艾伯維 (ABBV) 2013 Q2 法說會逐字稿

Good morning, and thank you for standing by.

Welcome to the AbbVie second-quarter 2013 earnings conference call.

All participants will be able to listen only until the question-and-answer portion of this call.

(Operator Instructions).

This call is being recorded by AbbVie.

With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by AbbVie.

It cannot be recorded or rebroadcast without AbbVie's expressed written permission.

I would now like to introduce Mr. Larry Peepo, Vice President of Investor Relations.

Good morning, and thanks for joining us.

Also on the call with me today is Rick Gonzalez, Chairman of the Board and Chief Executive Officer; and Bill Chase, Executive Vice President of Finance, and Chief Financial Officer.

Joining us for the question-and-answer portion of the call are Laura Schumacher, Executive Vice President of Business Development, External Affairs, and General Counsel; and Scott Brun, Vice President of Clinical Development.

Today, Rick will discuss AbbVie's results for the second quarter, as well as highlights from our commercial portfolio and pipeline.

Following Rick's comments, Bill will give a more detailed review of our second-quarter performance and then provide an overview of our outlook for 2013 and the third quarter.

Following our comments, we'll take your questions.

Before we get started, I remind you that some statements we make today may be considered forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995.

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.

Additional information about the factors that may affect AbbVie's operations is included in our 2012 annual report on Form 10-K and in our other SEC filings.

AbbVie undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law.

On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand AbbVie's ongoing business performance.

These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website it www.abbvieinvestor.com.

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

Thank you, Larry.

Good morning and thank you for joining us today.

We're pleased with the reported strong second-quarter results, with adjusted earnings per share of $0.82, exceeding our guidance range for the quarter.

This included strong operational sales growth of more than 5%, ahead of our outlook for the quarter; and adjusted gross margin ratios of more than 80%.

We delivered this performance with strong and balanced growth across our product portfolio, despite the impact of generic competition.

And today we raised our full-year EPS guidance for 2013, reflecting continued momentum from HUMIRA and better-than-expected results from our other pipeline products, including our lipid franchise.

We're now seven months into our first year as an independent company, and we continue to make good progress, executing our key business priorities, including maximizing HUMIRA's full growth potential and advancing our pipeline.

Our second-quarter performance was led by HUMIRA, which drove nearly 13% global operational growth.

We continue to see strong underlying demand globally, with particularly robust growth in dermatology and GI categories.

As we've said previously, there are several factors we expect will continue to drive momentum, including increased biologic penetration rates, further geographic expansion, and new indications.

HUMIRA offers the broadest label in the category.

Our expanding list of uses includes nine approved indications in Europe and seven in the US, and we have several indications currently in late stage trials.

All told, we expect new indications, including those approved in 2012, to add roughly $1.5 billion in incremental global peak year sales.

HUMIRA's utility in label supporting use across the broadest spectrum of autoimmune conditions is one of the many attributes that sets it apart from other products in this category.

As we track new competitive entrants, performance continues to be in line with our expectations, with HUMIRA continuing to gain or hold market share across indications.

As I said, HUMIRA is off to a strong start in the first half of the year; and as a result, we now expect global HUMIRA sales growth of 14% to 15% on an operational basis in 2013.

This is an increase from our previous outlook of low-double-digit growth.

Beyond HUMIRA, we also saw a strong performance from several other products, including double-digit growth of Creon, Synthroid, Zemplar and Duodopa.

Bill will provide more color on HUMIRA's performance, as well as some of the other products in our portfolio.

So, today, I'll spend some time discussing a few of our pipeline programs.

Certainly, pipeline development is critical to our long-term success.

And we're very pleased with the progress we've seen across our mid- and late-stage pipeline program so far this year.

Over the past year and the past several months, we have also presented important data that support our advancing pipeline and illustrate its potential to address some of the most pressing areas of medical need.

I'll start with our late-stage HCV program, where we recently completed enrollment in all six of our Phase 3 studies that will be included in our initial regulatory submissions.

Over the past several months, we presented additional data from our large Phase 2b Aviator study, which enrolled, as a reminder, 571 non-cirrhotic patients.

Data presented at the EASL and DDW meetings showed patients with high SVR cure rates, regardless of baseline characteristics associated with low-level response to interferon therapies, including baseline viral load and level of fibrosis.

As I said before, our goal is to maximize SVR rates across various patient types, from naive patients to the most difficult to treat, with the simplest possible therapy.

And the large body of data that we've collected and presented thus far certainly support our objective.

Recently, our direct-acting antiviral combination was designated as a breakthrough therapy by the FDA, underscoring its promise in the treatment of HCV.

As I've said, we're very pleased with the progress that we're making in our Phase 3 program.

We expect registrational studies to begin to read out later this year and early into 2014, supporting regulatory submission in the second quarter of 2014, and market entry in early 2015.

In addition to our late-stage efforts, we're also advancing a compelling next-generation HCV program, including a potent protease inhibitor, ABT-493; and a new NS5A inhibitor, ABT-530.

In preclinical studies, these promising assets have shown pan-genotypic activity and excellent activity against key resistant mutants.

These next-generation assets also support once-daily dosing, as well as the ability to co-formulate.

Our development program is progressing well, and we're on track to be in Phase 2 studies this year.

Suffice it to say, we are very committed to this therapeutic category and we'll continue to work to evolve the treatment paradigm.

Now, turning to our oncology pipeline, which includes several mid- and late-stage assets in development for more than a dozen different cancers.

At the recent ASCO and EHA meetings, we presented additional data on ABT-199, our first-in-class BcL-2 inhibitor, in development in partnership with Roche/Genentech.

These data showed strong single-agent activity across a number of hematological malignancies, including CLL, NHL and mantle cell lymphoma.

We recently started a large Phase 2, single-agent, single-arm study in relapsed/refractory CLL patients with 17P chromosome deletion.

We believe this study has the potential to be a registrational trial, and plan to engage with the FDA to confirm our view.

While these patients represent the most difficult to treat, early data have been promising.

In collaboration with our partner, we also expect to begin a Phase 3 comparative trial, a combination study in relapsed/refractory CLL that will evaluate ABT-199 plus Rituxan; versus Rituxan plus chemotherapy.

We plan on starting that in the next 6 to 9 months.

We believe that ABT-199 represents a potentially transformational approach to the treatment of CLL and other hematological malignancies, and are working to quickly advance this asset.

Now, moving to our next oncology asset, ABT-888, our PARP inhibitor.

We believe this compound holds promise in enhancing the effectiveness of common chemotherapy and radiation.

We have a number of mid-stage studies underway, including trials evaluating 888 plus chemotherapy in breast cancer, ovarian cancer, non-small cell lung cancer; as well as a study of 888 in combination with whole brain radiation in patients with brain metastases.

We will learn much more about the efficacy and utility of this compound as we expect a number of studies to complete over the next 6 to 12 months.

It's likely that we will initiate Phase 3 studies with ABT-888 in this same timeframe as well.

Moving on to ABT-126, our alpha-7 NNR agonist in development of for Alzheimer's and cognitive impairment associated with schizophrenia, or CIAS.

Earlier this month, results from our initial Phase 2a proof-of-concept study in patients with mild to moderate Alzheimer's dementia were presented at the Alzheimer's Association International conference.

These data demonstrated evidence that ABT-126 treatment effect on measures of cognition were present, as well as a safety and tolerability profile that supports continued development.

We're exploring a higher dose range in our ongoing Phase 2b study, where we're evaluating ABT-126 both as monotherapy and in combination with standard of care.

The Phase 2b trial results are on track to complete later this year; and, if successful, we plan to start a Phase 3 development in 2014.

We're also actively evaluating ABT-126 in mid-stage trials for CIAS.

We will present Phase 2a proof-of-concept data for this indication in 2014.

And the ongoing Phase 2b study will read out next year, as well.

Now, moving on to atrasentan, our internally discovered compound in development for diabetic kidney disease, a common complication of diabetes and the leading cause of chronic kidney disease in the developed world.

We presented results from our Phase 2b study at the European Renal Association Congress in May.

The mid-stage trial showed treatment with atrasentan showed significant and sustained reduction of albuminuria, the presence of protein in your urine, a symptom that is predictive of renal function.

We recently initiated a large, global Phase 3 program which will evaluate the impact of atrasentan on renal outcomes such as onset of end-stage renal disease; transplant or death due to renal failure progression.

This study will serve as a single, global registration trial for the compound.

While I won't cover our entire pipeline today, we have a number of other promising products in development, which I'll mention briefly here.

Daclizumab, currently in Phase 3 development in partnership with Biogen for multiple sclerosis; our second pivotal study will read out next year, and we're planning global registration submissions in 2014 as well.

Elagolix is being evaluated in Phase 3 for endometriosis, and Phase 2b for uterine fibroids.

We have mid-stage trials on ABT-719 for acute kidney injury, which are ongoing.

We have two select JAK2 inhibitor programs in development for autoimmune diseases, including our partnered asset with Galapagos as well as an internal candidate, ABT-494.

Then we have a number of other exciting programs.

I'll conclude my remarks this morning with an update on our licensing activity, where we continue to be very active.

We recently entered into a global collaboration with Alvine Pharmaceuticals to develop a novel, mid-stage, oral compound for the treatment of celiac disease, a common autoimmune disorder.

The compound, ALV-003, is currently in Phase 2 development and has the potential to be the first therapy to treat celiac disease.

Currently, there are no approved therapies for this condition and the only option for patients is to attempt to follow a strict, lifelong, gluten-free diet.

Total exclusion of dietary gluten is difficult, because gluten is one of the most common food ingredients.

Further, despite a gluten-free diet, up to 60% of celiac patients still have symptoms, underscoring the need for non-dietary therapies.

Alvine will begin a Phase 2b study for this promising compound in the coming months.

We also recently extended our clinical development collaboration with Galapagos to include Crohn's disease.

Galapagos plans to begin a Phase 2 in this indication by early 2014.

The Phase 2 program in Crohn's will be performed in parallel with the Phase 2b study in rheumatoid arthritis, which was recently initiated.

So, in summary, we're pleased with our performance in the first half of 2013.

In the second quarter, we saw another strong performance across our portfolio, including double-digit growth from HUMIRA, Creon, Duodopa, Zemplar, and Synthroid.

We delivered higher-than-expected gross margin ratios, and we continued strong levels of investment spending across both our marketed products and our pipeline opportunities.

And we made significant progress advancing our pipeline.

We presented compelling data on a number of compounds.

We've moved a promising asset into Phase 3 development.

And we augmented our mid-stage pipeline with two opportunities to build upon our expertise and our leadership and the GI field.

We expect continued pipeline advancement over the next 12 to 18 months, including late-stage trial completions, regulatory filings, and new product approvals.

With that, I'll turn the call over to Bill.

Thank you, Rick.

Today I'll spend some time talking about our second-quarter performance, as well as our outlook for the remainder of 2013.

As Rick said, we feel very good about the strong quarter and year-to-date performance we've delivered.

Second-quarter adjusted earnings per share, excluding non-cash intangible amortization expense and specified items, were $0.82, exceeding our previous guidance range.

On a GAAP basis, earnings per share were $0.66.

Total sales in the quarter increased 5.1% on operational basis, which excludes an unfavorable 0.7% impact from foreign exchange.

Excluding TriCor and Trilipix, which are experienced loss of exclusivity, total sales increased 10.3% on an operational basis.

Growth in the quarter was driven by HUMIRA, which had global sales of more than $2.6 billion, up nearly 13% on an operational basis.

In the US, HUMIRA sales increased 16%, driven by continued market expansion and share gains in dermatology and gastroenterology.

We have been particularly impressed with HUMIRA's performance in the gastro segment, following our strong UC launch, where we've already gained significant share globally.

Internationally, HUMIRA sales grew 10.1% on an operational basis.

As expected, we saw a modest negative impact from tender timing in some markets, particularly Brazil.

Looking ahead to the third quarter, we expect global HUMIRA sales to grow in line with our updated full-year outlook of 14% to 15%.

AndroGel sales were $258 million in the quarter, down 6.5% versus the prior year.

AndroGel continues to maintain roughly 60% share of the testosterone replacement market.

Sales this quarter reflect the year-over-year impact of rebating actions implemented in mid-2012, and certain account losses.

We are now forecasting full-year AndroGel sales to be roughly flat versus 2012 levels.

Moving on to our lipid franchise, we saw stronger-than-expected performance in the second quarter, particularly with Niaspan and Trilipix.

US sales of Niaspan were $232 million, up 10% versus the second quarter of 2012.

TriCor/Trilipix sales were $107 million, down 66% due to the entry of generic fenofibrate in November of 2012.

We continue to forecast 2013 sales of less than $1 billion for our combined lipid franchise, reflecting a decline of roughly $1.2 billion.

As we've said previously, this decline will be most pronounced in the fourth quarter of this year, due to the expected entry of generic competition for Niaspan in September; and the recently announced entry of generic Trilipix earlier this month.

Global sales of Lupron were nearly $200 million in the second quarter.

Lupron continues to hold a leadership position and maintain a significant share of the market.

For the full-year 2013, we expect Lupron sales to be roughly in line with 2012.

US sales of Synthroid were $153 million in the quarter, up strongly.

Synthroid maintains strong brand loyalty and market leadership, despite the entry of generics into the market many years ago.

For the full year, we expect to see Synthroid sales growth in the mid-single-digits.

US sales of Creon were $106 million in the quarter, up more than 20% compared to the second quarter of 2012.

Performance in the quarter was impacted by the launch of our new 36,000 lipase unit dose.

Creon maintains market leadership in the pancreatic enzyme market, where we continue to capture the vast majority of new prescription starts.

For the full-year 2013, we expect Creon sales to grow at a double-digit pace.

Duodopa, our therapy for advanced Parkinson's disease, which is currently approved in Europe and other international markets, performed well in the second quarter with growth of nearly 23% on an operational basis.

We are pursuing regulatory approval for this product in the United States and expect a PDUFA date in the first half of 2014.

Moving on to our P&L profile.

Second-quarter adjusted gross margin ratio was 80.7%, excluding intangible asset amortization and other specified items.

This was above our expectations for the quarter due to the impact of product mix across our portfolio, including better-than-expected performance of our lipid franchise, which, as you know, includes some of our highest-margin products.

Adjusted R&D was 14.8% of sales in the second quarter, driven by increased funding of our mid- and late-stage pipeline assets and the continued pursuit of additional HUMIRA indications.

Adjusted SG&A was 27.9% of sales in the second quarter, reflecting heightened investment across our growth brands.

Net interest expense was $75 million in the quarter, and other income was $7 million.

The adjusted tax rate was 22.3% in the second quarter.

Turning now to our full-year 2013 outlook, we are raising our adjusted earnings per share guidance to between $3.07 and $3.13.

This updated guidance contemplates sales of approximately $18.5 billion, reflecting strong, balanced performance across our portfolio, offsetting the decline in lipids from generic competition.

Included in our sales guidance is an estimated negative impact from exchange of approximately 1%.

Given our performance year-to-date, including the better-than-expected sales of our high-margin lipid franchise, we are now forecasting a gross margin ratio of around 77.5% for the full year, excluding non-cash amortization and specified items.

In addition to raising our EPS guidance, our performance this year has also allowed us to increase the level of investment behind both our pipeline opportunities and marketed products.

As a result, we now expect R&D expense to be approximately 15% of sales, reflecting funding actions in support of our pipeline.

And we now expect SG&A expense to be around 26.5% of sales in 2013, reflecting increased investment for continued growth of our key brands, including HUMIRA, where we have identified opportunities to further increase penetration rates across indications.

We continue to forecast net interest expense of approximately $300 million for the full year, and we expect an adjusted tax rate of approximately 22% in 2013.

Our adjusted earnings per share guidance range excludes $0.41 per share of non-cash intangible amortization expense; acquired in-process R&D; and certain specified items primarily associated with separation and ongoing restructuring activities.

We expect that earnings per share will be $2.66 to $2.72 on a GAAP basis.

Regarding our third-quarter outlook, we expect adjusted earnings per share of $0.76 to $0.78.

This excludes roughly $0.13 of specified items and non-cash amortization, resulting in a third-quarter GAAP EPS of $0.63 to $0.65.

Our third-quarter outlook reflects sales growth in the low-single-digits on a reported basis, including a modest negative impact from exchange.

Our sales guidance for the third quarter includes the estimated impact on Trilipix going generic earlier this month, and Niaspan going generic in September.

We expect the gross margin ratio for the quarter to be somewhat above our revised full-year guidance, and we expect R&D and SG&A as a percentage of sales to be in line with our revised full-year outlook.

So, in conclusion, we are very pleased with AbbVie's performance in our first six months as an independent company, as well as our outlook for the remainder of the year.

And with that, I'll turn it back over to Larry.

Thanks, Bill.

We'll now open the call up for questions.

Elan, we'll take our first question.

(Operator Instructions).

Jami Rubin, Goldman Sachs.

Couple questions for you, Scott.

You're on the phone, right?

Are you there, Scott Brun?

Yes.

Hi, Jami.

Okay, great.

So, a couple pipeline-related questions.

Based on your now 2Q 2014 filing timeframe for your all-oral hep C regimen, can you confirm that you are now neck-and-neck with Gilead in this horse race of bringing the all-oral regimen to the market?

And really, most importantly, if you could help us to think about what the trajectory might look like -- because clearly, initially, I think people think there's a lot of low-hanging fruit -- and how are you and Gilead going to complete in the marketplace?

I also think the market assumes that they are going to get the lion's share of the market.

And then secondly, on ABT-199, the potential registrational trial, can you tell us, if the FDA does accept that filing, what is the timeframe for bringing ABT-199 to the market?

And now since Pharmacyclics, J&J, have already filed CLL indication, how do you see that marketplace shaking up?

It seems that it's getting somewhat crowded.

Thanks a lot.

Yes.

Sure thing, Jami.

Why don't I go ahead with the timing and such on the HCV, and then allow Rick to talk a little bit about the market potential.

So, as you said, we are on track for a second-quarter 2014 filing.

Acknowledging it's a very tight race, we're feeling very, very good about our position.

We are very pleased with the progress on the program.

And certainly it is a top priority for us to be able to move as quickly as possible on the filing.

But things are going extremely well in that regard.

Jami, this is Rick.

As far as the market launch, obviously we're planning that these two products will launch very close to one another.

And we do agree there will be a fair amount of pent-up demand.

So we're certainly building up all of the assets we need, to be in a position to be able to have an aggressive launch, and feel good about our ability to be able to compete effectively in this market.

Want to go back to the 199 question?

Yes, sure.

So, with regard to 199, yes, we have just started a large trial looking at ABT-199 as the single agent in the treatment of relapsed/refractory CLL patients who have the 17P deletion mutation, which is certainly traditionally a very hard population to treat.

Indeed, if this trial is acceptable as a registration trial, this could allow us to commercialize ABT-199 in the 2016 timeframe.

Jami, as you said, certainly there's a lot of activity going on with regard to development in the CLL space.

We feel that with the exquisite activity of ABT-199 -- its ability to rapidly reduce tumor burden -- that really provides us a number of opportunities to really transform the way this disease is treated; looking at different paradigms in terms of raising the bar on response, with measures such as minimal residual disease, where you are clearing the body of tumor to a greater extent than we see with traditional response endpoints; and also having the potential to perhaps move away from chronic therapy into more limited duration, and bringing the concept of remission into CLL.

Thank you.

Gregg Gilbert, Bank of America Merrill Lynch.

Thanks, good morning.

Just a couple.

Hoping you could quantify that modest tender timing effect on HUMIRA sales.

Secondly, a bigger-picture question on long-term growth for HUMIRA, as biosimilar versions of products that will compete with HUMIRA become available around the world, curious on your view as to whether we will see more or less therapeutic substitution relative to what we've seen in the small molecule world.

And then I have one follow-up.

Gregg, it's Bill Chase.

The tender effect internationally was about 4%, so if you normalize for that, ex-US growth would've been about 14%.

Thanks.

Gregg, this is Rick.

On the therapeutic substitution, certainly, as we've said all along, we don't believe that in the area of biologics we'll see a therapeutic substitution that's similar to oral solids, that's for sure.

And we still believe that, based on the safety track record of a product like HUMIRA, the broad indications, and all the other attributes of the product, that we would see certainly more modest kinds of erosions compared to anything that you'd see in the oral solid fields.

So, safe to say you don't expect biosimilar versions of other products to create a negative growth scenario for HUMIRA, even if a HUMIRA biosimilar is years off?

Yes, I don't believe it will have a dramatic impact on HUMIRA as an indirect, biosimilar competitor.

Well, especially if it's a biosimilar to Remicade, for instance, which is and infused product relative to an injectable.

So, we think that anything in that space would not have an impact on injectables like HUMIRA and/or Enbrel.

And, lastly, just a question on the testosterone market.

You're obviously big there; and maybe for some time, depending on what you do on biz dev and lifecycle management.

What's going on in that marketplace, other than jockeying for contracting physicians -- formulary physicians?

What's up with the growth rate there, and what can get that turned around?

Thanks.

It's Bill Chase again.

The growth rate has definitely slowed down versus what we saw last year.

The growth in the market, year-to-date through May, is around 9%.

We are seeing some account losses due to competitive pricing.

But that said, we're maintaining over 60% share.

There's a fair amount of churn in the market.

We still think AndroGel is a very, very important brand.

And we're confident that the sales remain flat through the year.

The 1.62% version of the product now accounts for about two-thirds of the overall AndroGel franchise, as well.

Thanks, guys.

David Risinger, Morgan Stanley.

Yes, thanks very much.

I have a couple questions.

First, in terms of our model, the international HUMIRA sales were slightly above; the US were slightly below.

I'm just hoping that you could provide a little bit more color on the US performance of up 16% year-over-year.

Was there any stocking or destocking in the year-ago quarter, or in this quarter?

And how should we think about second-half US sales growth for HUMIRA?

And then my second question is, with respect to Duodopa, could you just update us on the potential approval timing, and whether to expect a panel?

Thanks very much.

So, David, this is Bill Chase.

On HUMIRA, I think the clearest thing to look at is the script trends, which in the quarter were about 10% to 11% up on HUMIRA.

We obviously did have an impact of price, so when you add it up, that 16% was impacted somewhat by some channel changes in the quarter.

We're very, very pleased with that growth and we're seeing no slowdown whatsoever in the United States.

For the full year, we expect growth to be in the mid-single digits, roughly split between price and volume in the US.

And things are going very, very well.

Did you say mid-single-digit?

Well, the outlook for HUMIRA globally as 14% to 15% this year.

And as Bill said in his remarks, in the third quarter we also expect global growth to be in the 14% to 15%.

But US specifically, David, there really shouldn't be a whole lot of deviation from scipts plus price.

And as Bill mentioned, there's obviously always a little bit of puts and takes with the channel as well.

And, David, the US growth is mid-double digits, not mid-single.

I'm sorry.

Got it.

Made you a little nervous there for a second (laughter).

Sorry about that.

David, hi.

It's Scott Brun.

I can take the Duopa question.

So, as you know with Duopa, we've got a somewhat unique drug device combination system.

Consequently, we did have some data formatting questions of an administrative nature from FDA.

We worked through those; addressed them.

The NDA is filed.

We're on a 2014 timeline.

Right now, we don't have any sense that there is going to be a panel, but certainly as the review progresses we'll be able to update you on that front.

And in terms of the 2014 timeline, any more clarity?

First half, second half?

I think we could go ahead and say first half on that.

Thank you.

Steve Scala, Cowen.

Thank you.

I have two questions on HUMIRA.

You mentioned that the Company has identified opportunities to further penetrate existing markets.

I'm wondering if you would elaborate and quantify the magnitude of those opportunities.

Then secondly, AbbVie has previously said that HUMIRA has a patent portfolio, including over 250 granted or pending patents.

Are there any patents in that estate that, if investors knew their full nature and content, then investors would have a substantially different view of the duration and potential of the franchise beyond 2016 and 2018?

So, I'm not asking for you to identify the intellectual property or tell us what it is.

But since you know what it is, I'm just wondering whether we would have a very different view if we were aware of that data.

Thank you.

Okay.

This is Rick, Steve.

First, on the penetration, we've talked extensively about these markets still are penetrated at relatively modest levels.

So a lot of our activity is really driving the growth of HUMIRA across most indications is driven to a great extent by increased penetration and new indications.

So, I don't know that I can quantify it for you much more than that.

But it's a substantial part of what we do see in growth; as well as in certain markets, we're seeing some additional market share.

As far as the patents are concerned, obviously that's a highly sensitive issue for us, from a competitive standpoint.

So, I wouldn't give you any more color other than to say, obviously we're looking at our patent estate in a very appropriate and aggressive way, that we will ensure that no one violates those patents.

And I'm probably not willing to give you much more color than that.

Thank you.

Jeff Holford, Jefferies.

Good morning.

Thanks for taking my questions.

So, first of all on HUMIRA, following the axial SpA panel, do you have any different view coming out of that on what the potential bolt-on indication revenue potential is for HUMIRA?

Just secondly, do you have in mind, based on what you know about Phase 3 read outs, when you would actually present your Phase 3 registration set of data for hep C?

Would we expect EASL next year to be the most likely venue for that?

Thank you.

Hi, Jeff, Scott Brun.

Why don't I go ahead and take the HCV first?

So, yes, certainly, it is our plan to have some significant data disclosures of the Phase 3 program at EASL for next year.

Certainly our full data disclosure plan is still in the works.

And then, Jeff, on axial SpA, axial SpA is a relatively modest opportunity, from our perspective, in the US.

We'd still like to get a label claim going forward, but it's something less than $100 million.

Really the big opportunity for axial SpA is in Europe, where it's already approved.

And so it doesn't have any kind of significant magnitude of impact on the overall growth of HUMIRA.

Thanks very much.

Chris Schott, JPMC.

Great.

Thanks very much.

Just two questions here.

First on ABT-126, can you talk a little bit about the dosage you're looking at in the Phase 2b, relative to the data that was presented a few weeks ago?

And then secondly on that product, it seems like the use here most likely might be in combination with Aricept in Alzheimer's.

Can you just talk about your confidence that there will be an additive benefit on top of Aricept?

I think the data so far has been more in a monotherapy setting.

And then the final question, coming back to biosimilar Remicade and the recommendation of a full label there, were you surprised at all with the full label?

And what are the implications of that for HUMIRA as we think about potential biosimilar competitors, and the amount of clinical work they'll need to get a broad label as we look at the European market?

Thanks very much.

Why don't I go ahead and -- Scott Brun, Chris -- on the ABT-126.

As you referenced, we recently presented proof-of-concept data looking at ABT-126 as monotherapy in the mild to moderate Alzheimer's disease segment.

And, certainly, what we saw there prompted us to move into our Phase 2b trials.

I will say we are studying a higher dose range.

I don't want to specifically disclose the doses that we're looking at now, because this, as you know, is quite a competitive area.

But the Phase 2b program has both monotherapy as well as add-on to Aricept trials.

Certainly with regard to the mechanism of a nicotinic neuronal agonist, we certainly think that there is potential for add-on or synergy with regard to cholinergic mechanism by which Aricept results in its activity.

Okay.

And then, Chris, this is Rick.

On the biosimilar -- I tell you we were surprised by the recommendation being brought without, at least to our knowledge, any clinical data to be able to support it.

I'd say our position is.

we don't think that's in the best interest of patients.

It's clearly unprecedented to have a biologic that you're going to get, ultimately, an indication for, that you've never studied in humans.

And I'd say most of the feedback we get from physicians in Europe, particularly GI physicians, I'd say, is that they want to see data in here.

So we'll have to see how it plays out.

There's a lot of time between now and the time HUMIRA will potentially face biosimilar competition.

So it's a little early to speculate how that might impact HUMIRA one way or another.

I think we'll have to see how it plays out.

Thank you.

Marc Goodman, UBS.

Good morning, Bill.

Morning.

You talked about extra spending because you're doing better on the top line.

So that spending -- look like it was in the $100 million range in the quarter, and it's going to be several hundred million for the year.

So, is it all HUMIRA, or are you going to spend on other things?

Are you increasing salesforces there, or is it just marketing?

And can you give us a sense -- is this US, or is it overseas?

Second question is on HUMIRA.

Can you just give us a sense of the GI part of it, the indication, and how much that's helping?

If you can quantify it, that would be great.

And then, third, on Synagis, can you just help us understand how this product does, quarter-to-quarter?

What kind of timing we need to be thinking about, just in modeling it quarter-to-quarter?

And what happened this quarter, relative to last quarter?

Thanks.

Okay, Marc, it's Bill Chase.

On the spending, you're correct.

On our guidance we are raising profile for both R&D and SG&A.

And what you're seeing there is really two different things.

First of all, on the R&D front, we've got a lot of programs that are very, very exciting.

We're moving to continue to develop those as rapidly as we possibly can, and we think that's the right thing to do for the long-term.

On the promotional front, on the SG&A front, yes, I think the strong performance of our growth brands has shown that that's been very, very effective use of investment.

And we are going to continue to invest heavily in those brands to make sure that we reach their full-year potential.

So, that's what you're seeing.

The expense is really on a global basis on the marketing side.

And certainly on the R&D side, it's across the entire pipeline.

Synagis -- you had asked about the timing of the quarters.

What you'll see what this product is typically the sales are more heavily weighted to the fourth and first quarters of the year.

This year.

it was obviously much -- this quarter was obviously much lower based on that gating.

But typically the bulk of those sales fall in the fourth and first quarters.

And then with GI -- again, the gastro segment winds up being probably the fastest-growing segment of HUMIRA.

We've been very, very pleased with both the market growth and our share growth, where we are actually capturing share.

And that's going to be a big part of the HUMIRA story as it develops over the next couple of years.

Yes, you know the blended gastro share for us in the US is up about 5 points.

And a lot of that has to do with not only the strength in the UC launch, but just in general, the marketplace around gastro.

In ex-US markets, in Europe in particular, we've probably gained about a 20% share already in the UC space.

So the launch of UC is off to a great start for us.

Our next question?

Tony Butler, Barclays.

Thanks very much.

Scott, can I get you to outline for us the HCV program in Japan?

Rick, may I ask you a question around the market in HCV in the US for -- do you know the net number of patients that are actually treated today by -- under the care of a physician?

And then, finally, Bill, one for you -- the $70 million outlined payment was not counted in the non-GAAP earnings.

I think that obviously was cash.

And so I'm just curious, would that be a consistent practice that AbbVie would do, with respect to royalty payments and upfront payments for collaborations, not only in this quarter but in the future?

Thanks very much.

Tony, Scott Brun.

I'll start with the HCV Japan question.

So, as you know, the epidemiology of HCV in Japan is very specific; very highly weighted to genotype 1B, and then genotype 2. As a consequence, our regiment under Phase 2 study right there is a co-formulation of the protease inhibitor, ABT-450 with the NS5A 267, and the ritonavir boost, resulting in a two-pill, once-a-day regimen.

We're far advanced in our Phase 2 program, and in ongoing discussions with PMDA regarding the transition to Phase 3.

And on the Alvine payment, you're correct.

IP R&D, we treat as an item which we exclude from our non-GAAP estimates, and that is our practice.

And, Kelly, as far as number of patients being treated, the data obviously moves around a little bit.

But the latest data that we've looked at historically -- if you look at 2011, roughly 175,000 patients in the G7 were treated.

We expect that to grow with these next-generation products to somewhere in the neighborhood of 2X that, based on the capacity that we see in the marketplace from a clinical standpoint.

Thank you very much.

Alex Arfaei, BMO Capital Markets.

Good morning.

Thank you for taking the questions.

First on ABT-199, based on what we saw at ASCO, you seem to have a pretty compelling argument in the relapsed/refractory CLL setting.

I'm just wondering if there's been any progress on tumor lysis syndrome, the concern there.

And then a follow-up on the Galapagos JAK1 -- this Phase 2a in RA at EULAR was a bit disappointing.

I'm just wondering if you could comment on the potential of that drug in RA from your perspective.

Thank you.

Sure.

Scott Brun.

So, let me start with the ABT-199.

Yes, no, we agree that actually 199 has promised not only in relapsing/refractory CLL, but across a number of hematologic malignancies.

With regard to tumor lysis syndrome, which is a direct consequence of the exquisite potency of 199, we have been enrolling CLL patients with a revised dosing schedule, where we start at a lower dose and ramp up at a more slow rate.

And so far, so good, with regard to the patients that we have been treating under that new protocol.

So, again, we have a number of CLL studies that are actively enrolling right now.

And we will continue to accrue more data with this new approach.

With regard to the Galapagos data, we're certainly not disappointed in the results.

I think you need to be aware that the data that was generated included relatively small cohorts of 15 to 20 patients.

And while, yes, you can single out specific response metrics and bring up some questions with regard to what they mean, if you look the aggregate across all of the measures included in this study -- the DAS28, the various ACRs -- we feel that there is a very clear dose response relationship that, again, we're going to characterize much more clearly in the large Phase 2b study that includes a variety of doses.

Thank you.

Thanks, Alex.

Operator, I think we have time for one more question.

Damien Conover, Morningstar.

Great.

Good morning.

Thanks for taking the questions.

Just two questions.

First one, given the recent recommendation by the US Preventative Task Force to provide hepatitis C diagnostic testing, I was wondering if you thought there would be an increase in the relatively low amount of patients that are currently diagnosed.

And also whether or not you think Medicare will start to pay for the diagnostic testing, outside of folks that are currently higher-risk patients.

And then just one other quick question -- on the Patient-Centered Outcomes Research Institute, one of their first head-to-head studies is looking at comparative effectiveness from an anti-TNF alpha versus steroids for Crohn's and UC.

And I just wanted to see how well you feel HUMIRA is positioned against steroids.

And then also, just generally speaking within this patient group, these patients have refractory to steroid treatment?

Or do they generally move right on to HUMIRA?

Thank you.

Okay.

Scott Brun.

Why don't I go ahead with the HUMIRA question?

So, certainly I can't speak to the details of the comparative effectiveness trial that you're referring to.

But, certainly, we feel the data that we have generated to date demonstrates the very compelling activity that HUMIRA provides in these steroid refractory patients.

I think you need to be somewhat careful depending on the design of these comparative effectiveness trials.

Certainly we've seen other type trials that, again, with real-world experience, if you're not carefully randomizing, there can be biases with regard to how patients are included on certain treatments that could limit interpretation.

And, again, I apologize, I can't provide more specifics on this design since I'm not familiar with it.

Okay.

And, Damien, this is Rick Gonzalez.

As far as the HCV diagnosis, it's fairly well known that there are large number of patients in the G7 that are still undiagnosed, and in the US as well.

And so I think screening more patients to find out those patients that are infected are a good thing; both the patients as well as the market itself.

I think as far as the expansion -- clearly, we can see greater numbers of patients being treated, as more and more physician capacity comes online.

And we'll have to see how that plays out over time.

Even without that, this is a very, very large market.

And your final point was, as far as Medicare paying for it.

I think that's a little tough for us to call one way or another.

With the recommendation, I think there's certainly a higher likelihood of that, but a little hard to judge at this point.

Great, thank you.

Thanks, Damien.

And that concludes today's conference call.

If you'd like to listen to a replay of the call after 11 AM Central Time today, go to AbbVie's investor relations website at www.abbvieinvestor.com, or call 888-568-0512, passcode 72613.

The audio replay will be available until midnight on Friday, August 9. And thanks again for joining us today.

If you have any follow-up questions, feel free to give the IR team a call.

Thanks.

Thank you.

And this does conclude today's conference.

You may disconnect at this time.