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AbbVie Inc. (NYSE:ABBV)

Morgan Stanley Healthcare Conference

September 10, 2013 12:55 PM ET

Executives

Rick Gonzalez - Chairman and CEO

Scott Brun - VP Pharmaceutical Development

Question-and-Answer Session

Unidentified Analyst

Thanks everyone for joining the session here with leadership of AbbVie. Please note that I need to refer you to disclaimers at www.morganstanley.com/researchdisclosures. It’s my pleasure to welcome Rick Gonzalez, who is Chairman and CEO and Dr. Scott Brun, who is Vice President of Pharmaceutical Development.

Rick has been with the company for over 35 years in various capacities including multiple management positions in a number of the company’s business arms including Abbott previously before AbbVie was spun out.

Scott Brun has a very strong track record in drug development and is leading the pipeline efforts of the company as the late stage pipeline continues to progress, so we are particularly fortunate to have him here with us as well. And so I wanted to welcome them all and obviously many of you probably know Larry, who is incharge of Investor Relations, he previously been with Abbott and AbbVie is fortunate to have him with the organization.

And so I guess, I will take a seat and kick it off. We’ll just go straight into Q&A. We thought that would be the most productive. So I guess Rick may be it would be helpful just for you to recap your objectives at this point, you’ve had a great spin off out of Abbott and congratulations on that front and obviously, you are turning your attention to new initiatives going forward. If you could just frame some of your key objectives and how you want to take AbbVie forward from here that would be very helpful?

Rick Gonzalez

Okay. Well thanks David. Certainly we are pleased with the performance of AbbVie thus far in the first nine months of our existence as an independent company. We really had two primary objectives that we wanted to drive with the business. At the outset of the launch of the new company, first was to continue to maximize the performance of our growth plans specifically HUMIRA and continue to be able to drive strong revenue growth, I think we’ve been able to demonstrate that through our performance throughout 2013 so far. And the second was to continue to advance our pipeline and I think we’ve made considerable progress there as well. Obviously our pipeline for a business like ours is the life blood of our business and it’s an area that we invest a lot time and energy in.

And so let me start with HUMIRA; clearly we continue to see strong double digit growth out of HUMIRA. We continue to see strong market growth, and we expect that to continue going forward. We continue gain share or maintain share in all the major segments that we compete in, and that’s despite the entry of a number of new competitors into that marketplace. And so we are encouraged by the activity and results that we are seeing with HUMIRA and we expect that to continue going forward as well.

From a pipeline standpoint, we have a number of pipeline assets that we have been working on certainly one that has gotten a lot of fan-fair and I am sure we will talk about it in some level of detail as HCV and that’s certainly the nearest and kind of opportunity that we have and a very significant opportunity for us as well. We have completed our Phase 3 program enrollment there, we will start to see read-outs of those six trials starting in the end of 2013 and into 2014, and we expect to have registration of those products and submit for approval of those products in the second quarter of 2014 and expect again approval in the early part of ‘15 and so 2014 will be very critical year for HCV franchise.

In addition to that we have the number of other products that will get important data read-outs in 2014 Daclizumab our product for the treatment of MS. We’ve completed enrollment in our second pivotal trail there, and we expect to get result of that trail during 2014 and submit for registration of that product as well with our partner Biogen in 2014.

Elagolix we have just initiated the second Phase 3 trail in that program. We expect to complete the first Phase 3 trail in the summer timeframe of 2014, and be able to start to look at results in that trail, and so that is another area we were excited in our women’s health franchise of being to advance that product for the treatment of endometriosis.

ABT-199 which is our Bcl-2 inhibitor. We have made tremendous amount of progress that’s an exciting asset for us, we believe as transformational opportunity in the treatment of CLL and other hematological malignancies and you will some data in that particular area as well in 2014.

Another agent within our oncology pipeline is ABT-888, our PARP inhibitor. We have a number of Phase 2 programs that are ongoing in that particular area and we expect to start to get readouts in those throughout the course of 2014 and make a decision whether or not we want to advance that program in the Phase 3 assumingly we see positive results.

And finally our neuroscience pipeline, we have ABT-126 which we have proof-of-concept data, both in Alzheimer’s and cognitive impairment and schizophrenia that's an asset that we will too start to see some data in the later part of this year in 2014 and make a determination whether or not we're going to advance that program into Phase 3 as well.

So as you can see we have a fairly robust pipeline that we continue to advance, I haven't named all the names from our pipeline. But certainly those are some of the most notable ones. So I think we're making significant progress in that area. And that was our second key strategic objective for the business going forward.

Unidentified Analyst

Great. And then I'd love to go into detailed pipeline Q&A. But before we go there, as you think about reshaping AbbVie overtime, obviously you spun out of a very, very large organization and sometimes large organizations can stymie their own progress, they can become an efficient, often times size works against innovation for example and flexible thinking. So are there any organizational initiatives that you are pursuing to ensure that as you grow AbbVie in to the future that it remains a flexible and nimble organization.

Rick Gonzalez

One of the objectives we had for the business or I would say the vision we had for the business is that we truly have the opportunities to create a significant bio-pharmaceutical company, blending the best of both where else. We certainly have the financial wherewithal of the well established pharmaceutical company at our sides, our profitability, our cash flow that we basically been delivering the organization. But we want to blend that with the operating culture of more of a biotech kind of organization and we started a lot of activities from a cultural standpoint to be able to advance that. And we think we have the opportunity to do that in the R&D area, and a number of other aspects of our business and really have the best of both worlds. And so that is a theme that we continue to drive in the organization and one of the key objectives we have for the organization going forward.

I think the second area of focus that we have really created much more of a laser kind of approach to is ensuring that we're advancing our pipeline as rapidly as possible and investing our pipeline in a way to be able to advance it as rapidly as possible and as broadly as appropriate for the opportunities we see. And you've seen over the course of 2013 so far, we've increased our investment in R&D and we certainly plan on doing that as we move forward, as we have assets that are worthy of investing.

In fact, I would say in 2013, we had the opportunity that we get at six or seven individual programs that are in Phase III development and for a $18 billion pharmaceutical company. That's a significant number of late stage assets and we've a number of mid-stage assets that are behind that. They have the opportunity to be able to advance in to Phase III as well over the course of the next couple of years.

And so I would say we had really spent a considerable amount of time in ensuring that we're moving our pipeline along as quickly as possible and investing in it in appropriate way and those have been the fundamental things that we focused our attention on.

Unidentified Analyst

Got it. And then just looking at SG&A, the way I think about it from the outside is that have this SG&A as relatively high as a percentage of sales for a company that has one product that is so substantial and so globally leverage with a contributing 50% plus of revenue. Could you talk about SG&A and how we should think about it evolving? My sense is that there is not a significant reduction opportunity by any means because you are going to be launching several products, but are there efficiencies that you are pursuing that can help limit the rate of overall absolute growth necessary in SG&A?

Rick Gonzalez

I think David it’s a good question. I think as we look at our SG&A profile versus our peer groups, we actually think we operate in a relatively efficient manner, I mean obviously half of our sales come from HUMIRA, HUMIRA is a promotionally sensitive product. And I would say that we increase the investment in HUMIRA in 2013. We increased it to some extent in 2012 when we’ve seen the return from that investment. And so we’re very careful about ensuring that as we invest in SG&A, we get in appropriate return, but HUMIRA is a product that is promotionally sensitive.

And we are going to invest in it in a way to ensure that we can drive maximum result with that product. Additionally I would say that we also invest in 2013 ahead of some key competitive launches to ensure we were in a position to be able to continue to maintain our market share position and grow our market share position. And frankly I think that has -- we have demonstrated that that investment is paid off in a way that it accomplished those objectives.

We have other products that are part of the other 50% of our portfolio, which are also promotionally sensitive. We have to continue to invest in those products. But I would say we’re looking at trying to balance our investment across the entire portfolio in a way to get the appropriate level of return and operate as efficiently as possible.

As you pointed out 2014 is going to be important year because it’s a year that we will prepare for the launch commercially of HCV and so we’ll be making new appropriate investments from a commercial infrastructure and medical affairs infrastructure to ensure we are in a position to be able to accomplish our objectives in the HCV market.

Having said that, there are a number of opportunities that we have as we transitioned away from many of the Abbott systems that we operate under, we operate under a number of transition service agreements between the two companies, many of those expire in 2014, 2015 time frame. And so we are working on opportunities to be able to build those sort of [assist] and those capacities within AbbVie and do it in the most efficient fashion possible. So a good example of that would be our back office infrastructure.

We are in the process now building a regional base versus an affiliate based back office structure. We believe that will be a more efficient model to operate with and we should see some offsets in that particular area starting in 2015 which will balance some of the investment we have made in other areas. So we are looking for opportunities to become more efficient, particularly in the A part of our SG&A.

Unidentified Analyst

Got it. And then Scott could you talk about Hep C and AbbVie’s ability to compete with Gilead, obviously the consensus for you is that Gilead will totally dominate the market and I don’t think that you necessarily see it that way. So would love to hear your perspectives on how we should think about the competitive landscape with Gilead?

Scott Brun

Absolutely, David. So we set out with our interferon free strategy several years ago, we said that one of our primary tenants was going to be maximizing the possibility for cure across the broadest segment of patients. And that’s really been a strategy that we have work to stick with over the years, certainly our Aviator trial are large based to be program that included over 570 patients on interferon free regimen demonstrate that that with our three direct-acting antiviral regimen, we are able to obtain SVR trial since we cure rates on the order of 98% in treating naive and 93% in all responders.

When you look across all the different arms of that study and you look at our eight week arms, our ribavirin three arm or two drugs arms, you’re going to see that the regimens are performing consistently in the high 80% to low 90% SVR range and so what tell us is that we’ve got a very robust regimen that should translate very well to the ongoing Phase III programs.

Our Phase III programs include fixed trials over 2000 patients, 30 countries around the world. So we are really looking to do is to characterize that efficacy response in all patients but certainly those with greatest medical need, those who had prior no response to interferon containing regimens as well those with cirrhotic. So indeed we’ve got a dedicated study with close to 400 patients who have cirrhotic, where again we will be able to very well characterized our particular response.

So it is going to come down to what is the efficacy look like and we need to look across the two Phase III programs. A few points of improvement in SVR rates will certainly be what will lead clinicians to choose the regimen as opposed to a nominal difference in fill count or concern about a limited number of drug interactions over 12 weeks.

And even if the efficacy plays out to be the same between the regimens, we feel that we still have very a significant opportunity to be competitive. Like I said, we have pursued our trials in over 30 counties around the world. As I understand it the Gilead's program has been much more limited from a geographic standpoint. So clinicians are becoming very familiar with our regimens through the clinical trials and we think that that will translate into the marketplace as well.

With regard to market access, again the comprehensive nature of our program, the size of our trials will give payers the confidence that, when they are approving and a therapy in this particularly price waiting, that they will know what they can expect. And there is not going to be the kind of questions about activity in some populations. As we have seen with the first range of agents where again all [combo] trials doesn't necessarily characterize response in those hardest to treat patients.

Unidentified Analyst

And then one more question before I change gears from the sitting in the middle okay. Yeah, let me take a question upfront, while we're waiting for the mic. So just one quick question, that I wanted to ask which is timing. So when should we see the timing or what do we think about in terms of timing for news flow either top line press releases or detailed data?

Scott Brun

We're going to begin to see the data coming out of our Phase III program later this year. I would not anticipate a formal presentation at ASLD, some prior six trials. We are extra working for internally what our communication plan should be with regard to timing and with regard to appropriate channel.

Unidentified Analyst

So, what you're trying to say is that your lawyers want wait to have all fix before you wish your (inaudible) so that you are not, I don't know, leaving the street with one set of press releases and then pivoting?

Rick Gonzalez

Certainly the concerns with regard to how we present these data to this type of audience is something of interest to our legal investor relations area and we're working through the final answers to those questions to figure out exactly how we want to stage those release via the waiting for formal scientific conference.

Unidentified Analyst

But again we don’t start to see the data until the end of this year.

Scott Brun

And we haven't made a final determination as to whether or not we will release data on a trial by trial basis or aggregate together and so that’s something we will do over the course of the next few months.

Unidentified Analyst

Lets talk of market dynamics in specifics. You guys are running neck and neck with Gilead on an all oral combo? You guys are trying to be first with that. That's great. But they are coming out now with their drug and combination with [Tron] and with ribavirin. They are going to market the 48 weeks versus eight week, 12 week regimen and try to get the low hang fruit.

How much of that low hanging fruit do you think they will get before you come to market with the all oral combo in the same time period? Just specific, just talk, you guys have done this internally. How much of the low hang would you think they will get versus what's out there in the market place. And second, you guys are behind in Japan. How are you going to play catch up?

Rick Gonzalez

To make sure I understand your question, you are saying since the past of year is anticipate the launch later this year, potential with an indication with [Interferon] ribavirin 12 weeks in genotype 1. How does that play?

Unidentified Analyst

I think because it's less than 48 weeks as well.

Rick Gonzalez

Relative to what's currently available, yes.

Unidentified Analyst

Low hanging fruit (inaudible) the first nine months.

Rick Gonzalez

Well, I think, part of it again depends are we talking about the U.S. or are we talking about, if we are talking about the U.S. I mean frankly if a patient is able to wait, in a span of a disease that takes decades for its manifestations to be seen, a year is a relatively short period of time.

Unidentified Analyst

How you are convincing the doctors to wait a year?

Rick Gonzalez

How are we convincing doctors to wait a year? Honestly I think its from everything that we’ve seen, it’s the patients who are extremely well informed in this area. Certainly when you see the types of enrolments, that we’ve seen in our trials, the patients are coming, I mean the clinicians are not, they are not having to push them in to this Interferon free preposition. So certainly again given the amount of attention that’s been given to the space, the awareness of the types of patients who are already tighten to the healthcare system that these Interferon free therapies are coming.

Unidentified Analyst

Can you counter detail Interferon to get patients to wait?

Rick Gonzalez

Can we counter detail Interferon. Essentially you can counter detail if you don’t have a problem? That’s going to be the issue, I think the issue is if we look at all the data right now that’s being generated about warehousing patients and what is the motivation to warehouse patients. It’s clearly driven by the anticipation that Interferon free therapies are on the horizon and as Scott mentioned many of these patients they are not in the acute need of treatment right away, certainly in the calendar year 2013. And the key driver is that patients really don’t want to go through the difficulty of the side effect profile of Interferon

So whether it’s a shorter course of therapy that certainly will help, and I think there will be an opportunity to be able to get some patients who would otherwise have also been treated on some competitive regimen in 2013. But fundamentally I don’t see that changing the warehousing of the patient population that’s waiting for Interferon free therapies.

Unidentified Analyst

How much low hanging fruits do you think they will get in the first nine months?

Rick Gonzalez

Are you asking how much hanging fruit will Gilead get. I don’t know that I can anticipate how much low hanging fruit. I think what I can tell you, I think it’s a more relevant question that you are poking at and that is that it won’t change the number of patients that are available at the launch of Interferon free therapies from the warehouse patients that exist today and that warehousing is likely to grow as we get closer and closer to the launch of these next generation products. I mean this going to be a very sizable market, by most estimate this is a $12 billion to $14 billion market in the G7. There is going to be plenty of opportunity for both of us to be able to complete in that marketplace. We think we will extremely well in that marketplace. Warehousing patients are only part of what is available. Estimates today in G7 is that roughly two-thirds of the infected patients haven’t even been diagnosed yet. So there is clearly an opportunity to continue to grow this market overtime.

Unidentified Analyst

How about Japan?

Rick Gonzalez

(inaudible) Japan. So we are actively in Phase 2, late stage Phase 2 program in Japan I should note that in Japan we are evaluating a two drug regimen. So it’s our PI, our NS5A with the Ritonavir boost co-formulated into two pill once a day, 12 weeks no ribavirin and that’s due to a fact that the predominant form of the infection in Japan is genotype 1b. Based on the progression of the program, we are in active discussions with PMDA right now transitioning over to Phase 3. You made a reference about being behind, I am going to assume that’s the BMS regimen. Of note that’s a 24 week regimen versus the 12 week, we are studying and it’s a BID versus our full QD regimen.

Unidentified Analyst

I’d just like to follow up on (inaudible) question and since you are talking about press release timing, it would seem that there would be an incentive for the company to issue press releases sooner rather than later to highlight successful data with an overall regimen because Gilead will be making a lot of noise in the market periodically starting in December, but kind of I guess that is just a size observation which you made the obvious?

Rick Gonzalez

It’s a multi-factorial decision because again depending on which are the trials are fitting when ideally from a clinical perspective how would you want to present the information, so the sequence in the studies makes sense, but again of course we are very well aware of the community interest in these results and are just trying to balance all these areas consideration.

Unidentified Analyst

Got it. Any other questions from the audience. Another question?

Unidentified Analyst

How are we going to address cohort?

Scott Brun

How are we going to address cohort? Okay, well, you look at our regimen with the 3-DAAs, the pill you are talking three pills in the morning and one at night. In patient populations who would require ribavirin certainly let’s go back to the U.S. because that seems to be obviously a market of interest. There are high dose ribavirin formulations. We can get to one BID. So worst case scenario we are talking four pills in the morning and two at night.

As I have already said for genotype-1b in Japan, we have an opportunity for two pills once a day, no ribavirin, genotype-1b is also prevalent in Southern and Eastern Europe. And so we are looking at gaining regulatory approval of that regimen in the West as well. We also have second-generation regimen that currently in early stage development and includes a PI NS5A inhibitor. The pharmacologic characteristics supports once daily dosing of both without ritonavir boosting, they are pan-genotypic and they also have some very interesting resistant characteristics. Our goal being high rates of cure across all genotypes regardless of severity of disease QD in the absence of ritonavir boosting and perhaps ribavirin.

Rick Gonzalez

And the other thing I would say is we have done a lot of market research in this area to try to understand what will drive physician prescribing behavior. And it consistently comes back with the top three parameters are all driven around SDR performance in naives, no responding patients and cirrhotic patients. And so we don't know what that data looks like yet between us and Gilead. I think we have a fairly high level of confidence of how we will perform across those patient populations.

And I think we believe that we will deliver very strong SDR rates across those three populations. We will have to see how their Phase III data, their larger set of data plays out. And whether or not, there is differentiation there. Assuming even reasonably consistent performance between the two products, pill burden rates as the 7th or 8th attribute, certainly tolerability, safety of the protocol and number of other aspects rate much higher.

And so, I think much has been made about pill burden. Time will tell as we enter the marketplace and we actually see how the two of us compete against one another, but I think the analogy that constantly gets used is HIV, but HIV is a very different disease. You are basically taking a patient that has to take that therapy for the rest of their lives versus a relatively short course of therapy for an HCV patient and bill burden plays a very different dynamic when we do market research in HIV than one we do it in HCV.

And so at the end of the day, like I said, it will play out based on the performance characteristic of the product particularly around cure rates and the commercial execution and I think we're in a position to be able to execute it at a very high level commercially all around the world. We operate in 130 countries around the world today and we will be in a position where we can launch this product appropriately at the point of approval.

Unidentified Analyst

Question back here.

Unidentified Analyst

You mentioned ABT-199 as a potentially transformed the product in a tremendous program. Could you just recap for us where you are with trials with that and when potentially it may be filed and what the strategy is there?

Rick Gonzalez

Sure. So ABT-199 is our first in class BCL-2 inhibitor. So this is a compound that allows normal pathway to sell that to be turned back on in cancer cells that have turned them off. Earlier this year at ASCO, we presented data in patients with chronic lymphocytic leukemia, CLL, relapse, refractory having been through at least four -- on the average of four prior therapies. We saw an overall response rate here of 84%, a complete response which means that there was no microscopic evidence of the tumor in the bloodstream of bone marrow of 18%. And when you look at in even higher burden of disease eradication so called minimal, residual disease, about half of that 18% or 9% of patients had reached that threshold.

When you look at it relative to other drugs in development like Ibrutinib, Ibrutinib only had a complete response rate on the order of 2%. So we see that the exquisite potency of this drug can really allow us to change the way that hematologic malignancies such as CLL, but also non-Hodgkin’s lymphoma, other B cell lymphomas like diffused large B cell lymphoma and perhaps even AML are treated.

In combination with the Genentech, we are looking at a number of ways to leverage the potency of 199. We have a large study ongoing in patients with relapsed, refractory disease with the 17p genetic deletion that is a core prognostic factor that’s looking at 199 as a single agent.

Certainly if we see that kind of results in that trial that we have in our earlier stage trial and it provides the opportunity for earlier approval perhaps in the 2016 range based on unmet medical need. Also in conjunction with that trial we are starting a more traditional Phase III program that we look at 199 in combination with rituxan, a chemotherapy free regimen compared to bendamustine rituxan as standard chemo regimen in relapsed, refractory patients. And again we are working on that trial with Roche Genentech, it should be up and running later this year or early next year. And we’ll be seeing read-outs in some of these other malignancies I spoke of throughout that 2014 that will further guide the program.

Unidentified Analyst

Great, well, I think we are out of time. Thanks so much thanks to you all for joining us. Thanks everybody for participating.

Rick Gonzalez

Thank you.

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