AbbVie Inc. (ABBV) Management Presents at Goldman Sachs Global Healthcare Conference (Transcript)

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About: AbbVie Inc. (ABBV)
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Earning Call Audio

AbbVie Inc. (NYSE:ABBV) Goldman Sachs Global Healthcare Conference June 12, 2019 11:00 AM ET

Company Participants

Mike Severino - Vice Chairman & President

Rob Michael - Senior Vice President & CFO

Conference Call Participants

Terence C. Flynn - Goldman Sachs

Terence C. Flynn

I think we're going to get started. Good morning, everybody. Thanks for joining us. Terence C. Flynn, the biopharma analyst here at Goldman Sachs. We are very pleased to have AbbVie with us this morning. Joining us from their Company, we have Mike Severino, Vice Chairman and President; and Rob Michael, Senior Vice President and CFO. Thanks very much for joining us.

Now before we get started, I’ve to read the disclaimer. We are required to make certain disclosures in public appearances about Goldman Sachs' relationships with companies that we discuss. These disclosures relate to investment banking relationships, compensation received or 1% or more ownership. We are prepared to read aloud disclosures for any issuer upon request. However, these disclosures are available in our most recent reports available to U.S. clients on our firm portals. Disclosures and updates to these disclosures are also available by ticker on the firm's public website at www.gs.com. Also the view stated by non-Goldman Sachs personnel do not necessarily reflect those of Goldman Sachs.

Great. Well with that out of the way, let's get started. Maybe just, first, would love to get your perspective on your progress on delivering on your long-range plan. I know it's something you guys have been highly focused on, but would just love to get an update there to start off and then have a number of other questions.

Mike Severino

Okay. So, I would be happy to do that. When we look at our progress against our long-range plan and the state of our business, we’re very pleased with the progress we are making. Our on-market products have performed very, very well. So HUMIRA, IMBRUVICA, MAVYRET and others have performed in a very, very strong fashion and that has allowed us to drive double-digit earnings growth, including double-digit earnings growth this year in a year when we experience direct biosimilar competition outside of the U.S.

So we're hitting our marks there, and we feel good about the progress we are making. We’ve also had very strong performance from our pipeline. And that has allowed us to identify a group of core products that are either recently launched or in late stage development that can continue to drive that growth into the future. And that would include our hematology, oncology franchise with IMBRUVICA and VENCLEXTA that we expect to deliver $5.1 billion from revenue this year and growing at a very robust rate. That includes our next-generation immunology assets. So risankizumab obviously now in launch mode and with upadacitinib, which is approaching approval decisions towards the second half of this year. So that gives us a very, very strong next-generation position in the immunology market, which is an important market. It's a large market, it's a market that’s growing, it's a market where we've been leaders, and so it allows us to maintain that position. So we feel good about that progress.

And then we’ve assets like ORILISSA that contribute very meaningfully to our long-range plan as well. We expect ORILISSA to contribute $2 billion in the outyears to that plan, so we feel very good about the progress that we are making.

Terence C. Flynn

Great. Maybe help us think about the operating margins, near-term, longer-term, I know that’s been a focus of investors. Are you on track for heading your 2020 goal?

Mike Severino

Yes, Terence, if you look at our first quarter, we just printed a 48% profile. We’ve guided a full-year of 47%. Keep in mind that’s 200 basis point improvement in the year of flat sales and new product launch expense. So if you look at our track record as a company, look at last year, 250 basis point improvement, largely coming from P&L leverage as a sale -- sales [indiscernible] expenses. If you go back to conception of AbbVie, we’ve grown that profile by over 800 basis points. So as you think about overall sales growth, the new products ramping, in 2020 you expect to see P&L leverage again.

Terence C. Flynn

Yes, and then how about as you think longer term with that kind of mix shift changing? I know that’s another question recognizing, but I don’t want to give direct guidance, but how do you think about kind of the puts and takes in the longer term?

Mike Severino

When you look at the strength of our pipeline and our expectations for overall topline growth. And again, I would think about P&L leverage to be a key thing we’ve been able to establish. I would -- certainly, there will be mixed considerations within the products, but overall topline growth P&L leverage should be part of our story.

Terence C. Flynn

Okay. One of the other big picture questions, obviously, has been there have been a number of proposed changes to drug pricing in the U.S. Obviously, hard to know where all this falls, but would love your perspective on some of the proposals out there, specifically, as it relates to maybe the Part D side. And then would you expect the U.S to move away from a rebate system? And then if that does happen, maybe help us think about if you guys adapt your business model at all or you feel like you’re kind of in good position already given those changes that could occur?

Mike Severino

Yes. So as you say it's hard to know exactly where this is all going to end right now, and there have been a number of proposals that have been put on the table. Sometimes that have been fits and starts with the proposal seems like something is imminent, then it takes a little bit longer for things to come forward. We don’t know exactly where things are going to land. But when we look at the landscape, I think the most advanced proposals are around rebate rule and Medicare Part D. And it's our expectation that something will get done, hopefully, later on this year around that. And I think at the core of that we're supportive of ideas that reduce out-of-pocket costs for seniors and Medicare Part D. So that’s certainly something that we can get behind as a company. We think seniors on Medicare Part D bear a large burden and in some ways an unfair burden of the costs compared to patients receive their care in other settings paid for by other payers. And so that part of the proposal we think is very good. When we look at the whole proposal as we understand it today, we don’t see it affecting our business. So the basic principle is that rebates will be replaced by upfront discounts and that patients would benefit from those discounts by having reduced copays at the point-of-sale. And again, that part of the proposal I think is very aligned with our view as a company. And when we look at our ability to compete in that system, we feel very good about it. We’ve competed in healthcare systems around the world, including international systems where there are no rebates, where formularies are completely open and formularies for the U.S are becoming more open over the past years, and we’ve shown that we compete very effectively in those settings.

Terence C. Flynn

Okay. And how about the -- would you expect that the Part D changes would flow through the commercial side? Is that your expectation or do you think that would take longer to play out, maybe over what timeframe?

Mike Severino

Yes. Again, I think a lot remains to be seen. But I think most people believe and I think we believe that will over time, but it will probably take a little bit longer than on Medicare Part D side.

Terence C. Flynn

Okay, got it. You mentioned besides the immunology market, I mean, talked about your long-range plan. I mean, you guys are projecting to grow to $90 billion in 2025. I think J&J has projected $80 billion in 2023, about $67 billion last year. As we think about kind of -- I think penetration biologics in the RA space fairly high, look at psoriasis on the lower end, maybe IBD in median between, but do you think that IBD and psoriasis can really approach RA over the longer-term? What can you guys do to really move the needle on that front as we think about kind of the forward growth of the immunology market.

Mike Severino

Well as you say, it's a large and growing market. Across those three segments, the numbers that you quoted match our understanding of the markets as well. Something like approximately $90 billion in the 2025 timeframe. If you look at penetration right now in rheumatology, it's about 40%. And that’s been growing steadily over the years and we see continued growth there. If you look at the gastroenterology segment, it's a little bit below that, but also growing. So overall gastroenterology is probably about 30%, little bit higher on Crohn's, a little bit lower on UC, but both growing and we see continued growth there. Psoriasis has had the lowest penetration. It's about 10% right now, but that's grown substantially from low single digits up to the 10%. And so we do see room for considerable growth in bio penetration in psoriasis. We don't necessarily see it getting up to that 40% range where RA is, but we do see room for substantial growth.

Terence C. Flynn

Okay. And is that really going to be driven by the new targeted drugs? Is that going to be what’s driving that, or is it going to be physician education? Like what’s going to be kind of the key catalyst that’s going to drive that?

Mike Severino

Well, it's really both. I mean, I think over time people are recognizing the benefits of treating psoriasis with biologic agents to sort of results that can be achieved, that obviously is complemented by newer agents, higher efficacy agents, agents that provide real advantages, and so I think it's both time, physicians becoming more comfortable in that space using biologics where they hadn't used them before, and also the availability of newer and better agents, I think both components will drive that growth.

Terence C. Flynn

Okay. Maybe moving on, you mentioned your upcoming new product cycles in immunology, congratulations on the approval of SKYRIZI. I know it was an important one for you guys. Maybe we will focus there before we move on to upadacitinib. But first we just love an update on how the launch is going and maybe just to start you could just remind us about the differentiated profile, like what are the key aspects that you guys really want to highlight? And then, what -- how are you leveraging those in the commercial side?

Mike Severino

Sure. So when we set out to develop a number of next-generation immunology assets, our goal in each of the conditions where HUMIRA is active is to find a therapy that raise the bar on standard of care. And we’re doing that across each of the major areas, but if you look at psoriasis and SKYRIZI, I think it clearly heads that market in two ways. One, by driving response at a higher level that can be achieved with HUMIRA or with other agents that are available today. And also by delivering response to patients who have failed other therapies. And within our clinical program, we demonstrated both of those quite effectively in terms of the level of complete skin clearance or PASI 100 response level. The fact that those responses were very robust, not only in patients who are naïve to biologics, but in patients who have been pretreated and failed other biologics. And we also demonstrated very durable response, which in psoriasis, in particular, is very important. So there's a perception amongst patients and physicians that many agents that are used today lose efficacy over time. And SKYRIZI has very, very strong response not only at the primary endpoint clinical trials at 12 to 16 weeks, but also at a year. And then we very recently presented a 2-year data that shows that those responses are still being maintained and they're still very robust efficacy. So when you look at that whole profile and then you couple it with the strong benefit risk, and quarterly administration for maintenance, which is an important feature as well. We think we really hit the market in terms of the product profile there.

Terence C. Flynn

Okay. And maybe I know you guys have laid out this metric by I think end July at 50% access. Maybe how are you tracking towards that, and again we're seeing the script starts -- start to come through, anything can tell us about kind of patient mix, access where things stand right now and what you’re seeing? Is this all kind of naive patients coming on the therapy, are these patients that have failed other drugs.

Mike Severino

So we’ve said that we expect to have 50% commercial access within about three months of launch. That’s by the end of July, and we’re tracking well against that Mark, okay?

Terence C. Flynn

Okay.

Mike Severino

Maybe also said we expect HUMIRA like access, a very broad-based access by the end of the year. And again we're tracking well against that metric as well. Early feedback from the field is very positive. Physician reception and interest is very positive. Patient reception, patient feedback is very positive. So we would say that the launch is going very much in line with our expectations.

Terence C. Flynn

And I think -- you think about the mix. In the early stages, I would expect to see more second line plus, but as physicians get more experience, we absolutely feel that SKYRIZI has an important place in the first-line of setting as well.

Terence C. Flynn

Okay. And can you guys give us any details about where access is in terms of tiering? So where this has been positioned right now on the plans or what are you aiming for when you’re thinking about where the tier that’s relative to your portfolio?

Mike Severino

So when we say 50% access, we mean access at a parity to HUMIRA and other biologics. So upfront access for the biologics space.

Terence C. Flynn

Okay, great. As we think about, I guess upadacitinib moving on here, maybe again similar question to SKYRIZI, just recap the profile for us what’s most exciting about this? And then how it is compared to some of the other JAKs that are available or either in development and really what's the differentiated feature that you see on the upadacitinib front?

Mike Severino

Well if you are -- turning back to what we said about our strategy of finding an agent that either drives higher levels of response or drives response in patients who have failed of other therapies in RA, we feel that upadacitinib fits that bill very nicely. If you look at performance across our Phase 3 clinical trial program, we uniformly drove very high levels of response. Not just at the ACR20 level, but at much higher levels of response, at ACR50, ACR70, patients who achieved DAS low disease activity or remission, which we believe really should be the standard going forward. Now that there are agents that can drive that level of response, there's really no reason to leave the patient with disease activity that's greater than that. And so we did that across a wide range of settings. We did that very early patients who are new to therapy. We did that in classic methotrexate inadequate responder populations. And we also drove those responses in patients who have failed multiple biologic therapies, not just TNF-inadequate responders, but true biologic inadequate responders. So really across the spectrum we are driving the level of response that we wanted to try. We had a very, very strong benefit on structural endpoints in two different studies, a very strong monotherapy data, so really has rounded out the efficacy profile. And then lastly and I think very importantly, we had very, very strong head-to-head data against HUMIRA, which is of course the gold standard today in that space, where we showed superiority to HUMIRA across every endpoint that was tested. And that sort of broad-based very robust deal, I think is an important demonstration of the profile.

Terence C. Flynn

Do you think -- I mean, I think that’s one of the questions. Do you think you'll be able to get that head-to-head data on the label that had versus HUMIRA?

Mike Severino

Well, typically it takes two head-to-head studies to get a label claim. So it's not necessarily so much about what's in the label.

Terence C. Flynn

Okay.

Mike Severino

It's about the overall profile of the molecule that's broadly presented, I think well understood by the [indiscernible] in a number of settings. They can be used with payers, they can be used in a number of different interactions by different groups. And so it's more about demonstrating the overall profile than about getting a specific claim in the label.

Terence C. Flynn

Okay. Would you consider running a second study though to get that label claim? Because to me, it could be a key advantage relatively to some of the other competitors coming and maybe in a world where we do have HUMIRA biosimilars out there, does that give you increased leverage in terms of position, or do you think having just the one study in, again being able to talk as we did, kind of gives you enough leverage on that front?

Mike Severino

We believe the label have everything that it needs to make us competitive. So we are always committed to ongoing data generation. We will be generating data on all of our products for many years to come. And so, we will do more work with upadacitinib, but we feel very good about what we would expect to be in the initial label and it will have all the information we need. You asked about positioning against other agents. If you look at the program we run with the only JAK inhibitor that’s at the primary endpoint across every study, we are the only JAK inhibitor that shown the kind of head-to-head superiority against HUMIRA that we’re talking about. So we feel that we are going to have the data that we need to be competitive.

Terence C. Flynn

Okay. One other question. I know you guys have gotten is just a potential for an FDA AdCom and then kind of corollary to that is how to think about the label and does the FDA view this as kind of class labeling or do you guys think you can kind of carve out a differentiated label versus some of the other JAK, so maybe just offer your perspective on those two questions here?

Mike Severino

Certainly. So we are reasonably far along in our review process right now. And we don't at this point expect an advisory committee based on all the discussions that we are having with the FDA. So we feel good about the progress we are making in the review. It's a little bit early to make exact predictions about the label. But we think that the data that we've generated, not only the efficacy data, but also the safety data which shows a robust benefit/risk profile, showed rates of DTEs, in particular, which is something that’s been of the interest in this class that were no different between upadacitinib and the comparators. And that's true whether the comparators were adalimumab, methotrexate or true placebo. We feel like that puts us in a very good position for those negotiations.

Terence C. Flynn

Okay. So you feel like there is a possibility that you won't have that blackbox warning for DVT?

Mike Severino

Again, it's a bit early to make predictions about what the label looks like, but we feel that we are in a very strong position. We feel we have a very strong data set. We've looked very carefully for any evidence of increased risk and we haven't demonstrated that. The rates have been the same across upadacitinib both doses and similar in the same in fact compared to all of the different comparators that we included in the programs, we think that puts us in a very strong position.

Terence C. Flynn

Okay. One other thing is just thinking about -- maybe the -- walk us through kind of the education effort that it will take you think to kind of continue to build the JAK class, because some of those historical questions recognizing you guys might have the safest, cleanest profile, but how do you really build the totality of the data to kind of drive uptake of the JAK class, maybe better than what we've seen from some of the prior drugs out there?

Mike Severino

Well it starts with having a very strong data package, which we have. And then if you look at our track record, we are an organization that has a very strong commercial presence, a marketing presence in the space. And we understand how to drive messages that resonate with patients and with physicians. We’ve a very, very strong medical affairs capabilities. We are committed to ongoing data generation, data communication. We’ve shown that we’re very effective there. And we know this space very well. This is a space we’ve been leaders for many years. So we think we understand how to not only develop, but how to commercialize this product and how to make sure that the attributes of the product are well understood by treating physicians and by patients.

Terence C. Flynn

And maybe the last question in this topic. Can you just remind us how we should think about the cadence of label indications building for SKYRIZI and upadacitinib? I think you guys have provided some guidance in terms of where you want to end up relative to HUMIRA over a certain number of years, but again just maybe walk us through kind of the cadence of some of those label [ph]?

Mike Severino

We haven't given year-by-year guidance on all of the indications, but I can talk to you about the rollout. So for SKYRIZI, obviously psoriasis is the initial indication. It's now in launch mode approved earlier this year. Important additional indications for SKYRIZI that are well along would be the inflammatory bowel disease indications. So that would include Crohn's disease and ulcerative colitis both being studied in Phase 3. Psoriatic arthritis is another important indication for SKYRIZI and those would be the core there. Although there are additional indications that are in mid stage testing as well. Pre-baricitinib, obviously, rheumatoid arthritis is the most advanced approaching the approval decisions in the second half of this year. Additional indications that are very important there would also be psoriatic arthritis. We think the combination of those two agents used in combination, but having both in your profile -- in your portfolio will be a very strong offering for patients who are being treated for psoriatic arthritis. Also an important indication for upadacitinib will be atopic dermatitis, which is coming in the not-too-distant future. We are well along in the Phase 3 program and that I think is an under recognized opportunity for a drug like upadacitinib. And we drove very, very strong data in our Phase 2 program, we had the breakthrough therapy designation, so I think that will be a very meaningful opportunity. Then we also have programs for upadacitinib in inflammatory bowel disease. So Crohn's disease and UC would sort of be the next ones out. And then if you look further out in the horizon, additional forms of arthritis treated by rheumatologists, ankylosing spondylitis, for example, has significant potential. And then giant cell arthritis and other condition treated by rheumatologists would be sort of the furthest out in that horizon. So there's room for indication expansion over the next several years for both of these molecules with the potential to cover up to about 12 different indications.

Terence C. Flynn

And will most of those come on board before 2023 or kind of in that timeframe?

Mike Severino

Yes, the majority of this is happening between now and 2023.

Terence C. Flynn

Okay, great. Maybe moving on to HUMIRA. Again, I think you guys are front and center in terms of some of the biosimilar experience going on in Europe right now. Would just love your perspective on kind of what surprised you? What was in line with expectations? And then where we in terms of price right now do you think kind of reaching a stability point on the pricing side?

Mike Severino

Sure. So ex-U.S HUMIRA the competition has been more than the analysts would have predicted. We said at the beginning of the year that we expected revenue ex-U.S to be down about 30%, reflecting the impact of direct biosimilar competition. And if you look at where we are now, we feel good about that guidance. When we gave that guidance, we based it not only on what was happening at the time, but also based on assumptions or predictions around continued price erosion through the year, we continue to feel good about those predictions. So we feel like we have a good handle on it this year.

Terence C. Flynn

Okay.

Mike Severino

Rob Michael

And I think there's some confusion potentially on the first quarter call in terms of the quarterly guidance, but if you think about it, we are going to lap the event in the fourth quarter. So the guidance we gave in the second quarter you expect -- before you lap the event as we have additional erosion that we -- as Mike mentioned, is included in our guidance. You will see a high-level of erosion, but then as you lap in the fourth quarter you see it moderating.

Terence C. Flynn

Okay. And then in terms of pricing, any visibility as pricing kind of stabilized at this point in terms of European experience?

Rob Michael

Yes, I mean, the markets are very different. So in the cases of tender markets where you have annual price setting, we have obviously a very good visibility there. Mandatory priced top markets have very good visibility. It's a contracting markets where you could see over the course of the year some additional erosion that was factored into our guidance.

Terence C. Flynn

Okay. And then I think next year you said you expect less of an impact and then maybe another impact coming 2021, is that still just given the cadence of some of the other patents [multiple speakers]?

Mike Severino

If you look at -- so, our international business is about 75% of that revenue has direct biosimilar competition today. So that other 25%, the most significant market actually go beyond 2020, there are some that go in 2020. As you think about the 2020 erosion, you will have in the market that have biosimilar competition today, some level of erosion, but again as you think about typical erosion curves, you don’t see the same level in year two as you do in year one.

Terence C. Flynn

Okay. And maybe one of the other things and again I think it's difficult to project, but maybe help us think about the puts and takes on the U.S side of the business, because I know that’s something else investors have been debating and just again how to think about that? We've seen some metrics from REMICADE, from Neulasta, Neupogen, but not a lot of analogues maybe as in Europe. So what are kind of the puts and takes and then when we think about the rebate rule changes or interchangeability, where did those fall in terms of how to think about the U.S biosimilar impact?

Mike Severino

Yes, so obviously, we’re not in a position to give guidance on the impact of direct biosimilars in the U.S at this point. When we look at the European experience, Europe is a heterogeneous market as Rob said. And not all of the other countries behave in the same way. You have the tender countries, you have the larger more contracting base countries. So we’re obviously going to pay close attention to the dynamic that played out in Europe. As we prepare for the U.S biosimilar then, but there's no one country that's an analog for the U.S system, and there's going to be a range of payer behavior as we approach that event. With respect to the rebate rule, as I said, I think we can compete effectively under the current system. Obviously, we are under a system where we just go in or replace with upfront discounts. We don’t really see that playing in significantly to our strategy.

Terence C. Flynn

And on interchangeability, I know the FDA came out with this guidance recently. It looks like, obviously companies will have to do additional clinical work to get an interchangeability designation, probably varies by drug, but would be curious just your perspective on that guidance. And again, what you -- if we could have interchangeable biosimilars in that 2023 time frame or if we should just expect biosimilar and maybe doesn't even matter in your perspective?

Mike Severino

So, there's been draft guidance out on interchangeability for a while now and the final guidance came out just a few months ago. If you look at the two, the final guidance is really very consistent with the draft guidance, where a few changes and emphasis more on the analytical side.

Terence C. Flynn

Okay.

Mike Severino

But the basic framework I think stayed in place. And the basic requirement and additional -- in addition to the requirements for biosimilarity are the requirement for additional clinical work with a multi panel switch, so four panels, two exposure periods on each agent with a demonstration of biosimilarity across that experience. And so that has been the framework I think for some time since that draft guidance came out. So we don’t really see a big change. If you look at our assumptions around interchangeable biosimilars, we assume that there will be at least one interchangeable biosimilar in 2023 and that’s already baked into our planning. So nothing about the guidance changes there.

Terence C. Flynn

Okay. Maybe next big picture question is just would love your latest thoughts on capital allocation. Obviously, you guys have been active previously on the business development front, the share repurchases as well. But how are thinking about balancing those given your current balance sheet and kind of some of the pipeline opportunity you talked about?

Mike Severino

Sure. Well when we talk about capital allocation, it's important to note that having a robust in growing dividend is an important part of our investment thesis and will continue to be an important part of our investment thesis. We are fortunate to have a very strong, very robust and growing business that gives us a lot of opportunities. We are always looking to reinvest in our business. We are always looking to grow our business. So when we look at the business development opportunities, we analyze a wide range of opportunities, small medium and large. And we have the ability to get things done when we see something we think is going to be a strong strategic fit, something that will drive value for shareholders. So that hasn’t changed. And on the share repurchase side, we’re going to do that more opportunistically. We’ve taken care of the first two priorities, the dividend and investing in our business where we have excess cash, then we can buy back shares more opportunistically.

Rob Michael

And last year we had a higher level of share repurchase because we made a commitment coming out of tax reform to capital shareholders. So I wouldn’t expect, if you look at 2018, buyback levels to be the go forward assumption.

Terence C. Flynn

Sure. And on the BD front, again, I think when I look back at some of the deals you guys did, I would say maybe Pharmacyclics surprised people just because that was kind of outside of your wheelhouse, but yet turn -- has turned out to be a good deal in terms of where IMBRUVICA is and obviously you’re bringing on VENCLEXTA to kind of layer on to that hem/onc franchise that you brought in. Stemcentrx, maybe on the other side in terms of -- the outcome there not where you guys have hoped for, but again was somewhat out-of-the-box in terms of the platform deal maybe that bring you into the solid tumors. So as you think about kind of therapeutic areas are going outside of your core, I mean, how do you think about balancing those, obviously, recognizing your core in immunology and cancer now. But maybe moving into like a new therapeutic area, how important is that for you guys from a diversification standpoint?

Mike Severino

Well, as we said, we are going to analyze a wide range of opportunities. And if you look at what we've done historically, Pharmacyclics, I do think was a very good deal. It was a controversial deal that we did it, but I think it has shown to be a very good deal. It advanced our position in hematology, oncology very substantially. It was a very strong fit with VENCLEXTA, so was -- have that very strong strategic fit which I think is important, and there's very strong complementarity between those two assets. Since the Pharmacyclics deal broke has grown very, very substantially in line with the initial projections that we made, so we feel good about that -- about the progress there. Obviously, Stemcentrx there, the outcome was not what the early data would have predicted or what we'd have hoped. So we recognize that. But when we look at a wide range of opportunities, we are going to look at many different sorts of deals. We are going to look at early-stage deals that that add to our early pipeline and those are the things you’ve seen us do more recently. We might look at other sorts of deals that could take us into new therapeutic areas. We are going to keep a wide aperture. And as I said, we have the ability when we see something that is a strong strategic fit to bring it in-house.

Terence C. Flynn

How are you thinking about kind of opportunity set and valuation now in some of those kind of assets? Because I know it waxes and wanes, but do you think there is still a pretty deep opportunity set out there? Or do you think valuations are somewhat constraining?

Mike Severino

Well, it depends on the therapeutic area and it depends on the stage of development. So there are certainly certain areas for valuations that are still very high. So mid-stage oncology, for example, valuations are high. That doesn’t mean there aren't opportunities out there, but one just has to be very thoughtful about what you pursue. There can be value in other sorts of deals. More recently we found value in early-stage deals, things that were a pre-proof-of-concept either moving towards the clinic or in very early clinical development. But we’re going to look across that set, small, medium and large opportunities and assess where we see value.

Terence C. Flynn

Okay. Maybe just moving on to IMBRUVICA, maybe just help us think about some of the key drivers of growth here. And then on the flipside, one of the -- there are a number of these competitor BTK trials ongoing, so would just love your perspective on kind of how you see all that falling out and what are you guys doing to maybe again set a higher bar with IMBRUVICA and the backbone agent that you have?

Mike Severino

So IMBRUVICA has been an asset that's growing very, very robustly over the last several years. The most important area of growth for IMBRUVICA is continued movement into front-line CLL. So IMBRUVICA has changed the standard of care in CLL and is now well along the way in terms of moving from second line use to first line use and first line share has been growing. And continuing that momentum I think is going to be very important. That’s going to happen on the strength of a number of very, very important clinical readout. So at the end of last year, we reported readouts from three long-term randomized Phase 3 trials that showed superiority against essentially all of the standards of care in the field. So, VR, FCR, GAZYVA, [indiscernible]. So it's on the strength of those data, on the strength of subsequent recommending body recommendations that we are going to make that move, and that's the most important part of the growth. There's also room to increase penetration and move forwarding lines of therapy in other areas where IMBRUVICA is active. So in some of the non-Hodgkin lymphomas like mantle-cell lymphoma, marginal-cell lymphoma. And we are working overtime on other areas like follicular lymphoma for example. And then the last area would be GVHD, which is a small, but important indication that offers a treatment option for patients who haven't had anyone in many, many years. So we think there are a number of areas where IMBRUVICA can continue to grow. When we look at the follow-on products, we see them as essential additives. The story initially had been by having a slightly different mix of specificity, maybe one could get away from bleeding or other complications that we feel strongly are on mechanism for BTK inhibitor. So it's important to manage patient safety and they should be managed appropriately with their own mechanism than a slightly different mix of specificity isn't going to change that. And if you look at how the field has developed, I think you see that playing out. So the initial hope was that there would be no bleeding. You see bleeding rates are at the same as the rates with IMBRUVICA now and later stage trials people have focused on afib. And for a while, people thought perhaps there should be no afib. Now you see afib rates look very, very similar to ours, which is all very consistent with our hypothesis that these are on mechanism adverse experiences that they need to be managed carefully, but they’re going to part and parcel of the BTK inhibitor. And the primary advantage that we’ve is we are much with our own development. So we have multiple long-term Phase 3 studies that show impact on PFS, impact on OS at a time period where the follow-on agents try and catch up. So we are going to make sure we take advantage of that lead in data generation that lead in time on the market to drive the success of IMBRUVICA.

Terence C. Flynn

Okay. One of the other things that I thought was -- you guys reports impressive combination data IMBRUVICA/VENCLEXTA. And it seems to me like there was this move in CLL to maybe shorter fix course of treatment duration and MRD negativity. So maybe just help us think about how to frame that data, and then what is the impact that that could have on the marketplace looking forward? Obviously, you guys have economics on both IMBRUVICA and VENCLEXTA, but what does that mean for the CLL market?

Mike Severino

Well, we have generated some very impressive mid-stage data with the combination of IMBRUVICA and VENCLEXTA. And when we did the Pharmacyclics acquisition, we saw the complementarity of these two agents, not just in terms of the complementarity of operating the same space, but the ability to combine them. And there were strong scientific rationale at that time to combine them based on the mechanisms in which they kill leukemic cells, and that I think has played out through those mid stage studies. We are seeing very deep response -- very high levels of response, very deep responses. And over time, we will generate the data to show very durable responses, I believe, with a combination of those two agents. So when I think the combination of IMBRUVICA and VENCLEXTA is going to provide an important treatment option in the future for patients with CLL. If you look at the CLL market, it's very heterogeneous. So first of all, heterogeneous in terms of the patient populations. Many patients gets CLL later in life. In the 70s or 80s, they may have multiple comorbid illnesses and for those patients monotherapy treatment progression is a very attractive option as we’ve seen. There are other patients who get CLL much earlier in life and they’ve fewer comorbid illnesses maybe essentially they’re only medical condition. And in those sorts of patients we see physicians today offer treatment intensification and a finite duration of therapy. And so we think that we can develop across these two agents a portfolio of regimens that can manage that that full set of patients. So we think that monotherapy treat progressions is going to continue to be important for quite some time, but we also know that there are a number of patients today who don't want to treat it that way. So we’ve about 27% new to market share for IMBRUVICA, which means that there's a large number of patients who are being treated in another ways. We think the combination of IMBRUVICA and VENCLEXTA driving those deep responses, offering the potential for a short duration of therapy or shorter duration of therapy finite therapy with a long duration of disease-free survival would be very, very important. And so we think that across those two assets, we can revolutionize the standard of care for CLL.

Terence C. Flynn

Okay. And as you think about your long-range targets for these drugs, can you give us any sense of kind of how you thought about the duration component in that -- in particular on IMBRUVICA side?

Mike Severino

Well as I said, there -- it's a heterogeneous population. So we think that monotherapy treat progression is going to continue to be important for a number of patients. So it's not so much a duration question for those patients, it's more a market expansion question for patients who aren't being treated that way today. So I think that there is still be a large component to get monotherapy treat progression and those have shown very durable long-term results with IMBRUVICA. I think that's going to continue, but there's a large group of patients that we're not accessing today. And I think we can access them with the combination. So it's really more about market expansion and duration of therapy. And if you think about duration of therapy, you really have to think about it in terms of those two different patients [indiscernible].

Terence C. Flynn

Okay. Maybe just in -- the last minute and half here. Would just love to hear your last thoughts on the hep C market kind of where do we stand in terms of driving that new diagnosis rate? And again are you fairly confident that we should see a continuous inflow of new patients now at kind of the point where we’re at right now?

Mike Severino

So, the hep C market is obviously one that has stabilized considerably in the last couple of years. A lot of the warehouse patients have obviously been treated. It's not so much solely about new diagnosis as treating the diagnosed and untreated pool.

Terence C. Flynn

Okay.

Mike Severino

And those patients exist in a wide range of locations. They exist in areas where there may be underserved communities, they may be in areas where for whatever reason they haven't had access to care. And so understanding that market and driving approaches they get those patients and the care is going to be an important part as well as in many of those same locations there are undiagnosed patients and getting those patients in the care and getting them diagnosed is important. So it's really both sides of that equation.

Terence C. Flynn

Okay. So you feel like there's still enough of market out there from the current kind of level where we’re at to drive some sustainable tail here in this franchise?

Mike Severino

We do. I mean, we think it's going to be a durable market for many, many years to come. We’ve projected slight decreases in patient numbers over time and I think that is likely to play out in that way, but we do see it as a durable market for many years. If you look at the patients who are just diagnosed and untreated, there are many patients in that bucket where at current annual treatment rates, this is a durable market for many, many years. Put some numbers around it. So there was like 425,000 treated patients going to 300,000 in 2027. So it's going to be a market that will generate, I would say, a durable cash flow for the company.

Terence C. Flynn

Okay, great. Well, I think we’re out of time, but thank you very much, gentlemen. I really appreciate it.

Mike Severino

All right. It's a pleasure. Thanks.

Terence C. Flynn

Thanks, Mike.

Question-and-Answer Session

Q -

[No formal Q&A for this event]