AbbVie (ABBV) Earnings Report: Q3 2015 …I'll briefly discuss our third-quarter 2015 performance...
Transcript of AbbVie (ABBV) Earnings Report: Q3 2015 …I'll briefly discuss our third-quarter 2015 performance...
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page1of28
AbbVie(ABBV)EarningsReport:Q32015ConferenceCallTranscriptThefollowingAbbVieconferencecalltookplaceonOctober30,2015,09:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
LarryPeepo;AbbVie;InvestorRelationsRickGonzalez;AbbVie;Chairman&CEOBillChase;AbbVie;CFOLauraSchumacher;AbbVie;GeneralCounselMichaelSeverino;AbbVie;ChiefScientificOfficer
OtherPart icipants
JamiRubin;GoldmanSachs;AnalystJeffreyHolford;JefferiesLLC;AnalystMarcGoodman;UBS;AnalystChrisSchott;JPMorgan;AnalystMarkSchoenebaum;EvercoreISI;AnalystVamilDivan;CreditSuisse;AnalystAlexArfaei;BMOCapitalMarkets;AnalystColinBristow;BankofAmericaMerrillLynch;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometotheAbbViethird-quarter2015earningsconferencecall.
(OperatorInstructions)
Thiscallisbeingrecorded.Ifyouhaveanyobjections,youmaydisconnectatthispoint.
I'dnowliketointroduceMr.LarryPeepo,VicePresidentofInvestorRelations.
LarryPeepo (InvestorRelations):
Goodmorning.Thanksforjoiningustoday.
AlsoonthecallwithmeisRickGonzalez,ChairmanoftheBoardandChiefExecutiveOfficer;LauraSchumacher,ExecutiveVicePresident,BusinessDevelopment,ExternalAffairs,andGeneralCounsel;MichaelSeverino,ExecutiveVicePresidentofResearchandDevelopment,andChiefScientificOfficer;andBillChase,ExecutiveVicePresidentofFinanceandChiefFinancialOfficer.
Beforewegetstarted,I'llremindyouthatsomestatementswemaketodaymaybeconsideredforward-lookingstatementsforpurposesofthePrivateSecuritiesLitigationReformActof1995.AbbViecautionsthattheseforward-lookingstatementsaresubjecttorisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthoseindicatedintheforward-lookingstatements.AdditionalinformationaboutthefactorsthatmayaffectAbbVie'soperationsisincludedinour2014annualreportonForm10-Kand
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page2of28
ourotherSECfilings.AbbVieundertakesnoobligationtoreleasepubliclyanyrevisionstoforward-lookingstatementsasaresultofsubsequenteventsordevelopments,exceptasrequiredbylaw.
Ontoday'sconferencecall,asinthepast,non-GAAPfinancialmeasureswillbeusedtohelpinvestorsunderstandAbbVie'songoingbusinessperformance.Thesenon-GAAPfinancialmeasuresarereconciledwithcomparableGAAPfinancialmeasuresinourearningsreleaseandregulatoryfilingsfromtoday,whichcanbefoundonourWebsite.Wewanttoremindyouthatweissuedtwoseparatenewsreleasesthismorninginadvanceoftoday'scallandhavealsopostedslidesonAbbVieinvestor.comthatsupplementsomeofthecontentwe'llbecoveringthismorning.
Followingourpreparedremarks,we'lltakeyourquestions.Sowiththat,I'llnowturnthecallovertoRick.
RickGonzalez (Chairman&CEO):
Thankyou,Larry.Goodmorning,everyone,andthankyouforjoiningus.AsLarrymentionedwe'llbecoveringtwotopicsonthecallthismorning.
I'llbrieflydiscussourthird-quarter2015performancehighlights,andBillwillwalkyouthroughthequarterinabitmoredetail.I'llthendiscusstheCompany'slong-termstrategicandfinancialobjectivesthatweoutlinedthismorning,includingourexpectationsforgrowthandotherfinancialmetricsoverourlong-rangeplan.Andasalways,we'llprovideampletimetoansweryourquestions.
Wedeliveredanotherquarterofstrongperformance,withthird-quarterresultswellaheadofourexpectations.Adjustedearningspersharewere$1.13,representinggrowthofnearly27%versusthethirdquarterof2014.
Thisisthethirdconsecutivequarterofdeliveringroughly30%EPSgrowth.Ourresultsinthequarterincludedoperationalsalesgrowthofmorethan26%.
BeforeIprovideanoverviewofourhighlightsinthequarter,I'llbrieflyprovideourperspectiveontherecentupdatetoourUSViekiralabel.Asyouarelikelyaware,lastweekweupdatedtheprescribinginformationtoreflectachangeintheuseofViekiraincertainpatientswithadvancedcirrhosis,specifically,Child-PughBpatients.Viekirawentfromnotrecommendedtocontraindicated.ViekirawasandremainscontraindicatedinChild-PughCpatients.Inaddition,theupdatedlabelrecommendsaclinicalandlaboratoryassessmentforpatientswithcirrhosistoensurethatthosewithdecompensateddiseaseareidentified.
Turningnowtotheotherquarterlyevents,inthequarter,weadvancedseveralimportantstrategicpriorities,continuedtoenhanceoperationalefficiency,andachievedanumberofclinicalandregulatoryobjectives.Ourthird-quarterperformancewasdrivenbygrowthfromseveralproductsinourportfolio,includingstronggrowthfromHumiraandImbruvica,continuedglobaluptakeofViekira,andcontinuedgrowthfromCreonandDuodopa.
Wealsocontinuedtoimproveefficiencyacrossouroperations,deliveringroughly640basispointsinoperatingmarginexpansionthisquarterversustheprioryear,achievinganoperatingmarginof44.9%.I'lldiscussourcommitmenttofurtherdrivethismetricinthecontextofourlong-termfinancialobjectivesinjustafewmoments.
Wecontinuetobeverypleasedwiththeadvancementandderiskingofourmid-andlate-stagepipeline.Duringthequarter,wereportedpositivedata,advancedprogramsintotheregulatoryapprovalcycle,andreceivedapprovalforseveralassets.
Lastmonthwereportedpositivetop-lineresultsfromtwoPhase2bstudiesofourselectiveJAK1inhibitor.WebelieveABT-494hasaverycompellingprofile,withthepotentialforbest-in-classefficacyeveninthe
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page3of28
mostdifficult-to-treatTNF-inadequateresponderpatientsandwithonce-dailydosing.We'llpresentthefullresultsfromthetwomid-stagetrialsatanupcomingmedicalmeetingandareontracktoinitiatethePhase3studiesbyyear-end.
Wealsoreportedpositivetop-linefindingsfromaPhase2btrialofelagolixinpatientswithuterinefibroids.Preliminaryresultsfromthesix-monthstudydemonstratedthatallofthetreatmentarmsachievedthestudy'sprimaryendpoint.Basedonthesefindings,weplantoadvanceelagolixintoPhase3developmentforfibroids,withinitiationexpectedinthefirstquarterof2016.
WerecentlysubmittedtheUSregulatoryapplicationforImbruvicaasatherapyintreatment-naivepatientswithCLL.InJune,weannouncedthetop-lineresultsfromthePhase3RESONATE-2trialcomparingImbruvicamonotherapytochlorambucilinpatientsaged65orolder.TheresultsillustratethattreatmentwithImbruvicasignificantlyimprovedprogression-freesurvivalandmultiplesecondaryendpoints,includingoverallsurvivalinfirst-linetherapy.
Aswehavesaid,asignificantportionofourvaluationforPharmacyclicswasattributedtoadvancingintofirst-linetreatment.Andwhileweassumedaveryhighprobabilityofsuccess,theRESONATE-2dataprovidesstrongevidenceofImbruvica'sefficacyinafrontlinesetting,furtherderiskingthiscomponentofourmodel.
Thetrialresultswillbepublishedinapeer-reviewedmedicaljournalandpresentedatanupcomingmedicalmeeting,andweanticipatearegulatorydecisiontouseintreatment-naivefirst-linepatientsinthefirsthalfof2016.GiventherobustresultswehaveahighdegreeofconfidencethatImbruvicawillbeverysuccessfulasfrontlinetherapy.
WealsorecentlycompletedourUSregulatorysubmissionforvenetoclax,orABT-199,inrelapsed-refractoryCLLpatientswith17pdeletion.Wealsorecentlyreceivedregulatoryapprovalforourtwo-pill,once-dailyHCVtherapyinJapan.WeexpecttoreceivereimbursementandlaunchinJapaninthenextmonthorso.
Latelastmonthwesubmittedourregulatoryapplicationforaonce-dailyformulationofViekiraPakintheUS.Finally,duringthequarter,wereceivedUSregulatoryapprovalforHumiraasatreatmentforHS,andwesubmittedourUSandEuropeanregulatoryapplicationsforHumiraasatreatmentforuveitis.
Insummary,wedeliveredanotherquarterofstrongresults,exceedingourguidancerangeforthequarter,andweraisedourfull-year2015outlooktotheupperendofourpreviousguidancerange,reflectinggrowthofroughly28%.Ourresultsyear-to-datedemonstratethesignificantprogresswe'vemadetowardsourobjectiveofdeliveringindustry-leadinggrowth.
I'lldiscussourstrongoutlookfor2016aswellasourlonger-termfinancialcommitmentsafterBillcoversourthird-quarterresultsinmoredetail.Withthat,I'llturnthecallovertoBill.Bill?
BillChase (CFO):
Thankyou,Rick.ThismorningI'llreviewourthird-quarterperformanceandprovideanupdateonouroutlookfor2015.AsRickmentioned,inadditiontodeliveringstrongtop-linegrowthinthethirdquarter,weagainexceededourearningspershareguidancerangewithgrowthofnearly27%versusthethirdquarterof2014.
Operationalgrowthonthetoplinewasverystrongat26.2%,excludinga7.8%negativeimpactfromforeignexchange.Reportedsaleswereup18.4%.
Humiradeliveredglobalsalesofmorethan$3.6billion,up19.6%onanoperationalbasis.WecontinuetoseestrongmomentumforHumiraasthemarketleaderaroundtheworld.Onareportedbasis,currency
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
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hadanegative7.5%impactonglobalHumirasalesandreducedinternationalHumirasalesby16%.
USHumirasalesincreased30.4%.We'veseenaccelerationandmarketgrowththisyearintheUS,withHumiradrivingstronggrowthacrossthegastro,rheum,anddermsegments.Wholesaleinventorylevelsremainedconstantatroughlyhalfamonth.
Internationally,Humirasalesincreased7.1%onanoperationalbasisinthethirdquarter,roughlydoubletherateofgrowthwereportedinthesecondquarter.Humira'smomentumhasnotbeenadverselyimpactedbytheRemicadebiosimilar.Wecontinuetoseeonlymodestoverallsharegainsforthebiosimilarinthemajormarkets,inlinewithourplanningassumptions.
Humira'slistofindicationscontinuestogrow,withrecentEMAandFDAapprovalsforHS.Humiraisalsocurrentlyunderregulatoryreviewforuveitis,withapprovalexpectedbytheendof2016.GlobalpeakyearsalesforHSareexpectedtobeapproximately$1billionperyear,whileuveitissalesareexpectedtoreachseveralhundredmilliondollarsperyear.
Forthefull-year2015,wenowexpectglobalHumirasalesgrowthinthehighteensonanoperationalbasis,anincreasefrompreviousguidanceofmidteensoperationalgrowth.ThisreflectsaforecastforUSgrowthapproaching30%andhigh-single-digitinternationaloperationalgrowth.
ThiswasthefirstfullquarterofImbruvicasalessincetheclosingofthePharmacyclicsacquisition,andglobalsaleswerestrongat$304million.USsaleswere$267million,andourinternationalprofit-sharingwas$37million.For2015,wecontinuetoexpectPharmacyclicstoaddmorethan$750milliontoourtoplineforrevenueoccurringaftertheMay26closingdate.
GlobalViekirasalesinthethirdquarterwere$469million.Theinternationallaunchhascontinuedtoexceedourplanningexpectationsandhasresultedinahighermixofinternationalsalesthisyear.
AsRickmentioned,werecentlyreceivedregulatoryapprovalinJapanforourtwo-drug,once-dailyribavirin-freecombinationforthetreatmentofgenotype1b.WeanticipatelaunchinginJapannextmonthfollowingthetraditional60-dayreimbursementreviewcycle.
WealsosawastrongperformanceacrossanumberofourotherproductsincludingDuodopa,Creon,andLupron.
TurningtotheP&Lprofile,wearepleasedwithourprogressinthequarter,asweshowedcontinuedimprovementingrossmarginasapercentageofsales.Theadjustedgrossmarginratiowas83.3%,drivenbyexchange,operationalefficiencies,aswellasproductmix.
AdjustedR&Dwas15.4%ofsales,reflectingfundingactionsinsupportofourpipelineassets.AdjustedSG&Awas23%ofsalesinthethirdquarter,downfromtheprioryear,contributingtocontinuedimprovementinouroperatingmarginprofile.
Wedeliveredanadjustedoperatingmarginof44.9%ofsales,up640basispointsversustheprior-yearquarter.AfteradjustingforamodestnegativeimpactfromPharmacyclics,morethan500basispointsofthisimprovementwasdrivenbyefficienciesandP&Lleverage.
Netinterestexpensewas$197million,reflectingtheimpactofdebtissuedinconnectionwiththePharmacyclicsacquisition.Theadjustedtaxratewas21.9%inthequarter.
Third-quarteradjustedearningspershare,excludingnoncashintangibleamortizationexpenseandspecifieditems,were$1.13,upnearly27%year-over-yearandexceedingourpreviousguidancerange.OnaGAAPbasis,earningspersharewere$0.74.
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page5of28
Movingontoouroutlookfortheremainderoftheyear,weareraisingour2015adjustedEPSguidancetoarangeof$4.26to$4.28.ThisreflectsEPSgrowthofapproximately28%atthemidpoint.Thisguidanceexcludes$1.10pershareofintangibleamortizationexpense,dealcosts,integration,andotherspecifieditems.
Weexpectfourth-quarterrevenuegrowthonanoperationalbasisinthelow20%range,excludingapproximately5%negativeimpactfromexchangeinthequarter.Forthefull-year2015,weareforecastinganoperatingmarginof42%to42.5%ofsales.
AndasRicknoted,todayweprovideda2016adjustedearningspershareguidancerangeof$4.90to$5.10.We'llprovidemoredetailregardingthisguidanceaswenormallydoonthefourth-quartercallinJanuary.
So,inconclusion,wearepleasedwiththedriversofourstrongperformance,furtherdemonstratingthequalityofourresultsinthequarterandthusfarin2015.Wehavedrivenstrongtop-andbottom-linegrowthanddeliveredoperatingmarginexpansionwhilealsoadvancingourstrategicpriorities.Thisputsusinastrongpositiontodelivertop-tierindustrygrowththisyearandinthecomingyears.
Withthat,I'llturnitbacktoRicktowalkyouthroughourlong-termstrategicobjectives.
RickGonzalez (Chairman&CEO):
Thanks,Bill.Asareminder,wehavepostedslidestoourWebsitewhichyoucanusetofollowalong.Myremarksregardingourlong-termstrategygenerallycoincidewiththepresentation.
Today,we'llsharewithyousomeofthekeyassumptionsfromourlong-rangeplan,whichwereviewannuallywithourBoardofDirectors.Overthepastcoupleofquarterstherehasbeenanincreasinglevelofinterestfrominvestorsformoredetailonourviewsregardingavarietyoftopics,includingAbbVie'slong-termgrowthprospectsoverthenextseveralyears,ourabilitytoexpandmargins,ourexpectationsaroundbiosimilars,andourpipelineprospects.
Additionally,asweevaluatedourlong-rangeplan'sexpectedperformanceversusWallStreet'sconsensus,thereisacleargapinrevenueandEPSgrowth.Basedonthesedynamics,wedecideditwasappropriatetoprovideinvestorswithaclearviewofourexpectedperformanceandthesignificantdriversofthatperformance.
Turningtoslide3,ourmissionwhenwelaunchedasanindependentcompanywastocreateaninnovation-drivenpatient-focusedspecialtybiopharmaceuticalcompanycapableofachievingsustainabletop-tierperformancethroughoutstandingexecutionandaconsistentstreamofinnovativenewmedicines.Ouractionssinceourinceptionhaveclearlysupportedthatmission.
We'vebuiltaninnovation-drivenculture,attractingtoptalentfocusondevelopingnewproductstoaddresssomeofthemostserioushealthconditions.We'vedeliveredoutstandingperformancefromourpromotedportfolio.ThisincludesHumira,wherewehaveacceleratedgrowthanddevelopedacomprehensivestrategyforthefuture.
OurheightenedlevelofR&Dinvestmenthasgeneratedabove-industrysuccessratewithpositiveclinicaldataandregulatoryoutcomesfromanumberofdevelopmentprograms.Ourpipelinenowhasanumberoflate-stagederiskedassetswithmultibillion-dollarpotential.
WeacquiredPharmacyclics,providingamajornewgrowthplatforminakeystrategicareaandsignificantlystrengtheningourlong-termgrowthprospects.
Wehaveplacedasignificantfocusondrivingoperatingefficiencies,withimpressiveresultstodate.
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page6of28
We'vebuiltshareholdervalueandconfidencewithinvestorsbasedonconsistent,strongperformance.Andwehavedeliveredstrongreturnofcapitaltoinvestors,includingarapidlygrowingdividend.
OuractionshaveplacedAbbVieinapositiontoachievetop-tierperformance,andyouclearlyseethatinourresults.AsImentionedearlier,ourcurrentguidanceprojectsEPSgrowthofmorethan28%in2015.Ourfundamentalstrategyisstrong,andwe'vebuiltanexcellentfoundation.
Asyoucanseeonslide4,since2013wehaveconsistentlydeliveredstrongfinancialresults,includingaccelerationacrosskeyfinancialparameters.We'vegeneratedsignificanttop-andbottom-linegrowthandrobustoperatingcashflows.
Turningtoslide5,despiteourenhancedlevelofR&Dspendasyoucanseeonthisslide,whichhasgrownsubstantiallysincewewereadivisionwithinAbbott,we'vedrivensignificantimprovementinbothgrossandoperatingmarginprofiles.Weremainfocusedonfurthermarginexpansion,andI'lloutlineourcommitmentstoenhancingthesemetricsinjustamoment.
Movingtoslide6,we'vealsoestablishedastrongtrackrecordofdeliveringonourfinancialcommitments,consistentlymeetingorexceedingourearningsestimates.We'reproudofthisoutperformance,andweremaindisciplinedinachievingourstatedobjectives.
Asnotedonslide7,AbbVie'stotalshareholderreturnsinceseparationisnearly76%,aresultthatplacesAbbVieinthetopthirdofourpeergroup.Thesestrongreturnshavecreatedmorethan$35billionofvalueforourshareholdersandamarketcapofnearly$90billion.
Turningtoslide8,whilewe'vedemonstratedaverystrongtrackrecordofhistoricalperformance,wearealsocommittedtodeliveringtop-tierresultsintheyearstocome.Asweevaluateourprospectsoverourlong-rangeplan,webelievewe'rewellpositionedforsuccess.
We'restrategicallypositionedinattractive,high-growthmarketsegments.Andbasedoncontinuedstrongperformancefromourexistingportfolioofon-marketproducts,includingourflagshipbrandsHumiraandImbruvica,aswellasgrowthfromourpipelineproducts,weexpecttodelivertop-tierrevenuegrowththrough2020.
Today,asyoucanseeonslide8,we'reprovidingguidancefortotalCompanysalesofapproximately$37billionin2020.Thisreflects10%top-linesalesgrowthonaverageoverthefive-yearperiod.
ThisguidanceincludesestimatedglobalHumirasalesofmorethan$18billionin2020,whichwebelieveappropriatelycapturestheexpectedbiosimilardynamicsglobally.I'llsharemoredetailonourcomprehensivestrategytocontinueourleadershippositioninimmunologylaterintheseremarks.
Additionally,weexpectAbbVie'sImbruvicarevenuestoreachapproximately$5billionin2020,drivenbycontinuedgrowthwithinthehematologicaloncologymarket.Andourpipelinehasthepotentialtoachievenominalpeakrevenuesofnearly$30billionby2024.ThisestimateexcludesnewHumiraandImbruvicaindicationsandsalesfromournext-generationHCVcombination,whichareconsideredon-marketproductsforthepurposeofthiscalculation.
Wehavethepotentialtolaunchmorethan20newproductsorindicationsthrough2020,includingsevenapprovalsthatwillcontributein2016andbeyond.I'lldiscusssomeofthesepromisingprogramstoday,butwewillbecoveringourfullpipelineinmoredetailatanR&DPipelineReviewtobeheldinChicagoduringthe2016ASCOmeeting.
AsImentioned,oursignificantfocusonoperatingefficiencieshasresultedinstrongimprovementofourgrossandoperatingmarginprofiles.TheCompanyiscommittedtodrivingcontinuedexpansionofoperatingmarginandistargetinganadjustedoperatingmarginofgreaterthan50%by2020,withan
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page7of28
averageof100to200basispointsofimprovementperyear.
AbbViealsoremainscommittedtoreturningcashtoshareholdersthroughastrongandgrowingdividend.Tothatend,todayweannouncedthatourBoarddeclaredanincreaseinourquarterlycashdividendfrom$0.51pershareto$0.57pershare,anincreaseofapproximately12%beginningwiththedividendpayableinFebruary2016.
Ourcommitmenttotop-linegrowthandcontinuedoperatingmarginexpansionwilldrivedouble-digitearningspersharegrowthonaveragethrough2020.Andtoday,we'reissuingstrongfull-year2016adjustedEPSguidanceof$4.90to$5.10.Thisoutlookrepresents17%growthversus2015atthemidpointandpositionsAbbVietobeamongtheindustryleadersforEPSgrowthagainnextyear.
Turningnowtoslide9.ToaccomplishthesegoalswehavenarrowedourfocusandpositionedAbbVieforleadershipinextremelyattractivemarketsegments.Ourcoreareasoftherapeuticfocusincludeimmunology,wherewehaveastrongleadershippositionacrossrheumatology,GI,anddermatology.We'releveragingourscientificleadershipandexpertisetodevelopnext-generationbiologicsandsmallmoleculesthatelevatestandardofcare.Wehavemultiplepipelineassetsinmid-tolate-stagedevelopmentwithbestinclasspotential.
Theoncologymarketrepresentsan$85billionsegmentprojectedtogrowatacompoundedannualgrowthrateof12%through2020.Withinthismarket,wehaveadevelopingleadershippositioninthehematologicalsegmentwithImbruvica,andwehaveseveralothermechanismsindevelopmentincludingourBcl-2,PI3-kinase,andouranti-CS1antibodydrugconjugate.
WealsohaveanemergingpipelineofassetsforthetreatmentofsolidtumorsincludingourPARPinhibitor,veliparib,andABT-414forglioblastomamultiforma.
Virologyalsorepresentsalargeanddurablesegmentforus.We'veestablishedafootholdinthemarketplacewithourcurrentoffering,Viekira.OuremphasisisoncontinuingtoevolveHCVtreatment,andournext-generationcombinationispoisedtodelivermeaningfulimprovementsrelativetocurrentlyavailabletherapies.
EarlierthisyearwedisclosedpreliminaryresultsfromaPhase2bstudyofournext-generationproteaseinhibitor,ABT-493,andournext-generationNS5Ainhibitor,ABT-530.Theinterimdatashowednon-cirrhoticgenotype1aand1btreatment-naiveandexperiencedpatientsreceivingtheribavirin-freetherapyfor12weeksachievedSVR12ratesof99%.ThedoseweintendtopursueinPhase3droveSVR12ratesof100%.
Preliminaryresultsfromtheeight-weektreatmentcohortweredisclosedlastweek.Thesedatashowedthat34of34,or100%,ofgenotype1patientsachievedSVR4.We'llshareadditionalresultsfromournext-generationcombinationattheAASLDmeetingnextmonth.
Neurologyrepresentsalargemarketwithsignificantunmetneed.We'refocusedondevelopingdisease-modifyingtherapiesforAlzheimer'sandotherneurodegenerativeconditions.OurexistingportfolioincludesDuopaforthetreatmentofadvancedParkinsondiseaseandZ inbryta,whichiscurrentlyunderregulatoryreviewintheUSandEuropeformultiplesclerosis.
We'realsoplacingfocusedinvestmentinourlate-stageprogramsinwomen'shealthwithelagolix,andrenaldiseasewithatrasentan,aswellasearly-stageprogramsincysticfibrosis.Endometriosisanduterinefibroidsarebothhighlyprevalentconditions,andelagolixhasdemonstratedpromisingresultsinthetreatmentofbothoftheseconditions.
Nowturningtoslide10.Basedonourlong-rangeplanforourmarketedproductportfolioandourrisk-
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page8of28
adjustedpipeline,wearetargetingtotalrevenueofapproximately$37billionin2020,reflectingatop-linecompoundedannualgrowthrateof10%.Asyoucansee,ourestimatesareroughly$5billionabovethecurrentWallStreetconsensus.
Our2020targetrevenueisbasedonanumberofperformancedrivers.WeexpectHumiratocontinuetobeastronggrowthdriver,addingcloseto$4billioninsalesby2020.AbbVie'sImbruvicarevenueswillreachapproximately$5billionby2020.
OurHCVfranchisewillremainasignificantcontributorthroughourlong-rangeplan.Ourpipelinewilladdmorethan$4billioninrisk-adjustedsales,andDuopawillreachblockbusterstatusglobally.
Turningnowtoslide11,weexpectseveralkeyproductswithinourcurrentmarketedproductportfoliotoaddsignificantgrowthintheyearstocome.IncludingHumira,Imbruvica,HCV,andDuopacollectivelywilladd$10billioninincrementalsalesby2020.
GrowthofHumirawillbedrivenbycontinuedbiologicpenetrationacrossdiseasecategoriesandnewindications.I'lltalkmoreaboutourplanningassumptionsaroundHumiragrowthandtheimpactofbiosimilarsinjustamoment.
Imbruvica'sgrowthinthistimeframewillbepredominantlydrivenbyincreasingpenetrationwithinourcurrentlyapprovedsetofindicationsandmovementintofrontlineuseforthoseindications.TheRESONATE-2datafurtherreinforcesourviewthatImbruvicawillbeahighlysuccessfulagentinfrontlinetherapyforCLL.GrowthwillalsocomefromlabelexpansionintonewhematologicalcancerssuchasdiffuselargeB-celllymphoma,follicularlymphoma,andmultiplemyeloma.
GrowthinourHCVfranchisewillbedrivenbycontinueduptakeofViekiraPakacrossgeographiesincludingJapan,thesecond-largestHCVmarketglobally.Weexpecttocommercializeournext-generationHCVofferingin2017,whichwillbeapan-genotypiconce-dailyretonovir-andribavirin-freecombination.Giventhesignificantglobalprevalenceofthisdisease,weexpecttheHCVmarkettobeverydurablewellinto2020.
AsIsaid,weforecastDuopawillachievesalesgreaterthan$1billiongloballyby2020.Andfinally,otherproductsinouron-marketportfolioincludingCreon,Synagis,Lupron,andSynthroidrepresentsteadyanddurablesalescontributorsoverourlong-rangeplan.
Turningtoslide12,ourgrowthoutlookforHumiraisbasedonathoroughanalysisoftheglobalmarketdynamicsandthestrategythatweputinplace.We'vetakenwhatwebelieveisarealisticviewofthemarketandthecompetitiveenvironmentoverthenextfiveyearsandexpectglobalHumirasalesin2020toexceed$18billion.
Turningtoslide13,wehaveacomprehensivestrategyinplacewhichwebelievewillallowustoprotectandgrowourleadershippositioninimmunology.OurmultifacetedstrategyiscomprisedofHumiraintellectualproperty,enhancementstoHumira,innovationincludingarobustimmunologypipeline,andstrongcommercialexecution.
Turningnowtoslide14,weareplanningconservativelywithrespecttothetimingforEuropeanbiosimilarsandforplanningpurposesexpectdirectHumirabiosimilarcompetitionuponexpirationofourcompoundpatentinEuropeinOctober2018.However,wearepursuingadditionalIPinEuropeandexpectthesituationtoevolveovertime.Again,though,theguidancewe'veoutlinedtodayexcludesanypotentialbenefitfromourIPinEurope.
TurningtoourUSpatentestate,asyoucanseeonslide14wehavebuiltarobustportfolioofintellectualproperty.Beyondourcomposition-of-matterpatent,wehadmorethan70additionallater-expiringUS
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page9of28
patentsrelatedtoHumira.Thevastmajorityofthesepatents,whichreflectsignificantinnovationandinvestment,weregrantedbytheUSPatentandTrademarkOfficewithinthepasttwoyears.Thesepatentsexpirebetween2022and2034.
ThesizeofAbbVie'spatentestateisadirectconsequenceofthegroundbreakingworkofAbbVie'sscientistsinthenewfieldofbiologics.Small-moleculedrugshavebeenaroundformanydecades,buttherapeuticantibodiesaremuchnewer,larger,andmorecomplex.Becausetheymustbemadeinlivingorganisms,biologicsaremoredifficulttomanufacture.Inaddition,becausetheyareforeignproteinsthatareintroducedintothehumanbody,biologicspresentuniquechallengesintermsofformulationandtreatment.
Notonlyisthefieldnew,butHumiraitselfwasanewtypeofbiologic.Itwasthefirstfully-humantherapeuticantibodyeverapprovedbytheFDA.ThedevelopmentofHumirawasuncharteredterritory.
ThoseeffortsresultedintheUnitedStatesPatentOfficegrantingAbbViedozensofpatentscoveringHumira.Thecoverageofourlater-expiringpatentsincludesmethodsofuseforthedruginallHumiraindications,methodstoformulatethedrug,andmethodstomakethedrug,aswellasotheraspectsoftheHumiraproductsuchasthedeliverydevice.AnycompanyseekingtomarketabiosimilarversionofHumirawillhavetocontendwiththisextensivepatentestatewhichAbbVieintendstoenforcevigorously.
Withrespecttoformulatingthedrug,wehavepatentsonformulatingtheHumiraantibodythatalsoexpirenoearlierthan2022.Biologicdrugsmustbeadministeredintravenouslyorasinjectionsandcanbedifficulttoformulateproperly.GivenourextensiveexperiencewithHumira,thesepatentscovernotonlyourcommercialformulationbutalsootherrelatedformulationsthatbiosimilarcompaniesmightemploy.14patentshavebeenissuedcoveringdifferentformulationsofHumira.
Withrespecttomakingthedrug,wehaveimportantpatentsonthemethodsofmanufacturingHumirathatexpirenoearlierthan2027.ThelivingcellsthatproducebiologicdrugssuchasHumiracanbesensitivetosmallchangesinthemanufacturingprocess.Minordifferencesinmanufacturingprocesscanaffectthenatureofthebiologicdrugandevenitsclinicaleffect.24patentshavebeenissuedcoveringmethodsofmanufacturingHumiraandHumiracompositionsresultingfromthosemethods.
TodayI'llfocusonthosepatentswhichcoverusingthedrug,otherwiseknownasmethodoftreatmentpatents.WhileAbbVie'sformulationandmanufacturingpatentsforHumiraalsohavebroadcoverage,withoutfurtherinformationonthebiosimilarwecannotknowwithcertaintytheextenttowhichthesepatentswillbeinfringed.
Nowturningtoslide15.Sincethebiosimilarstatuterequiresthebiosimilartoobtainapprovalforoneormoreindicationspreviouslyapprovedfortheinnovatordrugandhavethesamerouteofadministration,dosageform,andstrength,weknowbiosimilarswillinfringethesemethod-of-usepatents.WehavemethodoftreatmentpatentscoveringalltheindicationsforwhichHumirahasbeenapproved.
Thesepatentsdonotexpireuntil2022orlater.Thesepatentsreflectthedevelopmentworkofmorethan100clinicaltrialsspanning18years.
AsdiscoveredthroughthisworkandreflectedintheHumiralabel,differentdiseasesrequiredifferenttreatmentregimens,whichAbbViediscoveredfollowingsignificantinvestmentinclinicaldevelopment.ThesepatenteduseshavebeenkeytothesuccessofHumira.Theyhaveopenedupnewandbettertreatmentoptionsforanincreasedpatientpopulationandimprovedthequalityoflifeforthosepatients.
Ourmethodoftreatmentpatentscovertheapproveddosingregimensforeachindicationandarenotmererefinementsofpreviousdosingregimens,whichisoftenthecasewithmethodoftreatmentpatentsinthesmall-moleculearena.
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Furthermore,biologicslikeHumiraaremorecomplexandunpredictablebytheirnaturethansmallmolecules.Assuch,biologicspresentuniquechallengesintermsoftreatment.
OnechallengewasthefactthatHumiratargetsTNF-alpha,aproteinthatplaysanimportantroleinthehumanimmunesystem.ItiscriticaltofindtherightbalanceintermsofblockingtheharmfuleffectscausedbyexcessiveTNF-alphawithoutinterferingwiththenormalfunctioningoftheimmunesystem.
ThismadethedevelopmentofsafeandeffectivemethodsofadministeringHumiraallthemoredifficult.AndbecauseHumirawasthefirsthumantherapeuticantibodyeverapprovedbytheFDAofanytype,theworkbyAbbVie'sscientistwasunprecedented.
Intotal,puttingasidethecomposition-of-matterpatentsonHumira,thereare22issuedpatentsdirectedtothetreatmentofTNF-mediateddiseasesthatexpirein2022orlater.AdditionalapplicationsarependingandstillbeingexaminedinthePatentOffice.Again,abiosimilarcompanywillhavetocontendwithourmethodoftreatmentpatentsforeveryindicationforwhichitseeksapproval,aswellasourformulationandmanufacturingpatents,whicharenotlimitedtoanyparticularindication.
Turningtoslide16.AsyouevaluatethetimeframeforapotentialUSbiosimilarmarketentry,itisimportantthatyouconsiderthelegalprocessandthelikelytimelineforresolution.Whileit'salwaysdifficulttoestimatetheprecisedurationofthelitigationprocess,theaveragetimetotrialforapatentactionisnearlythreeandahalfyears.Appealstothefederalcircuitcourtusuallytakeoneyear,sobasedonsimilarcases,thetotallitigationtimingmaybeaslongasfourorfiveyears.
At-risklaunches,whenaCompanylaunchesagenericproductbeforepatentexpirationandbeforeafinaldeterminationthatapatentisinvalidornotinfringed,arerelativelyrareduetothepotentialexposure.BecauseofHumira'ssuccess,suchdamagescouldbeextremelylarge.
Ofcourse,wecan'tknowhowothercompanieswillevaluatethatrisk.However,intheeventabiosimilarattemptstolaunchat-risk,AbbViewillseekinjunctiverelief.Forthereasonswe'vealreadydiscussed,biosimilarswillnecessarilyinfringeourpatents.
GiventheuniquepropertiesofHumiraandthelackofanypriorexperiencewithfullyhumanmonoclonalantibodies,thesepatentsarestrong.Courtsconsideringrequestsforpreliminaryinjunctionshaveconsideredthesefactorsimportantandhavegrantedinjunctionswheretheyarepresent.
Turningnowtoslide17.Anotherimportantaspectofourimmunologystrategyisourpipeline.ThisincludesbothenhancementstoHumiraaswellasourpromisingpipelineofnewproductsindevelopment,whicharedesignedtorestatestandardofcareineachofourareasofleadership.
WehavetwonewindicationsforHumirathatwillcontributesignificantlytotheproduct'scontinuedgrowth.WealsorecentlyreceivedapprovalinEuropeforanewformulationofHumirawhichprovidesmeaningfulpatientbenefit,includinglowerlevelsofpainversusthecurrentformulation.
WearesubmittingregulatoryapplicationsforanimprovedHumirapendevice,whichweexpecttointroducein2016.Finally,wearecontinuingtoworkondevelopingproprietarydeliverytechnologiesanddevicestofurtherenhancetheproduct.
BehindHumira,wehaveapipelineofmid-andlate-stageimmunologyassetsinclinicaldevelopment.AbbVieistheclearleaderinimmunology.Itisacategoryweunderstandextremelywell,andourperformanceisreflectiveofourdeepexpertise.
Asweembarkedupondevelopingasetofnext-generationassets,wedidsowithourknowledgeofthetypeofbreakthroughprofileanewdrugwouldrequireinordertoachieveasignificantmarketshareposition.Eachoftheassetsthatwehaveinourimmunologypipelinehasthepotentialtodeliverthat
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typeofmarket-changingproductprofilethatwearetargeting.
Wewereverypleasedwiththemid-stageresultsfromourselectiveJAK1inhibitor,ABT-494,whichshowedthepotentialtobebest-in-classinRA,withhighefficacy,once-dailydosing,andafavorablebenefit/riskprofile.WeareparticularlyexcitedabouttheresultsofABT-494demonstratedinthemostchallengingpatientpopulation,theanti-TNFinadequateresponders.Giventhatanti-TNFtherapieshavebeenavailablenowfornearlytwodecades,thispatientpopulationhasgrownovertime;infact,thispopulationcurrentlyrepresentsroughly35%oftheUSpatientpopulation.
WearerapidlymovingABT-494intoPhase3studies,anditisourgoaltolaunchthisassetintotheUSmarketwellinadvanceofanybiosimilarentry.Ourlargeandexperiencedcommercialorganization,whichcurrentlyrepresentsHumira,willpromoteABT-494andourotherimmunologypipelineassetsupontheirUScommercialization.Wehavetremendousconfidenceintheorganization'sabilitytosuccessfullyrepresenttheseassets.
WealsobelieveourDVDantibodyplatformholdstremendouspromiseinthetreatmentofcertainimmune-mediatedconditions.ABT-122isourcombinationanti-TNF,anti-IL-17,twoprovenmechanisms,whichiscurrentlyinPhase2trialsforRAandpsoriaticarthritis.OurearlierdevelopmentworkwiththeplatformhasestablishedthatourDVDshavefavorabledrug-likeproperties,similartomonoclonalantibodies,andcanbemanufacturedreliably.
We'llseedatafromthemid-stagetrialinRAinearly2016andresultsfromourstudyinpsoriaticarthritislaterintheyear.Iftheresultsarepositive,wewillquicklyadvanceABT-122intoPhase3development.
Wearealsoworkingtoadvanceseveralotherearlyandmid-stageimmunologyprogramsincludingourpartneredanti-IL-6nanobody,andwecontinuetoexploretheL&Alandscapeforassetsthatfitourtargetproductprofile.
Movingontoslide18,Humira'suniqueproductprofileandAbbVie'sstrongcommercialexecutionhasmadeHumirathenumber-oneprescribedbiologic,withthehighestcommercialprescriptionmarketshare,includingthehighestpercentageofnewpatientstarts.Humiraholdsapreferredorco-preferredpositiononmanagedcareofmorethan90%ofUScoveredlives.
Patients,physicians,andpayersrecognizethemeaningfulclinicalandeconomicvalueofHumiraasatreatmentoptionforthebroadestsetofimmune-mediateddiseases.We'vedemonstratedthattreatmentwithHumiraismorecost-effectiveandsavespayersondownstreamcostsassociatedwithdiseaseslikeRA,Crohn's,andpsoriasis.
Movingonnowtoslide19.AsIsaid,wehavetakenwhatwebelieveisarealisticviewofourprospectsoverourlong-rangeplan,giventhecompetitivelandscape,potentialforbiosimilars,andotherfactors.Ourplanisbuiltaroundakeysetofassumptionsthatvarybygeography.
Letmestartwithinternational.Internationally,weareplanningformid-single-digitmarketgrowthoverthelong-rangeplan.OurplanassumessomelimitederosionuponEnbrelbiosimilarlaunchesstartingin2016.Asoutlined,embeddedwithinourguidanceisanexpectationforaHumiraex-USbiosimilarlaunchinthefourthquarterof2018,withtheexpectedpricingandmarketshareperformanceforsuchproducts.WeanticipatemoderateerosionfromdirectHumirabiosimilarcompetitionbeginningin2019.
IntheUS,ourlong-rangeplanassumesthatUSmarketsdelivermid-tohigh-single-digitmarketgrowthdrivenbyroughlya4pointincreaseinbiologicpenetration.Despitecompetitiveentries,weexpectthatHumirawillonlyexperienceminorerosionofmarketshareoverourLRP.Andaswe'veoutlined,webelievethelitigationprocessandourintellectualpropertyestatewillprotectHumirafrombiosimilarentryuntil2022.
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OurLRPalsoassumessuccessfulpenetrationofnewHumiraindications,andourimmunologypipelinewillbegintocontributenewrevenueswithcommercializationofABT-494in2019andotherassetstofollow.ItisourexpectationthatAbbVie'simmunologypipelinewillcontributenearly$8billioninnominalsalesin2024,withABT-494--asignificantlyderiskedasset--representingroughlyhalfthatexpectedcontribution.
Nowmovingtoslide20andmovingontoouroncologyportfolio.Aswe'vesaid,weacquiredPharmacyclics,andImbruvicarepresentsapipelineinamoleculewithsignificantgrowthpotentialthroughitsexistingandexpandinglistofindicationsandlinesoftherapy.Thistransformativetherapyhasalreadysecuredapprovalforthetreatmentoffourindications,andtherearemorethan25Company-sponsoredclinicalstudiestoevaluateImbruvicaasatreatmentforawiderangeofadditionalcancers.
Initsfirstyearonthemarket,Pharmacyclicsandourpartnerhavedrivenmarket-leadingperformanceandtherapeuticuptakeofImbruvica,clearlydemonstratingthestrengthofthemedicine'sattributesanditsclinicalprofile.WeexpectImbruvicatoachieveblockbusterstatusin2015,withAbbVie'sprojectedImbruvicarevenuesgrowingtoapproximately$5billionin2020.
Imbruvicahasvastpotentialforlabelexpansionandfutureindications.Itiscurrentlybeingevaluatedinmid-andlate-stagetrialsinfollicularlymphoma,marginalzonelymphoma,diffuselargeB-celllymphoma,andmultiplemyeloma.
WearealsoencouragedaboutImbruvica'spotentialingraft-versus-hostdiseasebasedondatafromanearlier-stagestudy.IfImbruvicademonstratesclinicalvalueinsolidtumors,therewouldcertainlybesignificantupsidetoourexpectations.WerecentlyinitiatedaPhase3trialevaluatingImbruvicainpancreaticcancer,andwearecurrentlystudyingImbruvicainothersolidtumortypesincombinationwithimmuno-oncologyagents,includingearly-stagestudiesinbreastandlungcancer.
Turningnowtoslide21.OuracquisitionofPharmacyclicssignificantlyacceleratedAbbVie'sclinicalandcommercialpresenceinoncology.WithImbruvica,we'veestablishedaleadershippositioninthehematologicaloncologymarket,whichispoisedtonearlydoubleto$50billionby2020.
Wearewellpositionedtobuilduponourleadershipinthiscategorywithotherpromisingassetsindevelopment.BeyondImbruvica,wehaveseveralotherproductsindevelopmentthathavethepotentialtoofferdifferentiatedefficacyinawiderangeofbloodcancers.
OurBCL-2inhibitor,venetoclax,isinlate-stagedevelopmentforCLLandmid-stagetrialsforseveralothercancertypesincludingNHL,AML,andmultiplemyeloma.Duvelisibisinmid-andlate-stagetrialsforCLLandNHL.Andwehaveaninnovativeantibodydrugconjugateinearlydevelopmentformultiplemyeloma.
Givenourbroadportfolio,webelievewehavethepotentialtocontinuetoevolvethetreatmentlandscapewithininnovativecombinationsoftheseandothermechanisms.Ourgoalistomarkedlyimproveefficacybyachievingdeep,durablediseasecontrolorremissionswhilereducingoreliminatingtheuseoftoxicchemotherapy.
WerecentlycompletedthedesignforourfirstclinicaltrialevaluatingvenetoclaxincombinationwithImbruvicaandGazyvainfirst-lineCLL,andweexpecttoinitiatethestudyinthefirsthalfof2016.
Wealsohaveanactivediscoveryprogramwiththeobjectivetodrivethenextwaveofimmuno-oncologydevelopmentbeyondcheckpointinhibitors.We'reparticularlyfocusedontheuseofourbispecificbiologicplatformtosupportconditionalactivationoftheimmunesysteminthevicinityoftumorcells,andweareleveragingtheemergingscienceofsolubleT-cellreceptortechnologyaswell.Weanticipatemultipleimmuno-oncologyassetsmovingintohumantrialsin2016.
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Movingtoslide22.Theassetsinourpipelinespanattractivespecialtycategories.Alltold,wehavemorethan50productsorindicationscurrentlybeingevaluatedinhumantrials,withmorethan20currentlyinregistrationaltrialsorunderactiveregulatoryreview.
Turningnowtoslide23.We'vebuiltarobustpipelinecomprisedofpotentiallytransformationalmedicinesinlargemarketswithprofoundunmetmedicalneed.Ourpipelinehasthepotentialtodelivernearly$30billioninnominalnewrevenueby2024.Severalproductscurrentlyinlate-stagedevelopmenthavethepotentialtobemultibilliondollarassetsthatwilloffergrowthandtop-linediversification.Wealsohavenumerousprogramsinearly-stagedevelopmentunderwaythathavethepotentialtocometofruitioninthelateryearsofourlong-rangeplan.
Now,turningtoslide24.Overthepastyear,we'veseendatafromnumerouskeyassetsthathavefurtherincreasedourlevelofconfidenceinourlikelihoodofclinical,regulatory,andcommercialsuccess.Basedonourprogress,wehavesignificantlyderiskedalargenumberofmajordevelopmentprogramsthatnowhaveaveryhighprobabilityofsuccess.
Forexample,ourfirstregistrationalstudyforvenetoclaxinrelapsed-refractoryCLLpatientswith17pdeletionmetitsprimaryendpointandiscurrentlyunderregulatoryreview.Asmentionedearlier,thefrontlinedataforImbruvicainCLLwererobust,andourregulatoryapplicationsareunderactivereview.
RegulatorysubmissionsforZ inbrytainMSarewellunderway,supportedbyalargeregistrationprogramthatshowedthenovelbiologicwassuperiorversusanactivecomparator.We'veseenpositivedatafromseveralelagolixstudiesinendometriosisanduterinefibroids.
Ourpartneredasset,elotuzumab,iscurrentlyunderregulatoryreviewforrelapsed-refractorymultiplemyelomafollowingreceiptofBreakthroughDesignation.Wedisclosedtop-linedatafromourselectiveJAK1inhibitor,ABT-494,illustratingitspotentialforbest-in-classefficacyinRA,eveninthemostdifficulttotreatTNF-inadequateresponderpatients.
WehavesuccessfullycompletedtheHumirauveitispivotaltrial,withfilingscurrentlyunderregulatoryreview.Andweannouncedtop-linedatafromournext-generationHCVprogram,illustratingitspotentialtoofferahighlycompetitiveprofile.
Turningnowtoslide25.We'vemadesignificantprogresswithourpipeline,andweanticipatecontinuedadvancementsbetweennowandtheendof2016.Asyoucanseenotedonthisslide,wehavenumerousproductapprovals,datareadouts,registrationsubmissions,andphasetransitionsanticipatedoverthenextyearorso.
Now,turningtoslide26.Thecontinuedgrowthfromourexistingportfoliocombinedwiththerisk-adjustedsalescontributionfromourpipelinewilldrivetop-tierrevenueperformanceoverourlong-rangeplan.ThislevelofrevenuegrowthputsAbbVieneartheverytopofourexpandedpeergroupbasedoncurrentconsensusestimates.
Turningnowtoslide27.Inadditiontothestrongtop-linegrowth,wealsoexpecttodeliversignificantmarginexpansionintheyearstocome.Ourfocusondrivingoperatingefficienciestodatehasresultedinstrongimprovementinbothgrossandoperatingmarginprofiles.Onthisslideyoucanseethesignificantlevelofmarginimprovementthatwe'vedeliveredsinceourfirstquarterasanindependentCompany.
Turningtoslide28.Ourcontinuedfocusonoperatingmarginwilldrivefurtherexpansion,withaprojectedoperatingmarginofgreaterthan50%by2020andanaverageof100to200basispointsofimprovementperyear.Expansionwillbedrivenprimarilybyongoingefficiencyprogramstooptimizemanufacturing,commercialinfrastructure,administrativecosts,andgeneralcorporateexpenses;productivityinitiativesinsupplychain;andthereductionofHumiraroyaltyexpensein2017and2018.
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Additionally,we'llseecontinuedsalesleveragefromourrapidlygrowingtopline.
Ourguidancefor2020operatingmarginincorporatesapproximately200basispointsofdilutiveimpactfrompartneredassetsincludingImbruvica,venetoclax,Z inbryta,andSynagis.Asyoucanseeonslide29,thispowerfulcombinationofrevenuegrowthandmarginexpansionpositionsAbbVieasoneofthetopEPSgrowthcompaniesamongourexpandedpeergroup.
Turningnowtoslide30.AbbViegeneratesignificantcashflowwhichweexpectwillgrowin2016andbeyond.Sofarin2015,wehaverepurchased$6.25billionofshares,includingtheASRassociatedwiththePharmacyclicsacquisition;andwehave$3.45billionremainingonourcurrentbuybackprogram.
AsImentionedearlier,todayweannouncedthatourBoardhasauthorizeda12%increaseinourquarterlydividend.Since2013,wehaveincreasedourdividendbymorethan42%,andweintendtomaintainastrongcommitmenttoagrowingdividendgoingforward.
We'llalsouseourstrongcashflowtocontinuetoaugmentourpipelinethroughstrategiclicensing,acquisitions,andpartneringactivity.Overthepastseveralyears,we'veaddednumerouspromisingassetstoourportfolio,andwecontinuetofocusonidentifyingcompellingprogramsthatfitourstrategiccriteria.
Turningtoslide31.SincewebecameanindependentCompanyin2013we'veconsistentlydeliveredonourcommitments,andwearepositionedtodelivermorethan28%bottom-linegrowthin2015,alevelofperformancethatputsusatthetopofourpeergroup.Aswelookat2016,we'reonceagainpoisedtodelivertop-tierfinancialperformancewithEPSgrowthof17%,themidpointofourstrongguidancerange.
Basedonour2016midpoint,AbbViewillhavegrownitsEPSbyroughly60%injustthreeyears.Acrossourlong-rangeplan,we'reprojectingourEPSgrowthtoaveragenearly15%,againputtingAbbVieintheverytopofourpeergroup.
Insummary,wearewellpositionedtodeliverstrongtop-andbottom-lineperformancethrough2020andbeyond.Wehaveestablishedgrowthplatformsinsomeofthelargestandmostattractivemarketsegments,includingimmunology,oncology,virology,andneurology.Andwe'vebuiltacompellingpipelineintheseareaswhichwillcontributesignificantlytoourperformanceintheyearstocome.
Ourcommitmenttotop-linegrowthandexpandingouroperatingmargintogreaterthan50%willgeneratedouble-digitEPSgrowthonaveragethrough2020.We'vebuiltastrongfoundationandwearecommittedtodeliveringtop-tierfinancialperformance.
Withthat,I'llturnthecallbackovertoLarry.Larry?
LarryPeepo (InvestorRelations):
Thanks,Rick.We'llnowopenthecallforquestions.Operator,wewilltakeourfirstquestion,please.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)JamiRubin,GoldmanSachs.
JamiRubin (Analyst-GoldmanSachs):
Thankyou,andwow,thatwasalotofdetail,Rick.It'sgoingtotaketime,Ithink,todigestitall,butIknowthatwecertainlyreallyappreciateit.
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Firstquestionisthis,waswonderingifmanagement'scompistiedtothelong-termtargets.Secondly,itseemsthatthebiggestdeltabetweentheStreetandyourguidanceonHumiraistimingofabiosimilarlaunch.Wonderingifyoucancommentonthat,andalsoifyoucouldcommentonAmgen'sCEO'scommentsonhisearningscall,wherehesaidthatHumirahasIPandAmgenhastorespectthat.
IsitthecasethattheStreet'sjustcomingaroundtoyourviewonthestrengthofyourIPandthetimelineofthe351(k)pathwayregulations?OrhassomethingreallychangedintermsofyourconfidencewithIP?
Andthirdly,andI'msorryforthis,butwithyouroperatingmarginguidancegrowingtoover50%bytheendofthedecade,itlookslikethat'sreallycomingordrivenbystrongrevenuegrowth,notbyoperatingcostcuts.Canyouconfirmthat?
Andobviouslyinabearcasescenario,howmuchflexibilitydoyouhavetoreduceyourSG&A?Weallknowyou'respendingalotonHumira;it'shavingareallygoodreturnoninvestment.Butifthatchanges,howmuchflexibilityyouhave.Thanksverymuch.
RickGonzalez (Chairman&CEO):
Thankyou,Jami,forallthosequestions.
JamiRubin (Analyst-GoldmanSachs):
I'msorry.
RickGonzalez (Chairman&CEO):
No,we'rewritingthemdown,sowe'llcovereachandeveryoneofthem.Letmestartwiththemanagementcomp.Ithinksimilartoprobablytheothercompaniesinourindustry,thevastmajorityoftheexecutiveteam'scompisinlong-termincentive.It'sassociatedwiththeappreciationofthestock;soI'dsaywe'redirectlylinkedtothat.
Inadditiontothat,forthetoppeoplewithinourCompany,wehavetwolevelsofincentiveplans.Oneisbasicallyfocusedontheshort-termplanyear.Andthenwehaveonewhichisalonger-termplanthatbasicallyisdesignedtohitathree-year-outtarget,whereyouwouldsetthingslikethisoperatingmargintarget.
Sothebottomlineis,yes,there'sperfectalignmentbetweenallofthesemetricsandhowpeoplewillberewardedagainstthose.
Toyoursecondquestion,whichwasisthegapprimarilythetimingofbiosimilars?I'dsaythat'saccurate,forthemostpart.There'sprobablymorepenetrationandmoregrowthintheindicationsingeneralthatarebuiltinversustheStreet.Butthemostsignificantpartistheassumptionthatwe'remakingaroundthetimingofUSbiosimilarentry.
AsfarastheAmgenCEO,IreadthecommentandIfindthecommentencouraging,butI'mnotgoingtocommentspecificallyonwhattheysaid.
Ithink,toyourpointaboutistheStreetjustnowcomingaroundtoourpointofview,infairness,muchofthisIPhasonlyreallycomeoutinthelasttwoyears.Ithinkbothcompetitively,thatisnowsomethingthatpeoplewhowereinterestedincomingupwithabiosimilararehavingtoevaluate.Soit'snotliketheyhadalotoftime,andtheStreetcertainlydidn'thavealotoftime,tobeabletoevaluatethataswell.
I'dsaysecondarily,look,therewasnoadvantagetousgoingoutearlyandtoutingthateither.Wewantedtomakesurethatourstrategywasinapositionthatwassolidandwherewewantedtobe,andwe'veworkedhardoverthelastthreeorfouryearstogetourstrategyinplace.
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We'reatapointnowwherewe'reconfidenttobeabletotalkaboutit.Andyouheardmywords,soyouprobablycan'tbemuchcleareraboutwhatourintentis.Soattheendoftheday,IthinkinfairnesstotheStreetyounowhavealltheinformationandyoucandetermineyourpointofviewaroundthat.
I'dsayontheconfidenceintheIP,wehaveahighlevelofconfidenceintheIP.SoIthinkwefeelverygoodaboutourposition.
Ifanything,ourtendencywhenwedoourlong-rangeplanistobealittlebitontheconservativeside.I'dsaytheEuropeassumptionsthatwe'remaking,asanexample,Ithinkareclearlyconservative;there'sfarmoreopportunityforupsidethanthereisdownside,andthat'snormallyhowwetrytobuildourforecastbecausewewantanopportunitytobeabletomakesurethatweachievethose.
Ontheoperatingmargin,Ithinkwhatyourquestionwasisitalmostalldrivenbysalesleverage?No.
Ithinkthewaytothinkaboutitisthis.InBill'scommentsweguidedtotheendofthisyearbeing42.5%,becauserememberthefourthquarterwillhavehighSynagissalesandwe'llalsohaveafullquarterofImbruvica,sowehavemorepartneredrevenuesinthefourthquarter,andsothattendstobedilutive,asIdescribed.Sowe'llexitthisyearsomewherearound42.5%.
ButthenIthinkthewaytothinkaboutthetargetthatwe'vesethereisyouhavetobackoutthedilutiveimpactoverthefive-yearLRP,whichisabout200basispoints.Soyou'rebackdowntoabout40%asyourstartingpoint.
Soyou'regoingtogoto40%tosomethingnorthof50%,soabouta10-pointimprovement.Ifyoulookatthat10-pointimprovement,andIhaveBillherewithme,roughly25%ofitcomesfromtheroyaltyreductiononHumirathatwilloccurbetween2017and2018;about30%ofitcomesfromcostreductions,costmanagementkindsofprograms;andtheremaindercomesfromtheleveragethatweseeofafast-growingtoplinewithexpensesbeingmanagedatasignificantlylowergrowthrate.That'showyououghttothinkaboutit.
JamiRubin (Analyst-GoldmanSachs):
Okay.Superhelpful.Thankyouverymuch.
Operator :
JeffreyHolford,Jefferies.
Jef f reyHolf ord (Analyst-JefferiesLLC):
Thanksverymuchandthankstotheteamfortheverycomprehensivemidtermoutlooktoday,whichIthinkreallysetsoutyourpositioningonHumiraandtherestofthebusinessveryclearly.
NowobviouslythedebateonHumirawillcontinue,anditseemsthatthelinchpinforyouneartermistheachievementofaninjunctionagainstanywould-beat-risklaunches.We'verecentlyheardfromAmgenregardingat-risklaunch,andwecertainlyheardthatalsofromotherlargebiosimilarplayers.
Butcouldyoubemorespecificonthetriggerforstartingeitherthepatentinfringementprocessandtheinjunctionprocesses,sowecanthinkbetteraboutthetimingofthose?Aretheymorelikelytobetiedtofilings,orFDAapprovals?Sothat'sthefirstpiecethere.
Thensecond,on2016guidanceitwouldjustseemtousthatyou'repotentiallyimplyingyoudonotexpecttoincreasethe$3billionexitrateforthehepCfranchisein2016.Ifyoucouldspeaktothattoo.
Thenjustlast,you'vetalkedaboutbeingreadyforlargerdealsagainby2017.Tobeclear,thecurrent
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guidancedoesnotincludeanythingforadditionalM&A,justbeclearonthat?
Thencanyoutellusabitmoreaboutsubstantialsharerepurchaseisthatmightbepartofyourmidtermplan,too,atleastasabackstopifyoucan'tfindsubstantialM&Atargets?Thankyou.
RickGonzalez (Chairman&CEO):
Okay.I'mactuallygoingtohaveLauraaddressyourfirstquestion,Jeff,andthenI'llcovertherest.
LauraSchumacher (GeneralCounsel):
Withrespecttothetriggerforthefilingoflitigation,thereisaprocessthat'slaidoutspecificallyinthestatute,whichtherehasbeenlitigationoverwhetherornotthatprocessismandatoryornot.Fromourstandpoint,weareanticipatingthatintheeventthatthereisabiosimilarapplicanttheywillorwon'tchoosetofollowthatprocess;it'sbeenfoundtobenotmandatory.Shouldtheychoosenottofollowthatprocess,uponnoticeofthefilingoftheapplicationofcoursewewouldinitiatethelitigation.
Withrespectspecificallytoaninjunctionagainstanat-risklaunch,thatinjunctionagainstanat-risklaunchwouldbetriggeredupontheapprovalofabiosimilar.AndofcoursewewouldthenrequestthatthecourtenforceourIP.
AsRicklaidoutearlier,weintendtovigorouslyenforcetheIP,andwebelievewehaveaverystrongcaseforaninjunction,givenfirstofallthatwebelieveanybiosimilarapplicantwillinfringeatleastcertainofourpatents.Becauseinordertofollow--tobeclassifiedasabiosimilar,theywillneedtohavethesamedosingregimenastheinnovatorproduct.
Astovalidity,wethinkwehaveaverystrongcaseonvaliditygiventheuniquenessofHumiraandthefactthatHumirawasthefirstfullyhumanantibodyapprovedbytheFDA.Andtherewasnothingknownaboutitseffectivenessoritsoptimaldosingregimenatthetimethatwedidextensiveclinicalwork,trial,investment,etc.Sowebelieveintheeventthattherewasanattemptatanat-risklaunch,wewouldhaveaverystrongcaseforapreliminaryinjunction.
Also,asyouknow,intheeventabiosimilarwouldchoosetolaunchat-risk,thedamagesforsuchalaunch,shoulditbefoundtobeviolativeofourpatents,wouldbeverysignificant.
Jef f reyHolf ord (Analyst-JefferiesLLC):
Thankyou.
RickGonzalez (Chairman&CEO):
Okay.Thanks,Laura.SoletmetaketheM&Aquestion.Yes,theguidancethat'slaidouttodaydoesn'tcoveranysignificantacquisitionactivityorlicensingandacquisitionactivity.Obviously,asthatplayedoutwewouldlookat--basedonthesignificanceofit,wewouldmakeadecisionhowwewoulddealwiththat,eithersomethingwecouldmanageorsomethingthatwecouldnot;andthenwewouldobviouslypassthatintoourguidanceandcommunicateitappropriately.
Aswetalkedaboutbefore,I'dsaythatourfocusforthenextcoupleofyearsismoretryingtofilloutourportfolioofassetswithinthetherapeuticareasthatwe'rein.Wedon'tanticipatealargetransactioninthattimeframe;andnothinghaschangedaroundthatfront.
Thatkindofgetstothewholesharerepurchase,althoughI'llhaveBilltalkaboutthatjustforamomentaswell.ButultimatelyhowwelookatsharerepurchaseversusM&Aiswe'retryingtomanagebetweenthosetwotomakesurethatwehavetheappropriatecapacitytobeabletodothethingsthatweneedtodoforthebusinesslongerterm.Andsharerepurchaseismoreofanopportunistickindofan
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approach.BillIdon'tknowisthereanythingyouwanttoaddtoit?
BillChase (CFO):
No,Imeanobviouslyifyoulookatthislong-rangeplan,there'sgoingtobeprettyrobustcashgeneration.Aswegetoutacoupleyears,thatcanclearlyfundlargerM&Aifwedeemthat'snecessary.
Totheextentthatanopportunityisn'treadilyapparent,well,thenwewouldcertainlyhavetolookatotherthingstodowiththatcash.Andsharerepurchasescouldverywellbepartofthat.
RickGonzalez (Chairman&CEO):
Yes.Onthe2016guidance,Imeanobviouslywe'vejustgonethroughourplanningprocessfor2016.Thewaywedoplanningiswebuildeverythingupfromthebottomup,productbyproduct.Wemakedeterminationsastowhatwe'regoingtoassumeforeachproductbasedonasetofassumptionsthatwethinkareabsolutelyrealistic.
SowehaveanHCVnumberthat'sinour2016;wetendtobealittlebitontheconservativesidewhenwebuildtheseupsothatwehavetheflexibilitytomakesurethatforanyunforeseeneventswehavetheabilitytobeabletomanageourwaythroughthose.AndI'dsaythisplanisnodifferentthanpreviousonesthatwe'vebuilt.
ButspecificallyforHCV,I'dsayHCVwillhavesomegrowthbuiltintoityear-over-year,becausejustofthegatingofhowthecountrieshaverolledoutovertimeinternationally,you'regoingtogetyear-over-year.We'rejustlaunchinginJapannow--well,we'renotlaunching,wewillbelaunchingshortlyinJapannow.
AndJapan'sasignificantopportunityforussoitwillcreateayear-over-yeargrowthdriverforusaswell.So,I'dsaythereisgrowthbuiltintotheHCVfranchise.
Butletmespecificallytalkmaybeaboutthis$3billionrunningrate,becauseIknowImadethatpredictionintheearlypartoftheyear.Ifyoulookatwherewearerightnow,whatIwouldtellyouiswe'regoingtobeclose,butwe'reslightlybelowthatrightnowinthefourthquarter,atleastaswhatwehavebuiltintoourcurrentguidancefortheyear.It'safunctionprimarilyofthefactthatinthebeginningoftheyearthenumberofpatientsbeingtreatedwassignificantlyhigher.We'veseenthattrenddown;we'veseensomechangesinVAintheUnitedStates.
SoI'dsaywe'regoingtobeclose.Wecouldmakeit,butwemightmissit.AndasIsaid,wetendtobuildconservatively.Whatwehaveinthefourthquarterrightnowisslightlybelowthat.
Jef f reyHolf ord (Analyst-JefferiesLLC):
That'sgreat.Thanksverymuch.
Operator :
Mr.MarcGoodman,UBS.
MarcGoodman (Analyst-UBS):
Yes,morning.494,$4billionin2024isaprettybignumber.Canyouhelpframehowyou'rethinkingaboutthat?
Thensecondly,justAndroGelcontinuestobealittlestrongerthanwethink.Whyisthat?What'sgoingonbehindthescenes?Thanks.
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RickGonzalez (Chairman&CEO):
Well,I'dsay494,basedontheprofilethatwe'vesetup,Iwouldsay$4billionofrisk-adjustedrevenueforanassetthathasthatprofileinthattimeframeisn'tastretchnumberfromourperspectiveatall.WhenyoulookatthelevelofresponsethatyouhaveintheTMF-inadequateresponderpatientpopulation--whichasIsaidinmyremarks,representsabout35%oftheUSpatients.We'dassumeit'ssomethingsimilartothatinEurope;it'salittlemoredifficulttogettothedatainEurope.It'sasizablepopulationandit'sapopulationthathasrelativelylimitednumberofoptionsavailabletoit.
Inadditiontothat,whenyouthinkabouthowbiosimilarswillultimatelyrollout,Ithinkit'sagoodassumptiontoassumethatbiosimilarsaregoingtocapturesomeportion,maybeasignificantportion,butatleastsomeportionofthenewpatients.Sothey'regoingtobegeneratingmoreTNF-inadequateresponders.
NowtheymightrotatethroughanotherTNFafterthat.Butaproprietaryproductwillhaveanopportunityinabiosimilarworldtogoafterthosenonresponders.Sothat'saverysignificantopportunity.
Inadditiontothat,obviouslytomycommentsaboutourorganizationrepresentingthisproduct,therewillbeagoaltobeabletotaketheappropriatepatientsandtrytomovethemtotheappropriatekindsoftherapies.Sopatientsthataren'trespondingaswellonHumira,obviouslywewouldwanttomovethemto494asanalternative.
Sowhenyoulookatallofthat,I'dactuallysaythata$4billionnumberisnotanumberthatwe'reuncomfortablewith.
BillChase (CFO):
Marc,onAndroGel,clearlyithasperformedbetterthantheStreetwasthinking;andfrankly,it'sperformedalittlebitbetterthanwewerethinking.Themarketstillisindecline.However,whatyou'rereallysayingislessuptakeorlessimpactonthebrandfromthegeneric1%formulation.It'ssomethingwe'rejustgoingtohavetokeepoureyeon,butsofarsogood.
Operator :
ChrisSchott,JPMorgan.
ChrisSchott (Analyst-JPMorgan):
Great.Thanksverymuchandthanksforallthedetailstoday.Ijusthadthreequickoneshere.
First,followinguponJami'squestion,ifforwhateverreasontheHumiraIPfallsandsalesendupclosertolet'ssayconsensusthanyour$18billiontarget,isa50%marginrealisticinthatscenario?I'mjusttryingtogetasenseoflikewheremarginscouldgointhatdownsidecase.Iknowthat'snotthescenarioyoulaidout,butjusttryingtounderstandthat.
Second,justthoughtsonwhathappenedearlierthisyearwithAmgenandSandozwithNeupogen,arethereanylearnings,similarities,ordifferencesthatweshouldapplywhenwethinkabouttheHumirasituation?
Thenfinally,onthelonger-terminternationalHumiratargets,couldyoujustgiveusalittlebitmorecoloronthetypeoferosionyou'reassuminggivenbiosimilarsforEnbrelandpotentiallyHumiraoverthatwindow?Justhowmuchpriceandvolumeimpactareyoureflectinghere?Thanksverymuch.
RickGonzalez (Chairman&CEO):
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Okay.Idon'tknowthatthe50%margintargetwouldberealisticinamorecatastrophickindofsituation.WhatIwouldtellyouiswe'veobviouslylaidoutcontingencyplansbycountry.Becausethiswillberolledoutbycountry,obviously--right?--asbiosimilarsenterthosecountries.Andwehaveanerosioncurvethatwe'vebuiltbycountry.
Ifthecountrystartstofallbelowthaterosioncurve,thenwe'lldowhatwealwaysdo.Thatis,wewillmanagetheexpensebaseaccordingly.sowehavetheabilitytobeabletomanageandoffsettheprofitabilitylikewewoulddowithanytypeofLOE.
SoattheendofthedayIthinkwhetherornotithada50%margintargetornot,wewouldputacontingencyplaninplacethatwouldallowustotrytomaximizeprofitabilityorpreserveprofitabilityunderthatscenario.
Havingsaidthat,whatIwilltellyouiswehaveahighlevelofconfidenceinwhatwe'vebuilthere.Wedon'tbuildLRPsthatwedon'tbelievewecanachieve.
Again,we'renotshowingyouanythingdifferentthanwhatourinternalLRPsaysthatwepresenttoourBoardeveryyear.SoattheendofthedayIcantellyouwehaveahighlevelofconfidencethatwecandeliveragainstwhatwe'veputhere.
ThelearningsfromAmgen,I'massumingyou'retalkingaboutthewholeIPandlitigationprocessforAmgen,soI'mgoingtohavethatLauraaddressthatforyou.
LauraSchumacher (GeneralCounsel):
Yes,withrespecttotheAmgenNeupogenlitigation,alotofthedebateinthatlitigationsurroundedwhetherornottheprelitigationexchangeprocesswherebypatentsandinformationwereexchangedbetweentheinnovatorandbiosimilar,whetherthatwasamandatoryprocessoravoluntaryprocess.Andultimately,asIsaidpreviously,we'renotanticipatingfromatimingstandpointthattherewillbealitigationexchange.Itwillbesomethingthatthebiosimilarapplicantwillchoosetoparticipateinornot.
WithrespecttotheunderlyingpatentinfringementlitigationwithAmgenandNeupogen,ourlitigation--ourpatentestateisverydifferentthanthat.Inthatcase,there'sveryfewclaimsandpatentsinours.
Aswe'vesaidbeforewehaveover70patents,manyofwhich,certainofwhichwillbeinfringedandsomewhichmaybeinfringed.Sowe'llhavetoseewhenweknowmorespecificallyaboutwhatformulationand/orprocessaparticularbiosimilarapplicantuses.
RickGonzalez (Chairman&CEO):
Okay.Thanks,Laura.ThenontheEuropeanerosioncurve,obviouslyaspartofthisplanningprocess,wehavebuiltaveryspecificerosioncurveforbothEuropeaswellastheUnitedStateswhenwegetbeyond2022.ButwhatIwouldsaytoyouis--andI'llwalkthroughtheEuropeanone--orI'llwalkthroughtheinternationalone,Iguess,moregenerally.
ButwhatI'dsayisit'sfairlycomplexbecausetherearelotsofdifferentvariablesifyouthinkaboutit,right?You'regoingtohavecountriesrollingoutatdifferenttimesastheyenterthosecountriesandtheygetpricingapprovalwithinthosecountries.Noteverycountryisexactlythesamehowyougetpricingapproval.Sothereisthisgatedperiodwhereyougoacrosscountrybycountryasbiosimilarswouldenterit.
Thesecondthingisyouhavetolayerinwhatourstrategywillbe.Webuildastrategybycountry.
Therewillbecountrieswherewechoosetotakepriceerosiontomaintainallofthepatients--new
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patientandwell-maintainedpatients.Theremaybecountrieswherewechoosetoonlykeepwell-maintainedpatientsanddosomethingdifferentfromapricingstandpoint.Sotherearesomecomplexitiesaroundthat.
ThenthethirdpointthatI'dsaytoyouthat'sveryimportantasyouthinkaboutthis--becauseI'mgoingtowalkyouthroughwhattheerosionlookslikehereinjustamoment--iswhenabiosimilarenterstheinternationalmarkets,thesemarketsarestillgrowing.AsIsaid,theregrowinglikemid-singledigits.SoasIdescribedtoyouwhattheerosionlookslike,thenumberI'mgoingtogiveyouislowerthanwhattheycouldactuallycaptureorthepriceerosionmightultimatelytranslateto,becausetheywilltakeacertainportionofthatmarketgrowthwithinthosemarkets.
Sohavingsaidallofthat,Ithinkthesimplestwaytothinkabouttheerosioncurveisthis.IfyouthinkaboutinternationalHumirasales,theywillpeakintheforecastwe'velaidoutforyouhere,allthefinancialswe'velaidout,theypeakin2018;andfrom2018thentheystarttodecline.Ifyoumoveouttwoyearsto2020,whichistheyearwe'recharacterizingforyou,theerosionoftheinternationalHumirabusinessisabout15%to18%.
Now,havingsaidthat,theimpact--ortheopportunitylostprobablyisthebestwaytothinkaboutit--wouldbegreaterthanthat.Becausewithoutbiosimilarcompetition,Humirawouldhavecontinuedtogrowinthoseinternationalmarketsbeyondthatperiodoftime.
Soitprobablysoundsalittlelowerthanyouwouldexpected,butit'sbecauseyouhavetothinkaboutitinthosetwocomponents.Partofthecomponentisitwilltakesomepriceoutofthemarket,whichwillreducemarketgrowth.Theothercomponentistheymaytakesomenewpatients,sotheyaretakingsomeofthemarketgrowthoutthatway.
ButyoujustsaywhatistheimpactonAbbVie,itisthebrandpeaksatthatpointanditdeclinesabout15%overthatperiodoftime.
ChrisSchott (Analyst-JPMorgan):
Veryhelpful.Thankyou.
Operator :
MarkSchoenebaum,EvercoreISI.
MarkSchoenebaum(Analyst-EvercoreISI):
Hey,guys;thanksforallthedetail.I'minagreementwiththeotheranalystsonthat.Acouplequestions.
Numberone,whatwasoperationalHumiragrowthratesquarter-on-quarteraswellasyear-on-yearininternationalmarkets?
Thesecondquestionis,youdidn'tcommentonyourtaxrateoverthelongterm.Idon'tthinkIsawthatinyourslides.IwouldassumethatastheCompanydiversifiesawayfromHumirayou'regoingtodiversifyintomoretax-optimizeddrugs,tax-optimizedassets.SoIwouldpersonallybecomfortablemodelingadeclineinyourtaxrate,andIwantedtohearyourthoughtsonthat.
WhenIdothat,andwhenIuseanoperatingmarginofonly51%--eventhoughyourguidancesaysgreaterthan50%,anditcouldbe55%or60%,whoknows?--I'mgettingtoanEPSnumberin2020ofaround$10ashare.I'mjust--Iknowyou'renotgivinganEPSnumber,butamIthinkingaboutthisallwrong?BecausemostpeoplesayI'mnotverygoodwithmath.
RickGonzalez (Chairman&CEO):
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Whydon'tyoucoverthetaxratefirstandI'llcover--?
BillChase (CFO):
Yes.Ifyoulookatthisbusinesssincewe'veseparatedfromAbbott,thetaxratehasbeenprettyconsistentlyinthe21%to22%range.That'slargelydrivenbyourneedforUScashforcertainitems.
SoaswedoourLRP,again,whatwedoiswebuilditonafairlyconservativebasis.WhatIwouldtellyouisourassumptionsarethatthattaxrateinthe21%to22%istherightassumptionforthisbusinessoverthenext10years.
MarkSchoenebaum(Analyst-EvercoreISI):
That'sbecauseofyourrepatriationneeds?BecauseIwouldimaginethetaxrateonsingleassetsthatarelarge,likeyournewJAKandImbruvica,onaP&Lbasis,single-productP&Lbasis,wouldbemuchlower.
BillChase (CFO):
Yes,butyou'vegotImbruvica,whichislargelyaUSproductforusfromataxrate.Sothatactuallyliftsthetaxratetheotherway.
MarkSchoenebaum(Analyst-EvercoreISI):
Okay.
BillChase (CFO):
Soyou'vegotalotofdifferentthingsinthemix,Mark.
MarkSchoenebaum(Analyst-EvercoreISI):
Okay,thanks.
RickGonzalez (Chairman&CEO):
Look,ontheEPStarget,Iwouldjusttellyouthatattheendofthedaywebuilditupfromthebottomup,andwedon'tcomeupwithyournumber.Attheendofthedayyoucanassume50%,60%,70%operatingmarginprofileandgetprettybignumbers;butifyou'regoingtodrivethislevelofgrowthyouhavetoinvestinthebusinessinawaythatallowsyoutobeabletodothat.
SoIthinkthenumberswehaveforecastedcertainlyrepresentthetoptierinthisindustry,andthey'rethenumbersthatwe'rewillingtostandbehind.
OnoperationalgrowthinternationallyforHumiraquarterversusquarter,whatI'dtellyouisthis.WesellHumirainalmost100countriesaroundtheworld,right?Andmanyofthosecountrieshavetenders,andtendersdon'talwaysfallconsistentlyinthesamequarter.So,quarter-over-quarterdoesn'tnecessarilygiveyouaveryaccuratepictureofhowthebrandisgrowing,althoughIwilladdressithereinamomenttoanswerspecificallyyourquestion.
IthinkthebestwaytothinkaboutHumirainternationally--andlet'sjustusethisyearastheexample--istolookatwhatthegrowthrateisforthefirstthreequarters'worthofgrowthandcompareittowhattheprioryearwas.Ithinkthat'sthemostreflectivewaytolookatit.
Thatwouldsaythatrevenuesareupabout8.3%year-to-date,year-over-year.Volumeisupabout10%,okay?Soit'sslightlydowninprice,whichisconsistentwithwhatwe'veseeninpreviousyears;nothing
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unusualthere.
Andmarketshareisstableatjustunder34%versustheprioryear.Iwouldtellyouthat'swellwithintherangeofwhatweexpectedwhenwedidourplan,andit'strackingconsistentlywithwhatweexpectedasitrelatestoourplan.SointernationalHumiraisperformingthewaywewouldhavehopedandexpectedittobeabletoperform.
Nowifyoulookatquarterversusquarter--andI'massumingyou'respecificallytalkingaboutthirdquarterversussecondquarter.Ifyoulookatthirdquarterversussecondquarter,it'sdownabout1.3%or1.4%--1.4%.Whatyouhavetorecognize,andI'msureyou'reawareofthis,themonthofAugustinEuropeistheholidaymonth,right?Somostphysicianofficesdon'thavethesamenumberofofficedays;infacttheyhaveverylimitednumberofofficedays.
SoyougetasignificantlylowerlevelofnewpatientstartsinthemonthofAugustversusothermonthsintheyear.Thereforeeveryyearthethirdquarterislower.Infact,ifyoulookatlastyear,Ithinklastyearitwasdownabout4%--4.4%,andsothat'sacommontrendthatwesee.
I'dalsotellyou,asImentionedattheverybeginning,ifyoulookatitquartertoquarterandyoudon'tmakealloftheadjustmentsforanykindofananomalyoftendersbetweenthoseperiodsoftime,it'snotverymeaningfulinformationforyou.SoIthinkthebestwaytolookatitisyear-to-datehowwereweperforming?AndI'dsaywhenyoulookatthislevelofperformance,we'reprettycomfortablewithit.
MarkSchoenebaum(Analyst-EvercoreISI):
Rick.Igotabunchofemailsinfromclientstotheanswertomypreviousquestionaboutthe$10number,whereyousaidyoudidn'tcomeupwithit.Wereyoutryingtosuggestthatyoucameupwithnumbershigherthanthatornumberslowerthanthat?Thanks.
RickGonzalez (Chairman&CEO):
No,Iwastryingtosuggestthenumberthatwecommunicatedisthenumberthatwecameupwith.
MarkSchoenebaum(Analyst-EvercoreISI):
Okay,okay.Thanksalot.
Operator :
VamilDivan,CreditSuisse.
VamilDivan (Analyst-CreditSuisse):
Great.Thanksfortakingthequestions;andagainthanksforallthedetailsyouprovided.SoonemoreifIcouldonHumiraandthenoneonadifferenttopic.
ButjusttoHumira,Ithinkobviouslyalotoffocusonthebiosimilars,andyouaddressedthatprettywellIthought.JustwhatabouttheotherinnovativeproductsthatarecomingintotargetsomeoftheindicationsofHumirathatI'mthinkingabouttheIL-17s,competingoralJAKs,oralproductsforCrohn's.
Iknowyouguyshighlightedwhatyouhaveinyourpipeline,butcanyougivesomesenseofhowyouthinkthemarketshareerosionmightbeforHumiraassomeofthesenewinnovativeproductscomeintotheseotherindications?
Andasecondjustonneurology.ThisisanareaI'vealwaysstruggledalittlebitforyouguys.Soifyoucanjusttouchonthatalittlebitmore.
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YoumentionedDuopacouldbeabigproduct,butmaybealittlebitmorearoundthenumberpatientsyouthinkwouldbewillingtousetheproductlikethat.Z inbryta,wheredoesthatfitin?Mostneurologistswe'vespokentokindofstruggletoseewherethatfitsintoaverycrowdedMSspace.
EvenAlzheimer's,youhighlightthatinthetotalmarketopportunity,butyourproductsareprettyearly.Sojustmaybealittlemorecoloronhowyouseeyourneurologyfranchisegrowingwouldbeveryhelpful.Thanks.
RickGonzalez (Chairman&CEO):
LetmestartwithHumiracompetition.Ithinkasyouknow,thisis--particularlytakeRA,asanexample,it'saprettyfieldalreadyandtheresomeprettygoodmechanismsinthere.AndyetstilltheTNFsstillcontrolthevastmajorityofthismarket.It'satoughmarkettobreakinto,evenwithfairlygoodprofilesofdrugs.
Now,havingsaidthat,I'dsaytherearesomegoodprofilesthatarestartingtoemerge.TheIL-17sareagoodexample;IthinkIL-17shaveaprettystrongprofile.
Butwhattypicallyhappensinthisareaisthosemechanismsforquiteaperiodoftimearerelegatedtothefailurepatientpopulation,becausephysiciansarecomfortable.Therearemanyotherfactorsthatarebuiltintoit,andtheytendtotakeupthatfailurepopulationforatleastanumberofyears,andthattendstobetheareasthattheygrowin.
Now,overalongerperiodtimetheymighthaveamorematerialimpact.ButasImentioned,ourassumptionis--andIthinkthisisavalidassumptionbasedonourexperienceinthepast--isthatHumirawillhavesomeerosionintheUnitedStates,butrelativelymodesterosionoverthisfive-yearperiodoftime.
Andthat,becausewe'reassumingbiosimilarsdon'tcomeintothemarketplace,thatisdrivenbytheseotherinnovativeproductsthatenterthemarket.Sothatisourassumptionaroundthat.
Asitrelatestoneuro,maybeI'llhaveMiketalkalittlebitaboutsomeoftheearlierstuff.ButI'dsayourworkinAlzheimer'sasanexample,therereallyisn'tanythingthat'sbuiltintothisplanningperiod.But--
MichaelSeverino (ChiefScientificOfficer):
Certainly.PerhapstoaddressyourquestiononZ inbrytafirst,whatweseewithMS,unfortunately,isthatitafflictspatientsoftenrelativelyearlyintheirlifespanandtheydealwithmany,manyyearsofongoingrelapsesandultimatelyinmanypatientsadownwardclinicaltrajectory.Sowhatthatdoesisitcreatesaneedfordifferentmechanisms,mechanismsthatattacktheproblemfromdifferentdirectionsmechanistically,andmechanismswithconsiderableefficacy.
SowefeelthatthereisarealplaceforZ inbrytainthetreatmentarmamentarium,particularlywhenfolksarelookingforagentsthathavesubstantialefficacyashasbeendemonstratedinthatprogram.
WhenyoulookattherestofourneuroscienceeffortsapartfromDuopa,obviously,andZ inbryta,theyareveryearlyandtheyarenotcontributing,asRicksaid,tothefinancialnumbersyetinalargeway.Butwedofeelthatwehaveanumberofverypromisingapproachestogoafterinthelongerterm.TheneurodegenerativeaspectsofMS,forexample,whichisstillalargeunmetmedicalneed,anddiseasessuchasAlzheimer's,sothat'safocusinourlabsontheearlyend.
RickGonzalez (Chairman&CEO):
Yes,andIwouldjustaddacoupleofpointsonZ inbryta.We'reobviouslydoingalotoftheworktoprepareasweanticipateapprovalofthisproduct.Sowe'vebeendoingmarketresearchandafair
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amountofworkinpreparation.
I'dsaytheprofileofZ inbrytaisaprettycompellingprofile.AsMikementioned,theunfortunatethingaboutthisdiseaseisthatpatientsrelapse,andtheyrelapseonaverageprobablyabouteverytwotothreeyearsonthecurrentagents.Thisiscertainlyahigh-efficacyagentfromanannualizedrelapseratereduction;andwhenyoulookatitversustheactivecomparatorithasgoodperformance.
Ithinktheotherthingthatisappealingtophysiciansisthecomplianceaspectofit,thatfromadosingstandpointtheyknowthey'llhavedrugonboardforanextendedperiodoftime.SoIthinkZ inbrytawillhaveaveryimportantroleinthetreatmentofMS.
Oneofthethingsthatphysiciansareabletogotoamore,I'dsayahigherefficacykindofagent--wedon'tviewitcominginasthefirstlinebutcertainlyaspatientsrotatethroughthat,wethinkitwillcompetequiteeffectivelyinthatsecondline.
Operator :
AlexArfaei,BMOCapitalMarkets.
AlexArf aei(Analyst-BMOCapitalMarkets):
Goodmorning.ThankyoufortakingthequestionsandI'llalsosaythanksforallthedetails;itcertainlyhelps.IhaveafewquestionsonHumira,ifImay.
In3Q,howmuchofyour30%growthintheUSwasvolumeandprice?Becauseourauditsuggestsitwas11%to14%volume.Socouldyoucommentonthepricecomponent?Andwhatareyourlong-termpricingassumptionsintheUSforHumira?
Andafollow-upforRick.IjustwantedtomakesureIunderstoodyourcommentsearlier.AreyouassumingnobiosimilarproductsthatcompetewithHumiraintheUS?Ijustwanttomakesurethat--whatyourtimelineforbiosimilarcompetitionforotherproductsisintheUS.
Andfinallyifyoucouldprovideyourthoughtsaboutthebaricitinibhead-to-headversusHumira,thankyouverymuch.
RickGonzalez (Chairman&CEO):
Whydon'tyougowiththeprice?
BillChase (CFO):
Sure.OurnumbersforQ3,ourvolumewashigherthanwhatyou'reseeinginthescript.Ithinkthewayyou'vegottothinkaboutpriceintheUSonthequarter,itwasaroundathirdoftheoverallgrowthwasrelatedtoprice.
IntermsofovertheLRP,look,againwe'vesaidmultipletimesthataswebuildoutourLRPwetrytoputinconservativeandrealisticassumptions.Alongthoselines,wedon'ttakewhatiscurrentlyhappeninginpriceandextrapolatethatoutacrosstheLRP.
IntheUS,itisanenvironmentwherewedothinkwe'llbeabletomaintainsomedegreeofpositiveprice.ButwhatIwouldtellyouiswe'remodelingalittlelowerthanmid-singledigitsonthatasyougooutoverthelong-rangeplanperiod.Ex-US,it'sactuallyanegativepricingenvironment.
SowhenyouactuallylookattheadditiveofthetwoacrosstheLRP,we'vegotvery,very,verylowlevelsofpricebuiltintoourforecast.
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RickGonzalez (Chairman&CEO):
Okay.Thenasitrelatestobiosimilars,Ijustwantedtoclarify.You'retalkingaboutaHumirabiosimilar,oryou'retalkingaboutabiosimilartosomethingelse?
AlexArf aei(Analyst-BMOCapitalMarkets):
No,biosimilarofcompetingproductssuchasRemicade,Enbrel,etc.,intheUS?
RickGonzalez (Chairman&CEO):
Oh,okay;I'msorry.Obviouslywe'renotassumingany--becauseoftheIPandthelitigationstrategywetalkedabout,we'renotassuminganyHumirabiosimilar.Ithinkasyouclickthroughtherestofthem,aswelookattheEnbrelIPwethinktheyhaveprettygoodIP,sowe'renotassumingthatwe'llseeEnbrelbiosimilarsintheUnitedStates.
ThenasitrelatestoanykindofRemicade,IthinkitwouldbeasimilarscenariotowhatweseeoutsidetheUS.Becauseit'saninfusionproductitdoesn'tnecessarilycompetedirectlyagainstus.
Thenonbari,Mike,whydon'tyoucoverthehead-to-headonbari?
MichaelSeverino (ChiefScientificOfficer):
Sure.Whenwelookatthebaricitinibhead-to-headdata,clearlybothagentsareveryactive.Whenwefocusonhigherlevelsofresponse,whichwethinkarethemostclinicallysignificant--forexample,DASload,diseaseactivity,orDASremission--wereallyseeverysimilarresponseratesatweek24.
Ofcourse,alsoconsidertheverylongtrackrecordwithHumira,thewell-understoodsafetyandefficacyprofile.SowefeelgoodabouttheoverallperformanceofHumiraoverthecourseofitslifespanandthinkitwillcontinuetoplayaveryimportantroleinthetreatmentarmamentarium,asRickhasalreadyoutlined.
AlexArf aei(Analyst-BMOCapitalMarkets):
Thankyou,folks.
LarryPeepo (InvestorRelations):
Allright.Thanks,Alex.Operator,wehavetimeforonemorequestion,please.
Operator :
ColinBristow,BankofAmericaMerrillLynch.
ColinBristow(Analyst-BankofAmericaMerrillLynch):
Morning.Thanksforsqueezingmein;andasothershavesaid,greatpresentationtoday.Mostofthishasbeencovered,butonhepCwhatproportionofyourcontractsareexposedtocompetitionin2016versusbeingmultiyear?Andjusthowhaveyourexpectationschangedforyourperformancein2016,ifatall,basedontherecentlabelupdate?
Then,two,justfromahigh-level,nottoget--giventhefocusondrugpricingexclusivityperiodsrecently,couldyougiveusyourthoughtsontheseongoingdebatesandwhetheryouanticipateanyimpacttoyourbusiness?Thanks.
RickGonzalez (Chairman&CEO):
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
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Okay.I'mnotsureIcouldgiveyoutheexactpercentageofthecontracts.Iwouldsaythevastmajorityofthemareprotectedthrough--thevastmajorityofthevolumeisprotected,I'dsay,through2016.Butletusgetbacktoyouwithsomethingthat'smaybealittlebitmorespecific.
Asitrelatestothelabel,asIoutlinedinmycomments,thiswasobviouslymovingfromnotrecommendedtocontraindicated.IfyoulookatthepatientpopulationinBsandCsit'sarelativelysmallpatientpopulation;it'sprobablysomethinginthe3%or4%rangeofUSpatients.Soifyoulookatitpurelyfromtheperspectiveofthat,itwouldn'tbeabigimpact.
Frankly,thefactthatweweren'trecommendedandcontraindicatedinCs,youwouldn'tassumethattherewasalotofvolumeoftesting--orI'msorry,oftreatingthosepatientsanyway.
Havingsaidthat,Iwilltellyouwe'vegoneoutandcontactedprobablynowaround80%ofthephysiciansthatprescribethedrugtomakesurethattheyunderstandthechangesinthelabel.Ithinkthat'sgonewell.ThefeedbackI'mgettingdirectlybackfromthecommercialorganizationsaidthathasgonewell.
We'vegonebacktoallofourcontracted--ourmanagedcarecontractsandothercontracts,andthathasgonewell.TheyunderstanditandIthinkagreethatinthepreviouslabelitwasoutlinedinawaythatprobablytherewasn'tatremendousamountofusethereanyway.
Havingsaidthat,Ithinkwehavetowaittoseehowthisplaysoutforthenextmaybe30daysorsotobeabsolutelysure.Butrightnowweareassuming,basedoneverythingthatweknow,thatitwon'thaveamaterialimpactonthebrand.Oh,drugpricing?
LarryPeepo (InvestorRelations):
Right.
RickGonzalez (Chairman&CEO):
Well,certainlyIthinkifyoulookatthedebatearounddrugpricing,it'snotlikelytogoaway.InfactIthinkwiththepoliticaldebatethat'sgoingon,we'llprobablycontinuetohearmoreaboutit.
Ithinkthere--everythingisn'tconsistentacrossourindustry.Certainlyalotofthedebatecamearoundtakingolddrugsandraisingthepricesaverysignificantamount.That'snotamodelthatwehaveorweparticipatein.
Ithinktheimportantthingforourindustry,theinnovativeindustry,isthatwecontinuetobringoutdrugsthathaveasignificantimpactandwepricethosedrugsinawaythatgetstherightvalueproposition,therightreturnforthevaluethatthosedrugshave--boththeclinicalvaluebutalsotheeconomicvalue.Andwedemonstratethateconomicvalue.
IwilltellyouintheinternationalmarketslikeEurope,whereHumirahascompetedforalongtime,thosearemarketsthatlookverycarefullyattheeconomicvaluethattheirhealthcaresystempays.AndobviouslyHumirahasdoneextremelywellinthosemarkets,andit'sbecauseitisagoodvalueproposition.
Ithinkalotoftheareasthatwe'rein,inspecialtypharmaceuticals,itallowsyoutobeabletodothat.Itallowsyoutobeabletocreateamedicinethathasatrulyoutstandingimpactforpatientsandalsohasgreateconomicvaluepropositionandthenpricingthemaccordingly.
SoIdon'tfundamentallybelievewe'llseeasignificantchange.ButIthinkthedebatewillcontinueon,andIthinkourindustryneedstorespondinawaythat'sappropriatetothat.
CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55
©2014TheStreet,Inc.Al l R ightsReserved Page28of28
LarryPeepo (InvestorRelations):
Thanks,Colin.
ColinBristow(Analyst-BankofAmericaMerrillLynch):
Thanks.
LarryPeepo (InvestorRelations):
Thatconcludestoday'sconferencecall.Ifyou'dliketolistentothereplayofthecall,pleasevisitourWebsiteatAbbVieinvestor.com.Thanksagainforjoiningustoday.
Operator :
Thatconcludestoday'sconference.Thankyourforparticipating.Youmaynowdisconnect.
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