AbbVie Inc. (ABBV) Earnings Call Transcript
February 25, 2020
Earnings Call Speaker Segments
Okay. We're going to get started in a few minutes -- in a few seconds, let me modify that, with our next company. Terrific. All right. Ready to get underway. So welcome to this session. I'm Geoff Porges, Director of Therapeutics Research. I'm delighted to welcome AbbVie to our conference today. AbbVie is represented by Mike Severino who's President, and I believe still Head of R&D as well; and Rob Michael, who's Executive Vice President and Chief Financial Officer. Gentlemen, thank you for joining us in our Global Healthcare Conference.
So there's all sorts of things we could talk about, Mike, but maybe we could talk about the -- first of all, the new indication pipeline for your recently introduced medicines and some that are late stages. But could you talk about how much activity is going on there and where the incremental opportunities are?
Well, certainly. So we have invested a considerable amount of our time and effort in making sure that we build the most robust pipeline that we can since we've become an independent company 7 years ago, and you're seeing the fruit of that labor now in terms of the progress we're making with our recently launched products and the new indications for those products. The products that we've launched since we've become an independent company generated $9 billion in sales last year as a group. They're growing robustly. So they're an important part of our story. As you point out, there are a number of important new indications for those molecules. We're talking about new disease areas. We're not talking about minor refinements to the label. And then, I would point to our immunology franchise. RINVOQ and SKYRIZI are obviously doing very, very well, in their lead indications. But between those 2 molecules, they basically cover all of the major indications where HUMIRA is used today and some new ones, including, importantly, atopic dermatitis for RINVOQ. So that represents a very important source of growth in the near and midterm and beyond. And so we're talking about big indications, things like inflammatory bowel diseases, rounding out the rheumatology indications with important programs like psoriatic arthritis, ankylosing spondylitis and, as I just mentioned, expanding the derma segment with atopic dermatitis. I'd also point to our hem/onc franchise, where we're continuing to grow and expand into new areas. We just announced on our last quarterly call that we were advancing VENCLEXTA to registrational studies in myelodysplastic syndrome or MDS, which is a condition with considerable unmet need and one where we think VENCLEXTA can do a lot of good. We're also going to start new studies in AML in transplant-eligible patients. We have accelerated approval in ineligible -- transplant-ineligible patients today. So a lot more work to do there, plus work in areas like multiple melanoma with VENCLEXTA, which is an important disease area. And now VENCLEXTA, we're studying in the t(11,14) population. That's very, very closely tied to the biology of that mechanism. So t(11,14) patients, the transform cells have a B-cell-like phenotype. They're high in BCL-2. And based on all the early and mid-stage data we have there, they're particularly responsive to VENCLEXTA and the BCL-2 inhibition. So that's an important growth area. But there's a lot more behind that. We have programs already emerging from our early pipeline, like navitoclax in myelofibrosis, which we are also advancing to registrational trials this year. So that's something that holds real promise for disease modification based on the data we've seen, not only showing response, does show good response, but showing, in some patients, decrease in fibrosis, which is very difficult to achieve; decrease in the allelic burden, so actually decreasing the malignant cells that are causing that disease. Both of those features give good early indicators for the potential for disease modification. Programs like 951 in advanced Parkinson's disease, which allows us to deliver Duopa-like efficacy through an insulin pump-like device, a subcutaneous device. So really, an awful lot going on our pipeline, and more early-stage data coming on that.
So that's helpful. Could we -- how are you going to reconcile, for example, SKYRIZI and RINVOQ both being developed in psoriatic arthritis? Do you have to sort of put a bet on one of those? Or do you think they can both exist in the market even if they're successful?
Yes. Well, between RINVOQ and SKYRIZI, there are obviously areas that are unique to each, but there are some areas that overlap. One is psoriatic arthritis, another is inflammatory bowel disease. And there, we're pursuing both agents. Because there are going to be different patient types and different features, they're going to be more important to one patient or another. So for example, upadacitinib shows unparalleled activity across a range of settings and joint disease and has delivered very strong psoriatic arthritis data across 2 studies, one that read out at the end of last year and one that just read out more recently. SKYRIZI also has real potential there, and SKYRIZI's greatest strength is its profound effect on the cutaneous disease there. But rounding out the portfolio and showing the efficacy in psoriatic arthritis is going to be important. So we think that there's plenty of room for both of those agents in a disease like psoriatic arthritis. And the choice of the individual agents will depend on what's going on with each patient and will play out over time. In IBD, the situation has some parallels, but what I'd also say about IBD is it's very hard to keep patients with the existing therapies in long-term control over time, which are used for more mechanisms, and you had the 2 mechanisms here that wouldn't be expected to be cross-resistant. And so we think there's an area -- there's a real opportunity for both of those in that area as well.
Okay. And interestingly, so far, even though the launches are going very well, you're not seeing any negative effect on HUMIRA. How long do you think that, that can be the case?
You're talking about in relation to RINVOQ with SKYRIZI?
Yes.
I think with SKYRIZI, we have seen some impact. If you think about the dynamic share for SKYRIZI, it's about 25%, about 1/4 of that is coming from HUMIRA. We're seeing it take from other mechanisms as well, other competitors, but there has been a smaller impact on HUMIRA. However, keep in mind that psoriasis is about 13% of HUMIRA sales. So it may not be seen in the overall HUMIRA growth. For RINVOQ, we're not seeing -- if we look at HUMIRA's share in RA, it's been fairly stable. I think, over time, you'd expect, given the profiles of both SKYRIZI and RINVOQ, for them to take share from HUMIRA over the long term.
Okay. And as you look at the other JAKs that are both in development or in the market, Mike, how do you see that RINVOQ is going to be positioned? And do you think that its competitive position can be pretty durable?
Yes. So we feel very good about the profile that we've developed with RINVOQ, certainly relative to the other JAKs, but really more broadly across the spectrum of agents that are used in these diseases. If you look at rheumatoid arthritis, the lead indication there, we have a very broad program that's characterized benefit risk in a wide range of patients. We've delivered very, very strong efficacy results across that spectrum from very early patients. It's very heavily pretreated by IR patients. We've driven very high levels of response, so not just talking about ACR20 response, but ACR50, ACR70 remission endpoints, shown very, very strong structural data. And importantly, we're the only agent in the JAK class that's shown superiority to HUMIRA in RA at the approved dose, and that's a very important part of the profile, particularly when you think about the competitive environment that we'll be competing in, say, the mid-20s and beyond. So we feel very good about that profile. We've done all that while also very carefully characterizing the safety profile to get patients an understanding of how the drug should best be used, if there's a favorable benefit-risk across that indication. So we feel very good about the profile against those other JAKs and really against the other therapeutic alternatives, and we do think that is a durable position.
And I know it's very early days, but are you seeing anything in the real-world safety experience or anything coming up in the safety databases that are telling you that there's anything you need to be extra vigilant about in terms of adverse events?
Well, I think what we've seen across clinical trials is very consistent, both in the randomized portion and the long-term portion, and what we're seeing in real-world experience is very consistent with that. So I think what we're seeing is a very consistent benefit risk profile, both from our clinical trial experience and our real-world use, and it's one that I think resonates with physicians, particularly in light of the benefit that, that drug delivers. So really no new signals, no changes based on the real-world experience.
And moving over to the heme malignancy side, a lot of trials going on there. One question I've always had or had for a while about VENCLEXTA is BCL-2 is a very important target in a lot of different diseases. But so far, VENCLEXTA has -- it's AML and CLL. But are there any opportunities to go more broadly or much more broadly, for example, even in the solid tumors?
Well, in liquid tumors, in addition to the ones you mentioned, I would come back to multiple myeloma in the t(11,14) population. I think that is also an important opportunity. We do have some early to mid-stage work in solid tumors, particularly in breast cancer. There are also some data to support other solid tumors, non-small lung cancer in combination with other agents. So yes, there is the opportunity to study that, and a number of those studies are already underway, and we'll read out in the not-too-distant future. So certainly, a very, very strong mechanism in heme malignancies and good basic science and some early clinical evidence to think that we could go broader than that.
Okay. And how does the profile of VENCLEXTA and its spectrum of activity compared to navitoclax? What's the incremental opportunity for navitoclax?
Well, navitoclax is different in that it's an XL inhibitor. It has some degree of BCL-2 inhibition as well, but primarily it's an XL inhibitor, and venetoclax was designed specifically to avoid XL. So that takes us into some different indications. And so for myelofibrosis, for example, BCL-XL inhibition is very important and is necessary to get into that indication. And it's that portion of the mechanism, it's that effect on XL that's driving the response that we see and leads to the very strong results that I described in terms of the impact on fibrosis and on allelic burden. So it takes us into a new space because of that component of its activity.
And there are other diseases where you're seeing XL being an important target?
Well, there are other diseases where XL is an important target, and XL is thought to be very important across a wide range of solid tumors. And to get at those solid tumors, we believe we're going to need higher degrees of inhibition of XL than you can achieve with navitoclax, specifically because if you get to very high levels of XL inhibition, you have platelet effects that in solid tumors make it challenging to move forward. And so what we've done there is we have a targeted delivery approach for an XL inhibitor. That’s ABBV-155. You can think of it as an ADC of sorts, but instead of delivering a toxic warhead, it delivers an XL inhibitor to those solid tumors. And based on that, you should be able to get to much higher levels of XL inhibition, and we're using that approach as our primary approach in solid tumors for XL inhibition.
Okay. Now another drug that you're investing in quite heavily right now is veliparib. Could you talk about how -- really what is the commercial opportunity for veliparib given the sort of pretty well-served landscape that you have already between the existing PARP inhibitors?
Yes. Well, most of the investment for veliparib is behind us. The Phase III studies have been run. But we have seen some very interesting and important results in ovarian cancer and in germline BRCA-positive breast cancer. And in both of those, we announced Phase III data at the end of last year that showed we significantly prolonged PFS. And with veliparib, what we've done is we've gone into a slightly different space than the other PARP inhibitors. So we can combine with chemotherapy, and that allows for treatment intensification and use in earlier lines of therapy. And in the ovarian population, we're the only agent that has demonstrated benefit independent of biomarker status, or BRCA status or HRD negativity and chemo responsiveness. Others have limitations there, so that takes us into a different space, and it's really that different space that we think is the opportunity for veliparib.
Okay. Maybe we'll just change gear for a few questions towards Rob. Rob, first, you're on the verge of presumably closing a very large acquisition, one of the largest in the industry's history. What's your view of both the achievable synergies and also kind of the revenue synergies, for want of a better term, at least complementarity? Now you're 8 or 9 months closer to finalizing transaction.
Yes. So what we've communicated is an expectation that we'll deliver over $2 billion [ expense ] synergies by year 3, and we're well on our way there. The thing to keep in mind is under IRS takeover rules, you do have to have an outside auditor to verify your profit forecast. So there was, I'd say, additional scrutiny in terms of our synergy forecast. We'd assume about 50% will come from R&D, about 40% from SG&A and 10% from cost of goods. On the SG&A side, that's largely corporate infrastructure. There is some element of, I'll say, commercial overlap areas like women's health, GI, but vast majority is coming from corporate infrastructure. In R&D, it's really more around portfolio rationalization as well as redundancies. And then in cost of goods, you think about leveraging procurement spend as well as some level of redundancies as well. So we feel very good about the progress we're making on synergies. We've gone through those plans. I think we're in very good shape there. As we look at -- we've been monitoring Allergan's performance in the last 3 quarters. I'd say, overall, they've been tracking in line or slightly ahead of our deal model. When you look at their performance, very large, very strong. That's offset somewhat by CoolSculpting, but overall, we're very pleased with their performance.
Okay. And as you look ahead, you must have a sort of 3-year and 5-year plan. What do you think is the schedule for deleveraging from that acquisition?
Yes. So what we've communicated is an expectation that we will delever $15 billion to $18 billion of gross debt over the first 2 years. That includes anything that Allergan pays off in the first part of the year plus the combined company this year and then next year. So in terms of net debt to EBITDA, think of it as 2.5x by the end of next year with further deleveraging beyond that. The nice thing about this business is we generate a significant amount of cash flow, so we can both delever very rapidly and support a strong growing dividend. And so as we look at our options, we have that. We also have $2 billion of cash set aside for, what I would call, licensing and smaller acquisitions. And then with buybacks, it will be more limited to offsetting the dilutive impact of equity compensation. But given the amount of cash generation from this business, it allows us to pursue all those capital allocation priorities.
Okay. And you mentioned the sort of smaller acquisitions. Once you get to the end of next year, into that 2.5x net debt to EBITDA, do you think that you're in a position to contemplate larger sort of opportunities than that sort of $2 billion would allow?
We think about the $2 billion per year really getting us through the 2023-2024 time frame. We feel that if you compare it to our average over the last several years, it's been about $500 million if you back out acquisitions like Stemcentrx and Pharmacyclics. So we think that gives us enough firepower. We'll reassess as we get on the other side of the HUMIRA -- U.S. HUMIRA biosimilar situation and look at -- our overall balance sheet will have paid down a significant amount of debt. And as I mentioned, with the cash generation, it should give us the flexibility to look at something at that point.
Okay. And as you look ahead, do you think that you have the assets from your portfolio now that you can grow through 2023? Or is that still going to be kind of a significant speed bump in terms of your growth outlook?
We feel very good about the long-term outlook for the business. In fact, our ability to return to growth post 2023, given our pipeline and the assets we have, we've always felt very confident in that. I think what Allergan provides us is with assurance that regardless of what scenario you assume for U.S. HUMIRA, we can grow through that. In 2023, it's not -- probably not reasonable to expect that we won't see some level of debt, but I think you'll see us return to growth very rapidly.
Okay. And you've talked about the divestiture of brazikumab. But is there anything else? I mean the fashion amongst your large pharmaceutical peers is to sort of carve off businesses and sort of call them established pharmaceuticals or legacy products or whatever. Anything that's not growing fast, they seem to put it in a separate bucket and then ask investors to treat differently. Do you see any opportunities for further restructuring once you integrate the 2 portfolios?
It's not part of our current plans. We looked at that as we assessed the Allergan opportunity, and so we went through that exercise. And I say, as we sit here today, we don't have plans to divest portions of that business other than what we need to divest in terms of the closing the deal.
Okay. And I think Rick has talked a little bit about the trajectory of erosion of U.S. HUMIRA sort of post 2022 or 2023. Is your current thinking that, that trajectory is going to be like Europe or faster than Europe?
It's difficult to give the guide -- we're not giving guidance today, but I think it's informative to look at Europe and look at the rate of erosion, the speed of which that happened, given the number of competitors. And what we learned from that is -- we'll have about 7 competitors in the U.S. in 2023. So I would expect to see the erosion similar, steep in the first year and then moderate beyond that.
Okay. Great. Mike, just to come back to talk about pipeline. You mentioned a couple of products that are sort of behind all those new indications. But what else is there that you think investors are not paying attention to that's in the sort of Phase II and earlier pipeline that you think has really significant opportunities?
Well, I think there's an awful lot of potential in that early to mid-stage pipeline, and I think that's not broadly appreciated. I'd point to a couple of areas. I think if you look at our immunology portfolio, early immunology portfolio, it's now what's behind SKYRIZI and RINVOQ, we have built a very, very strong pipeline to make sure that we are going to restate standard of care yet again to raise the bar on what those 2 agents can deliver. And there, I would point to programs like our TNF steroid conjugate, which is really a very innovative program. It's deceptively simple in some ways because it's based on a couple of observations. One is, membrane-bound TNF is very highly expressed in the immune effector cells that are doing the damage in RA and in other TNF-mediated diseases. And when it's bound to an anti-TNF antibody, that antibody is rapidly internalized. And if you think about it, that makes it a perfect ADC-like target. But we're not talking about oncology type ADCs, we're delivering a toxin. We have a highly potent steroid warhead, and we know steroids are very effective in these diseases. And if you look at the preclinical biology and the work we've done with human cells in vitro, we can really drive very, very profound responses. We're in the clinic now. We've gotten through the Phase Ib portion. We've shown that we can deliver the agent at expected therapeutic doses without systemic steroid effects, and we can monitor those very sensitively by just looking at pituitary access. And the efficacy data are coming this year. And if it works in the clinic in the way that all of the basic biology and our preclinical work would suggest, this would be really a step change in terms of the efficacy that can be delivered. And the proof-of-concept study is in RA, but that study would derisk a wide range of TNF-mediated diseases. And as a platform, it would also allow us to think about how we can get into areas even beyond TNF. So we could change the targeting warhead and go after diseases like lupus and other diseases that have been very, very difficult to tackle with existing technologies. So that's a program that I don't think is fully appreciated. We have programs aimed at rational combinations that look at B-cell modulation with a BTK inhibitor that's different than IMBRUVICA and our JAK inhibitor, not only in RA but in things like lupus and scleroderma. And if you look at the pathways that are important to those diseases, that's a program that I think is very interesting that people haven't fully appreciated. We have our anti-CD40, and IBD is maybe the last one I would point to in immunology, also hitting very, very important pathologic mechanisms in that disease. And these are all programs that are going to give their initial data readouts this year in the first indications. In oncology, I don't think people appreciate the breadth of the apoptosis portfolio we've built. We're leaders in this field. We're leaders in small molecule chemistry. We have programs aimed not only at heme malignancies, certainly at heme malignancies, but also at solid tumors. I told you a little bit about the XL inhibitor, but there are a number of programs already in the clinic and also in late preclinical development that explore important apoptosis-inducing pathways, like TRAIL as an example and others. So I don't think people appreciate the depth there. And we've really built a lot of expertise and a very strong pipeline in immuno-oncology, in areas like the tumor immunosuppressive environment, T-cell redirecting therapies. And that's sort of the other area that I would point to in oncology. And then we shouldn't forget about our early neuroscience pipeline. We talked about 951 and the potential that has, but we have a very promising disease-modifying portfolio in conditions like Alzheimer's disease and Parkinson's disease aimed at mechanisms beyond Abeta. Abeta has proven to be a challenging target, but there are a number of other pathologic mechanisms that a substantial body of evidence can be built around. So tau is a pathologic protein that really drives neuronal dysfunction in Alzheimer's disease. We're looking at multiple approaches to modify tau biology, not just our lead antibody, we have a lead antibody in Phase II, but also we're looking at vectorized antibody delivery, intracellular knockdown of tau with programs that are moving towards the clinic. We have programs aimed at things like alpha-synuclein, which is one of the core drivers in Parkinson's. And so really a lot of breadth there as well that I don't think is fully appreciated.
Okay. One last question for Rob. Just can you talk a little bit about what your demand and your supply exposure is to China, assuming this coronavirus thing continues?
Yes. So on the demand side, we don't have a very large business in China as AbbVie so -- HUMIRA is fairly small in China. So we don't have a significant exposure there. In terms of -- on the supply chain side, we have enough redundancy globally. That's been part of our supply chain strategy all along, to ensure that we don't have any supply disruptions related to China.
Great. Thank you very much. Thanks both of you for participating in the conference.
Thank you. Thanks.
Appreciate it.
It's a pleasure.
Thanks, Rob and Mike.
Thanks, Geoff.
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