AbbVie Inc's. (ABBV) Management Presents At Piper Sandler 33rd Annual Virtual Healthcare Conference (Transcript)

AbbVie Inc. (NYSE:ABBV) Piper Sandler 33rd Annual Virtual Healthcare Conference December 1, 2021 10:30 AM ET

Company Participants

Christopher Raymond - Sr. Research Analyst, Piper Sandler

Michael Severino - Vice Chairman and President

Robert Michael - Executive Vice President and Chief Financial Officer

Jeffrey Stewart - Executive Vice President, Chief Commercial Officer

Conference Call Participants

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.

Christopher Raymond

0:01 I'm going to start with our next session. Thanks to everybody for dialing in, I'm very pleased to have with us our next company presenting at the Piper Sandler Healthcare Conference. We have the company that needs no introduction, it’s AbbVie. We have with us, three folks from the executive team, we have Michael Severino, Vice Chairman and President; Rob Michael, CFO and Jeff Stewart who is the Executive Vice President and Chief Commercial Officer.

00:29 So I was telling the folks before we went live, I've got about two hours’ worth of questions that we're going to try to pack in our twenty five minute session. So hopefully, we can move along here. Maybe just sort of jumping in guys, Mike, maybe to start, I know you guys are guiding it to twenty twenty two, but just maybe with a high level perspective, talk about the puts and takes maybe from commercial setup as we head into the new year.

Michael Severino

01:00 Well, we have very good momentum in the business, and I think if you look at how the overall business is performing, the benefits of our integration with Allergan and are really coming into you. We've transformed the cells from a company that initially had only one growth pillar and really one product that was driving that growth pillar Humira. To now a company that has four or five very strong pillars of growth and they're all performing very well. Immunology has been a strength. We've diversified our immunology portfolio from Humira as I said to one that includes now our portfolio products, Humira, Skyrizi performing extremely well. Rinvoq performing extremely well. Obviously, some uncertainty around the FDA Safety communication, but we would see that being resolved in the near future. We would certainly hope to have that result and expect to have that resolved this year not only for RA, but for the important new indications like psoriatic arthritis and atopic dermatitis. We have an Onc franchise that is performing very well. Folks, understand the power of Imbruvica and Venclexta, that we built a pipeline behind that as progressing nicely.

02:20 Our aesthetics business is performing very, very well. It continues to be a growth engine for the company and it's important area of strength and diversification. Neuroscience, which was just a [Indiscernible] area for us Allergan, it’s now real strength. It's a robust franchise, it's growing. We reported Vraylar MDD data that we believe it’s for registration. We reported top line Phase 2 data for ABBV-951, our program in Parkinson’s disease that’s performing very well, and we continue to make great progress with eye care, which I think really has potential to drive growth. So, we're hitting across all cylinders. We're ending the year with a lot of momentum, and I think that sets us up well for twenty two.

Robert Michael

03:07 And we think about twenty two, Chris, I mean, we'll still grow Humira in the U. S. Twenty two. Where we'll see, again, I would say moderate erosion internationally, but Humira will still grow. You've got, rainbow with Skyrizi new indications coming on, strong and play share performance. You're going see as Mike mentioned, immunology continue to be a very strong growth driver. We've been very pleased with as Aesthetics, you've seen in the U. S. Taxes market, U.S. pillars market growing forty percent. We've really seen that business respond to incremental investment, very nice growth in China as well, as you expand into the mid-tier cities in that market and China and the U. S. Basically make up about three quarters of the global revenue for Aesthetics. We were very, very pleased with the performance in neuroscience with Vraylar absolute continue to tick up share there. We still believe in the approaching four billion dollars peak potential with current indications certainly jumped of MDD, you can provide upside there. You look at now we recently got the approval for Qulipta, you probably grew thirty percent sequentially in the third quarter. So really nice performance and we really believe in that migraine portfolio that we've assembled and eye care, we assume the deal model we see generic or Phase 3 we have not yet seen. Generics, we recently got the FDA approval [Indiscernible] and so we're very excited about eye care as well. So when we think about the top line of things that as you think about the setup for twenty two, certainly we're very excited about the growth potential on the top line and then certainly, we'll start to see things like operating margin expansion synergies, expansion, strong free cash flow generation. So there's a lot of, I think very positive things points for twenty two.

Christopher Raymond

04:41 Yeah. And it's somebody who you know, didn't have the vision myself, to see, really good of the benefit of the other end deal, I guess say it's been studying to see all the progress and levers now that have appeared, but so maybe Rob, you know, on the Allergan integration, I know you guys talked about synergies, ramping from, I guess, point eight billion dollars this year to more than two billion dollars next year, expanding operating margin, you always talked about bringing the debt level out to two times by your end. So does that mean, I know top line is of course key variable, but beyond that, what are some of the other levers you know here in terms of reaching or even meaningfully exceeding that goal?

Robert Michael

05:25 Sure. Sure. So operating margin, I mean we currently have fifty percent operating margin top tier in the industry. I would expect that to expand next year and that's really driven by two things. One is the top line P&L leverage that we get, given the top line growth and I've covered the sources of that growth, but also the expense synergies as you mentioned, we have done a very nice job generating those expense synergies, we have that guidance of one point eight billion dollars on the third quarter call. In the early days has really driven by headcount redundancy, our new portfolio rationalization, but as we've been implementing our integration plans, things like systems integration as we make progress with manufacturing network optimization, as person contracts come up [Indiscernible], we can really leverage our procurement spend, all those things contribute to higher synergies. So, we're able to scale up synergies that way, likely the year essentially at two billion dollars run rate. So, we will generate greater than two billion dollars next year and we were very excited about the potential and it's not just expensive synergies, the revenue synergies, which we're not part of our deal model. As I mentioned, Aesthetics, Neuroscience, Eye Care all contributing to revenue synergies, which ultimately manifest and operating margin leverage.

06:30 And then when we think about free cash flow generation. And the call, the Q4 call this year, I mentioned, twenty one billion dollars of free cash flow that was inclusive strategies royalties which we account for differently under continued considerations, but that was inclusive of that. So, and we've exceeded those expectations, so we think about next year, we're going to grow free cash flow and so we'll be in a position to continue to pay down debt. We're very much committed to growing the dividend. We just announced an eight point five percent increase grown in by more than two hundred fifty percent since inception is still very committed dividend. We've been rapidly paying down debt. We've paid down seventeen billion dollars – we will have paid down seventeen billion dollars of cumulative debt at the ended of this year with further deleveraging. So I would expect us to continue to drive that net leverage, still expect approximately two times by the end of next year and that's really driven by forms of the business. Our ability to really grow that free cash flow and apply that to debt paydown and then obviously, we're very active with licensing, but we've set an aside two billion per year and to access external patients, so all those things are on track. We're very pleased the performance of the business.

Christopher Raymond

007:31 Awesome. Okay. Great. Maybe a question for Jeff. I know you guys have got a number of questions around COVID the last several quarters. So, please excuse maybe one more here, but one of the things that we've done a lot of survey work in spaces where have the participate and, one of the things that's really set up to us is, no matter of the therapeutic category, you know, add the scores really well among docs, whether it's, valuing their practice, knowledge base, quality of [Indiscernible] all these measures, it's been really consistent and really across the Board as I said, it doesn't matter which therapeutic category.

08:16 So, I guess one question is I know you said that in person engagement is still not back to pre-COVID levels, and you're using digital tools and to sort of keep engagement going, but one comment, I guess it kind problem attention as you guys recently made that was at your share of voice and instance in some is actually higher than pre-COVID levels. So maybe just wondering, again high level sort of answers while I'm looking for here, Jeff, but I'm wondering if you could provide a little more color around, you know, what you're doing these are the year competitors?

Jeffrey Stewart

08:50 Yeah. It's a great question, Chris. I mean, we typically spend a lot of energy management time on the professionalism of the, we call it the infield team, the sales force, our sales managers, it is just a very important cultural thing and I think the market clearly sees then our customers see that. So, across the board, we're typically number one – using number one or certainly in the top two across the major therapy areas and obviously, you're picking that up in your research. So, we do basically invest, we think in the right way, and we typically invest for focus. I'll give you example so for over the years, let's say for IBD for Humira. We have two different sales for sleeves that are focused on the same positions, one for Crohn's, one for UC. Some other companies might say, hey, we can get synergistic effects there. We actually didn't, we want focused effect, we want the right share of voice, the right messaging and we've done the same thing in migraine and where we are recently. So, we typically probably have usually a marginally or slightly heavier share of voice on principle to begin with. So, when COVID and everything shut down, we were quite concerned that we would lose that face-to-face share of voice and we did a couple things, we reacted like many of the companies like heavily into new digital technologies as you highlighted, but the other thing we did is we got back into the field once it was safe very, very fast. So, we actually saw that the speed of our returns and face-to-face plus the digital technologies actually gave us increased share of voice versus some of the competitors and we see that across the board, it's clearly there in the U. S. But we particularly see it in the international markets. It's quite striking and I think that's one of the reasons why as Rob mentioned, we've seen incredible launch trajectories for indications, let's say for Rinvoq or Skyrizi that we launched during COVID, really unprecedented. So, it's a big principle that we look at, we look at it every month. We didn't basically, we anticipated since we did have that high share of voice, we didn't want to lose the edge, and I think the outcome was, it actually got better across many of our areas. So, I think the fast mover and our principles helped us drive through this COVID effect.

Christopher Raymond

11:07 Awesome. Well, let's check better, sixty four thousand dollar question is still around Rinvoq, and I know, you guys just as well as everyone else are waiting on clarity, I guess, there was labelling but maybe just, a broader couple of questions here as we think about JAK'S overall, Again, back to some of the survey feedback that we and others I think have seen is that docs [ph] I think it's interesting, maybe Wall Street, might be JAKs is a little bit less differentiated. But docs definitely don't, at least in terms of the feedback we've got that there's a distinct advantage as we ask, it really doesn't matter whether it's derms or rooms around Rinvoq. Anyway, I guess, I would assume we've had to get that feedback as well. I'm just kinda curious how you're feeling about that advantage, once these labels are standardized across JAKs.

Jeffrey Stewart

12:03 Well, we do see, I'll have Mike address sort of the molecule differences, but we do see the same, the same research. So, when you look at the preference or products, and it's not just within the JAK class. It's actually across the choices you have for the rheumatological conditions, for example, right now, you clearly see that a significant proportion of the rheumatologist have the perception that Rinvoq is different and some of that has come from the clinical program, the way the molecule will actually ask, but what sort of data we can show and represent to the physician. So, to get to the crux of your question, you know, going into these label adjustments, we think that, that's one of the reasons why Rinvoq will be very, very resilient because the market has seen, the physicians have seen the data, the power of the drug, how fast it works, the differences in remission rates that are reflected in the clinical data. So, I think it's a combination of those things, but there's no question that the majority of the physicians around the world do see Rinvoq as the JAK player in the category.

Michael Severino

13:11 And one thing I think that is important to keep in mind is that when we talk about differentiation it's benefit risk and nothing has changed in our benefit and our ability to speak about our benefit with some very important areas, whether it's the head to heads we've run across the number of areas, whether it's the strength of our TNF IR data, which was really a [Indiscernible] our study because multiple patients had failed several biologics but we're entering that trial in our core program. The ORENCIA had a head study that we've run, the strength of our data across psoriatic arthritis and atopic dermatitis are all very compelling and that clear benefit is coupled with a well described safety profile, and we will have the totality of those data, after we have a final label in RA and after we have approvals that we're quite confident in the indications that are under review and so that benefit restore remains very important and the benefit remains very, very strong.

Christopher Raymond

14:17 Excellent. Let me ask another sort of Rinvoq, tilted question, but maybe more strategic around how you're viewing one of the specific opportunities which is an atopic derm. So, it's been interesting as we've done some of the checks with, I tilted a sense of Wall Street doesn't really appreciate this. I get a sensitive that while, obviously, Dupixent has been a great brand and has done really well. There seems to be a real desire among derms to have something that they can combine with Dupixent, which is a notion that I don't think many folks are particularly familiar with, that you'd see a major derm indication becoming more of a combo. I guess maybe first and foremost, are you seeing any as you do your checks, Jeff, are you seeing any indication of that? And if so, as you think about your development strategy and maybe even business development strategy, how you sort of balancing, you know, your approach to the market with the Dupixent obviously being, a relatively formidable competitor?

Jeffrey Stewart

15:31 Yeah, I think we did hear early on with some of the dermatologists as they started to think about a JAK inhibitor, they were quite impressed with those, I mean, the speed of effect, I mean, you're talking about reductions of itch within a day or two, quite remarkable speed and that's why patients when we're initially exposed. We’re shocked at the level of itch reduction, I mean, literally, within a day or two as I mentioned and so there was some consideration over one day a combination therapy market evolve, but we haven't heard as much as that, I mean, it's some speculation, but one of the things that we see is that you have to look at the JAKs in totality, right? So, yes, you have speed, you have an incredible onset of skin relief, particularly the high [Indiscernible] or easy scores. It's the same thing as [Indiscernible] nineties and easy ninety and when you combine itch and skin at high levels of effect, it’s quite their remarkable drugs, particularly Rinvoq and the market is going to see that as they've launched. So we don't necessarily see something like, hey, there's going be widespread utilization in this case over oral JAK inhibitor with 2B, but I'll let Mike talk to anything more from the clinical side.

Michael Severino

16:48 I think one thing that's important to consider is that while 2B has been a very successful drug, there are a number of patients who require additional therapy and today, they are getting that through high doses of topical steroids and we view that as indicator of a patient population that's not getting sufficient relief from 2B on its own and a real opportunity for high [Indiscernible] like Rinvoq and beyond that population, there's also a significant number of patients who have been exposed 2B and then come off of it and of course at an individual patient level, we don't know all the individual reasons, but I think it's safe to assume that some of the more common reasons would either be that they didn't achieve the release they were looking or perhaps they didn't tolerate it from some of the things that are known 2B like the conjunctivitis, which is another population, but I think is readymade for high [Indiscernible] like Rinvoq. So when couple of the features that Jeff talked about, the very rapid response to itch in particular. I mean, we had reductions in itch after one day or two days of therapy for the low-dose and I'll put a high-dose and the low-dose respectively across our Phase 3 program, common reduction that itch high levels of skin clearance. We actually achieved significance on easy one hundreds of complete skin clearance. Going into the program, we actually didn't know any agent that achieve that, but we tested it, but we thought it was important to describe and we're actually successful there. So when you put all those attributes together, we think there's a very real opportunity in this marketplace and it's also very underdeveloped market. I mean, biologic penetration is still single digit percentage compared to psoriasis in the teens and RA and IBD that are approaching forty percent and beyond. So, we think there's a real opportunity here.

Christopher Raymond

18:42 Excellent. Well, let's take a little bit here, it’s [Indiscernible] commercial to the other – one of the other major pillars, your neuroscience, your neurology presence and, so obviously, you'd probably off to a great start to look, newly approved, obviously, it's going to contribute. Just, on the competitive side here versus the other oral CGRP. One thing that, I guess, just kind of jumped out to us is we've done somewhere with headache specialists said even with PCPs is that patients tend to toggle back and forth between being acute and prevention and so it's not a perfectly bifurcated market if you will. So I know, in clinical data obviously is a key, but there seems to be at least from a simplicity standpoint of built in sort of advantage, I guess if you've got one drug for both and then I know that's a key point, selling point that you're competitor raises, but just maybe talk about what you're seeing in the space and Jeff, I'd love to see how your view the, the, the dual offerings that you guys have?

Jeffrey Stewart

19:55 Yes. When we do the insight work, Chris with the headache specialist, when it comes down to it, they have a patient sitting in front of them. They're going to, they're going to make a call over the intervention and at the end of the day, it’s, I need that headache to go away, I need to have something that either both the headache in the acute or it's gotten to the pivot point where we need to think about, I need to prevent it and so as our team comes in with our offering, we really like the portfolio offering because it meets that need of, given that the best chance pick the right brand to do what you need to do and so, for example, on the UBRELVY side, you have a high dose, you have the ability, the only ability to give a second pill actually to fully suppress that acute event and that's very, very unique and powerful in that acute market segments.

20:52 If you look at QULIPTA and I think it's quite clear if you study, if you study the competitors, let's say episodic preventative data. QULIPTA performed at the very high end of the preventative range, I mean, we're extremely pleased and so in the early days, that's incredibly powerful when that patient reaches that point where I have to think about prevention, you have a once a day oral, we don't have to take it every other day. You're on a high level of endpoints on efficacy. So you get almost thirty percent of patients that on QULIPTA, we will literally have no more headaches that was on the primary or one of the secondary endpoint. So when we have that engagement with the customers, whether it's a headache specialist or a primary care, they like that message and so we think over time, and right now in the current time. This is this is the right offering and also, Chris, over time, you know, we have the injector base with Botox and so this idea of a portfolio and the ability to work across chronic, episodic and acute, we think is a really nice offering as we enter into the market.

Christopher Raymond

22:04 Excellent. Okay. Maybe you pivot a little bit to the pipeline. Mike, so, you see if effort obviously has got a lot of attention maybe more from Vertex holders, maybe that AbbVie holders actually, but, it's still pretty big contributor if you guys, if all works out and so I know there was a bit of a dust up, I guess a couple weeks ago regarding an update to clin trials, but I know you guys are still guiding to proof of concept in the first quarter next year. Having the data in-house actually by year end, but just broad strokes commentary, I know you've given it, the hurdle is sort of as good or better than the Vertex combo and you talked about other benefits, however, besides FEV1. Can you maybe talk about what these benefits are and just kind of give us a little bit more color on what we should be looking for?

Michael Severino

22:58 Well, as you said, we'll have the data in-house around the end of the year, probably be in a position to communicate externally for both the data and what it means sometime around the first quarter, exact timing to de determined and that's proof of concept data for our triple and those will be updated to tell us whether we have a program here that we can invest early stage at all. There's been a lot of focus on the program, I think you're correct, a lot of that probably comes from interest in Vertex, because from our perspective, this is an early program, proof of concept, and it's very, very heavily risk adjusted in our long range planning. So, it's not an important contributor in any way at its current risk adjustment. That would be very, very nice upside, if it did advance the late stage development as it is an area that is quite substantial and still has room for more innovation. So the hurdle that we would want to see from an efficacy perspective as you described as good or better. And then the other sorts of advantages we're talking about the things like the eye profiles, the ability to formulate and the like that with the right efficacy profile can become important. So, we'd be looking at that whole package.

Christopher Raymond

24:11 Great. Okay. One more pipeline question. I think we've got time for, and I'd like to maybe ask on ABBV-154 and this is the P&F steroid conjugate program for our investors who are listening. So, Mike, you said a number of times, I think how excited you guys are about this, this program? We doesn't seem to really catch the attention of investors at least the ones that we talk to you, and I know you're in a Phase 2B dose ranging study, which I think, you actually said – is actually ahead of schedule. But timing, you know, it was in the next year in terms of data. So, maybe just talk about your expectations for that event. I know it's, you know, it's a year out or so and maybe also mix in with that. You guys pivoted from an earlier formulation and maybe just walk through the logic around that pivot and then what they expect?

Michael Severino

25:08 So, as you say, the study that's ongoing right now in RA for ABBV-154 is a large Phase 2B, it's been the Phase 3A enabling it'll give, very clear efficacy data and I think that is the data that the strong community really wants to see to understand the potential and I think that’s we'll deliver that clarity on the long-term potential of ABBV-154. Actually, it is progressing very well. We would expect have data in twenty two and so, we'll have much more to say when we have those data in hand. We've also started studies and polymyalgia rheumatica and are eminent starting to study in Crohn's disease. So those will be important [Indiscernible] they'll come after the RA readout.

25:53 In terms of the switch from an earlier program, 3374 to ABBV-154, that was basically made to improve aspects like manufacturability, the ability to concentrate at high formulation, which isn't as much of an issue in early development, but can have important impacts on late stage development and the ability to commercialize effectively and so the difference between the two are minor changes in [Indiscernible] technology that allow for that high concentration formulation and improve these manufacturability so that was the rationale for the switch. Biologically, we view the two as essentially transferable.

Christopher Raymond

26:37 Got it. I have a ton more questions but forcing no more time. So guys, thanks so much for spending some time with, I know you're busy. Appreciate spending some time with Piper. So, thanks and have a great rest of your week.

Michael Severino

26:50 It’s our pleasure.

Robert Michael

26:51 Thank you very much, Chris.

Question-and-Answer Session