Gilead Sciences Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 9, 2023

There are 20 speakers on the call.

Operator

Thank you for standing by. Welcome to the AbbVie 4th Quarter 2022 Earnings Conference Call. All participants will be able to listen only until the question and answer portion of this call. I would now like to turn introduce the call to Ms. Liz Shea, Senior Vice President of Investor Relations.

Operator

You may proceed.

Speaker 1

Good morning, and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer Rob Michael, Vice Chairman and President Jeff Stewart, Executive Vice President, Chief Commercial Officer Carrie Strom, Senior Vice President and President, Allergan Aesthetics and Tom Hudson, Senior Vice President, R and D and Chief Scientific Officer. Joining us for the Q and A portion of the call are Scott Rentz, Senior Vice President and Chief Financial Officer and Rupl Thakkar, Vice President, Global Regulatory Affairs. Before we get started, I'll note that some statements we make today may be considered forward looking statements based on our current expectations. AbbVie cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward looking statements.

Speaker 1

Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward looking statements except as required by law. On today's conference call, non GAAP financial measures will be used to help investors understand AbbVie's business performance. These non GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions.

Speaker 1

So with that, I'll now turn the call over to Rick.

Speaker 2

Thank you, Liz. Good morning, everyone, and thank you for joining us Today, I'll provide perspective on our overall performance and outlook and then Jeff, Cary, Tom and Rob will review our business highlights, pipeline progress, Financial results and 2023 guidance in more detail. Today, we reported another strong quarter A highly productive year for AbbVie. We delivered full year 2022 adjusted earnings per share of $13.77 reflecting double digit growth. Total net revenues of more than $58,000,000,000 We're up 5.1% on an operational basis, driven by impressive growth from Skyresia and RINVOG, which generated nearly $7,700,000,000 of combined sales in 2022.

Speaker 2

As I reflect on our 10 years as an independent company, we have made excellent progress evolving AbbVie into a leading biopharmaceutical company. We have successfully created a well diversified portfolio with multiple growth platforms in attractive and sustainable markets. This includes the rapid development and launch of SKYRIZIYA and RINVOQ across all of HUMIRA's major indications, plus a distinct new indication, atopic dermatitis. We anticipate these two products will collectively exceed the peak revenues achieved by HUMIRA By 2027 with significant growth expected through the end of the decade. We're also building a substantial portfolio of novel heme and solid tumor assets for oncology.

Speaker 2

The anticipated launches and indication ramp of several new products like venetoclax in multiple myeloma and MDS, epikritimab across B cell malignancies and TilisaV, a new treatment option in non small cell lung cancer, We'll collectively support growth in the middle of the decade. We expect continued robust performance in neuroscience And we see significant long term growth potential for aesthetics, An extremely attractive market, which is underpenetrated, where we have the leading position in toxins with BOTOX Cosmetic and fillers with Juvederm. 2nd, we've established a productive innovation driven R and D organization with a robust pipeline. Our R and D engine has discovered and developed 5 major $1,000,000,000 plus medicines over the past decade. We are committed to pursuing new ways to address patients' most serious health issues And have more than doubled our annual R and D investment since our inception.

Speaker 2

The breadth and the depth of our pipeline, which now includes more than 80 programs across all development stages, further supports our long term growth outlook. Lastly, we have maintained a strong financial position to fully invest in innovative science and commercial initiatives Across our therapeutic categories to drive long term growth. We've also used that financial position to support a robust and growing dividend, which we have increased by 2 70% since our inception. And we have also used it as capacity to pursue Value enhancing business development to augment our existing portfolio and pipeline. With these strong operating characteristics, we remain well positioned to absorb the impact from the HUMIRA LOE and quickly return to robust sales growth in 2025.

Speaker 2

As it pertains to AbbVie's near term outlook, We anticipate 2023 adjusted earnings per share of $10.70 to $11.10 This guidance range contemplates the expected headwind from direct biosimilar competition with U. S. HUMIRA sales down Approximately 37%, which is at the lower end of our previous erosion projection of 35% to 55%. Robust performance from SKYRIZI and RINVOG, which we expect will collectively generate $11,100,000,000 of revenue, reflecting year over year growth of nearly 45%. Revenue pressure in HemOn with recent challenging market and share dynamics impacting IMBRUVICA, partially offset by strong sales growth of venetoclax.

Speaker 2

Double digit revenue growth of neuroscience, including accelerating sales of VALAR with our recent MDD approval. Our guidance Also contemplates the transient economic impact primarily in the U. S. On a steady procedure growth Affecting near term performance for toxins, fillers and body contouring. Given that it's difficult To predict the duration of economic and inflationary pressures, we have not assumed the recovery in 2023.

Speaker 2

And finally, This guidance reflects increasing investments in both R and D and SG and A to support our long term growth opportunities. It's also important to note that while it is possible 2023 could outperform our guidance Depending upon the shape of the HUMIRA erosion curve, we don't anticipate that 2024 earnings will be lower in the $10.70 floor of the 2023 adjusted earnings per share guidance, which we are issuing today. In summary, we are executing well across our business and see numerous opportunities for our diverse portfolio to drive long term growth. With that, I'll turn this all over to Jeff. Jeff?

Speaker 3

Thank you, Rick. I'll start with the quarterly results for Immunology, Which delivered total revenues of more than $7,900,000,000 up 19.5% on an operational basis. SKYRIZI and RINVOC are performing exceptionally well, contributing more than $2,300,000,000 in combined sales this quarter, reflecting operational growth of 70%. Zyrizi continues to exceed our expectations, Outperforming our initial full year guidance by more than $750,000,000 Global revenues this quarter were nearly $1,600,000,000 up 12.8 percent on a sequential basis. Cyrenzi is achieving strong market share momentum globally With in place psoriatic disease leadership in 24 countries and total market share leadership in more than a dozen key markets.

Speaker 3

In psoriasis, SKYRIZI's total prescription share of the U. S. Biologic psoriasis market has increased to more than 28%. And there is substantial room for continued growth in psoriasis based on SKYRIZI's leading in play share of new and switching patients, which remains at nearly 50%. Psoriatic arthritis is also providing a nice inflection to SKYRIZI sales, especially in the U.

Speaker 3

S. Dermatology segment, where we have achieved approximately 10% share of the total biologic market. And we are also seeing encouraging SKYRIZI new patient starts in the U. S. Room segment as well, which accounts for more than 80% of all PSA treatments.

Speaker 3

SKYRIZI is being co positioned with RINVOC to rheumatologists, where these two products combined have already achieved a leading in play PSA room share of approximately 16%. In Crohn's disease, we are making excellent progress with the U. S. Launch. Feedback from gastroenterologists has been very positive, especially as it relates to SKYRIZI's novel dosing and overall clinical profile.

Speaker 3

We recently started DPC promotion for this indication And are already achieving a total in play patient share of more than 15%. Turning now to RINVOQ, which delivered global sales of $770,000,000 representing double digit sequential growth. In rheumatology, global Prescriptions are ramping nicely across RINVOX 4 approved indications: RA, PSA, ankylosing spondylitis And non radiographic axial SPA. We continue to see positive market share momentum in both the U. S.

Speaker 3

And across key international geographies. In atopic dermatitis, RINVOC is demonstrating strong uptake in both treatment naive and second line patients globally. Feedback from the global derm community supports the importance of RINVOC as a long term chronic therapy to control atopic dermatitis, Especially as it relates to skin clearance and rapid itch relief. RINVOC AD prescriptions are trending up globally With 20% to 35% in place shares across our major international markets and a mid teens in place share in the U. S, which are both tracking in line with our expectations.

Speaker 3

In gastroenterology, the launch trends for RINVOC in ulcerative colitis are very strong. Physicians have been pleased with RINVOQ's high rates of endoscopic healing as well as the speed of onset, which has quickly resulted in RINVOQ achieving approximately 20% in play share in the U. S. Second line plus setting. Internationally, RINVOC UC is now approved in 50 countries With reimbursement discussions progressing in line with our expectations.

Speaker 3

This strong adoption in UC amongst gastroenterologists It's very encouraging for RINVOC's potential in Crohn's disease as well. We are on track for U. S. And EMA regulatory decisions in the second quarter and are preparing for the commercial launch. Global HUMIRA sales were approximately $5,600,000,000 Up 6% on an operational basis with 9.9% growth in the U.

Speaker 3

S, partially offset by international, where revenues were down 16.9% operationally due to biosimilar competition. In the U. S, We have secured broad formulary access for HUMIRA, encompassing more than 90% of all covered lives, which enables us to compete for patient volume at parity to biosimilars. Turning now to hematologic Oncology, where total revenues were $1,600,000,000 down 11.2% on an operational basis. IMBRUVICA Global Revenues were approximately $1,100,000,000 down 19.5%.

Speaker 3

The U. S. Performance continues to be impacted by Challenging market and share dynamics attributed to the pace of COVID recovery as well as increasing competition. VENCLEXTA global sales were $560,000,000 up 12.2% on an operational basis, with continued strong demand in both AML and CLL. We are particularly pleased with the international performance driven by robust share gains in the EU and across Asia.

Speaker 3

In neuroscience, revenues were $1,700,000,000 up 5.1% on an operational basis. VRAYLAR continues to demonstrate robust growth. Sales of $565,000,000 were up 15.5% on an operational basis, reflecting increasing market share, primarily in bipolar 1 disorder. VRAYLAR was also recently approved as an adjunctive treatment for major depressive disorder, marking its 4th approved indication and adding a new substantial opportunity for long term growth. We are very pleased with the AMDD label, which confirms Vraylar's strong benefit risk profile, dosing flexibility With positive efficacy results for both the 1.53 milligram dose and the ability to reduce depressive symptoms as an add on for the partial responders We present, and this is important, with or without symptoms of anxiety.

Speaker 3

The AMDD launch is off to a strong start And we are already seeing a nice inflection in total new prescriptions in the marketplace. Within migraine, Our leading oral CGRP portfolio contributed $249,000,000 in combined sales this quarter, reflecting growth of nearly 30% As we continue to see strong prescription demand for both uBrelby and Q Lipta. We are also pursuing in the U. S. Commercial approval for Tulipta as a preventative treatment for patients with chronic migraine, which would further strengthen our competitive profile and uniquely position Culipta as the only oral CGRP available as a preventative treatment for patients with both chronic And episodic migraine.

Speaker 3

Rounding out the migraine portfolio is BOTOX Therapeutic, with a dozen approved therapeutic indications and the clear branded leader in chronic migraine prevention. Total BOTOX Therapeutics sales were $728,000,000 up 10.7% on an operational basis. And last, we continue to prepare for the launch of ABVV-nine fifty one in both the U. S, Europe and Japan later this year. 951 represents a potentially transformative next generation therapy for advanced Parkinson's disease and a $1,000,000,000 plus peak sales opportunity.

Speaker 3

So overall, I'm pleased with the performance and the momentum across the therapeutic portfolio. And with that, I'll turn the call over to Keri for additional comments on aesthetics. Carrie?

Speaker 4

Thank you, Jeff. Full year 2022 Global Aesthetics sales were approximately $5,300,000,000 reflecting growth of 5% on an operational basis. Global Botox Cosmetics sales were approximately 2 point $6,000,000,000 up nearly 21 percent operationally and global TUVEDERM sales were approximately $1,400,000,000 down roughly 2% operationally. Our global aesthetics portfolio grew in 2022 despite several headwinds, most notably inflationary dynamics in the U. S, COVID related lockdowns in China and suspension of our operations in Russia.

Speaker 4

In the U. S, we began to see a slowdown in aesthetic procedures in the Q2 of last year, which coincided with the softening in economic metrics. These trends continued through the end of the year with the most significant impact on higher priced 15% in 2022, driven by strong first half sales with growth moderating over the remainder of the year. Similarly, U. S.

Speaker 4

Chuvaderm saw strong growth in the Q1 of the year, but filler market declines throughout the second half of the year resulted in full year sales metrics, including real personal consumption and the U. S. Consumer Confidence Index. While we have not seen major improvements in these metrics, Data over the course of the last several months has shown stabilization. It remains difficult to predict the duration of these economic headwinds, but as Rick noted, We have modeled them to persist through the end of 2023.

Speaker 4

Our international aesthetics portfolio continued to demonstrate robust With the strong performance in most major markets offsetting impacts from China and Russia. International BOTOX Cosmetics sales Of nearly $1,000,000,000 were up approximately 29% operationally and international Juvenile sales grew approximately 9% on an operational basis. We delivered this performance despite the significant headwinds we faced last year in our 2 largest international filler markets, China and Russia. While our aesthetics portfolio in China continues to be impacted by COVID related headwinds, the current wave appears to have peaked. We expect the situation to improve through the first half of twenty twenty three with full recovery in China beginning in the Q3.

Speaker 4

Despite the transitory challenges we're facing, we remain confident in the long term outlook for our aesthetics portfolio. Consumers continue to be very In the aesthetics category and in our brands. We see substantial room for further market penetration across each of our aesthetics categories and are continuing to invest to support long term growth. Our promotional efforts are focused on driving more consumers into our customers' offices, While increasing retention and productivity of existing patients, we have built a best in class commercial technology team known for developing our consumer loyalty program, Ali. We have over 5,000,000 consumers who use Ali in more than 20,000 of our customers' offices.

Speaker 4

We have a series of new technology products launching this year to drive growth in the aesthetics market and Internationally, we are focused on markets with significant growth potential. We have increased investments in injector training and expanded our field force in China, which is our 2nd largest market Latin America, which is very aesthetically oriented and Japan, which is growing rapidly and is expected to be one of our fastest growing markets in 2023. Additionally, we are focused on delivering new product innovation. This year, we're launching 2 new fillers in the U. S.

Speaker 4

Volux for improvement of Jawline, which was approved late last year and SkinVie for enhanced skin quality attributes including hydration, which is expected to be approved in the first half of twenty twenty three. We're also continuing to launch Harmonica, our hybrid biostimulatory filler in several international markets. The investments we're making to support long term growth for Aesthetics portfolio, along with a stabilizing economic outlook and improving COVID dynamics in China, leave us well positioned for future growth. With that, I'll turn the call over to Tom.

Speaker 5

Thank you, Carrie. We expect significant program advancement across all stages of our pipeline this year. In immunology, we continue to make very good progress with programs in our core diseases as well as in adjacent areas of rheumatology and dermatology, where We are expanding our portfolio. We're nearing completion of SKYRIZI's registrational program in ulcerative colitis, which is the last major indication expansion program for SKYRIZI. In the first half of this year, we'll see data from the Phase 3 induction and maintenance We'll also see data this year from our head to head comparison studies evaluating SKYRIZI versus other commonly used agents, which we expect will further distinguish its profile from competitive offerings.

Speaker 5

These studies include our Phase III trial in Crohn's disease or CUSTELERA and our Phase 3 trial in psoriasis versus Otezla. Results from these studies will add to the body of evidence supporting SKYRIZI Our regulatory applications for RINVOC in Crohn's disease are under review and we anticipate approval decisions In the Q2, RINVOC demonstrated very strong rates of remission and endoscopic improvement in our Phase 3 induction and maintenance studies, And we believe RINVOC will be an important new treatment option once approved in Crohn's disease. This is a market where approximately 80% of bio Experienced patients have used the TNF inhibitor and there remains considerable unmet need for therapies that can deliver high rates of response and long term remission. Beyond our core immunology indications, we're developing in several diseases where we've seen strong evidence that our JAK inhibitor has the potential to become a highly effective therapy. Our Phase 3 program is already underway in one of these indications, giant cell arthritis.

Speaker 5

And later this year, we plan to begin Phase 3 studies for 4 additional diseases: systemic lupus, hidradenitis suppurativa, vitiligo And alopecia Arrieta. Moving now to our oncology portfolio, where we expect several important regulatory and clinical milestones this year. In the area of hematology oncology, we'll see data from several Phase III studies, Including results from VENCLEXTA's event driven Canova trial in relapsedrefractorymultiple myeloma patients With the T1114 mutation and navidaclax's TRANSFORM-one trial in frontline myelofibrosis. Results from these studies are expected to support regulatory submissions in the second half of the year for VENCLEXTA and navidaclax in their respective indications. We also anticipate regulatory approval this year for eperitumab In realapsedrefractory, large B cell lymphoma in several major geographies, including the U.

Speaker 5

S. In the Q2 and in Europe and Japan in the second half of the year. Based on the very deep and durable responses demonstrated thus far in our clinical program, We believe that epcaritumab has the potential to significantly improve upon treatment options for these patients. We believe that epcaritumab has the potential to become a core therapy for B cell malignancies, And we continue to make very good progress expanding our development programs for eptolitinib across several indications. Over the course of 2023, we expect to begin several new studies, including a Phase 3 study in frontline DLBCL in combination with R CHOP and multiple Phase II studies in CLL and MCL.

Speaker 5

We remain very excited about epkaritamab's potential to become a best in class therapy across multiple B cell malignancies and look forward to providing updates on these programs as the data mature. Now moving to our solid tumor pipeline. We remain on track to see data later this year from our Phase 2 study evaluating TALISOV in second line plus advanced nonsquamous nonsmallcell lung cancer. As a reminder, we received a breakthrough therapy designation for TELUSOVIE, our c Met ADC based on the encouraging results from Stage 1 of this Phase 2 study and the data we'll see later this year has the potential to support an accelerated approval. Our Phase 3 confirmatory study in patients with overexpressed c Met is also ongoing.

Speaker 5

Treatment options for these cancer patients who have exhausted platinum based chemotherapy, immunotherapy and targeted therapy are very limited And prognosis for these patients is extremely poor. As a targeted therapy for patients with overexpressed c Met, which represents approximately 25% of the non squamous non small cell lung cancer population. We believe TALISOVI has the potential to become an important new We're also making good progress with our next generation c Met ADC, ABBV400, which utilizes a more potent topoisomerase inhibitor payload to potentially drive deeper tumor responses As well as broaden the range of solid tumors where c Met therapies can be used such as gastroesophageal and colorectal tumors. We expect to see early data from our Phase 1 program in 2024. Elsewhere in the solid tumor pipeline, We have begun to see very encouraging data from several programs, which we plan to advance into Phase II studies this year.

Speaker 5

Our anti GARP antibody ABBB-one hundred and fifty one is showing strong signals of activity including deep responses with prolonged durability. Based on this preliminary efficacy, we plan to initiate Phase 2 studies in several tumor types. We also plan to advance EBBV647 into Phase II dose optimizing studies this year based on the promising results from our early stage program. This ADC targets PTK7, which is a subset of non squamous non small cell lung cancer And represents approximately 25% of patients and has little overlap with c Met. So our c Met ADC and PTK7 ADC combined will target approximately 45% of non squamous non small cell lung cancer patients.

Speaker 5

Now moving to neuroscience, where we recently received FDA approval for VRAYLAR as an adjunctive treatment for major depressive disorder, which marks its 4th indication approval. We're very excited by this approval and pleased with the label, which highlights VRAYLAR's strong benefit risk profile in this indication. VRAYLAR is an important new treatment option For patients who are currently taking an antidepressant, but continue to have unresolved depression symptoms. We also recently received approval in Japan for ADVV-nine fifty one, our novel subcutaneous levodopa, cabidopa Delivery system for treatment of advanced Parkinson's disease. This innovative approach to delivering DUOBAL like efficacy With a less invasive, nonsurgical delivery system, it also has the potential to significantly expand The patient population currently addressed by DUPA or other more invasive therapies for advanced PD patients such as deep brain stimulation.

Speaker 5

We remain on track for approval decisions this year in both the U. S. And Europe. In the U. S, we anticipate approval in the first half of the year With product launch expected in the second half after we secured reimbursement.

Speaker 5

And in Europe, we anticipate approval In the Q4 of this year and in the area of migraine, we remain on track for an FDA approval decision In the Q2 of this year for Culipta as a preventive treatment for patients with chronic migraine, In Europe, we anticipate an approval decision in the Q3 for etogipan as a preventive treatment for patients with both chronic And episodic migraine. If approved, this would be another differentiating feature for Culipta As it would be the only oral CGRP approved for prevention in patients with chronic migraine, this is a common and debilitating disease that significantly impacts quality of life and we look forward to make this new oral treatment option available to patients once approved. And in our aesthetics pipeline, we expect to see results this year from several toxin programs, including data from our Phase 3 study for BOTOX in patissima prominence with regulatory submission in the U. S. Expected near the end of 2023 as well as data from our Phase 3 study for BOTOX in masseter muscle prominence, where we expect to submit regulatory applications In certain international markets in the second half of the year, including China and Canada, these two novel indications for prominent neck and Jaw muscles will help to further build our portfolio in the lower phase segment.

Speaker 5

We'll also see data from our Phase 3 trial for BONTA E, our short acting toxin in glabellar lines near the end of this year with regulatory applications planned for 2024.

Speaker 6

So in summary, we continue to demonstrate significant progress across all stages of our pipeline and anticipate numerous important regulatory and clinical milestones again in 2023. With that, I'll turn the call over to Rob for additional comments on our Q4 performance and our 2023 financial outlook. Rob? Thank you, Tom. AbbVie's performance and financial foundation remains strong.

Speaker 6

With our leadership positions across a diverse portfolio, We are well positioned to return to robust growth by 2025. Starting with 4th quarter results, we reported Adjusted earnings per share of $3.60 which is $0.07 above our guidance midpoint. These results include a $0.13 unfavorable impact from acquired IPR and D expense. Total net revenues were $15,100,000,000 Up 3.8% on an operational basis, excluding a 2.2% unfavorable impact from foreign exchange. The adjusted operating margin ratio was 52.1 percent of sales.

Speaker 6

This includes adjusted gross margin of 86% of sales, Adjusted R and D investment of 11.5 percent of sales, acquired IPR and D expense of 1.6% of sales And adjusted SG and A expense of 20.8 percent of sales. Net interest expense was $476,000,000 And the adjusted tax rate was 13.4%. Turning to our financial outlook for 2023, our full year Adjusted earnings per share guidance is between $10.70 $11.10 This earnings per share guidance does not include an estimate for acquired IPRD expense that may be incurred throughout the year. We expect net revenues of approximately $52,000,000,000 At current rates, we expect foreign exchange to have a neutral impact on full year sales growth. This revenue forecast comprehends the following approximate assumptions for our key products and therapeutic areas.

Speaker 6

We expect immunology sales of $24,800,000,000 including SKYRIZI sales of $7,400,000,000 reflecting growth of more than $2,200,000,000 due to strong market share performance across All approved indications. RINVOKE revenue of $3,700,000,000 reflecting growth of more than 45% With continued indication expansion and HUMIRA sales of $13,700,000,000 including U. S. Erosion of 37% Following the loss of exclusivity in late January, with 1 biosimilar currently in the market and potentially 9 more biosimilars In hematologic oncology, we expect VENCLEXIS sales of $2,200,000,000 and IMBRUVICA revenue of $3,500,000,000 For aesthetics, we expect sales of $5,200,000,000 including $2,500,000,000 from BOTOX Cosmetic And $1,400,000,000 from Juvederm, with growth rates expected to improve when we lap the market slowdown in the middle of the year. For neuroscience, we expect revenue of $7,200,000,000 representing growth of more than 10%, including Botox Therapeutics sales of $2,800,000,000 VRAYLAR sales of $2,500,000,000 and total oral CGRP revenue of $1,100,000,000 including UBRELVI growth of approximately 17.5%.

Speaker 6

For eye care, we expect sales of $2,200,000,000 and we expect MAVYRET revenue of $1,400,000,000 Moving to the P and L for 2023, we are forecasting full year adjusted gross margin of 84% of sales, Adjusted R and D investment of $6,800,000,000 and adjusted SG and A expense of $12,400,000,000 We forecast an adjusted operating margin ratio of 47% of sales. This profile includes A 70 basis point benefit that is fully offset in tax expense given the transition of Puerto Rico's excise tax to an income tax effective at the beginning of this year. We expect adjusted net interest expense of $1,800,000,000 And we forecast our non GAAP tax rate to be 15.3%, including an impact of 1.3 points from the Puerto Rico tax transition. Finally, we expect our share count to be roughly flat to 2022. Turning to the Q1, we anticipate net revenues of $11,800,000,000 At current rates, we expect foreign exchange to have a 1% unfavorable impact on sales growth.

Speaker 6

This revenue forecast comprehends the following approximate assumptions for our key therapeutic areas. Immunology sales of $5,500,000,000 which includes U. S. HUMIRA erosion of 27%, oncology revenue of $1,400,000,000 Aesthetics sales approaching $1,200,000,000 neuroscience revenue of $1,500,000,000 and eye care sales approaching $600,000,000 We are forecasting an adjusted operating margin ratio of 46% of sales and we model a non GAAP tax rate of 13.3%. We expect adjusted earnings per share between $2.39 $2.49 This guidance does not include acquired IPR and D expense that may be incurred in the quarter.

Speaker 6

Finally, AbbVie's strong business performance and outlook continues to support our capital allocation priorities. We expect to generate adjusted free cash flow of nearly $19,000,000,000 in 2023, which is net of $1,400,000,000 in SKYRIZI royalty payments. This cash flow will fully support a strong and growing dividend, which we have increased by 2 70% since inception. Continued debt repayment, where we expect to pay down $4,000,000,000 in maturities this year, bringing our cumulative debt reduction to $34,000,000,000 Our strong cash flow also provides capacity for continued business development to further augment our portfolio. In closing, we are very pleased with AbbVie's strong results in 2022.

Speaker 6

And with our diverse portfolio, we continue to be well With that, I'll turn the call back over to Liz.

Speaker 1

Thanks, Rob. We will now open the call for questions. In the interest of hearing from as many analysts

Operator

Thank you. Our first question comes from Mohit Bansal with Wells Fargo. Your line is open.

Speaker 7

Great. Thank you very much for taking my question. So maybe a question a bigger question for Rick. So AbbVie when we talk to investors, AbbVie has always been one of those the R and D as a percent of sales has always been low. And right now, even it is still less than 15%, and that's the pushback we get that The company cannot grow organically.

Speaker 7

And in some ways, you have always been playing defensive given that since inception, Humira Has always been an issue. Now that you are beginning to get past that, do you think something You'll change you want to change fundamentally with the company and the way you allocate internal versus external R and D spend, That would be very helpful. Thank you.

Speaker 2

Okay. This is Rick. So it's a good question. We've obviously heard that question. I think there's a number of dynamics that play into it when you look at our R and D expense as a profile.

Speaker 2

One is, obviously, we have a large volume of HUMIRA revenue that requires relatively little R and D support. And so that obviously dilutes out the profile of the business. As we see biosimilar impact, obviously, there will be Some impact on that as HUMIRA revenues were to go down. The second thing is the aesthetics business, We're funding it aggressively to grow it, but by definition it's not that expensive to be able to fund many of those programs. So it has a much Lower profile.

Speaker 2

So some of it's mix when you think about it. The second thing I'd say is, we obviously fund R and D at a level that we believe we can drive Productivity. And I think if you look at our productivity over the last 10 years, the data I've seen suggests we are one of the most productive R and D engines in the industry. Certainly, when you look at products like SKYRIZI and RINVOTE, the return on those assets is tremendous. The third thing I'd say is, look, what drives R and D expense to the greatest extent When you have large volumes of Phase 3 programs and we're coming into a phase As we move forward over the next 3 or 4 years where we have a number of programs that if they are successful, They will create a scenario where we will increase R and D.

Speaker 2

So an example of that would be our GARP program. We've seen some incredibly encouraging data out of that program thus far. It's a next generation immuno oncology program that combines with checkpoint inhibitors. And if that program Continues to advance the way we see it now. We would want to expand our Phase 2 and then Phase 3 trials in that program significantly across the relatively broad range of solid tumors.

Speaker 2

That will require a significant increase in investment to be able to do that. So we tend to drive R and D Based on programs that we have a high level of confidence, it can be productive and can be successful. And we don't constrain R and D in any way from that perspective. Another program will be our A beta program. If that program proves to deliver high rates of amyloid reduction and low ARIA.

Speaker 2

That will be another program that we want to rapidly move into Phase 3. And so I can tell you, I'm very comfortable with the productivity we're getting out of R and D. Certainly, we will want to continue to increase that and that's one of our objectives. We always look at programs on the outside to bring them in. And in fact, Over the last couple of years, we brought in a number of programs that are earlier stage programs and we're fortunate from the standpoint that we have the ability to drive very Strong growth.

Speaker 2

As we've indicated to investors between now and the end of this decade, we can drive high single digit growth. We're going to return to robust growth in 2025. So we're looking mostly for assets that will allow us to drive growth in that late 20s early 30s timeframe. So again, as those mature and they're successful and they go into later stage development programs, they will drive further need for investment.

Speaker 6

Mohit, this is Rob. I'll just add that if you look at this year's guide, it's a great example of our willingness to increase R and D investment where it's needed. So if you look at We're increasing it from $6,400,000,000 to $6,800,000,000 Those increases are focused on epkaritamab as well as mid stage assets such as GARP and PTK7. We also have several new Phase 3 studies for additional INVOOC indications, which could contribute several $1,000,000,000 of revenue in the latter half of the decade. So Even in the year where we're seeing a decline in the top line, we're increasing R and D investments.

Speaker 6

We're very committed to increasing innovation investment, whether it's internal or external. Super helpful. Thank

Speaker 1

you. Thanks Mohit. Operator, next question please.

Operator

Thank you for your question. Our next question is from Terence Flynn with Morgan Stanley. Your line is open, sir.

Speaker 8

Great. Thanks so much for taking the questions and Thanks for all the color on the guidance. I guess, I just wondered high level if there was anything different, Rick or Rob about your approach to guidance On the revenue side this year versus last year, I think last year performance was choppy across a number of different franchises. So as you thought The guidance this year, anything different as you approached it? And then my second question is any other details you can provide on how you're thinking about Humira, in 2024, obviously appreciate the color this year, but how should we think about 2024 dynamics in the U.

Speaker 8

S? Thank you.

Speaker 2

Okay. So maybe I'll start and then Rob can fill in anything that I might miss. I think whenever we look at guidance, we look at it I think this has been our historical practice. We obviously look at guidance as something that we have a very high level that we can execute against that guidance. I would say this year you've seen that the range is a little bit wider than what we normally project.

Speaker 2

And we did that based on the fact that As HUMIRA goes biosimilar, obviously, very small changes in the assumptions we're making on erosion for HUMIRA can have a fairly significant impact. So we're right in the range by about $0.10 and that's reflected in this guidance. And so I would say that As we have historically, we have a high level of confidence we're going to deliver on this guidance. As it relates to 2024, we have provided as part of this guidance what we are projecting to be a floor Because we've gotten a lot of requests from investors about when will we hit the trough and will it be 'twenty three or will it be 'twenty four. So maybe to give you a little color around how we think about that.

Speaker 2

1, the 10.70 is a floor. That doesn't mean that we will go down to 10.70, But it means that we would say to investors that that's what you should assume is the absolute floor. Now when will that floor if it were to occur, when will it occur? Will we see the trough in 2023 or will we see the trough in 20 And I would tell you that our expectations would be based on this plan, the trough should occur in 2023. But what I would tell you is, if we significantly overachieve this plan in 2023, then there's obviously somewhat greater risk that We'll move into 2024.

Speaker 2

The reason why it is in 2023 versus 2024 based on our current planning assumptions It's because the strength of the growth platform has the ability between where it will grow in 2023 and where it will grow in 2024 To offset what will obviously be further erosion of HUMIRA in 2024. 2024, you will basically have Two impacts on HUMIRA. You will have the annualization of this year. And as Rob said in his remarks, we expect more of an impact in the second half of twenty twenty three. So when you annualize that, you're going to have an impact that flows through to 2024 and then we would expect further erosion of HUMIRA, Both price and probably to a greater extent volume in 2024.

Speaker 2

But those growth the growth platform has the ability to grow through that based on those assumptions. And so that's the philosophy that we operate with on the guidance. Rob, do you need to add? Thank you.

Speaker 6

A little slide back on the history of AbbVie. We've had a long track record at delivering, exceeding our guidance. I think 2022 is an exception. And you look at on the top line now, we did make earnings, so that's important to highlight. But if you look at the top line, the two biggest factors that drove the MIS versus original guidance in 2022 were And with IMBRUVICA and VENCLEXTA, the CLL market, we did not anticipate that that market would actually not recover.

Speaker 6

I mean, that's actually it's down 20% versus pre pandemic levels. I know we did see some additional share impact on IMBRUVICA. And then aesthetics, we saw obviously in the month of May, we started to see a slowdown in the economy. We had a very strong Q1. So both those things really are what drove the top line miss.

Speaker 6

We made earnings. Now we have factored both those things into In the 2023 guidance to give investors confidence that we've set it appropriately, but we always look to set the most responsible guidance we can and we feel good about Where we said 2023.

Speaker 1

Thanks, Terence. Operator, next question please.

Operator

Thank you for your question. It comes our next question comes from Chris Schott with JPMorgan. Your line is open, sir.

Speaker 9

Great. Thanks so much. Just 2 for me. Maybe just following up On the 2023 guidance being a trough number, it seems like you're still going to have about a $12,000,000,000 U. S.

Speaker 9

HUMIRA franchise here. So can Just try to maybe a little bit more color of what you're envisioning 2024 to look like for HUMIRA? Like I guess, is it reasonable to think about a net of down 35% to 40% year as we look out to 2024, I think we're just trying to get our hands around just how much growth in that core platform And how much of a headwind I guess Humira is going to be facing at the same time? My second question was just on aesthetics trends, as we move through this year. I think you've talked about Some signs of at least sequential stability last few quarters.

Speaker 9

You're talking about stepping up investments. You've got a couple new products launching. I guess why shouldn't we think about some recovery in this business as we look out to the second half of the year? Thanks so much.

Speaker 2

Okay. Chris, this is Rick. Let me talk a little bit about HUMIRA and the trough. We're 2 weeks into the biosimilar activity. So it's a little difficult to give you precise predictions for 2024.

Speaker 2

I think the way To think about HUMIRA going forward is what we would expect is the most significant impact on HUMIRA It's going to be price. And obviously, we're trying to predict going forward what that price will look like. Certainly, as we look at this year, the most significant impact is clearly price. So that's more predictable, because we obviously know what the pricing is in the contracts that we've Put together. And so I think that's something that we have a high level of confidence.

Speaker 2

There'll be further pressure on price as we move into 2024 and There'll probably be further pressure on volume in 2024. But I would say at the end of 2024, I would expect HUMIRA to start to develop a more stable tail of revenue. It will still have some pressure As we move into 'twenty five, but 'twenty five and 'twenty six is where we should see that more stable tail for HUMIRA emerge. And that's one of the things that allows us to be able to see the underlying growth from the growth platform. So a number of things happened between 2023 and 2024 and then 2025 as we move forward.

Speaker 2

As you mentioned in your second comment, we would certainly expect that the U. S. Economy will start to recover in 2024. It may recover earlier than that and if it does that would be great. We didn't want to put a plan together to assume that Obviously, that's difficult for us to predict.

Speaker 2

But I think we would all expect that 'twenty four will see a recovery in the U. S. Economy. And we would fully And so that will be another opportunity for that business to be able to grow. And then I would say IMBRUVICA is the other key issue for us As we move forward, we would expect the majority of the erosion that we see on IMBRUVICA will occur this year and there will be less Downward pressure as we move to 2024.

Speaker 2

So that's what allows the growth to be able to come up. What I would tell you, even though I don't want to make a prediction in 2024 of what HUMIRA will look like, I think we have a high level of confidence that we have the ability If the erosion curve looks like how we've modeled it now between 2023 2024, that we have the ability to be able to have the growth platform flow through that, So we can absorb that impact. And so far, like I said, it's early on, but I'd say so far we're comfortable with how things are playing out. Rob, anything you want to add to the first question and then Terry maybe you can give a little more color.

Speaker 6

I think you characterized it well, Rick. I mean the thing to highlight for this year for 23, the way you think about Qumira, really in the first half of the year, the vast majority of that erosion will be priced. In the second half, You'll see because we've contracted rebates. You'll see a step up in the price erosion, although you also will see more volume with 9 biosimilars coming to market in the middle of the year, we would expect a little more volume erosion. I think as we think about 2024, we would expect Based on the contract to see a step up in price, but albeit not the same level as we've seen in 2023, but 2024 would be More volume, it's probably the best way to think about right now.

Speaker 6

We're not giving guidance, but as you think about how to model HUMIRA 2324, that's the way to think through it.

Speaker 2

Okay. Carrie, anything you want to add on aesthetics?

Speaker 4

Yes. Hi, this is Carrie. In terms of the aesthetics market and how we're thinking about it for 2023, I mean, first I'd say, yes, This is still a very strong fundamental market with consumers that are very interested in entering the And so that remains a strong opportunity for aesthetics now and in the future. But What we saw as we exited 2022 is as these economic metrics were softening, we also saw that reflected in demand for And in our conversations with customers, we saw that reflected in their practices, market research with Where they said, yes, we're interested in the category, but we want to see what's going on with the economy, perhaps before a new patient might want to enter the category. And based on that, we are modeling for those trends to continue in 2023.

Speaker 4

And what that means For U. S. Toxin market is the market growth would be around a mid single digit decline for U. S. Filler market around a 10% decline.

Speaker 4

And like we said, those growth rates would be different by quarter as we lap a strong first part of the year. Now of course, if there is a scenario like a deep recession where unemployment skyrockets, that is not something That we've contemplated. Or on the other hand, if the macroeconomic environment stabilizes or improves, that would represent favorability to our plans.

Speaker 1

Thanks, Chris. Operator, next question please.

Operator

Thank you for your question. Our next question is from Gary Nachman with BMO Capital Markets. Your line is open.

Speaker 6

Hi, good morning. First question is on neuro in the quarter. It's actually weaker than we thought. So was there any additional pressure On gross to nets maybe for the oral CGRPs. And what sort of inflection are you expecting For Vraylar and MDD, how rapid do you think that adoption might be this year?

Speaker 6

And then Rick, you recently said that you would be In an article that you would be lifting the self imposed $2,000,000,000 annual cap on business development that you have more capacity to do deals. So How much capacity do you guys have? What areas are you looking to be most aggressive? And how important is it to add Sizable marketed products into the mix or would it be mostly focused on pipeline? Thanks.

Speaker 3

Yes. Hi. I'll take the first one. It's Jeff. Thanks for the question.

Speaker 3

We did not see material incremental pressure on the gross to net. We did see a little softening versus our expectation on the overall preventative marketplace, but it was quite modest. So, no, fairly consistent trending. I mean, if you look at our new prescription capture in the oral market, It's basically a fifty-fifty shared capture rate between ourselves and the major competitor. In terms of the Vraylar Adoption trend.

Speaker 3

Now we had discussed previously because we really have very, very strong access for VRAYLAR that we would Anticipate a pretty rapid inflection in adoption for the depression indication, the adjunctive depression As I mentioned in my remarks, that's what we've seen. So we're quite encouraged. I mean, we can see a significant trend break on the new prescription adoption versus what was already a very nice growth rate for the bipolar one indication. So I think the early Dynamics, and again, it's really been a month here in January where our sales force has been out promoting the new indication. We're quite encouraged In terms of the market response, both from the metrics in terms of IQVIA, the scripts we see, but also the qualitative feedback from customers.

Speaker 2

And on deal capacity, we obviously look at business development based on what we believe are We're trying to accomplish strategically in each of the therapeutic areas that we're operating in. We identify areas that we think Would be good opportunities for us and then we look to see if we can find those kinds of assets. As I mentioned before, I think We're in the fortunate position that we can drive very strong growth with the assets that we have on the market today as well as what's coming out of our pipeline over the next 3 or 4 years, that gives us the ability to be able to return to growth and then drive that high single digit growth through the end of the decade. And we're also fortunate that after HUMIRA, we have a relative to our peers, we have a very low LOE So we don't have a lot of downward pressure on the business. Now having said that, we've done an excellent job of paying down the incremental debt From the Allergan transaction, we put that $2,000,000,000 cap in place when we did the Allergan acquisition.

Speaker 2

That allowed us to focus again on some earlier stage assets. And I'd remind everyone that was about 4 times Where our historical practice had been for those kinds of assets. So it was plenty of capacity to do that. But we're certainly in a position now that if the right thing were to come along, We could do a transaction that would be much larger. We certainly have the financial wherewithal to be able to do that.

Speaker 2

And we've certainly shown that we're able to do that and create value in the assets that we bring in. The areas that we typically look in are aligned with our therapeutic growth areas. So immunology, oncology, Certain areas of neuroscience and eye care, I would say, are the predominant areas as well as aesthetics. We obviously continue They tend to be smaller acquisitions though. And so at the end of the day, I feel good about where we are and we've been quite active.

Speaker 2

We have a very active business development group And we'll continue to look at those. And like I said, if we find something that's of interest and it could really help us round out a category that we're in, Then you should expect us to act on that.

Speaker 1

Thanks, Gary. Operator, next question please.

Operator

Thank you for your question. It comes from Carter Gould with Barclays. Your line is open.

Speaker 10

Great. Thank you. Thanks Thanks for taking the question. Maybe to come back to aesthetics, it does sound like you built in conservatism on a number of fronts. Wanted to also, you didn't touch as much around sort of China reopening and how you expect that sort of business to as it comes back, if You expect it to sort of return to how it was or if that will evolve differently?

Speaker 10

And I guess, as we think then around the guidance for 2023 and the link you've drawn to 20 24, As you sort of maybe as guidance potentially evolves over 2023, should we think about that link remaining intact? Or is that sort of A near term phenomenon and that will sort of, I guess disappear going forward. Thank you.

Speaker 2

Carrie, why don't you touch on the aesthetics question?

Speaker 4

Yes. So your question around China, and I'd say China is our 2nd largest global business. It has demonstrated significant growth in the past few years and proven to be very Responsive to the increased promotion that we're putting into that market. Of course, in 2022, China COVID related issues did impact The aesthetics market, especially in the second and fourth quarters. Now as we look at the year beginning in China And as everyone's returning from the Chinese New Year, it does look like the current wave has peaked And that the situation is beginning to improve and will continue to improve through the first half of twenty twenty three And we're expecting a full recovery in the market in Q3 and for the last of the second half of the year.

Speaker 4

So despite the challenges in 2022, China still posted positive growth and we will definitely be continuing our investments in in 2023 and beyond.

Speaker 6

Carter, this is Rob. I'll try to answer your second question. I think the way to think about 2024 clearly as we go through the year, we always look at Trends and contemplate what that could mean for flow through in the 2024. But the reason we gave you that guidance range we mentioned that the 10.70 being We think about it as a floor for 2024 is because of the dynamics around the HUMIRA erosion. So if we do better in 2023 and more of it happens in 20 Then you can at least anchor back to we're not going to fall below that $10.70 EPS floor in our guidance range.

Speaker 6

We always would factor in trends, but that's the way to think about it. If it's just the erosion and HUMIRA is better this year than We have in this guidance, we want to make sure you understood that what it means potentially for 2024. So that's again always factor in trends, but As you sit here today, that's the best way to think about it.

Speaker 2

Maybe just let me add one thing that might help clarify it. I think you should think about HUMIRA in 2024. We believe we're going to get to a certain level of price and volume in 2024 Almost regardless of what happens in 2023 because of the competitive dynamics. And so when we talk about the shift, What we're really talking about is inflating 2023. If you anchor 24 as a solid point, We have a high level of confidence of where HUMIRA's tail will be in 2024.

Speaker 2

And the only thing that happens to shift it between 2023 2024 Is it we do much better in 2023 than we expected, right? So that inflates 2023, But it still anchors against the 24 point. That's the way to think about this.

Speaker 1

Thanks, Carter. Operator, next question please.

Operator

Thank you for your question. It comes from Steve Scala with Cowen. Your line is open.

Speaker 11

Thank you so much. The low end of 2023 guidance implies 22% EPS erosion. The high end of Q1 guidance assumes 21% EPS erosion. How is it possible that Q1 could be in line with the full year and not appreciably better. It seems as though the Q1 guide is low Or is that because AbbVie believes the floor on Humira price is already reached?

Speaker 11

Maybe another way to restate the question, what should be our anticipation for the quarterly cadence of EPS as we go through the year? Thank you.

Speaker 6

So Steve, so I think the best way is to one anchor on the guidance we gave you on U. S. HUMIRA today. So we said for the Q1, we said it would 27% erosion. And so and that's going to the vast majority of that will be price.

Speaker 6

And we said because there'll be 9 biosimilars coming to market in the middle of the year, we would expect More erosion will come in the second half of the year. So you have to factor that dynamic into the way you look at the quarters that there'll be more erosion in the second half of the year for HUMIRA Versus the first half of the year. Then you also have to factor in that, you've got things like in aesthetics, but we haven't quite lapped the economic Impact yet, right? So in the Q1, you have a dynamic where you will see aesthetics still down, right? But when we get into the middle of the year, when we lap it, that also Your year over year growth rates.

Speaker 6

And then the underlying performance of the growth platform as we continue to To drive those brands, you'll see those growth rates accelerate. So those are all the things I would factor in as you look at the quarterly. Really, we've given you Q1 and then full year. We haven't given you Q2, Q3 and Q4, but that's those are the variables I would look at. There's not really a whole lot in terms of if you look at investment, for example, that you have to flex.

Speaker 6

We do tend to see Some higher levels typically in the Q4. So you could probably you can look at historically our investment patterns and use that as a proxy, but those are the variables to As you think about the Q1 versus the rest of the year.

Speaker 2

Thank you.

Speaker 1

Thanks, Steve. Operator, next question please.

Operator

Thank you for your question. It will come from Tim Anderson with Wolfe Research. Your line is open.

Speaker 12

Thank you. I'm going to torture you with a couple More questions on the same subject as others. The U. S. HUMIRA erosion guidance of minus 37% And 2023, how much of that is price versus volume?

Speaker 12

If I look at what your Q1 U. S. HUMIRA erosion is, So the guidance is minus 27%. Given that volumes for HUMIRA are call it 5% positive, That would suggest the price cuts maybe in the 30% to 35% range. So can we triangulate Off of the Q1 guidance to understand what percent of that minus 37% comes from price.

Speaker 12

And then the second question, again goes back to 2024. I know there's lots of uncertainty on the exact rate of erosion for But if you hit that minus 37% right on the nose, would 2024 erosion likely be slower or faster The net minus 37%.

Speaker 6

So Tim, on your question related to Price and volume. The way to think about it is in the first half of the year, the 27% in the first quarter, it's a vast majority of that is price, right? There is some volume impact, but not very much. It's in the second half. What you'll see is in the second half, the overall erosion will step up And think of it as equivalent between price and volume because you're going to have it we know we'll have rebate rates in some case It's increasing as well as the 9 Biosimilars coming to market, we expect to see more volume erosion.

Speaker 6

So as you think about As you're trying to triangulate the price volume with the guidance we've given, 27%, vast majority is priced. Second half of the year, you'll have some more volume Kicking in, that's the I think the best way to think about the price volume split. And then your question on 24, is your question in terms of the percentage or the absolute?

Speaker 12

Percentage, so if you hit the minus 37% this year, which is your guidance for U. S. HUMIRA, would the rate of erosion in 20 Would it be greater or less than that 37%?

Speaker 6

So we're not going to give you a 2024 guidance, Tim. I I think the way to think about 2024 is we would expect to see additional price, but albeit not the same level as 23 and more volume coming through because you're going to Up to 10 biosimilars in the market for the full year, so we would expect to see more of a volume impact in 2024 than we would expect to see in 2023.

Speaker 12

Okay. Thank you.

Speaker 1

Thanks, Tim. Operator, next question please.

Operator

Thank you for your question. It comes from Chris Shibutani with Goldman Sachs. Your line is open.

Speaker 3

Thank you very much. You previously commented about the operating margin trajectory of 23% into 24%, I believe Characterizing them as basically flattish, is that still the case? And then across the immunology Category broadly, we're seeing some a lot of crosscurrents mix dynamics clearly with your portfolio being part of that. What is your expectation about the potential for some of the newer mechanisms that are emerging with clinical data? Are you keen to figure out whether you want to invoke those as part of your portfolio?

Speaker 3

What do you see the outlook for novel mechanisms given that we're going to have some biosimilars to some of the most standard of care approaches T and S IL-twenty three. Thank you.

Speaker 6

So Chris, this is Rob. I'll take your first I think for modeling purposes, I would expect operating margins stay roughly at this level in 2024 and then begin expanding again in 2025 with our return to robust sales growth. I think the pace of that expansion will depend on investment needs as we will always prioritize R and D and SG and A investment to drive long term growth, but that's the best way to think through And then what the operating margin will look like in 2025 and beyond.

Speaker 3

And Chris, it's Jeff. I'll maybe kick off on your immunology question and ask Tom to comment on some dynamics as well. So it is very, very clear that certainly in the midterm, The most excitement across these immunology categories are for SKYRIZI and RINVOC. It's quite striking. And I think Tom mentioned, There's still incredible interest in a next wave of dermatologic indications that follow on for atopic dermatitis that he highlighted.

Speaker 3

And really as I noted in my remarks, I mean the amount of excitement around the IL-twenty three and particularly our IL-twenty three Across these indications is really profound. Now having said that, we are watching the competitive landscape for some maybe potentially some We don't see them as major players. As we look deeper in the pipeline, we can see that there is the possibility for Combination use of novel biologics or biomarker driven approaches, particularly in IBD, And we monitor those very carefully as we look at our long range plan. And Tom, I don't know if you want to address some of the things that are back in our pipeline in terms of of immunology.

Speaker 5

Sure. I mean, I think the just want to start saying that with SKYRIZI and RINVOC really raised the bar in terms of efficacy You see with the because of healing, for example, so the bar is getting higher and we will continue to do that. But Even to show that we're raising the bar, we're also going to do we're going to read out head to head studies this year with Xelara And atezla, so it's another way to kind of show that what we have is really a very, very profound in terms of responses we're seeing with patients. And if we continue, I mean, obviously, we look at the field, we look at competitors. We're hearing data of S1P1 inhibitors, but the data Cardiovascular and others that are similar to what we've seen with previous ones.

Speaker 5

So I mean, again, without having seen the data, it's all Difficult to kind of predict how they'll be to do accept that our data with Winvolk and SKYRIZI are very strong, durable and Again, very strong at the level endoscopy also. So we think we have already a competitive edge. We continue. We'll see PMR data later this year. We have talked about our RipK1 inhibitor, again, from mucosal healing That's in the clinic right now.

Speaker 5

We're looking at additional indications. So over time, obviously, we're going to look at additional mechanisms, But not necessarily just pushing down on the same cytokines as JAKs, but looking at other orthogonal pathways of things that happen in the skin Or in GI, again, mucosal healing being an autogonal pathway. And this is where we think a combination Of our immunomodulators like Winvolk and SKYRIZI with other mechanisms will combine well to give even more profound responses.

Speaker 13

Great. Thank you.

Speaker 1

Operator, next question please.

Operator

Thank you for your question. It comes from Colin Bristow with UBS. Your line is open.

Speaker 14

Hey, good morning and thanks for taking the questions and for all the helpful color so far. So maybe a broader question just with regards to Humira biosimilars.

Speaker 7

I'm curious like what is the

Speaker 14

broader impact you anticipate on the I and I market just In terms of net price, this has been sort of a question we've been getting a lot of and people are trying to wrap their heads around. And then maybe just one on your CF Triplett, I know that the trial is ongoing. Can you give us an update here? How's the progress? Should we still expect data later this year?

Speaker 14

Thank you.

Speaker 3

Yes, I'll take the one on the immunology marketplace. I think that the impact overall in the category for net Price would be modest. And I think

Speaker 15

a lot of it has to

Speaker 3

do what Tom and I've discussed before, which is the just the pure profile of some of these agents, Particularly SKYRIZI and RINVOC and either others in the pipeline that are coming. I mean, they really are setting different standards of care Versus what they've seen in the past and certainly the physicians and the payers are recognizing this. I'll give A really quick example on one of our major products, which is RINVOC. I mean RINVOC based on the label changes that have taken place is already a post T and F type of dynamic. And so the pricing is going to be the pricing.

Speaker 3

There's no incremental ability to step it, for example. The other thing I would note is on SKYRIZI, we have 4 head to head trials against all the major competitors and another one coming with Tesla, as Tom noted. So you start to see that level of performance, whether it's against Alara, multiple TNFs, Otezla, as I said, that's pending here. And it just becomes very clear that you're just going to achieve much higher levels of clearance And relief. So we feel pretty confident that the pricing impact over time, particularly in the U.

Speaker 3

S. Market will be very modest. And certainly, we can navigate that based on the power of the performance of the portfolio.

Speaker 5

This is Tom. I want to just answer about cystic fibrosis program. Again, this program continues. And just to remind you, we're working on a triplet And where we believe that 2 of the 3 components of for this drug, this triplet, we have best in class Assets, but we were looking for another part of the triplet called a C2 corrector where last year the previous ones basically didn't give the meaningful improvement we were In FEV1 or sweat chloride, so we've actually in our discovery groups continue to develop new ones. In the last year, we moved our ABBV 576 forward in SAD Phase I studies.

Speaker 5

We continue to see these, again safety, high exposures, good PK, Things that if you combine with our preclinical data makes us think it will it has a potential to be best in class. And that triplet again is So currently being tested, we'll have data in this year to actually show how they behave together. And later this part of this year, I'll be able to give an update.

Speaker 1

Thanks, Collyn. Operator, next question please.

Operator

Thank you. Our next question is from Trung Huynh with Credit Suisse. Your line is open.

Speaker 16

Hi, guys. Trung Nguyen from Credit Suisse. Thanks for taking my questions. 2, if I may. So I was just wondering On your thoughts more broadly on the pricing dynamics in the EU and U.

Speaker 16

S. So in the EU, There are a number of reforms being proposed in Europe. So I guess my first question Do you see these changes being material or any headwinds to you in your growth ex U. S? And then secondly, can you just perhaps Talk about your reasons.

Speaker 16

You decided not to renew your membership for Pharma and Bio. How are you going to remain engaged in D. And have a voice when it comes to things like IRA and pricing controls. Thank you.

Speaker 3

Yes, thanks for the question. I'll take the first one there in terms of the EU. We do see some movement there, particularly in the, Let's say industry tax and I'll comment on the so called vPass in the UK. In some ways whether or not we were in that Voluntary program or outside of the voluntary program, the impact is about the same. And frankly, it was a policy decision because we really think that the U.

Speaker 3

K. Government Needs to reform that v pass. They didn't plan properly for how things might dynamically evolve in the UK and it's a very substantial part of the revenue now That is causing problems, I think, across all of the companies. So it was a position of Policy position, net neutral, it didn't matter frankly whether we were in or not in the UK is a relatively modest business for us. We are seeing perhaps more importantly, some changes in the German law as you're probably aware of.

Speaker 3

And that is, I think, a modest net pressure that will come in Europe or in Germany in particular, because there's the move, as you may know, from 1 year of free pricing to 6 months. There's a modest increase in rebates, for example. So we do see some austerity impact, But on the bigger scheme, it's I wouldn't say it's material to our growth platform that we've been discussing.

Speaker 6

And Trung, this is Rob. In terms of international price, I mean, We see year over year decline of low to mid single digits and that's the way we're modeling it for 2023 as well.

Speaker 2

And then on Pharma, this is Rick. Obviously, every year we evaluate any kind of significant investment that we're going to make And we make a decision as to whether or not we believe that investment is appropriate and is going to have the right level of return at that point in time. And ultimately, we made the decision around pharma based on that. We have a very significant government affairs group that's Been active and been in place ever since we came into existence back in 2013. We've grown that organization.

Speaker 2

We did grow it somewhat this year as well in anticipation of not being part of pharma. We plan on being active As we have been in the past, we try to appropriately advocate for things that we think are appropriate for patients. And I think that group is quite capable of being able to do that. And I would tell you that At a point in the future, we might decide to go back into pharma. But at this point, we made the decision that we think that investment could be used Elsewhere to be more effective.

Speaker 2

It's as simple as that.

Speaker 1

Thanks. Operator, next question please.

Operator

Thank you. Our next question is from Geoff Meacham with Bank of America. Your line is open.

Speaker 13

Good morning, guys. Thanks so much for the question.

Speaker 3

I appreciate all the perspectives on guidance. I just had a follow-up on it.

Speaker 13

Rick, on your comments on the HUMIRA sale for starting next year in the U. S, I think when you look at other geographies, international revenues are still seeing double digit declines after 4 years or so. Maybe just give us some context What you're seeing there broadly versus what we could expect for the U. S. And just to be clear, when you see next year the impact from all the HUMIRA biosimilars, how much do you think that biosimilar So Lara may play a role here when you look at your assumptions for HUMIRA erosion.

Speaker 13

And then second question, just on the BD front,

Speaker 3

You guys talked about some of

Speaker 13

the therapeutic categories that you're interested in, but with the appetite to expand To expand the menu here and to say more orphan indications, I think that across the landscape, some companies in I and I space are getting into more niche

Speaker 2

So I think on the HUMIRA tail, just to maybe clarify what I said is, I would expect that as we move through 2024 that in 20252026, We would start to see a more stable tail for HUMIRA. In other words, we're going to see erosion in 2024. I want to make sure I didn't somehow communicate that that wasn't the case. So, if you look at OUS, I think what's probably deceiving to you is, you had different countries going by or similar at different periods So you can't necessarily look at that as an analog because it's so heterogeneous in the year that those countries went biosimilar. So you are correct.

Speaker 2

Yes, it is still experiencing double digit declines, but it's being driven by the fact that those countries have not some of those countries haven't reached stability yet. But typically and the U. S. Market is a little different because you have a large number, you have a small number of large payers who drive the So it's more like some of the countries that did other kinds of Government wide activity like a Germany as an example. And there we do see after a couple of years, we've seen stability.

Speaker 2

So I think what's misleading you is you're looking at the overall number, but you're not factoring into that. The fact

Speaker 6

Jeff, this is Rob. Just to add to that. So if you just look at this year, so about Half of the erosion is going to come from newer markets like Puerto Rico, Canada and Mexico. So that as Rick mentioned, we have different waves and so you're still seeing some of those waves come through. You also have some volume going to new agents like SKYRIZI and RINVOC, right?

Speaker 6

So that's something to keep in mind that that's a dynamic that's also Playing out for HUMIRA in those markets. And then you typically see negative price trends in international markets again low to mid single digits. So you're going to see some level of pressure there. So those are all factoring into the year over year, on international HUMIRA, something to make sure you're keeping in mind.

Speaker 3

And if you look at the Stelara dynamic with the biosimilar, I think there's a couple of dynamics that we're watching. And it does go back to my prior comments over the clinical differentiation. The first is that there will be less biosimilar Competitive intensity against Alara, certainly, we've not seen anything like the 9 that were 9 or 10 that we're going to see on HUMIRA. And so and that price point is quite high actually, if you look at where Stelara is now with the branded program. Now I think maybe more importantly, as we've highlighted before, we've anticipated that entry.

Speaker 3

And certainly in Crohn's, we have an Ongoing head to head trial against Alara, that will read out towards the end of the year. We plan on putting that into promotion if and We believe it will be positive, particularly what we're studying, which is that endoscopic endpoint, which is really becoming the standard in the gastroenterology space. So we think we can parry quite well with the ultimate arrival of that IL, the twelvetwenty three versus our pure So hope that helps.

Speaker 2

I think on your third question, Yes. And what tends to drive our BD strategy is the long term strategic roadmap that we put in place across the franchise. So if you think about it, you mentioned immunology as an example. I would say in immunology, we have 2 fundamental objectives There are still areas within immunology where we believe we can significantly raise the effectiveness of the therapies that Are used on patients to drive higher levels of remission or higher levels of endoscopic healing, in other words, better clinical outcomes Within the areas that we're in. And so we have a tremendous amount of effort in those areas to bring next generation assets As Tom mentioned in his comments, there are opportunities to potentially combine 2 mechanisms together To achieve that level of therapeutic benefit and then we look outside those areas at The adjacencies.

Speaker 2

And we look for where are there opportunities for us to be able to bring in either an existing mechanism Or something we can either develop within our own discovery group or something that we can acquire on the outside as a mechanism that we don't currently have. We tend to look for where there are areas of large unmet need and relatively significant patient populations. So I use two examples to illustrate the point. Vitiligo. Vitiligo is a disease that's pretty prevalent.

Speaker 2

There aren't good therapeutic options in it today at all. We do believe there are mechanisms that will allow you to Effectively treat vitiligo. If those are effective, that could be a very significant opportunity over time. Alopecia is another good example of that. So that's how we focus BD in these areas.

Speaker 2

That's not to say we would never look at a more niche opportunity or an orphan opportunity, but I wouldn't say orphan is something that is core To our

Speaker 3

strategy. Great. Thank you.

Speaker 1

Thanks, Jeff. Operator, next question, please.

Operator

Thank you for your question. It comes from Robin Karnauskas with Truist. Your line is open.

Speaker 15

Hi. Thank you very much. It was great with all the color you've given. I just had some I want to follow-up on, you mentioned Vitiligo. So with the competition with topical rux, Which might have a first mover advantage and then they have an oral as well in Pfizer.

Speaker 15

How do you see the opportunities for you and Vitiligo For RINVOC, can it compete? And then my second question is last year earnings calls you highlighted your GARP TGF beta, So that's 151. And I know there's been a lot of cardiac talks in the space. So what gives you some confidence? What features And what indications like how do you focus on this and how do you view the competition profile?

Speaker 15

Thanks.

Speaker 2

On Vitiligo, maybe Jeff and I will tag team on it. I would certainly say A topical has a place, but it is difficult for people that have large areas of their bodies that are impacted By something like DILIGO for a topical to be a manageable therapy for those So an oral for those patients that have more severe disease typically has greater benefit And frankly, better compliance among those patients, which ultimately gives you better clinical outcomes. So I think the RINVOC will stack up against whoever the competitive alternatives are based on the data, Based on how we've seen RINVOC perform in other areas, I think we feel pretty good About

Speaker 3

what the potential is, but the data will speak for itself, but let's see what the data looks like. Jeff and Tom, would you add anything? Just to build on that, when we look at the valuation of, for example, that indication or HS or alopecia, which again are those derm oriented indications That will follow on pretty quickly in the middle of the decade, on top of atopic dermatitis. We do exactly what Rick highlighted is we will Segment the patients based on the body surface area. We know that the topicals will be important for a certain percentage of population.

Speaker 3

For But we do believe that in almost all indications that we've looked at for, RINVOC, it just performs exceptionally well in the clinic. And we would anticipate that as well above a base case scenario. Perfect example is Crohn's disease. There will not be another JAK inhibitor in Crohn's These for the United States just because they just don't work. And yet you have spectacular results with the selective jack So we take that all into that competitive context, all into our calculations as we look for the return for those future derm indications.

Speaker 5

If I can just continue with the LIGO, I mean, we will have readouts for our Phase II study this year, and we've mostly been looking at those cases where there's more extensive Body coverage disease or the face, so I think it would be a different it's a much better uptick in oil Then a cream when you actually have significant body coverage. Again, we'll see the data, we will report in another quarter call. Thank you, Robin, for the second question. Yes, TGF beta is a known tumor suppressor pathway and people have tried to drug it to increase The response to immunotherapies, the 1st generation TGF beta, because the target is found in so many parts of the body, You actually have effects, the cardiovascular effects having related to the TGF beta active in some of the endothelial cells in the valves and so on Here, we're using GARP as our target. GARP is actually a receptor for TGF beta That's called latent, inactive.

Speaker 5

That's GARP is sound only on Treg cells, a little bit on some fibrous some stromal cells, but it's not found in Heart or other tissues, that's what gives us our safety profile, ability to cause immunosuppression on Treg cells, found in tumor cells As opposed to other place in the body. So that we felt from the beginning was an attribute we needed to go to target this pathway would be Something that will be tumor selective and that's what we've been able to see so far.

Speaker 2

And then she asked about what tumors Potentially.

Speaker 5

Oh, tumors. So in our initially, we focused on tumors. So this pathway is found on almost every solid tumor Has some subset of tumors which express a lot of TGF beta and GARP. We started off thinking that we'd do a Phase 1 Stacey study, which we did well, that we will expand and we had picked liver and bladder because we saw a large TGF beta pathway in Those indications and we also although we knew there was sub in CRC, we saw patients in our Phase I study, which were unselected in terms of tumor type. We saw responses.

Speaker 5

So we've actually continued expanding studying CRC, but we did see responses in liver cancer where we expected to See it based on expression of TGF beta. We did see it in bladder cancer, and we're expanding in those indications at this point. Given the fact that I said earlier that we see CTGF beta in all types of tumors, both tumors called hot or cold, we're actually And in other tumors to get signals right now, and again, we have we'll have baskets to actually continue to explore its indication space. Well, right now, we're expanding when we actually we're going to Phase II dose related studies as indications where we've actually seen data In our Phase 1 study.

Speaker 1

Okay. Thanks, Robin. Next question, please.

Operator

Thank you for your question. It comes from Simon Baker with Redburn. Your line is open.

Speaker 17

Thank you very much for taking my questions. 2, if I may please. Just going back to U. S. HUMIRA, giving us the expected erosion is extremely helpful.

Speaker 17

It's also extremely impressive You feel confident enough to give a point estimate for the percentage erosion in 2023. So notwithstanding that, I wonder if you could give us what the Likely pushes and pulls are. Is this something where we should be thinking more about there being upside risk due to inability of those additional Genomics biosimilars to supply the market. So any color pushes and pulls there and also into 2020 And your confidence around the erosion curve in 2024. And then a question on tax.

Speaker 17

One topic that's been raised by Some of your peers has been an impact from the OECD minimum global tax rate initiatives In 2023, your guidance would suggest that isn't a factor for you. I just wonder if you could give us any color on when and if You expect those initiatives to impact your tax rate? Thanks so much.

Speaker 6

So Simon, this is Rob. I'll take your first question. So when we give guidance, we typically give approximate assumptions And we do use point estimates. We don't typically give product level ranges. So it has been our practice.

Speaker 6

So we've said approximately 37% erosion For U. S. HUMIRA, we have confidence in that number obviously. But I think in terms of the pushes and pulls, it's really going to be about volume erosion, right? I think that's if you think over the course of the year, We made assumptions around volume erosion.

Speaker 6

We have good visibility of the price. Now it's a question of what will the volume erosion look like. And obviously as we go through the year, we'll update you on that.

Speaker 3

Hi, this is Scott. I'll give you some thoughts on the OECD question that you asked regarding tax. So you're right, for 2023, we do not see any impact Let's see. In our view, there's a lot of things to be worked out with respect to the global minimum tax OECD mentioned. We have in the U.

Speaker 3

S, as you know, a minimum tax. We see ultimately this OECD tax being a top up on that, if that does occur. But there's a lot of details to be worked out, and we wouldn't anticipate any impact there Until 2025, if there is an impact.

Speaker 9

Thanks so much.

Speaker 1

Thanks, Simon. Operator, next question please.

Operator

Thank you for your question. It comes from Nevan Tiete with BNP Paribas. Your line is open.

Speaker 18

Hi, good morning. Thanks for taking my questions. I have Three quick follow ups, please. And the first one on aesthetics, in addition to the macro impact, are you seeing or do you expect increasing competition from Your smaller competitors, DTC campaigns and new products. The second question is on HUMIRA.

Speaker 18

Was Amgenita pricing in line with your expectation? And the 3rd follow-up is on capital allocation. So can we think of 2 times as a soft net leverage target, which is relevant for AbbVie to consider material business development. Thank you.

Speaker 4

Hi, I'll take that first question on aesthetic competition. So in terms of U. S. Botox Cosmetics, this is a product that's around for 20 years and has faced increased competition and still Kaman's market leading market share in the high 60s. And we know though that the competitive market will expand as new entrants are coming and have entered in terms of our Revance's talks in at the end of last year.

Speaker 4

What we've seen in the aesthetics market is that, Of course, customers are going to try these new products. There it's highly kind of newness driven and there's a novelty factor and Trial and competitive trial is to be expected. And what we see is that these products in past aesthetic launches that we've watched, The share ramps for the 1st 12 months to 18 months and then tends to stabilize. And so of course, we don't under any of our competitors. And so in 2023, we are modeling what we think is a competitive amount of share erosion in terms of our BOTOX business.

Speaker 4

And we'd expect that in 2023 beyond that U. S. BOTOX Cosmetic will continue to be the clear number one market leader And the new toxins that enter the market will be competing for their position as number 2, 3 or 4 in our customers' offices.

Speaker 3

And hi, it's Jeff. On your comment on Amgevita, no, the range of pricings that were We're not really surprised. There's been some external thoughts that this is of interest where there were 2 different AMGEVITAs, 1 high WAC and 1 low WAC. But again, we've seen this across very different categories and studied it very carefully as you would expect. So we've seen variably priced WAC products In our own HCV market with authorized generics from competitors, we've seen it in the diabetes space Across multiple competitors including biosimilar competitors and certainly with the Amgen and then other So All in all, within the range that we would expect from Amgenita.

Speaker 6

This is Rob. I'll take the question on net So the two times is think about it as our sustainable target. So as long as there's a path back to net leverage of 2 times, it could take us In some cases, it could take 2 to 3 years to get back to that. But as long as there's a path, a very clear path to get back to net leverage of 2 times, that's the best way to think about How we would evaluate it.

Speaker 1

Okay. Thank you. Operator, we have time for one final question.

Operator

Thank you. Our final question will come from Gavin Clark Gartner with Evercore ISI, your line is open.

Speaker 3

Hey, thanks for squeezing me in. I wanted to confirm if you were planning to submit the IMBRUVICA plus VENCLEXTA The frontline CLL combination to the FDA following the ASH this year. And then on 951 in Parkinson's, We saw top line data from competitors from last month. I don't have the full data yet. One thing that sticks out is that they had lower discontinuation rates.

Speaker 3

So Just wondering if there's any insight on devices or trial design that may explain this? Thank you.

Speaker 19

Hi, it's Rupal. I'll take those. So for the I plus V that you referenced, we have that in Europe and I think you're talking about The ASH data overall survival there as it clears a couple of years is 0.5 or less and the PFS still stays low. At this time, we're not submitting here at the FDA. They would like to see a little more prospective Data in another trial setting.

Speaker 19

So that's the I plus V. On 951, this is interesting on the Competitors you bring up. So when you run these patients in, you could have discontinuation rates. And if you include them or not include them, it's going to impact what happens post run-in. So for example, when you see our data set, We count the run-in discontinuation and post run-in as you get into the main part of the trial.

Speaker 19

So you see that in the 20 percentile range And that's fairly consistent with what you would see with a subcutaneous 24 hour infusion. And it's not clear to us how that data as you're speaking about is reported. Also, we don't know if that's more than one injection, is it 2 injections and is it rotated daily. I can tell you about 951. We have a dosing exposure that gets up to DUOPA.

Speaker 19

Unique from DUOPA, it's 24 hours. It's a single injection And you can leave it in for 72 hours.

Speaker 1

Thanks, Gavin. That concludes today's conference call.

Operator

This does conclude today's conference call. We thank you all for participating. You may now disconnect and have a great

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Earnings Conference Call
Gilead Sciences Q4 2022
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