AbbVie Inc. (ABBV) Barclays Global Healthcare Conference (Transcript)

AbbVie Inc. (NYSE:ABBV) Barclays Global Healthcare Conference Call March 15, 2023 1:35 PM ET

Company Participants

Robert Michael - Vice Chairman & President

Scott Reents - Senior Vice President & Chief Financial Officer

Jeff Stewart - Executive Vice President & Chief Commercial Officer

Roopal Thakkar - Development & Regulatory Affairs

Conference Call Participants

Carter Gould - Barclays

Carter Gould

Hi, good afternoon. Welcome to the Day 2 of the Barclays Global Healthcare Conference. My name is Carter Gould, senior biopharma analyst here. And it’s my pleasure to welcome AbbVie to the stage. No shortage of debates and controversies and launches going on. So thank you, AbbVie, for joining.

Joining us from the company are Robert Michael, Vice Chairman and President; Scott Reents, CFO; Jeff Stewart, Chief Commercial Officer; as well as Roopal Thakkar, Development and Regulatory Affairs and CML.

Thank you, Rob and team.

Robert Michael

Thanks for having us.

Question-and-Answer Session

Q - Carter Gould

Great. So we're going to just jump right into Q&A. Aesthetics has been sort of top of mind for many folks. And so I thought we'd start there. I think the company flagged uncertainty around some of the trends in the space, dating back to last year and certainly at the 4Q call. You've also referenced some stabilization in those metrics. So I guess the question is sort of what are you seeing in the field now? And has anything sort of evolved that's changed your longer-term view of the attractiveness of the aesthetics business?

Robert Michael

Yes, so we gave guidance, we basically assumed no recovery in the U.S. this year and China recovering in the middle of the year. As we monitor certain metrics. I think the economic metrics that tend to be most correlated to consumer confidence as well as real personal consumption. And it's interesting, we also look at Google searches and that tends to be highly correlated with our business. We've seen a very nice uptick there. But at this point, I think it's too early to call. But I'd say right now, the trends are pretty positive.

Carter Gould

Okay. I would also just give in a quick plug. We put out some monthly credit card data for the larger group and it does seem like there's been some stabilization. But we'll get into some of this. I guess the other follow-on question here is just in terms of longer-term trends in the space and how you think that between additional entrants coming in, have a sense of just kind of a longer-term growth potential in the space.

Robert Michael

I mean, we see the current conditions as being transient. We've seen in the past, if you think about whether it was the '08-'09 financial crisis or COVID, we saw a very robust return to growth once we work through all that. And so you look at penetration rates in this business, I think about in the U.S., I mean for women, it's about 8%; men, it's 0.5%. There's tremendous opportunity for market expansion.

So we've been investing in that as we think about opportunities to expand the market, not just on the demand side but also on the life side, as we think about injector training, ensuring that, one, the availability of injectors as well as quality of injectors is an important consideration. So we've been investing in that as well. We've been putting more behind our allied [ph] technology platform that we think could be a competitive advantage. And so as we think about the long-term aesthetics business, clearly, we haven't backed off on the greater than $9 billion in 2029 despite, I'd say, the current economic conditions but there's tremendous room for growth.

I would say, internationally, as we look at the life of China, Japan, Latin America, tremendous growth opportunities there. We're putting a lot in China. If you think about, that's a business today, $500 million to $600 million range. That can grow to greater than $1 billion over the next few years as we think about -- we've expanded in mid-tier cities. We've put a larger sales force in place. We've done a lot there with injector training as well. So there's tremendous room for growth in the aesthetics business.

Carter Gould

Maybe one more follow-up on aesthetics and that being sort of how you see the indirect or just really the impacts from the rise of obesity therapies in America. I know you guys put out your global aesthetics report. Obesity is nowhere in that report. It does seem like something that's relevant and may impact the business, either positive or negative but I'd love to hear your thoughts.

Robert Michael

Yes, it's very interesting because it's coming quickly. And that matches with the potential weight loss. I think if it's rapid, people may notice changes. So they may lose facial volume which is very noticeable if it has quickly. They may realize they had wrinkles on their face that they didn't have before, now pay attention to cellulite or other stubborn areas.

So in a way, I think anything that alters someone's focus on their own appearance if they're more interested in that, there's certainly a potential that they're more interested in aesthetics and maybe going into a clinic at this stage, it's hard to quantify. But obviously, we would have toxins, fillers, body contouring, soon to have cellulite strategy with the new device. So interesting, intriguing, hard to quantify.

Carter Gould

More net positive than net negative, you think about discretionary dollars and maybe using them for obesity therapies versus the aesthetics piece?

Robert Michael

Yes, we say definitely say it's a net positive. We aren't concerned that it's going to take -- spend away from the aesthetics category.

Carter Gould

Okay, great. Perfect. All right. Maybe moving on to the other topic which we're never far from and that is sort of HUMIRA dynamics. Clearly, you gave guidance to start the year. Love to kind of just hear from you guys what you're seeing in the field in terms of the impact from that first biosimilar. Maybe we start there?

Scott Reents

Yes. It's been modest so far and that's what we expected. So we highlighted that as we went through the negotiations basically all of last year that concluded really right at the end of last year, we were able to secure 90%-plus parity access. So what that means, again, we are coexisting with one or more biosimilars and we have the one out there right now and it's basically a true parity access.

So it means that patients don't have differential co-pays. There's no stepping. It's just will the physician want to continue with HUMIRA, continue to choose HUMIRA for a new patient or choose a biosimilar in this case, it's AMGEVITA on the formularies. And so when you have that type of parity access, there's not significant incentive for physicians to start moving things around. And that's what we're seeing. So we've seen very modest scripts reported in the last 6 weeks for AMGEVITA which is largely what we expected.

And as Rob has highlighted before in the guidance, the vast majority of the impact, particularly in the first quarter is going to be priced and that's the price that we conceded to get to that 90-plus percent level of parity access. So no surprises in terms of what we've seen, obviously, early days and only a matter of weeks since February 1, but we seem to be right on track with our expectations.

Carter Gould

Okay. And so I guess with that, any shifts in how you think about second half is going to set up? Obviously, there can be a lot more competitors. But just given sort of the very paced AMGEVITA adoption out of the gates, does that in any way change your expectations?

Robert Michael

It doesn't because if you remember, we know that there's going to be significant more competitive intensity that's going to come in the second half. And in many cases, we plan for that. So we will see a step up in our price concessions that we talked about, again, because we anticipated that competitive intensity. And we also see that in the second half, we would expect more volume impact, particularly in the accounts that are more sensitive to the facing price in the marketplace which we estimate around 20% of the accounts. So I would say everything is consistent with our expectations, our modeling and so we're happy that things are progressing as we expected.

That syncs up with our guidance. We gave the 37%. We said 27% in the first quarter, think about we said more erosion in the second half of the year with seven to nine biosimilars coming in, more volume erosion plus we've stepped up the rebates. So that explains the gating of our guidance for this year.

Carter Gould

Okay. When we start to think about that HUMIRA tail, what are going to be the key drivers that help us -- help you forecast how that might look like? And to what extent is the EU experience a relevant proxy here or not?

Robert Michael

The EU experience is a really tough analog because Europe is made up of so many different archetypes. I think we've highlighted before that we saw a very significant range of biosimilar adoption. So almost universal adoption in the Nordics, significant stability in France and some other European countries. Germany was middling. And so we think that the U.S. is going to operate as its own animal as it were.

So what we can say is that we really think '23 and '24 will be quite dynamic. And ultimately, there's going to be a settling of price and a settling of, let's say, retention of U.S. HUMIRA patient volume. And so we predict that, that tail will start to emerge in the '25 and '26 timeframe. We don't know how large it will be. It's something we're studying very carefully. And a lot will depend on the next few cycles of what happens here over -- particularly in '24.

Carter Gould

So I'm going to ask the unfair question, is when we think about that timeframe, '25, '26, do you still think all these biosimilar players that are launching HUMIRA biosimilars are still going to be around or at least in that market?

Robert Michael

Yes, it's a great question. I mean, look, the competitive intensity, again, internationally, you have 4 major players, 4 or 5. Here, you have, right, up to 10. And my belief is that you're going to have winners and a lot of -- have several losers. So I think it's going to be concentrated.

And so what I say is I really don't have the belief that you're going to see this market split up into 8 or 10 different small slices of the pie. And when we look and when we talk to payers and we think about this dynamic, we see a couple of things. First is that the payers want to try to pick biosimilars that look as close to HUMIRA in terms of the concentration, in terms of the Pen offerings, in terms of the citrate profile, that's for sure. And then the payers also, they're sensitive to the ability for continued supply when they pick partners that they want to dance with over the next several years.

So I do think there will be winners and losers. It's difficult to predict who they may be. Certainly, you have a leading -- several leading majors that can supply, they've been able to supply the international market. So no, I don't think that all 10 will be in the market by the time we start to see a tail development.

Carter Gould

Okay. You guys have been very clear. So I guess when people see model AbbVie, during this period, we're always looking for anchors, right? You guys been pretty clear on the operating margin side to help people kind of work through and what you can lock in. On the gross margin side, though, it's been a little bit less clear. People are looking for those anchors. I guess as we're going through the period now, what can you say about how you expect gross margins to evolve '23 and beyond.

Robert Michael

Sure. No, it's a fair question, especially in line of you said we've talked about operating margin and how we've seen we provided guidance of 47% which is certainly a reduction from prior year. And that reduction is really driven by the fact we're continuing to invest in the business. We're not cutting expenses. We actually are spending more year-over-year as we continue to invest in the business because we really believe in that long-term growth. So that's the operating margin story.

On the gross margin story, it's much more of a product mix question. So we've given guidance to 84% for this year. And 84% is really I think what you can think about stabilizing [indiscernible]. HUMIRA has a strong gross margin profile, but the products that we've given are especially the long-term guidance on also have pretty strong gross margin profile. So SKYRIZI, RINVOQ, any of the aesthetics business has a strong gross margin. So 84% has kind of stable for the over time when you think about the profiles that are going to drive the future growth.

Carter Gould

Okay. You touched on SKYRIZI and RINVOQ there. I want to come back to those products here, particularly since we're still in the early innings of the IBD launches there. And to what extent -- kind of what you're seeing in the marketplace there in terms of early adoption. And how you think about their long-term relevance in the context of emerging oral options that may have a different safety profile. We had a company [indiscernible] today but maybe there's other process that are kind of incremental.

Robert Michael

Maybe I'll address the performance. We're very pleased with the performance of both SKYRIZI and RINVOQ around the world. I'll give you some perspective. So SKYRIZI has been available for just over 6 months. So let's take the second half of the year. So when we look at in-play share which we look at as a true measure of the early performance of the launch, so that's how much naive patients capture or how many switching patients you capture. We're already at 20% in the growth market, which is second. It's above all the TNFs and it's just now tracking behind STELARA, which is the leader there as the 12/23. So that's exceptionally fast adoption for SKYRIZI Crohn's. And we see the same thing in Japan and also in Canada where we've launched it.

RINVOQ very similarly. Now remember, for RINVOQ for ulcerative colitis, we don't have access to frontline because it step behind the TNF. So if you look again at the December metrics in the second line plus market, we're tied for first place again with STELARA. So these are very significant ramps.

And so overall, when we think of the guidance that Rob highlighted recently, we're increasingly encouraged about how that -- how the roles of both of those agents are going to play over [audio dip]. And a couple of other key points I would note for investors is, first, we will see the RINVOQ Crohn's approval here towards the end of the second quarter. And in '24, we'll see SKYRIZI for [audio dip]. We have a couple of punches in both large components there. So we're set up very well to compete against really any incursions that come, whether it might be novel oral or biologic and maybe Roopal can highlight how we see that.

RoopalThakkar

Well, I think part of it is the conversation we have in the oral space. [audio dip] is around PASI 75. We've essentially stopped talking about that. It's PASI 90 and 100 when you talk about SKYRIZI and multifold higher on the PASI 90 and PASI 100, in particular. And once you're in maintenance, you're taking a quarterly dose. So most people feel that's fairly convenient relative to daily oral. And then in the IBD space, it seems like -- maybe to raise their dose. And where we're at it was outlining the SKYRIZI and RINVOQ, it's still -- we're at very high levels of efficacy in IBD, I think that's where many gastros would gravitate towards.

Carter Gould

Okay. Follow-up with another unfair question. And despite these has still having a lot of wood to chop with SKYRIZI and RINVOQ, there's always a question around what's next in the immunology portfolio. You've got the ADC program. But as you think about exploring some of those novel targets, a necessarily tick too, but other kind of emerging MOAs. Can you may be shed some light on kind of...

Robert Michael

Yes. Absolutely. One thing I will mention about RINVOQ, where maybe not everyone is aware, is we'll have 3 Phase IIIs starting. So a third one in view, if you saw the 4 room [ph], we're rounding out maybe D and then almost a derm-driven start-up this year but that would be Alopecia areata, Hidradenitis suppurativa and lupus. We'll also get a readout and get a lag of this year from a Phase II and that could be a potential another Phase III approach. But moving down into the pipeline, we have an IL-1 alpha beta, Lebrikizumab that will read out in Hidradenitis suppurativa in the next couple of years. We have a biomarker-driven approach that we would look at in ulcerative colitis. We have a RIPK1 which could also be useful in IBD, atopic dermatitis that we would be looking at. GLP-2 is another mechanism we're interested in on a mucosal healing kind of standpoint. And then lupus stem cell factor and an IL-2 new team that would expand specifically [indiscernible].

And then we also have -- we're looking at CD28 costimulator doom blockade [ph]. And these are all in the Phase I/II setting. So quite a few other mechanisms that could potentially stand alone or we could consider combinations of those assets and potentially the on-market assets as well.

Carter Gould

Okay. Great. Maybe we can transition to the heme portfolio. It does seem like a bit of a year-end transition on the heme side. We'll start the easy one first. You guys guided to a pretty meaningful step down in Imbruvica, because there's sort of emerging competition at Scripps [ph] weekly, tough to see, at least if you squint you can see a little bit of a decline but it is early days. Can you maybe just talk through kind of if there's additional detail you can provide or additional color on what drove that guidance and to what extents the products being more resilient in Q1 than you maybe anticipated?

Robert Michael

Yes, there were a couple of factors, right? We still have the ongoing, let's say, hangover from the market, right, that's cascading through the patient start certainly. And when we looked at the last 18 months, largely that story has been -- we had bigger share incursion than we thought from Calquence. And also our own Venclexta to some degree. So when we basically rolled this forward, obviously, we understand our market, we understand our share position. And really, we are anticipating based on the data, based on some label changes that we've had and some guideline changes, really, the next step down that is in the guidance is from the Brukinsa [ph]. And that's very early days here. Profile is very strong. We certainly think that we're going to see incremental share pressure that we contemplated on Imbruvica. It will also pressure Calquence. There's no question about that. So that's probably the big thing that you just don't see in the actuals yet. And we have to think about that flow-through through '23. So that's that dynamic.

Now I think, as we've said before, that's going to be partially offset by continued growth with Venclexta. And then over the next -- starting this year with epcoritamab and the pipeline coming in, ultimately, that heme business will stabilize and then the solid tone of the business will grow on top of it. So we feel -- I'll put it based on our knowledge of the -- within our guide. We think we've called '23 right. And then as you think about -- we said stability in '24 and '25, so there will be some level of erosion near what we've seen last year and we expect this year. Venclexta will offset that. And so -- and if you think about navitoclax, epcoritamab as our pipeline kicks in, you start -- you'll see stability in the next couple of years and then return to growth in '26.

Carter Gould

So I want to come back to the bispecifics in a second but just one follow-up. There was no sort of meaningful price erosion factored into that guidance for Imbruvica?

Robert Michael

It's -- the vast majority of it is volume.

Carter Gould

Okay. So on the bispecifics, I think did a wonderful job in terms of really sort of catching up in M&A [ph] that allowed you to be arguably your best-in-class or I think it is pretty big in terms of your products on both sides. At the same time, you're launching the market which we've got pretty good cores in both cases. You're not going to be first to market in either indication within the bispecifics. So just kind of help frame how fast these opportunities can ramp and how you think about positioning?

Robert Michael

Well, I'll start with epco which we should start seeing actions probably mid-years in large B-cell lymphoma. So that's pretty early in that same asset we would see in follicular lymphoma [indiscernible] readout later this year and potentially pursue accelerated quickly move into a second and front line with combinations. And as you mentioned, either pre or post CAR-T, we think these assets, at least ours works very well. CAR-T, if you're comparing a 7% or so ORR. CR rate with CRS low single digit at the end of the subcutaneous offering. But there is a nice profile with there that we're going to ramp into earlier lines. On the other side, BCMA as a dual-engager. You're right. That one is a little bit further behind but it seems to have the right profile. So that one has a low affinity CD3 binding high affinity to BCMA and bivalent. And that one is showing also very high levels ORR some as well you see with epco and without step-up dosing thus far at levels of CRS that we think we can tweak further with dose optimization. The other opportunity with that one is a potential prolonged pharmacodynamic effect that may enable once a month dosing and subcutaneous. And we're talking about multiple myeloma. And additionally, we have venetoclax BCL-2 -- like BCL-2 agent that's in the pipeline that is in Phase I now that's more potent. So you also have opportunities for our own assets to be combined with each other.

So that can also help later on down the road even though we're not first.

Carter Gould

All right. So we've got about 2.5 minutes left. I wanted to touch on BD because I think there was one of the other things that clearly emerged in the 4Q call was taking the brakes off. Clearly, the self-enforced limits have been removed. When you start thinking about early companies you're after but places to play potential FTC restrictions here, too, given you've got pretty compelling franchises in that number of areas. How does that sort of shape what you're thinking about from a BD perspective going forward?

Robert Michael

Well, I mean the reason we communicated that was we essentially paid off by the end of this year, all the incremental financing from the Allergan [ph]; we paid down $30 billion in debt last year, $4 billion this year. And so there really wasn't a need for us to put a $2 billion BD limit like we had during the debt paydown period. With that said, we look at this business, 5 therapeutic areas can drive very strong growth. We have the lowest LOE exposure if you look at '24 through '28 in the industry. So we're in a position of strength. We don't feel like we need to go do something. We wanted to communicate to investors that we have more flexibility given the progress of the balance sheet but we like the business we have today. We like the therapeutic areas we participate in, if there's opportunities in those areas or adjacencies. We have a good track record of [indiscernible] in assets. And certainly, we see a strategic fit where we can generate a strong return, we have a BD group that will look at those opportunities and we have more flexibility. But I would think of it as really -- there was 5 therapeutic areas that can drive long-term growth, are areas that we'll be focused on.

Carter Gould

Okay. So just to put a button on that, I guess the question is how far do those adjacencies extend and to what extent you might move outside those narrow quarters?

Robert Michael

I mean if you look at immunology, we saw us as a room, IBD derm but we can expand into derm. You can expand, say, something like lupus. There could be other disease states. And I think how we think about all the places that we plan that the things that are related. And obviously, the R&D ForEx will be very interested, immunology as an example. But in solid tumor as well, heme, eye care, neuroscience would be looking at all of those and staying close to them.

Carter Gould

Okay. Well, there's plenty more we wanted to get to. I didn't get to touch on Vraylar in sort of the neuro [ph] aspirations but we're out of time. AbbVie, thank you very much for joining us on stage today.

Robert Michael

Thanks, Carter.

Scott Reents

Thank you.