艾伯維 (ABBV) 2013 Q3 法說會逐字稿

Good morning and thank you for standing by. Welcome to the AbbVie third-quarter 2013 earnings conference 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 express 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 are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; 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.

Rick will begin by discussing AbbVie's results from the third quarter as well as highlights from our commercial portfolio and upcoming pipeline milestones. Following Rick's comments, Bill will provide a more detailed review of our third-quarter performance and then give an update to our outlook for the remainder of 2013. Following our comments we will 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 at www.abbvieinvestor.com.

So with that I will now turn the call over to Rick.

Thank you, Larry. Good morning, everyone, and thank you for joining us. Today we reported strong third-quarter results with adjusted earnings per share of $0.82, exceeding our guidance range for the quarter. Our performance demonstrates the strength and durability of our portfolio, as we delivered these results despite the continued impact of generic competition on our lipid franchise.

Today we also raised our full-year EPS guidance for 2013, reflecting the high level of execution we have demonstrated this year.

As we embarked on this year we set forth several key priorities for our business, including a seamless transition to operating as an independent entity; maximizing the performance of our current product portfolio; advancing our pipeline, including our late-stage HCV program and other key assets; and delivering operational efficiencies. As we assess our progress, I believe we have met or exceeded expectations on our strategic objectives.

I am pleased with the performance of our product portfolio including Humira, which delivered more than 19% global operational growth in the quarter. This strong growth was driven by several factors, including continued robust market growth resulting from increasing penetration across therapeutic categories and geographies; market share gains, particularly in the GI segment where our UC launch is progressing ahead of our expectations; and we delivered this performance despite the entry of new competitors into the category.

As we have indicated in the past, Humira's broad label and new indications are a competitive advantage, and UC -- this is the latest example of that. We have launched the UC indication in a number of key countries and it quickly gained meaningful market share.

We are working to secure market access and reimbursement in a number of additional markets in the coming months. To date, in Western Europe we are currently capturing roughly 25% of the UC market. In the US, the UC indication has contributed significantly to our strong performance in the IBD market, as Humira is now the market-leading biologic in the GI category.

We continue to pursue Humira in several other indications which are currently in late-stage development. Earlier this month we presented Phase 2 data in patients with HS, a chronic inflammatory skin condition. Our Phase 3 trials are fully enrolled, and we are targeting commercialization of this indication in the 2015 time frame. Given the lack of effective treatment options, we believe HS could represent a several hundred million dollar peak year opportunity for us.

Humira continues to gain or hold market share across all indications. As I mentioned earlier, our strong UC launch has helped us attain the number-one position in the GI category. We also hold the number-one market share position in dermatology, and we continue to hold steady share in rheumatology despite the entry of new competitors.

We have been very pleased with Humira's exceptional performance this year, and we are well on track to achieve our 2013 guidance for the product.

Beyond Humira we also saw strong performance from several other products including Creon, Synthroid, Zemplar, Synagis, and Duodopa. Though certainly not as high profile as Humira, we have been pleased with the performance of these durable and growing brands.

In the quarter we also make good progress on other key strategic objectives. We continue to drive operational efficiencies, including gross margin improvement which Bill will discuss in more detail in his remarks. And we have begun the process of creating our own efficient back-office infrastructure that is more appropriate for an independent biopharmaceutical company.

In addition to our strong commercial and operational performance, we have also made significant progress on our pipeline, where we have placed a tremendous amount of focus. As we evaluate our pipeline prospects, including the number and potential of the opportunities, we believe our pipeline is the healthiest it has ever been.

In addition to assets currently in late-stage, such as HCV, daclizumab, elagolix, atrasentan, and elotuzumab, we are on the cusp of transitioning several additional programs into Phase 3 development, including but not limited to ABT-199 for CLL and ABT-888 for select solid tumors. And we expect continued pipeline advancement between now and the end of 2014, including late-stage trial completions, regulatory filings, and new product approvals.

Let me now provide you with an overview of some of the key highlights in our pipeline. We expect numerous HCV data milestones to be achieved, including the results from our six Phase 3 interferon-free combination studies, starting later this year and into early 2014. We will also present data from these studies at EASL in April and other medical meetings throughout the course of 2014.

We remain on track with our US and EMA regulatory submissions in the second quarter of 2014. And in anticipation of an early 2015 commercialization, we are actively building the appropriate infrastructure including medical affairs personnel and our sales organizations.

We will present data from our Phase 2 HCV program in Asia and plan to start our Phase 3 program in Japan in the first half of 2014. Japan represents the second-largest HCV market globally, and we believe we are well positioned relative to competitive offerings.

Given the prevalence of genotype 1b in the region we plan to advance our 12-week 2-DAA treatment in this area. We also have strong commercial presence in Japan which has been in place for a number of years.

We remain on track to start our Phase 2 studies of our next-generation HCV compounds by the end of this year. As a reminder, our next-generation assets include a potent protease inhibitor, ABT-493, and our new NS5A inhibitor, ABT-530.

In preclinical studies, these promising assets have shown pan-genotypic activity and excellent activity against key resistant mutants. These assets also support once-daily dosing as well as the ability to co-formulate. Commercialization of our next-generation compounds could occur in the 2017 time frame.

Now moving to our oncology pipeline, we will see continued dataflow from our Bcl-2 inhibitor, ABT-199. The Phase 2 single-agent study in previously treated CLL patients with 17p deletion will likely read out at the end of 2014.

Additionally, the Phase 3 comparative study of ABT-199 plus Rituxan, versus Rituxan plus chemotherapy, in patients with relapsed refractory CLL will begin in early 2014. The ongoing studies of ABT-199 will continue to collect data, and in 2014 will present data demonstrating the durability of the treatment effect. We also expect to present combination treatment data as well as results from some of our ongoing studies in other cancer types.

A number of our mid-stage studies of our PARP inhibitor, ABT-888, will also read out in the coming months and throughout 2014, beginning with data that will be presented at the San Antonio Breast Cancer Symposium this December.

From our neuroscience pipeline, in 2014 we will present data from our alpha-7 NNR agonist, ABT-126, which is currently being studied in Alzheimer's disease and cognitive impairment associated with schizophrenia.

We will also see data from the second of our two registrational studies for daclizumab in mid-2014. As a reminder, that study, the DECIDE trial, is somewhat unique in that it is designed to show reduction of annualized relapse rates and disability progression in patients with relapsing/remitting multiple sclerosis versus an active comparator. Assuming favorable results, we plan to submit the regulatory application for daclizumab in the second half of 2014.

We will also see initial data from the first of two pivotal studies of elagolix in endometriosis in the second half of 2014.

Finally, we look forward to seeing Phase 2b data in RA from our partnered selective JAK-1 inhibitor late next year.

We continue to augment our pipeline through a concerted, focused effort on strategic licensing, acquisitions, and partnering activity. We have targeted large and growing specialty-focused therapeutic areas that enhance our current franchises and our emerging pipelines.

In recent years we have added more than a dozen promising assets to our portfolio. Last month, we announced two new collaborations.

First, we entered into a global licensing agreement with Ablynx to develop and commercialize an anti-IL-6 nanobody for autoimmune diseases including rheumatoid arthritis and lupus. Early clinical work in RA has shown promise; and given the molecule's unique characteristics we believe there is room for therapeutic differentiation here.

In addition we entered into a global alliance with Galapagos to discover and develop novel therapies for cystic fibrosis, where there is still a significant unmet need.

In closing, as we approach the end of our first year as an independent company, we feel very good about the progress we have made executing our key strategic priorities. We are pleased with our performance this quarter, where we saw strength across our portfolio, including double-digit growth from Humira and growth from a number of other products.

We are taking the necessary steps to build a more efficient organization as we move to a fully independent operating environment beginning in 2015. And we have made significant progress advancing our pipeline, and look forward to a number of key milestones in the months ahead.

With that I will turn the call over to Bill for a more detailed view of our results. Bill?

Thank you, Rick. This morning I will start with an overview of our third-quarter performance and then I will provide an update to our 2013 outlook.

In addition to delivering strong top-line growth in the third quarter, we again exceeded our earnings-per-share guidance. Third-quarter adjusted EPS was $0.82, excluding non-cash intangible amortization expense and specified items. On a GAAP basis, earnings per share were $0.60.

Total sales in the third quarter increased 3.6% on an operational basis, which excludes an unfavorable 0.3% impact from foreign exchange. Excluding TriCor and Trilipix, which are experiencing a loss of exclusivity, total sales increased 10.9% on an operational basis.

Third-quarter growth was led by Humira, which had global sales of nearly $2.8 billion, up 19.1%. As Rick mentioned, we continue to see a positive impact from the launch of the UC indication, which has helped us gain significant share in the global gastro market.

In the US, Humira sales increased 22.3%, reflecting continued robust market expansion as well as share gains in dermatology and gastroenterology. Internationally, Humira sales grew 16% on an operational basis, with many markets continuing to grow strong double digits. Share gains and continued uptake of new indications are contributing to the growth.

International sales in the quarter also benefited to some extent from the timing of tenders. As a result, we are forecasting slower international Humira growth in the fourth quarter.

AndroGel sales were $248 million in the third quarter, down 11.1% versus the prior year, reflecting continued moderation of market growth, rebating actions from the second half of last year, and certain account losses in early 2013. AndroGel remains the testosterone replacement market leader, with more than 60% share, and achieved share gains in the last quarter.

As expected, all the products in our lipid franchise are now experiencing generic competition. US sales of Niaspan were $201 million, down 13.4% due to the launch of a generic niacin in mid-September. TriCor/Trilipix sales were $39 million, down 88.3% versus the third quarter of 2012.

Though sales across the lipid franchise declined in the third quarter, they did perform better than we had forecast. We continue to expect full-year 2013 sales of less than $1 billion for our combined lipid portfolio reflecting a decline of roughly $1.2 billion. As we have said previously, this decline will be most pronounced in the fourth quarter, when the full impact of Niaspan's loss of exclusivity will be felt.

Global Lupron sales were nearly $196 million in the quarter, up 4.2% on an operational basis. Lupron continues to hold a leadership position and maintain significant share of the market.

US sales of Synthroid were $161 million in the quarter, up 22.9%. 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 Creon sales were $101 million in the third quarter, up 9.8%. The launch of our 36,000 lipase unit dose earlier this year continues to positively impact sales performance.

Creon maintains its leadership position in the pancreatic enzyme market, where we continue to capture the vast majority of new prescription starts. We expect double-digit sales growth for Creon in 2013.

Sales of Duodopa, our therapy for advanced Parkinson's disease, grew 18.9% on an operational basis this quarter. Duodopa is currently approved in Europe and other international markets.

Moving on to our P&L profile, third-quarter adjusted gross margin ratio was 79.7%, excluding intangible asset amortization and other specified items. This was above our expectations for the quarter, driven by operational efficiencies and product mix across our portfolio, including Humira and better-than-expected performance of our high-margin lipid franchise.

Adjusted SG&A was 26.1% of sales in the third quarter, in line with our expectations, and reflected heightened investment of our growth brands. Adjusted R&D was 15.2% of sales in the quarter, driven by increased funding of our emerging mid- and late-stage pipeline assets and the continued pursuit of additional Humira indications.

Net interest expense was $69 million in the quarter, and the adjusted tax rate was 22.3%.

Turning now to our full-year 2013 outlook, we are raising our adjusted earnings per share guidance range to $3.11 to $3.13. This updated guidance contemplates sales somewhat above $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 somewhat less than 1% for the full year.

We are now forecasting a gross margin ratio of around 78% for the year, excluding non-cash amortization and specified items. This reflects our efforts to improve operational efficiencies as well as product mix, including the better-than-expected sales of our lipid franchise in the first three quarters.

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 somewhat above 15% of sales, reflecting funding actions in support of our pipeline. And we now expect SG&A expense to be approximately 27% of sales in 2013, reflecting increased investment in our key brands, including Humira, where we are pursuing opportunities to further increase penetration rates across indications.

We are forecasting net interest expense of about $280 million for the full year, and we continue to expect an adjusted tax rate of approximately 22% in 2013.

Our adjusted earnings per share guidance range for the year excludes $0.57 per share related to amortization expense, acquired IPR&D, and ongoing separation and restructuring costs. We expect that earnings per share will be $2.54 to 2.56 on a GAAP basis.

Regarding the fourth quarter, we expect sales approaching $5 billion, reflecting a mid-single-digit decline on a reported basis, which includes a negative impact from exchange of approximately 0.5%. Our sales guidance for the fourth quarter includes continued impact of the loss of exclusivity for TriCor/Trilipix, as well as the full impact of Niaspan going generic, since this occurred late in the third quarter.

We expect the adjusted gross margin ratio for the quarter to be around 77%. We are forecasting fourth-quarter SG&A somewhat below our full-year estimate, and we expect R&D to be somewhat above our revised full-year guidance.

So in conclusion, we are very pleased with AbbVie's performance again this quarter as well as our outlook for the remainder of the first year as an independent company. And with that I will turn it back over to Larry.

Thanks, Bill. We will now open the call up for questions. Wendy, we will take our first question now, please.

(Operator Instructions) David Risinger, Morgan Stanley.

I have a couple questions. First of all, on hepatitis C, could you just update us on the top-line press release strategy and potential timing? So what studies we're likely to see top-line releases on, on the front end of the schedule, versus for example in early 2014. That is my first question.

Second, could you talk about the hep C pill burden from payer and physician perspectives? It is not clear to me that payers and physicians will care about the number of pills for 12-week treatments, and I am guessing that is your viewpoint as well. But just wanted to hear your perspective on what you're hearing about pill burden for short-duration treatments and whether payers and physicians will care or not.

And then third, with respect to ABT-126 as an add-on for both Alzheimer's and schizophrenia, could you just remind us when we should expect top-line press releases in both Alzheimer's and schizophrenia? Thanks very much.

David, good morning. It's Scott Brun. Why don't I go ahead and take those? Again, with regard to the Phase 3 hepatitis C program, all six studies as you know are fully enrolled, and we are very pleased with the progress that we are making there.

We will be releasing data as top-line press releases later this year and moving into early 2014. I don't want to get into the specifics with regard to which studies are going to be released. But certainly when you look at all six, each of them is quite large, involving several hundred patients. Again, looking at a variety of different contexts from treatment-naive, treatment-experienced, cirrhotic patients; so I think certainly each study or set of studies that we release will certainly help to provide some very solid evidence with regard to the performance of the regimen. But again, look for us to start those releases later this year.

With regard to the pill burden, I think, as you noted, David, with regard to the payers as well as the clinicians that we have spoken to, cure or sustained virologic response is really king here. And when you consider a short-term regimen, whether or not you're talking one pill, four pills, really what is going to trump everything is -- how well is it going to perform with regard to eliminating the virus?

Certainly with regard to the performance that we have seen so far of our regimen in AVIATOR, in both treatment-naive and treatment-experienced patients, SVR 12 rates ranging from the mid to high 90% range, as well as tolerability reflected by discontinuation rates for adverse events less than 2%, we really don't feel that the pill burden is going to be material to clinicians, to payers, or for that matter to patients, who are really looking to eliminate this virus.

Finally, with regard to ABT-126, the alpha-7 NNR, we are looking in Alzheimer's disease both as a monotherapy treatment as well as an add-on to donepezil. And then in cognitive impairments associated with schizophrenia, we are looking -- we are evaluating the drug as a monotherapy.

We will begin to see data in Alzheimer's very late this year and certainly releases would probably be expected sometime within the first part of 2014. The schizophrenia data likely coming a bit later, within 2014.

Thank you.

Jeff Holford, Jefferies.

Hi. Thanks for taking my question. Just firstly, I wonder if you can just give us a bit more color on the Humira sales, potentially splitting them by the main indications, if you can, for the quarter.

Secondly, on ABT-199 I was interested just the way you put it in the press release, that it is a large single-agent steady, you described it, as with ABT-199 in the 17p deletion patients. Now that is likely to read out by the end of next year.

Could that potentially be an early filing for that specific population? That is my question.

And then just lastly, I noticed that share count was down more than expected during the quarter. Can you just talk a little bit about capital allocation and just how you are thinking about share repurchases going forward? Thank you.

Okay. Thanks, Jeff. Let me start with the Humira sales breakdown; Scott will cover the 199 question; and Bill can talk about capital allocation at the end, with Rick if necessary.

In terms of our mix right now, it is interesting that in the US RA is now in the high 30% range; it is a little below 40% of our total US sales. Gastro is about a quarter of our sales. Psoriasis right now is about 15% or so of sales. And the remainder is in the spondo area, the psoriatic arthritis, ankylosing spondylitis, those types of indications.

It is similar ex-US. I would say RA is probably in the mid-30% of the ex-US franchise. Psoriasis again is down in that 14%, 15% range. SPA ex-US is approaching 30%, and again gastro is probably about a quarter of our sales. So hopefully that gives you a pretty good feel of how the sales mix up today.

So I would characterize it as a pretty diverse basket of sales across those four different categories.

Jeff, why don't I go ahead and take your question on ABT-199, our first-in-class Bcl-2 inhibitor. You are right; we are currently enrolling a large study in relapsed/refractory CLL patients with the 17p deletion/mutation. Certainly a very hard to treat population.

And if the results from this study look similar to results in this population that we presented before, with an overall response rate above 80%, complete response rate of 18%, we certainly think that there is the potential to be able to move forward with a filing on the basis of addressing an unmet medical need. Certainly as Rick noted, though, we are also beginning in collaboration with our partner a large Phase 3 traditional study that will compare 199 with Rituxan in a chemotherapy-free regimen to a more standard chemo-containing regimen.

Jeff, it's Bill Chase. We have been pretty consistent on our capital allocation story this year. First and foremost, this is a business that generates very, very healthy cash flow. The first thing we are going to do with that cash flow is make sure that we reinvest in the business.

You have seen some good progress on the deal front this year with a number of compounds announced. And certainly we continue to build out our infrastructure with capital expense, that sort of thing. So that is first and foremost.

Second, the dividend is a very, very important piece of our investor identity. We have set the dividend at a very competitive payout ratio relative to our peers.

We have been pretty clear that we intend to grow that dividend over time, probably more modestly in 2014 given some of the challenges with the lipid business, but growing it nevertheless. And I think you can expect to see that payout ratio creep up as a result.

After that, we would like to try to pay down a little bit of debt. We think that would be the right thing to do, given our balance sheet.

And then above and beyond that, capital cash will build, and that will be a valuable source of liquidity and flexibility for the Company.

Thank you.

We do have a buyback program, Jeff, but that is primarily geared to offset dilution of compensation programs.

Thanks very much.

Steve Scala, Cowen.

Thank you. I have two questions. I appreciate that you are not giving guidance for 2014. But when we think about the spending levels in 2014, given the need to develop and roll out the pipeline, how would you compare spending in 2014 to 2013 on a percent of sales basis?

Secondly, you have done a good job of downplaying the 250 filed and pending patents around Humira. Is that how you want us to view the patent estate, as of limited ability to blunt potential biosimilars as patents expire in 2017 or 2018? I must admit I am surprised that the estate has no patents which could provide obstacles for biosimilars when they come around. Thank you very much.

This is Rick, Steve. Let me start with your investment question. We are obviously going through our planning process right now, so we haven't finalized any investment decisions yet as to how we're going to proceed forward in 2014. But what I would say is you should think about it from this perspective.

One, as I indicated in my remarks, we are going to prepare to have a very effective launch of HCV and we need to build that infrastructure in 2014 to be prepared to launch in the early part of 2015. That is going to require incremental investment.

The second thing is we could have as many as seven or eight assets in Phase 3 development during 2014, and we are obviously going to fund those Phase 3 assets to be able to get them to the market as quickly as possible. So I think there will be some increased investment, but we are just not in a position yet to be able to tell you what that looks like. So I think that is how you ought to be thinking about it, and we will get more guidance in the fourth quarter as to what that looks like.

The second thing is, maybe I'd answer your question a little bit differently. As you look at how we think about biosimilars, maybe let me walk you through our thought process around them, because I think it helps answer your question.

We certainly feel good about the patent portfolio that we have. And I would not interpret it as we don't believe that it provides a level of protection.

Quite the contrary. I believe it does and will provide a significant level of protection. And we certainly intend to enforce our patents and make sure no one violates those patents. But we are not going to talk a lot about specific patents.

But more importantly, I think you have to look at the whole biosimilar situation in a broader perspective. I tell you that we fundamentally don't view the biosimilar market as a very attractive market.

Frankly, we could get into the biosimilar market easily. We looked at it actually a couple of times as to whether or not we wanted to get into it. We certainly have the capabilities from an R&D standpoint as well as a manufacturing standpoint.

We decided not to get into it for three fundamental reasons. If you look at biosimilars and you really analyze the ability of biosimilars to perform in this market, I think it raises a lot of questions. Patents are only one of those.

There are three basic areas that we have looked at and made a determination that it is not a very attractive business. Number one is the predictability of commercial success. Number two is the return on the investment versus other pipeline opportunities that we have. Number three is the risk around patents and other things, as well as the fact that you don't control your own destiny.

So let me walk you through each one to at least give you our view of it. If you think about the predictability of commercial success in biosimilars and you take the anti-TNF market as an example, it is a difficult market even for differentiated, innovative products to carve out much share. Literally six or seven products have been introduced into that market in the last six or seven years, and they have all gotten 2% or 3% market share. So it is a tough market to break your way into.

And these are differentiated products. Biosimilars have no differentiation at all from an efficacy or safety standpoint. In fact, I could argue with you that biosimilars, because they don't have a long safety database, they are at some disadvantage from a safety standpoint.

And if they ran noninferiority trials they can basically say they are no worse than X versus the innovator product. So they really have no differentiation.

The only way that can compete for market share is on price, and if the innovator chooses to respond to that in some form or fashion, it is very difficult to build models that suggest that you're going to get any significant share in this market.

So that really brings you to the second part of the analysis, and that is the return on investment. So if you think about modest share gains and what kind of pricing you would have to go out at with a biosimilar strategy, in our analysis it says you have to make six or eight different biosimilars to have a meaningful impact on the business.

When you develop six or eight biosimilars, the investment to be able to do that is more than a single innovative product, and it approaches pretty close to two innovative products. So I guess if the only thing you had in your pipeline was this, you might invest in it; but, frankly, when we stack it up against the things that we have, we wouldn't trade off six or eight biosimilars for a couple of our innovative products. We just don't see a good return on investment there.

Then, frankly, there is the last part that you pointed out and that is risk and controlling your own destiny. If you are going to do six or eight biosimilar products you are going to be walking your way through an absolute minefield of IP. Thousands of patents around all of these products, and you have to make sure that you don't step on any one of them along the way, because that is going to create a big problem for you. Because I can assure you, just like us, every innovator is going to protect their patent position.

The second thing is you are at the mercy of the innovator, that if they change the formulation or they change the device or they somehow innovate the product along the way, then you are at a disadvantage. So as we look at all these things, we ultimately don't believe that it is a good place to be.

And, frankly, it probably gives you some picture into how we view some of our defense strategies as well is how we view how to compete in this marketplace. So hopefully that gives you some perspective on it.

That's great. Thank you.

Vamil Divan, Credit Suisse.

Yes, thanks for taking the questions. Just one on Humira. Again, I appreciate the color you gave on the quarter.

Can you talk a little bit about the payer dynamics there, if there was anything specific over the quarter? We saw some stuff from prominent PBMs around formulary decisions. Anything that impacted the quarter? And also maybe more looking out near to medium term, how you see that changing.

Then second one, just on 199 if I could. Appreciate the comments around the studies that are ongoing. Just wondering when we might start thinking about you looking at other non-CLL indications. We have seen some excitement from thought leaders about potentially moving this product into those areas. Thanks.

Yes, why don't I go ahead and I will start with the 199 question. Scott Brun again.

We already have some studies ongoing in non-CLL indications such as non-Hodgkin's lymphoma, diffuse large B-cell lymphoma, and certainly you will be seeing some more of those data next year. And we continue to look at other opportunities within hematologic malignancies, things like potentially AML as well as looking at multiple myeloma.

Plus we are assessing the potential for the Bcl-2 mechanism to have applicability in solid tumors. So all of that work -- some of it already ongoing and much to be initiated in the not-too-distant future.

Okay, and this is Rick. I will take the Humira payer dynamics. I think if you look at one of the strengths of Humira it has been that payers and governments around the world recognize the value of this product. So I would say we have been in the fortunate position that we have a very strong position from the standpoint of payers.

In fact, in the US managed care environment, the number is around 70% preferred status, meaning you have to go through Humira first, as your first anti-TNF. That dynamic hasn't been changing at all. In fact, if anything, I would say it is probably improving a little bit over time.

But we don't see any negative dynamics occurring in that area, if that is what you were looking at. Thanks.

Ariel Herman, Goldman Sachs.

Hi, this is Ariel; I'm in for Jami Rubin. I just have two pipeline questions, the first on ABT-199. How should we think about the potential to do some additional combo studies with GA-101 or something like ibrutinib?

Then also, with elagolix can you just help us understand the market dynamics and the potential size for this product? Thank you.

Great. Why don't I go ahead and I will start with 199. With regard to additional combos, we are working with Roche on, as we said first of all, looking at combinations with Rituxan as well as with GA101.

With regard to ibrutinib and other new agents on the horizon, we are certainly interested in those types of combinations. And we are talking about how best to pursue that with regard to the timing of availability of ibrutinib.

Certainly with combinations like 199 and other agents or even as single agents, there is the potential to really change the way CLL is treated, moving it from something that requires chronic therapy to a situation where you could have a well-tolerated combination that could perhaps result in drug-free remissions or even functional cures.

Elagolix?

With regard to elagolix, the opportunity, so certainly we are in Phase 3 in assessing patients with endometriosis, a very common condition affecting millions of women in the developed world. Certainly the current treatment options available have limitations with regard to tolerability. Because of the very dense estrogen suppression they result in, you get menopausal type symptoms like hot flash and bone loss; and with elagolix's mechanism you get a more guided or partial suppression of estrogen which through Phase 2 studies we have seen reduced impact on symptoms such as hot flash or certainly bone loss.

So we think that combination of the efficacy and the tolerability profile will provide a very nice option for women when you consider the types of surgical alternatives such as hysterectomy, which are quite extreme.

We are also in Phase 2 for uterine fibroids, a condition that can lead to very heavy, marked bleeding as well as other symptomatology. And again, with regard to the type of estrogen suppression we are seeing, we feel very confident in the ability to markedly impact that rate of bleeding and provide women an alternative to hysterectomy, which again represents the majority of surgical solutions for this condition.

Certainly from a commercial perspective, we have talked about the endometriosis indication being a potential greater than a $1 billion opportunity; and certainly fibroids could be a significant opportunity as well for us if you are looking from a modeling perspective.

This is Rick. I think the key here and what we are working towards is, if you can get sufficient pain suppression in endometriosis and a strong safety profile where this can be used as a long-term, more chronic kind of therapy, it is a very big opportunity. That is why we designed the trial the way we designed it, where we have two doses that we are running through Phase 2, to determine which one of those doses best fits that profile long-term.

Chris Schott, JPMorgan.

Great. Thanks very much. Just had a few here. First, coming back on the question about longer-term spend, as I think about growth in SG&A over the next few years -- and this is probably a more qualitative question -- but can you just help me understand how significant the spend associated with the rollout of HCV is going to be? I guess my question is, how much of this can you leverage existing infrastructure as compared to incremental spend?

The second question was on Humira. You mentioned higher spending due to accelerating some promotion programs there. Can you elaborate a little bit more specifically what those efforts are going to focus on? Is there any particular indication that is more promotion-sensitive, or you see an opportunity to accelerate share gains?

And then the final question is an HCV one. I know it is early, but can you just elaborate a little bit on the confidence you have you will be able to maintain the initial share your going to take in this market?

I think as an example we look at what looks like some interesting Merck early-stage data in the AASLD abstracts. If we end up with several players with all-oral highly efficacious combos, does that translate to a relatively fragmented market, in your opinion? Or is the first-mover advantage here just so significant that is hard to displace that initial share you take? Thanks very much.

Okay. This is Rick. I will cover the question.

If you look at the building out the infrastructure associated with HCV, I would say for the most part it is incremental. There are certainly areas around the world where we will have an opportunity to be able to have some synergies with our existing structures. But I would say for the bulk of it, you should be thinking about it as incremental build.

As I said, we are going through our planning process right now. We literally have not finalized it yet and probably won't finalize it for another month or so. But we are going to make sure that we are in a position to be highly effective in that area.

If you talk about Humira spend, one of the things I would say to you is, as we approached the beginning of this year one of the things that we knew is that we were going to face some new competitive challenges. And in anticipation of that we did some things from an investment standpoint that we thought would put us in a position to be able to defend and still grow our share.

And I would say if I look at the results 9 or 10 months into it we are pretty happy with the investment that we made there, because it's given us back a pretty healthy return and it is really -- it has allowed us from a competitive standpoint to really deal with new competition in a very effective way.

As far as HCV is concerned, I think as Scott pointed out, a significant part of this is really built around the performance of the product. We have done a lot of market research, and when you look at prescribing preference of physicians, the first five, six attributes are all related to performance of the product -- cure rates in different populations.

So as the competitive environment rolls out and as we get to our second-generation product, I think we will then take another incremental step in this particular disease treatment paradigm that will be difficult to beat. I think it is incredibly difficult to get performance that is better than this -- or at least what we anticipate.

And then it will be all about how you built your infrastructure, how well established it is. That will make it difficult.

You look, again, at the anti-TNF market. Think how difficult it is for a new competitor to break into that market. And it is because of both the performance of the product and the value that it provides and the established infrastructure that is in place that has a lot of experience at being able to drive those products.

So I think HCV will play out the same way. And I don't think there is enough headroom left that anybody can truly have a very differentiated product after second generation. So that is how we view it.

Marc Goodman, UBS.

Yes, good morning. First, can you talk about the cystic fibrosis product and what excites you about that? What is the hook there? Obviously that is an interesting market.

Second, Humira in the emerging markets, just give us a little color there. You had mentioned something about tenders. Maybe you can go into that a little more.

Then, third, I know you are working on some early-stage Humira combos for like next-gen technology, lifecycle strategies. Can you update us on where you are there? Thanks.

Sure. So why don't I go ahead -- it's Scott Brun -- with the cystic fibrosis Galapagos collaboration. Certainly with regard to the genetic understanding of cystic fibrosis and the mutations that lead to dysfunction in the ion channel, the cystic fibrosis transmembrane receptor, that leads to the symptomatology, we have seen introduction of a therapy like Kalydeco that can have marked impact on patients, but really is only applicable to a small minority of patients.

What we are excited about is -- can we go ahead and take this even further by addressing patients with the much more common F508 mutation? Really looking at combinations of two drugs, a so-called potentiator that helps the malfunctioning ion channel to work properly, as well as a corrector that helps to effect the folding and the transport of the receptor to the cell surface.

So we feel that Galapagos has got some very, very interesting science. And even though there is a timing element here -- we won't be entering clinical trials until late next year -- we will use the analogy of hepatitis C, where certainly we did not begin in the lead, but by leveraging certain scientific insights and taking full advantage of the ability to combine different mechanisms we were able to get where we are now.

So, again, I think that is really what excites us, the ability to make a remarkable impact on a very devastating disease, and to follow on the science that is already out there for the minority of patients.

With regard to we will say Humira next-generation, certainly we have built a very, very strong foundation with Humira in rheumatology, dermatology, and gastroenterology. The question is -- what can you do as a leader in these areas to improve upon what the anti-TNFs, Humira specifically, have been able to achieve?

So we are looking at the potential to improve efficacy, tolerability, convenience, across the whole patient journey within those various diseases. And we are approaching it strategically with a combination of both internal and external innovation, small molecules, and biologics.

So for example, we have a selective JAK1 platform. You are certainly familiar with tofacitinib, which -- a nonselective JAK, as a consequence has limitations in its ability to dose, to really get significant efficacy before you start running into side effects.

With our Galapagos collaboration we have got a selective JAK1 inhibitor currently dosing in Phase 2b in rheumatoid arthritis as well as Crohn's disease. And we feel that the ability to be able to dose these molecules higher without running into JAK2/3 related side effects provides the potential for significant improvement in efficacy in these diseases.

We also have our own internal JAK, ABT-494, that has recently entered Phase 2 studies. And we think that with these two JAK mechanisms we have the ability to have a portfolio of compounds that can address multiple disease states in, again, patients who have various stages of treatment experience.

Moving on, we have got other external collaborations, other mechanisms like our Biotest work in Phase 2 with an anti-CD4 mechanism. We are very excited about the Ablynx deal; that is an anti-IL-6 nanobody. These nanobodies because of their size have the potential for improved tissue penetration.

Also the Ablynx nanobody binds to serum albumin, which is present during inflammation, which will help it traffic to the tissues where you want it to go. So again we think there is potential for differentiation via the currently available IL-6-based therapies.

Then certainly we are extremely excited about our dual variable domain technology, DVDs, which allows us really to bi-specifically target two biologic mediators in disease. We have got ABT-122, which targets both TNF as well as IL-17 which has been shown to play a significant role in various autoimmune diseases. So again, the idea is -- can we improve upon anti-TNFs with this molecule that is currently in early development in rheumatoid arthritis patients?

So, really, a wide portfolio of various approaches to build upon our current strengths in autoimmune disease.

Marc, it's Bill Chase. As you acknowledge, we did have some tender activity in the third quarter, and that did lift our international Humira results a bit. The way you've got to look at that, this does occur from time to time in certain markets. When it occurs it is generally about a 2% to 3% lift; that is certainly what we saw in Q3.

And what we will try to do and we have been doing is to be transparent, to let you know when that is occurring, to allow you to better understand both the quarter that is occurring as well as the next.

Thanks, Marc. Operator, we have time for one more question, please.

Tony Butler, Barclays Capital.

Thanks very much. Rick, you outlined very nicely Humira and the various indications. You guys have done a phenomenal job in growing the ex-RA indications in particular. But I wanted to focus on RA only.

Is that a market that continues to grow in volume, or have we really reached a nadir?

Two very small questions for you, Scott. One is, what is the strategy around other genotypes, genotype 2/3 in particular? And then lastly, ABT-493, is that boosted or non-boosted? Thanks very much.

Maybe quickly, on the RA market, the RA market has penetration rates that are still under 30%. So there is still clearly an opportunity to grow, and we continue to see in most markets around the world that the RA market is continuing to grow.

It is not growing as fast as some of the other markets, like the GI market as an example. But it is continuing to grow.

Tony, it's Scott. With regard to our strategy on other genotypes, we are currently doing work with ABT-450 and 267 which do have activity beyond genotype 1 in genotypes 2, 3, as well as 4.

We are currently in Phase 2 with those genotypes, and we will continue to move forward. But it is really our pan-genotypic ABT-493/530 combination that we think has had the most balanced pan-genotypic activity.

To your question, neither 493 nor 530 in the next generation requires ritonavir boosting. From what we have seen in ongoing clinical development there, pharmacologic profiles are both conducive to QD, once-daily dosing, without boosting.

Thanks very much.

Thanks, Tony. That concludes today's conference call. If you would like to listen to a replay of the call after 11 AM Central Time today go to AbbVie Investor Relations website at www.abbvieinvestor.com, or call 866-415-2341, passcode 102513. The audio replay will be available until midnight Friday, November 8. Thanks again for joining us today.

Thank you. That concludes today's conference. Thank you very much for joining. You may disconnect at this time.