AbbVie's Management Presents at Barclays Global Health Care Conference (Transcript)

| About: AbbVie Inc. (ABBV)

AbbVie Inc. (NYSE:ABBV)

Company Conference Presentation

March 13, 2013, 02:45 PM ET

Executives

William J. Chase - EVP and CFO

John M. Leonard - SVP and CSO

Unidentified Analyst

Good afternoon. Thank you very much for your stamina today. I want to introduce Bill Chase, the EVP and CFO of AbbVie and Dr. John Leonard who is EVP and Head of R&D for AbbVie as well.

So the format will be fireside chat. We do have, Christine, two ARS questions at the end. So, we'll get to play with these toys a little bit. It will be pretty simple. The important issues will be which numbers that Bill chooses in the ARS questions.

We will not have a breakout session, so if you have a question, actually we can forego ARS, raise up your hand and somebody will come and provide you with a microphone. Thank you gentlemen for coming.

William J. Chase

Thank you.

Unidentified Analyst

So, really one of the first questions, Bill, I wanted to address to you. A few weeks back, I was on a treadmill in a hotel in the middle of U.S. somewhere. A television that was on a channel that happened to show a couple of commercials over the span of half an hour; one was for Cohn's disease and a second one ended up being for psoriasis. I didn't actually know you could do a commercial for Cohn's disease, but it was interesting.

And obviously both for HUMIRA. So the real question is around spending and spending for HUMIRA and the support for HUMIRA. Is that increasing today given the fact this product's been out for some time or is it actually decreasing because it's probably almost a brand name by now certainly in the community of individuals who meet anti-TNF?

William J. Chase

Yeah. So as you can imagine, HUMIRA is of utmost importance to us, right? I'm not going to underestimate that. And it's also a product that's growing very, very rapidly. So the past five to six years, sales have increased somewhere in the order of $1 billion per year. It is the flagship brand of AbbVie and we think there's an incredible amount of growth potential left in the brand. We have a variety of different SG&A programs. We've got dedicated sales force for all of the different autoimmune segments that we compete in.

And we obviously have DTC as well. Some of that's brand specific, some of it is actually disease awareness. Our absolute spend is by definition increasing because the top line is increasing as well and we like to see that spend increase on a profile basis or at least maintain the profile. Likewise, we have some competitive dynamics this year that we're going to have to watch play out, Xeljanz being the primary one. And so we think it's important to resource the brand appropriately. So yes, I mean the absolute spend is going up. On a profile basis, it's not though.

Unidentified Analyst

Thank you. And I guess the real question on Xeljanz since you brought it up and we've all been watching, I assume they'll begin some DTC later this year, at least they've stated their thoughts in. One thought is I suspect you haven't had a lot of -- you've seen a lot of Xeljanz in the marketplace to-date, scripts are fairly meager, but I suspect also there's a fair amount of sampling that's going on. Any feedback that you can offer on the competitive side?

William J. Chase

Well, we're monitoring it very closely. What I'll tell you is the initial response to the market has been roughly in line with our model, okay? Now that is still early days and as you suspect, there is a fair amount of sampling going on as well. But I'd say it's performing roughly in line with what we thought. Anecdotally, from a payor standpoint, our understanding is in most cases, it's actually getting slotted behind methotrexate and anti-TNF at least one if not multiple.

And that again is in line with our overall thesis to how this thing will play out. We really have to see what happens once DTC kicks in. And certainly that will give much more exposure to the brand. We also think it will have the potential to grow in the market. These are fairly under-penetrating markets as it currently stands and if you look on a total script basis or a new script basis, the majority of the new on a relative basis of new scripts accrue to HUMIRA. So growing the market actually is a good thing for us.

Unidentified Analyst

Thank you. A couple R&D questions, John, if I may. Recently, we held a physician dinner in New York. We do this monthly. The topic was around CLL. There was some interesting feedback on a couple of experimental drugs, in particular ibrutinib and there was a compound also from Gilead. But one of the statements that came back from one of the physicians was extraordinarily interesting and it relates to the Abbott 199 drug.

One physician said, patient presents CLL. They fail existing therapy with fludarabine, et cetera. And patient had been given in this particular case ibrutinib and fails that. Had been given 199 and actually within two weeks had developed effective remission. Extraordinarily potent. No one thought that it would be quite as potent.

So the feedback was really very, very positive. And again, it's anecdotal for one patient. It's not a big deal, but I'd love for you to spend some time on it, because it looks like an exciting program and there has been a concern about tumor lysis and how is AbbVie addressing it?

John M. Leonard

I may call it Abbott once or twice here too. We're very excited about 199. It's a result of a sustained R&D effort done entirely internally. We're very, very proud of the insights that we brought. It's basically going after a pathway that people have tried to do in the industry before but really struggled to do it and that is initiate program cell death. And one of the natural processes that's averted in cancer is having cells die when they're supposed to die. And BCL-2 inhibitors which 199 is an example actually achieved that.

What we've learned is that if you can throw that switch in cells that are very dependent on BCL-2 and those are the cells in chronic lymphocytic leukemia and a whole variety of lymphomas, those cells will literally melt away and that's what that physician is referring to and that response is not atypical, which gets us to where we currently are. We and the investigators we work with along with our colleagues at Genentech have been exceedingly pleased with the extreme potency of the molecule. When it comes down to how one harnesses that and directs it.

So if you think about essentially what we're doing which is having malignant cells die, if you have many of those cells all dying at the same time, you can tip some patients into what's known as tumor lysis syndrome and that's essentially what happens when all the metabolites are dumped into the blood stream at the same time. So what we've encountered at the end of the year were two cases where this happened. The patients died as a result.

So what we did was we've kept all of our trials running. We're not accruing new patients and we're not dose escalating while we go through a very rigorous retrospective review of who's at risk. We've essentially completed that. We're, I'd say, days away from going back to the FDA who's been absolutely collaborative with us, with the oncology division. They understand that this is a major potency. And I think we're going to wind up here as resuming new patients and moving presumably to pivotal trials before the end of the year and doing that on a risk stratification process.

So, I think we're quite confident we can handle the potency. So what I think you'll see emerge is a full-fledged program not just the type of patient that you referred to who's kind of the end of the line, it's a patient -- it's a program that goes for certain cell populations, the relapse refractory patients but also moving as quickly as we can to first line therapy and then playing it out over the various cell lymphomas.

Unidentified Analyst

So you do see it beyond salvage moving upstream into first, maybe even into second line as well?

John M. Leonard

Absolutely. We think that with that potency that we have and the ability to get to complete response which is essentially a marrow, that's devoid of those malignant cells, we may see outcomes that have not yet been seen.

Unidentified Analyst

Would be extraordinary exciting. It's interesting because one of the things I've learned is how close knit that CLL community is and you don't have to have many successes for that to get around quite quickly.

John M. Leonard

Very excited.

Unidentified Analyst

If I could, just staying with 199. There's one way to avoid tumor lysis syndrome is to change the dosing regimen without changing dose. So in fact, I might actually cycle patients on a different -- kind of different cycle or how can you manage that?

John M. Leonard

Yeah. I think a simple set of principles to use when you think about essentially what we're trying to deal with is it comes down to the number of cells that are at risk of dying and the rate at which they die, okay? So it goes back to the stratification thing we've done where the patients are at risk. They're the ones with big tumors, big bulky abdominal nodes, high peripheral counts and essentially some degree of renal compromise.

So you can identify those patients in advance. And then it comes down to those concentrations of drug that will tip cells into dying. So essentially what it will be is a slow walkup instead of test dosages, if you will. I think once you get some substantial degree of tumor reduction, you'll be free and clear and able to dose as appropriate.

Unidentified Analyst

Staying with the [hem/onc] side of the business, we've also heard some very good feedback on elotuzumab. Now you don't have all of elotuzumab. I think the way the structure works is you'll get a 30% U.S. -- roughly 30% U.S. royalty. The non-U.S. component is another royalty stream. But could you spend a few minutes talking about elotuzumab, because it clearly can be incremental from a cash flow perspective?

John M. Leonard

It is. I wish I can say that we discovered it at then Abbott. This came with the Facet acquisition which also brought daclizumab and its science that was worked out at Facet. So in some respects, I can't say we discovered because those guys are working on some of the related molecules as we go forward. But essentially what this is, is a monoclonal antibody against antigen CS1 that resides solely on multiple myeloma cells which is a big part of its appeal.

And what you can get is cell killing and this particular antibody gets to response levels that are very, very high and essentially setting state-of-the-art. So the way a program is playing out is not unlike what we're trying to do with CLL. This whole set of different patients that you want to go after with multiple myeloma, those who have failed prior therapy and moving up into earlier lines of therapy and combining it with different drugs that are currently used, which is Revlimid obviously and some of the others that are coming.

William J. Chase

Then so just to clarify, it's not a 30% royalty, it's a 30% profit split?

Unidentified Analyst

Profit split.

William J. Chase

Yes.

Unidentified Analyst

Thanks, Bill. That's helpful. John, can you give us an update on the daclizumab whether we'd get a readout this year on data from late-stage trial in '14?

John M. Leonard

It's '14 and that's because that trial was set up as a period of preordained treatment time and you count the relapses in that interval of treatment. So it's predetermined essentially from the time that enrollment was complete.

Unidentified Analyst

Thank you. And if I could, where do you think -- I mean early data were quite strong, but where do you think that will fit in the grand scheme of MS therapy in the future or -- put that together for us in a package?

John M. Leonard

Yeah. Okay, thanks. Daclizumab is clearly a very active agent. It's a biologic monoclonal antibody. As we see the MS space evolving, there's the interference which typically at first line therapy, I imagine that BG-12 when it becomes available in the U.S. will compete somewhat with the interference because I think they're being surpassed from an efficacy point of view. But BG-12 will play a very, I think, significant role in that first or early second line therapy. But after patients fail, things are very serious at that point. Patients have a lot to lose, typically from these relapses. You don't get full recovery in terms of your function.

And I think doctors will confront the choice of moving to a biologic and they consider Gilenya, but I think that will play itself out I think versus BG-12, we'll see. But it's going to be the Tysabri, DAC decision. And even though there's good reason to -- I mean Tysabri's an excellent drug, the PML question is not completely put to bat, right? And so I think doctors will have to come to terms with as I move to a biologic, how do I deal with PML if it's there? And think DAC will fit very, very nicely in that space.

Unidentified Analyst

Or maybe the patient saying, I don't want to deal with the potential from a PML space, I think even I'm negative.

John M. Leonard

That is a dialogue that takes place. That is true. I mean I don't want to jump too far ahead. We've got one trial under our belts. Those data are in. We were excited by a pretty substantial disability reduction signal in that first trial. I think if we can reproduce that in the second study, remember this is a novel mechanism, that may also figure into how doctors want to use the drug.

Unidentified Analyst

Excellent. Thank you. Let's move back to the financial side, if we could, and talk about capital allocation and dividends. What have you said publicly about dividends, dividend growth and how do you really see that moving forward? I think there maybe some flatness in the next year or so just on LOEs and then a pickup in the overall business from '15. I think that that's been characterized. So we'd love to get some thoughts there?

William J. Chase

Yeah, so that is the way it's been characterized. I'd start off, however, by reminding everybody this is a business that throws off a pretty impressive amount of cash. So we'll generate over $6 billion a year in operating cash flow. The top line will be roughly flat over '13, '14 as we play through the lipid LOE and then obviously in '15, HCV will kick in. We've got some compounds to follow that. So we anticipate earnings per share and top line growing after '15 and '16. The primary mechanisms to return cash to shareholders in our view with AbbVie will be the dividend and we've taken that very, very seriously.

We've set dividend on a payout ratio. It's very, very competitive to our peer group. It's probably in the top three if you take a look at the stats. And what's more, we actually think it's important on a growing dividend. So even despite the flat top line, we're committed to finding a way. And we have modeled and are confident we can find a way to add dividend growth over the '14, '15 period despite that top line. Now that dividend growth, to be fair, will be more modest than when the pipeline kicks in, but we think it's an important part of our cash return strategy.

Unidentified Analyst

Thank you. And I'm just -- I'm curious about the empirical thoughts that went on at the executive level; dividend versus the share buyback. There's always seems to be an interesting dichotomy of companies that choose share buybacks as a distribution mechanism versus that of maybe a dividend policy that as you outlined. And I'm just curious, what are those or can you share with us what those discussions have been?

William J. Chase

Holding tax consequences to the side, when we look at the dividend what's appealing to us about the dividend is the inherent stickiness, if you will, right? And for that matter, a bit part of the Abbott legacy has been the dividend play. It's a dividend aristocrat. That legacy was actually bestowed upon AbbVie as well. So we are now countered in that group as well.

It's an important aspect of our shareholder identity that we want to continue. But at its core, what we like about the dividend is the fact that it is a rock-solid commitment and it's not something that can be backed off lightly. And we feel that the shareholders value that and that supersedes any inefficiency that might be present from a tax standpoint when you compare it relative to a buyback strategy.

Unidentified Analyst

Thank you. I guess that brings us to HCV, something I know John you've never talked about. And just want to get an update. I know we're in late-stage trials. It's a phenomenal space, I think, to be in because of existing population, the prevalence, the incidence is questionable. But two questions really. We always have a hard time trying to size the market. We always see numbers on existing prevalence, but we really don't know and I'm talking about in the U.S. perspective.

We really don't know how all these patients can really get into the system and be treated with, what arguably will be very expensive therapy and I could also argue might be therapy that the managed care guys are going to say, wow, that hurts. So take us through your thoughts on that, on the market if you will? And then more importantly, how AbbVie's really addressing the HCV space which you'll clearly be in '15, I guess?

John M. Leonard

We certainly intend to be there in early '15. That's the objective. Just to set the stage, as you said, the registrational trials are all advancing, very actively enrolling, the reception has been outstanding, it's incredibly exciting. It's a global program. We're not focusing primarily on the U.S., it's everywhere. That global aspiration is just fundamental to the effort that we're mounting and I think something that's left out.

First is Japan being the second largest HCV marketplace is something that we've made a commitment to some time ago that is playing out. We will expect to be there very, very early. And something that may not be understood in our Phase 3 program, there's a lot of work to go to make sure that options are presented to the regulators and to physicians ultimately which will be without ribavirin.

So I think you're going to have a very competitive, very, very active set of regimens that will come out of this process. In terms of thinking about the opportunity, Bill may want to help me out here a little, but we see essentially the flow of patients that I think were about 150,000 or so…

William J. Chase

175, yeah.

John M. Leonard

…were treated in '11 in the G7. We believe that that will approximately double tied to issues of capacity of those treaters and I do think that your point of triaging will play a role when you think about those patients that will be treated first, I think that it is going to be a very different assessment of someone who's very early in his illness versus somebody who's a no responder of therapy previously or has some degree of fibrosis which is why we've emphasized in addition to the naïves getting very, very significant data in that second patient population than what we have so far which is fairly a substantial database is I think very, very compelling data that I think will be received very, very well by treaters and payors. So, our belief is that those numbers of 350,000 or so patients will continue to flow as the diagnosed and yet to be diagnosed patients fill that patient set as fast as it's depleted and I think we see that patient population staying at that level for 15 plus years into the future.

Unidentified Analyst

Wow. The triage part is really interesting because I wonder -- does that mean if you're an F0 and F1, so you have little to no fibrosis, do you think there'll be a prior (inaudible) that says, we don't want you treated and so you get to an F3. I mean, can you actually do that for patients? You mentioned this word triage, but it strikes me is that fair? That's okay, we'll give it to you only when your liver is failing a little bit?

John M. Leonard

Yeah, I don't know the answer to that question. Do I think that? Well, fairness. I have a view of that, you have a view of that, payors have a view of that. And sometimes there's not 100% aligned.

Unidentified Analyst

So I'll be wrong.

John M. Leonard

As will I probably. But I think that certainly you can look in Europe and I think that that's a pretty important part of this marketplace. Those sorts of actions are not infrequently taken. And when you look at the likely sort of price points here, I think they will probably invoke a series of considerations before just anybody is treated.

Unidentified Analyst

Any questions from the audience before we go to very, very brief ALS questions? No. So okay. If we would, let's just have a little bit of fun and then we'll close out. And everybody has to play. Come on, Bill. Just pick up your handheld and everybody I think knows by now, unless you're digitally challenged. Just punch one of the buttons that corresponds to the question or the answer you would select, and if we can get the first question. Christine, good lord.

What two pipeline assets are you most excited about? So we can vote up to two choices. Can we do that? Wow. Elotuzumab, daclizumab in multiple sclerosis, Duopa or Duodopa really, Abbott 888, we didn't talk about. So some people may want to have a greater discussion. Obviously 199 I would go with and the Galapagos compound which is a JAK1 inhibitor for RA.

John M. Leonard

We want to have a private session with anyone who votes number 8.

Unidentified Analyst

John wants to have a long discussion with somebody if you could pick 8. So if you could pick 2, that's great. So pretty good response for elotuzumab and daclizumab and interesting on 199. 199's an exciting program.

John M. Leonard

I think you're leaving out Elagolix.

Unidentified Analyst

That was you and [Liz]. You and Liz pushed. Okay, good. Last one please. What's the peak percent share AbbVie can get with their HCV portfolio? This is really the $64 question. Less than 20%? 20 to 40%? 40 to 70%? Or greater than 70%? And that's percent share of the market? Interesting. Bill, what did you put?

William J. Chase

I'll tell you.

Unidentified Analyst

Hope you didn't pick 70%.

William J. Chase

I didn't select 4. I selected number 3. At the end of the day, when you look at the SVRs and we believe this is an SVR game, there is nothing that would lead us to believe that we couldn't achieve 50% of the market, right? And we think this is a market that primarily will be a two-player market and it's very, very rare that you see a market split 80/20, 70/30. And I think our efficacy speaks for itself. So we are quite bullish on that program.

Unidentified Analyst

I appreciate that bullishness. Really Bill, thank you very much. John, as always, great to see you.

John M. Leonard

Thank you.

William J. Chase

Thank you.

Question-and-Answer Session

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