a management team about entering new areas of growth and asthma was 1 area we identified a couple of years ago. We've been looking for an opportunity. And then I think Zume combined with the TSLP gives us a real mid-stage asset that can really drive growth in asthma for us as well. So I'm very pleased with the state of the pipeline for AbbVie today. I think we're getting more recognition of it. You're seeing multiple expansion. I think there's obviously more room for multiple expansion as the pipeline matures. But I think we're in a very strong position sitting here today.

Great. Perfect place to start, and I know we'll unpack a lot of this. I guess just 1 other high-level 1 is just on the policy side. we were talking about this before, the fire side is just a different place from last year for sure, which I think is a good thing. But just anything that's on your radar as we head into midterm that is a focus or you're hearing about in D.C. these days.

Yes. I think from a policy perspective, I mean, we look at it from how do you continue to improve patient access to medicines affordability for their medicines, but balancing that with supporting a healthy U.S. innovation ecosystem. So the things that we pay a lot of attention to are how do we continue to have that edge in the U.S. and innovation. You've seen China make biopharma innovation a national priority. You've seen a lot of innovation come out of China. So how do we ensure that the policies in the U.S., the regulatory framework in the U.S. allows us to keep up and maintain that lead. That's very important. As I look at other areas like a lot of focus on, I'd say, for free loading. And we work very closely with Ambassador Greer, our U.S. Trade Representative, we recently launched a 301 investigation in Germany as a result of some unfair practices. So we have highlighted to the USTR, the various examples of unfair practices to try to get, I'd say, more parity in terms of U.S. or U.S. pricing, get them closer together. I think there's opportunities there, and we continue to work with the administration on that. And then I'd say 340B, I think you're hearing all of the CEOs in the industry talk about the abuse. We all support the original intent of the program. but it's clear that the overly broad definition of a patient has led to a level of abuse over the years. You're seeing just really uncontrolled growth in that program and that isn't benefiting patients. And frankly, it's taking R&D investment away from the industry. It's going to affect future innovation. So it's important that, as an industry, we continue to work with the administration and Congress on how do you solve this problem? I say, very encouraged by the bipartisan support we're seeing across both the house and sand and on a few proposals that are heading in the right direction. And then I'd say the rebate pilot, we'll have 3 drugs that participate in that pilot will also be another opportunity to set some more light and some more transparency in that program to ensure that ultimately, it is serving its original tenant. It's benefiting patients. and it's not stealing investment away from R&D.

Yes. Okay. Great. Maybe we'll just start high level on Apogee. This is probably the most notable transaction the company has done since Allergan. So maybe just remind us kind of the strategic drivers here. You mentioned 1 of them getting into a lateral area in asthma. But what else was interesting about this opportunity? And how do you see this evolving on the forward?

Yes. Look, Apogee fits very nicely with our BD approach. I mean, we've talked about with the portfolio we have today, we have a very clear line of sight to very strong growth well into the next decade. And so you've seen us really executing over the last several years, more early-stage deals, but really with the idea of adding depth to our pipeline, we're always looking for ways of elevating the standard of care. So that was a strategy with SKYRIZI and RINVOQ to replace HUMIRA. That is a strategy as we think about across the portfolio of what we're really trying to execute with the pipeline. Obviously, we like a lot of our internal programs. We're advancing them, but we are, I will say, very interested in what's happening outside of AbbVie. And we've brought in quite a few -- I want to say it's been maybe close to 40 -- 30 to 40 deals over the last 2.5 years. And so where I see Apigee, it's very similar. It just -- it happens to have a late-stage asset. And we've always said we're not unwilling to pursue a late stage, even in our market opportunity if it fits, if it's a differentiated asset. that fits in the areas where we're focused, immunology, oncology, neuroscience, aesthetics and obesity. And so we saw a level of differentiation. We've actually been following them for a couple of years. we saw the data and we jumped right on it and obviously then announced the transaction at the end of June. It's very complementary to our strategy in immunology. It gives us a great opportunity in an area of high unmet need in atopic dermatitis. And as I mentioned earlier, an opportunity to expand into asthma. We are also looking at opportunities like that across our portfolio. So the lens again is on those key growth drivers, and we have the financial wherewithal. We have plenty of capacity to be able to continue to execute deals, whether that is a early-stage opportunity that's going to drive long-term growth, a late-stage asset or even on market.

Okay. Great. Maybe to bring Ruple into it, just on the registration program for -- maybe you could just elaborate on kind of -- I know it's still a little bit early, but what is that -- what's the scope of it, what's that going to look like? What's the kind of time frame for that program.

Yes. So very consistent with the data that we just saw, which was a Phase IIb data set that Rob is referencing. We want to replicate that on a larger scale and us along with the Apogee team. We think we can do that. So opportunities to internalize and move with speed is very important, maintaining the data that we've observed. We think we're in a good position to do that because the data we're in a global setting. Oftentimes, we do see data in immunology move from Phase II to Phase III and potentially have a dip. In fact, we see something different here because they actually globalized and didn't see a dip. In fact, some of the efficacy outcomes were stronger and numerically stronger across what's available, even EASI-100 the most stringent endpoint, is starting to approach RINVOQ. So that was part of what has us excited. But now as we are able to internalize, globalize, we bring that scale. So we will be moving quickly. We will start enrolling, I would say, this year and then launch in the early part of 2030, and we would do our best to include multiple countries and then age groups getting down to adolescents and potentially expanding further Japan, China, where maybe a small company doesn't have that ability to do that. While we're doing that in parallel, we want to investigate Zume along with TSLP that Rob referenced, that's also half-life extended, and that would be in asthma. And AD and asthma, from our experience with RINVOQ and with Jeff's team who've been very successful with RINVOQ, we still see an underpenetrated market advanced therapies reaching less than 10% of individuals. So there's a lot of upside. And both of these markets are growing greater than 15% annually. So that's why I think it was a great fit. We're very excited about the data in front of us and continue to build upon that and expand out indications.

Great. Maybe, Jeff, just from the commercial lens, anything you want to add there? And then I guess the 1 I think majority of investors think a great deal. strategic fit, all make sense. The 1 area is get some pushback is just biosimilar Dupixent and kind of how you navigate that. So maybe you could talk about just commercial profile Zume go-to-market strategy and then how you think that plays out longer term because I think that's the 1 question.

I think it's a great question. To just to reiterate what Rupel said, I mean, the profile is very, very nice. And certainly, the way we look at it, we'll have RINVOQ in AD through 2037. And so when you look at our ability to co-position assets, we've been very successful at that, whether it's been PSA or IBD, and so it's quite exciting. We're not really too worried about biosimilar Dupixent just because we've seen how these markets evolve. We've seen biosimilar HUMIRA. We've seen biosimilar Solara. And sort of when you reset the standard of care and you're able to bring basically the AbbVie capability, we've shown we can navigate that exceptionally well. I would like to reiterate a key point that Ruple made. I mean if you look at the bio penetration rate of atopic dermatitis, it's very low. It's by far the lowest of any of the immunological categories, it's about 8% in the U.S., and it's lower than that outside of the U.S. It's probably got 3x the number of moderate to severe patients as the psoriatic market that we've seen develop over the last couple of decades. And while we think that, okay, Dupixent has been out there for a while. It's a mega blockbuster. Rinvoq is the second product in that category, a very significant agent. There's a lot of runway to this market over time, and we're well positioned commercially to make sure this Apogee transaction is fully exploited.

Just remember, psoriatic market right now, dollar value, what is that roughly like $25 billion?

Yes, it's even higher than that, growing even faster. Right.

So you're telling us that threefold higher atopic derm cost.

The pure number of patients is 3x, and it's less than 1/3 penetrated at this point. So the way that these markets work is you get line of therapy expansion, you get momentum over time as people live with these conditions for atopic dermatitis to be lifelong because you have a significant pediatric population. So it's extremely attractive, and I think the investors have seen that with the [indiscernible].

There the reason why we use mega blockbuster potential in our announcement.

Great. Okay. So maybe just going -- we'll get to some of the other therapeutic areas. But immunology is still, again, the core of the company. And really has been such a success story, key growth driver. Just maybe level set us on kind of how you're thinking about SKYRIZI RINVOOK over the long term, some competitive dynamics at play here, whether it's TREMFYA, icotide, but maybe just give us kind of mark-to-market on how you're thinking about the long term? And then kind of the related question is just on the subcu approval -- just remind us kind of confidence level there and then what's in your guidance for this year and next year because I think there's a lot of focus on that, obviously, important upcoming FDA decision.

Yes. So when we look at the immunology markets, as I mentioned before in our last question, they're extremely robust. So the bio penetration rates are quite small. What we see is that these markets are growing very nicely. I mean, the most mature markets may grow in the mid-single digits, like rheumatoid arthritis. The other is in the high single digits in atopic dermatitis and asthma are growing almost 20%, between 15% and 20%. So they're extremely robust. They're characterized by this idea that as patients live for decades with these conditions, line of therapy expands. So we see in many of the segments that second or third line is now larger than frontline. So this basically creates a lot of space for innovation and people moving through their patient journey. The other dynamic that we see is if we look at our actuals, and we've highlighted this over the years, we look at both in-play share, which is actually your dynamic share. So those are your capture rates of your new patients or switching patients compared to your total prescription share. So we can see that we still have very, very strong capture rates for both SKYRIZI and RINVOQ well ahead of where the prescription shares or the TRxs. And so we know that we're going to have share momentum that is going to continue. And this is despite the fact that competition has increased, but it doesn't lower our confidence level. Then, we see multiple catalysts over the near term. Certainly, we can highlight the subcu induction for SKYRIZI. And then we have 4 more key indications here for RINVOQ. And these indications for RINVOQ are right on top of our commercial footprint. So we have GCA and lupus. Those are right on top of our rheumatology community. And the rest, like HS, Vitiligo and alopecia are on that dermatology call point. So we see incremental catalysts coming with what we call the sort of the third wave of ribo indications over time. So that gives us a lot of confidence in the sustainability of the momentum that we have with our big core assets. And you asked about SKYRIZI subcu. So we see this as a significant catalyst that we're right on top of. So we expect the approval here in the fourth quarter. it will probably take 60 or 90 days for us, which is typical to get full paid access because we do have to go through sort of a formulary acceptance process, which we think will be quite reasonable. And then we think we can bring this to the market in Crohn's. And what's remarkable about this new catalyst is the quality of the data. This is our firm data. And what we saw was, whether you look at placebo-controlled endoscopic endpoints, in particular, but also clinical remission. We've never seen anything like this level of basically induction quality in the category. So take the IL-23 competitive dynamic out of it across Crohn's disease -- this will be an extremely effective and well perceived asset when it comes in the fourth quarter. So very, very positive momentum as we look at the long term for SKYRIZI and RINVOQ.