艾伯維 (ABBV) 2013 Q4 法說會逐字稿

Welcome to the AbbVie fourth-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 written permission.

And 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 and Bill Chase, Executive Vice President of Finance and Chief Financial Officer.

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

Rick will begin by discussing AbbVie's results from 2013, as well as highlights from our late-stage pipeline.

Bill will provide a more detailed review of our fourth-quarter performance and then discuss our outlook for 2014.

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 thanks for joining us.

As our first year as an independent company, 2013 certainly was an important year for AbbVie, one in which we set a strong foundation for the future.

We are pleased with our performance and as we look back over the year, we believe we exceeded expectations on all the goals we established for the organization.

We completed a seamless transition to operating as an independent company.

We drove continued strong growth of Humira and several other key products in our portfolio.

We delivered operational efficiencies, including improvements in gross margin.

We made notable progress advancing our pipeline, including our late-stage HCV program, as well as promising assets in our oncology portfolio.

We expanded our pipeline with the addition of several novel assets and we exceeded our financial commitments to shareholders generating strong financial results.

As detailed in our earnings release, we delivered 3% global operational sales growth in 2013 despite losing nearly $1.1 billion in revenue due to generic competition in our lipid franchise.

Excluding sales from our lipid franchise, sales in 2013 increased nearly 10% on an operational basis and we exceeded our original EPS guidance range with full-year 2013 adjusted earnings per share of $3.14, demonstrating the strength of our underlying basis.

Our performance was led by Humira where we added more than $1 billion in sales growth again in 2013 with more than 15% operational growth for the year.

And the dynamics are favorable for continued strong growth from Humira again in 2014.

This year, we expect to deliver low double-digit global operational growth for the brand.

We also saw a strong performance from several other products in 2013, including Creon, Synthroid, Synagis and Duodopa.

We expect that each of these products, which hold leadership positions in their respective markets, will remain important contributors to our performance in the coming year.

As we look forward to the future, one of the biggest priorities we have as a company is restoring our legacy of strong growth in 2015 and beyond.

To position ourselves to achieve this objective, we view 2014 as a year of investment in our pipeline, our leading brands and our upcoming product launches.

This includes preparation for the launch of our interferon-free HCV combination, which we now expect to occur in the US in 2014.

From a revenue perspective as we've said before, 2014 is a year of transition as we absorbed the remaining impact from the loss of exclusivity in our lipid franchise.

We expect growth from our key brands to roughly offset the decline in lipids and at this point, we have not included any potential revenue from our US HCV launch in our 2014 revenue forecast.

As a result of all of these dynamics, we expect adjusted 2014 EPS of $3 to $3.10.

Bill will provide more specific details regarding our planning assumptions for 2014 during his remarks.

We believe AbbVie has a unique investment identity as we offer both a strong return to shareholders along with promising pipeline prospects.

As you know, our business generates significant cash flow and we remain committed to returning cash to shareholders.

Our primary means to do so will continue to be our strong dividend.

We recognize the importance of a growing dividend to our shareholders despite a flat top line and investment trends in 2014.

As a result, upon final Board approval, we expect a 5% increase in our quarterly common dividend beginning with the dividend payable in May 2014.

We've also utilized our strong cash flow to enhance our pipeline through licensing and partnering activities.

In 2013, we added promising assets to our mid-stage pipeline.

We view licensing and partnering as an important component of our R&D strategy and we expect to continue to augment our pipeline in 2014 and in the coming years.

As a biopharmaceutical company, pipeline advancement is an important component to our long-term success.

We place a tremendous amount of organizational focus in this area.

And over the past year, we have achieved a number of important development milestones.

Certainly one of the more significant near-term pipeline opportunities is our interferon-free HCV combination.

AbbVie's multinational HCV program is the largest all-oral interferon-free clinical program in genotype 1 patients conducted today.

Genotype 1 is by far the most prevalent genotype in the developed world and it is roughly evenly distributed between genotype 1a and genotype 1b in the G7 markets.

Our Phase 3 program includes more than 2300 genotype 1 patients and clinical sites in more than 25 countries around the world.

The comprehensive program was designed to characterize the performance of AbbVie's therapy across genotype 1 populations.

And importantly, because we have conducted independent studies in specific patient populations, we will be able to characterize performance in each patient type with a very high degree of confidence and certainty.

Our goal is to maximize the SVR rates across various patient types from naive patients to the most difficult to treat, such as nonresponders to interferon-based therapy or patients with advanced liver fibrosis or cirrhosis.

The large body of data we have collected and presented thus far certainly supports our objective and demonstrates that we have a very compelling offering for patients and for physicians.

We've now disclosed top-line results from all six of our registrational studies.

Late last year, we announced results from our two placebo-controlled studies, the SAPPHIRE trials, which showed that in both naive and treatment-experienced patients our therapy plus ribavirin produced very high SVR rates of 96%.

Our combination produced consistent and virtually identical efficacy results across both naive and experienced patients and there were no differences observed between genotype 1a and genotype 1b patients.

Additionally, the therapy was well-tolerated with discontinuations due to adverse events reported in only 1% of patients receiving the combination.

This morning, we reported top-line results from the four remaining Phase 3 trials.

Our 380 patient TURQUOISE-II study is the only dedicated trial of an all-oral therapy in the difficult-to-treat cirrhotic patient population.

Results from the trial showed that 92% of the patients treated with our combination for 12 weeks achieved SVR12 and 96% of the patients treated for 24 weeks also achieved SVR12.

Results from the PEARL-II study showed that 100% of genotype 1 experienced patients treated with our combination without ribavirin achieved SVR12.

Results from the PEARL-III trial showed that 99% of genotype 1b naive patients treated with our combination with or without ribavirin achieved SVR12.

We are particularly pleased with the high level of efficacy demonstrated in the genotype 1b population, which represents roughly half of the genotype 1 patients in the G7 markets.

The PEARL-IV study showed that even the more difficult to treat genotype 1 patients, 97% of patients treated with our therapy and ribavirin achieved SVR12 and 90% of the patients in the ribavirin-free arm achieved SVR12.

So these data clearly demonstrate that our interferon-free offering provides a very high level of efficacy across genotype 1 patients with ribavirin providing additional benefit in some patients.

As we look at the HCV market and we consider which patients will likely be treated in the 2015 to 2017 timeframe, we believe the most advanced patients, those with fibrosis, cirrhosis and patients who have previously failed treatment, will be treated first.

Given that these patients tend to be more difficult to treat, we believe most physicians will likely continue to use ribavirin to optimize the likelihood of cure.

Based on the high levels of efficacy demonstrated by our therapy in these tougher to treat patients, we believe we are very well-positioned for success in this market.

And while our initial combination represents a simple therapy, we are working to further simplify our initial HCV combination with efforts underway to reduce the number of pills to co-formulation of all the components into a once-daily combination.

We have begun the necessary pharmacokinetic studies and are working to advance this enhancement.

We also continue to make good progressed with our HCV program in Japan where we recently started Phase 3 development.

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 have advanced our 12-week, 2-DAA ribavirin-free treatment in Japan.

As a result, we expect to have a two-pill once-a-day combination for this market.

We will present data from our Phase 2 program later this spring and expect to submit our regulatory application in Japan in 2015.

We believe the HCV market will remain very large and attractive for many, many years to come.

To that end, we recently began a Phase 2 study of our next generation HCV program, which includes a potent protease inhibitor, ABT-493, and our new NS5A inhibitor, ABT-530.

It is our goal with our next-generation program to bring to market a ribavirin-free once-daily pan-genotypic combination.

In preclinical trials, our next-generation assets have shown pan-genotypic activity and excellent activity against key resistant mutants.

They also support once-daily dosing without ritonavir, as well as the ability to co-formulate.

We will present data from these promising assets later this year.

While HCV represents a significant and important opportunity, our pipeline includes many other promising assets.

As we evaluate our pipeline prospects, including the number and potential of the opportunities, we believe our pipeline is the most robust it has ever been.

We are particularly enthused about our late-stage pipeline where we currently have 10 programs in Phase 3 development or in for registration.

And we are on the cusp of transitioning several additional programs into late-stage trials.

Our late-stage oncology pipeline includes several mid and late-stage assets in development for more than a dozen different cancer types.

Earlier this month, we entered Phase 3 development for two internally discovered assets in our oncology pipeline, ABT-199 and ABT-888.

In collaboration with our partner, we recently began a Phase 3 comparative combination study of ABT-199 in relapsed refractory CLL patients.

We view ABT-199 as an exciting compound within our pipeline and we are working quickly to advance this asset.

In addition to our Vanguard indication of CLL, we are exploring ABT-199 in a number of different hematological malignancies, including non-Hodgkin's lymphoma, diffuse large B-cell lymphoma and AML.

Following encouraging efficacy results from the I-SPY 2 clinical trial, we have recently started a Phase 3 study of our PARP inhibitor, ABT-888, for neoadjuvant treatment of triple negative breast.

We will learn much more about the efficacy and utility of ABT-888 across a variety of cancer types this year as our ongoing studies complete.

We expect to start registrational studies in other indications in 2014 as well.

Elotuzumab is currently in Phase 3 development for multiple myeloma in collaboration with our development partner.

Data to date have shown promising efficacy in terms of tumor responses and delay of disease progression.

Two Phase 3 studies are ongoing with results expected in early 2015.

Daclizumab is our biologic in development for relapsing remitting multiple sclerosis.

Results from the second registrational study will read out in mid-2014, supporting regulatory submission for Daclizumab later this year.

Despite advances in the MS category, there continues to be a significant need for safe, high efficacy agents and we believe Daclizumab has the potential to deliver the right balance of high efficacy, a manageable safety profile and a high level of patient compliance.

Elagolix is our compound in late-stage development for the treatment of endometriosis.

Elagolix has a unique profile with the potential to provide symptom relief and reduction while avoiding adverse effects that can sometimes be associated with current treatments.

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

The Phase 2b study in uterine fibroids, which we initiated last year, also continues to progress well.

Atrasentan is our internally discovered compound in development for the treatment of diabetic kidney disease.

In 2013, we initiated a large global Phase 3 registrational study.

This trial, which will serve as a single global registrational trial, is expected to complete in 2017.

We also have two new Humira indications currently in late-stage trials and we have Duopa currently under regulatory review.

And addition to the late-stage programs I just outlined, we also have numerous, promising, mid-stage programs across therapeutic areas which we focus on, including several in immunology where we have two JAK1 programs and several biologics in development.

We have been pleased with our pipeline progress over the past year and we look forward to a number of important pipeline milestones in the year ahead.

This includes numerous Phase 3 initiations, data readouts for multiple programs across our pipeline, the submission of regulatory applications for two major late-stage programs and potential product approvals.

So in closing, we have had a very successful first year.

We feel good about the high level of execution on our strategic priorities.

We are focused on continuing to drive leading performance with our flagship product, Humira, as well as other products in our specialty focused portfolio and we continue to make good progress advancing our pipeline, which includes a number of exciting programs that have the potential to address significant medical need.

As we look forward to 2014, we are focusing on maintaining our momentum while investing appropriately to ensure a successful future.

We have set an excellent foundation for the Company in order to deliver strong growth in 2015 and beyond.

With that, I will turn the call over to Bill for additional comments on the fourth quarter and 2014.

Bill?

Thank you, Rick.

This morning, I will start with an overview of our fourth-quarter performance and then I'll provide our outlook for 2014.

We delivered a strong fourth quarter capping off a year of excellent performance.

Fourth-quarter adjusted EPS was $0.82, excluding non-cash intangible amortization expense and specified items.

This exceeded our outlook for the quarter.

On a GAAP basis, earnings per share were $0.70.

Total sales in the fourth quarter exceeded $5.1 billion, ahead of our outlook.

Sales decreased 1.1% on an operational basis, which excludes an unfavorable 0.7% impact from foreign exchange.

Excluding sales from our lipid franchise due to loss from exclusivity, total sales increased 7.9% on an operational basis.

Fourth-quarter growth was led by Humira, which had global sales of more than $3 billion, up 13.4%.

We continue to see strong growth in the underlying markets and a positive impact from the global launch of the UC indication, which continues to progress very well.

In the US, Humira sales increased 18.1%, reflecting continued market expansion, as well as share gains, particularly in the gastro segment.

Internationally, Humira sales grew 8% on an operational basis.

As we forecasted in October, international growth was somewhat lower in the quarter due to the impact of tender timing, which benefited growth in the third quarter.

International growth is being driven by continued uptake of new indications, share gains and double-digit growth in most countries.

For the full year, international Humira sales increased nearly 12% on an operational basis.

Global Humira sales for 2013 were $10.7 billion, up roughly 15%, exceeding our original forecast for the year.

As Rick mentioned, in 2014, we expect global Humira sales to grow at a low double-digit pace, excluding the impact of foreign exchange.

AndroGel sales were $289 million in the fourth quarter, down versus the prior year reflecting continued moderation of market growth and other dynamics.

AndroGel remains the testosterone replacement market leader with more than 60% marketshare and achieved share gains during the second half of 2013.

In 2014, we expect AndroGel to be flat to somewhat down as market conditions stabilize and we lap the impacts of rebating actions and account losses in early 2013.

As expected, all of the products in our lipid franchise are now experiencing generic competition.

Sales of Niaspan were $31 million and TriCor Trilipix sales were $29 million, both down significantly versus the fourth quarter of 2012.

As forecasted, the decline in the lipid franchise was most pronounced in the fourth quarter and in 2014, we expect these trends to continue.

Global Lupron sales were $209 million in the quarter, roughly flat on an operational basis.

For the full year 2013, Lupron sales were $785 million.

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

In 2014, we expect Lupron sales to be down modestly from 2013.

US sales of Synthroid were $189 million in the quarter, up 12.8%, with full-year sales up roughly 13%.

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

In 2014, we expect to see similar growth trends for Synthroid.

US Creon sales were $115 million in the fourth quarter, up 9.3%.

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

We expect high single-digit sales growth for Creon in 2014.

Sales of Duodopa, our therapy for advanced Parkinson's disease, grew 15.7% on an operational basis this quarter.

Duodopa is currently approved in Europe and other international markets.

In 2014, we expect continued double-digit growth for Duodopa.

And in the US we expect a regulatory decision on our filing in the first half of this year.

Moving on to our fourth-quarter P&L profile.

The adjusted gross margin ratio was 77.1%, excluding intangible amortization and other specified items.

This was in line with our expectations for the quarter and reflected operational efficiencies and product mix across our portfolio, including Humira.

Adjusted SG&A was 26.5% of sales in the fourth quarter, reflecting heightened investment in our growth brands.

And adjusted R&D was 15.6% of sales, driven by increased funding of our emerging mid- and late-stage pipeline and the continued pursuit of additional Humira indications.

Net interest expense was $68 million and the adjusted tax rate was 22.2% in the fourth quarter.

Now I'd like to discuss our outlook for 2014, and specifically how we have constructed our plan for the year.

As Rick mentioned, we are now expecting a US approval for our HCV Regimen in 2014.

As you know, we have seen these types of products launch quickly, generating significant sales early in the launch.

Since we cannot get forecast specific date of our approval, our guidance for 2014 excludes any revenue benefit associated with the upcoming HCV launch.

We have, however, included the appropriate level of investments to launch the brand, reflected in higher SG&A expense this year.

We will keep you apprised of our program status as the year progresses.

In the meantime, you should model the year as follows.

We expect the total Company 2014 sales of approximately $19 billion, reflecting growth from our key marketed products offsetting the remaining decline in lipids from generic competition.

Included in our sales guidance is an estimated negative impact from exchange of roughly 1% for the full year.

We are committed to improving our gross margin rate issue in 2014, despite the loss of high-margin lipid sales.

As a result, we are forecasting an adjusted gross margin ratio approaching 79% for the year, reflecting actions we have taken to further improve our margin profile.

As we have noted, we currently have a record number of [site] Phase III programs in active development and are on the cusp of transitioning additional programs in 2014.

We have a number of exciting opportunities in oncology, HCV and immunology, and other areas that warrant investment.

As a result, we expect R&D expense to be around 16% of sales, reflecting an increase in R&D spending over the prior year.

We also expect to see an increase in SG&A as we invest in our key brands, including Humira, where we are pursuing opportunities to further increase penetration rates across indications and drive both disease and brand awareness.

And as I noted with our US HCV launch in 2014, we will be making the appropriate investments this year to maximize the potential for this important program.

Therefore, we expect SG&A expense to approach 28% of sales in 2014, an increase over the 2013 profile.

We are forecasting net interest expense of about $275 million for the full year, and we continue to expect an adjusted tax rate of approximately 22% in 2014.

Given this profile, we are forecasting an adjusted earnings-per-share guidance range of $3.00 to $3.10.

Our adjusted earnings-per-share guidance range for the year excludes $0.37 per share, primarily related to non-cash amortization expense and ongoing separation costs.

Regarding our first-quarter outlook, we expect adjusted earnings-per-share on the first quarter of $0.67 to $0.69.

This excludes roughly $0.08 of specified items and non-cash amortization resulting in a first-quarter EPS in the range of $0.59 to $0.61 on a GAAP basis.

Our first-quarter outlook reflects a flat top line, including roughly 1% negative exchange.

We expect a gross margin ratio is somewhat in line with our full-year guidance, and we expect R&D and SG&A as a percentage of sales to be higher than our full-year outlook, consistent with historic quarterly trends.

So as we look back, we are very pleased with AbbVie's performance in our first year as an independent company.

We delivered on our commitments and exceeded our original forecast for earnings-per-share.

Looking forward, 2014 will be an exciting year with numerous data milestones, key product submissions, and continued execution across the organization.

The investments we are making this year are expected to drive meaningful growth in 2015 and beyond.

With that, I will turn it back over to Larry.

Thanks, Bill.

We will now open the call for questions.

We will take our first question, please.

(Operator Instructions) Jami Rubin, Goldman Sachs.

Thank you.

Rick, congratulations on the end of your first year as an independent company.

Question is regarding the whole Hep C marketplace.

I mean now we have seen all of your data, we have seen all of Gilead's Phase 3 data, we have also seen the initial launch of Solvadi, which is clearly very, very strong.

And then I'm just wondering if you can sort of opine with us how you see the market shaping up.

And just in terms of -- I don't know if you wanted to provide any of your views in terms of marketshare differences, but how do you see the marketshare playing out between these two different regimens.

And then, secondly, also, if you could talk about Humira and if you could confirm some of the pending long-dated patents on Humira and what that might mean longer term for (inaudible) more competition.

Thanks.

Okay.

Well, first, Jami, thank you for the congratulations.

Yes, we feel good about the first year and so now we are off to the second year and it is what have you done for me lately, right?

That's right.

So we have to get off to a good start in 2014, which is exactly what we plan on doing.

As far as the launch that we've seen so far and the ramp in the HCV market with the Gilead product, I think it is going as we would have expected it.

This is a market, as Bill pointed out, that you get very rapid uptake.

It will be important to see how much of the uptake is in genotype 2 and 3 patients and how much of it is the impact of the existing PIs that are in the market today.

So it doesn't surprise me at all, but it doesn't take a lot of patients to get that level of sales with these kinds of products and it is one of the reasons why, one, we are excited about the market and two, ultimately, it is one of the reasons why we chose not to build into our forecast the launch because even a couple of months difference can have a substantial impact on the performance of the business.

As far as how we will compete in the marketplace, you have seen all of our data, you have seen the competitive data.

We feel very good about the data.

As we look at this market, as I indicated in my comments and the dynamics of the patients that are likely to be treated first, and the other capabilities that you are going to need to have to be successful in this market from a commercial standpoint, from a market access standpoint around the world, I think we are very well-positioned.

And as I said, if I look at the profile of our therapy, if I just go through each of the category of patients, you look at our cirrhotic data, it is the only trial that has ever been done in dedicated cirrhotic patients.

Clearly, unprecedented results compared to standard of care.

And I think we are very pleased with what we saw out of that trial for cirrhotic patients.

If you look at our experience data, 96% SVR12s.

When I look at that in comparison with the published ION-2 data with ribavirin, it matches up very nicely against that at 96.3% or 96.4%.

If I look at genotype 1b naives, 99% without ribavirin.

If I look at genotype 1b experienced without ribavirin, 100%.

And 1bs represent 50% of the total population that we will be going after.

Hard to beat 99% and 100%.

So we obviously feel very good about that.

When we look at genotype 1as with ribavirin, 97%, highly tolerable therapy, very low adverse event rates.

We feel good about our ability to stack up against anything that we have seen out there and be able to compete very effectively against that.

It is a big market.

It's a market that I think very clearly, if you look at payers, if you look at health systems around the world, if you talk to physicians and patients, they want alternatives, especially alternatives that perform at this level.

And so I think we will do very, very well.

And what we are focusing on now is getting our submission in, getting the product approved and launching the product aggressively in the marketplace.

So Humira, as far as the patents are concerned, we haven't disclosed publicly a lot of the patent data.

We've obviously aggressively worked to not only take the existing patent portfolio that we have, which we have a fairly large patent portfolio around process patents, formulation patents, some method patents, but we have a very large number of applications in, in the neighborhood of a couple of hundred.

Many of those will issue.

We believe that those are important patents and certainly we will make sure that we enforce any patents that we have in this area.

And it's one of the lines of defense that we have put in place and I think we feel pretty good about it.

But we are not prepared to give you a lot of specifics on any individual patents at this point.

Thanks, Jami.

Next question please.

Jeff Holford, Jefferies.

Hi, thanks for taking my questions.

I had a couple for you.

So just first off on the guidance.

Assuming obviously you're not including any revenues in the guidance, can we just safely assume, if you do get revenues that flow through in 2014, that would essentially be upside for the earnings guidance as well?

Secondly, I wonder if you can just help us think about your SG&A phasing through the year.

When would you anticipate that we start to see the load from the Hep C cost-phasing in the SG&A?

Also, just in terms of a fixed-dose combination on the current 3D regimen, are you assuming that you will have to do a full Phase 3 there or would your development plan on that just be more like a bridging study?

Thank you.

Okay, maybe I will take the guidance question and then, Bill, you can talk about the gating of the SG&A and we will talk -- Scott, you can talk about the fixed dose combination.

So maybe let's walk through and give you a little perspective on the timing.

As I think you know, we have been given breakthrough therapy status for this product and we expect to get priority review.

With priority review, we will have an eight-month PDUFA clock.

And so we know the outer limits of when approval could occur based on when we are estimating that we will submit to the agency.

But as we looked at priority reviews, we have seen priority reviews that are as short as 4.5 months and we have seen some that have gone all the way out to eight months.

And so there this window that we are operating in that it is just not clear to us at this point where we will be in that window.

So our goal is to get the submission in as rapidly as possible and then start to work with the agency on answering any questions that they have.

As we get closer through that review process, we will begin to get more clarity as to the timing of that, when we would get that approval and we are obviously prepared to be able to launch as soon as we gain approval of the product.

So depending upon where that were to occur if it was appropriate to adjust a quarterly guidance, we would go ahead and make that adjustment during that quarter.

So we will just have to see when we hit in that window that I just described to you.

So Bill, why don't you cover the gains.

Jeff, on SG&A, obviously, we are going to be doing everything we can to make sure this opportunity -- we live up to the opportunity that we have here.

We are investing right now, but that said the investment will grow over the course of the year and we will see, on a relative basis, more investment in the back half of the year than the first half.

Jeff, it's Scott Brun.

On our fixed dose combination, which takes all three of our direct-acting antivirals and co-formulates them into a once-daily presentation.

We have got a prototype formulation that has been performing very nicely with our pharmacokinetic assessments in humans and right now, we are moving forward very aggressively with the program.

We are in discussions with regulatory agencies with regard to exactly what the program will take.

And that's all I want to say about that right now.

Thanks very much and congratulations.

Thanks, Jeff.

Next question please.

Steve Scala, Cowen.

Thank you.

I have two questions.

Of the 2014 guidance for Humira of low double digit, can you dissect that by geography so what we should be looking for in the US and OUS?

And in the US, how much of that might be from price and how much might be from volume?

And secondly, for many reasons, your P&L in 2014 is quite unusual.

But -- (technical difficulty).

I think we lost you, Steve.

Bill, why don't you go ahead --.

I will cover the HCV -- the Humira question.

We are obviously guiding low double digit for the entire year on Humira.

It will be a little higher growth in the US than ex-US.

The pricing on this brand, as you have known, we do see pricing pressures ex-US that mutes the overall growth ex-US.

We have had the ability to take some price over the past couple years in the US.

So in that double-digit guidance, I would expect slightly higher growth in the US because of that pricing affect, but both markets will be above double-digit growth.

Can you hear me now?

May I ask my second question?

So for many reasons, your P&L in 2014 is quite unusual, but it would appear that 2015 promises standout top-line growth and substantial margin improvement.

At this early juncture, would you have any objection to that thinking?

I think it is obviously a little early to be giving 2015 guidance.

There certainly is a dynamic that is going to play out in 2015 as we see the full brunt of HCV kick in.

So that would certainly expect some gross margin expansion because we would expect that to be relatively above our overall corporate mix.

Likewise, on gross margin, we will remain committed to driving additional efficiencies.

You have seen some of that play out in 2013 and certainly we are signing up for some of that in 2014.

On the investment side, I think a lot is going to depend what we have in our pipeline.

We have made it clear today that we are expecting to have 10 programs in Phase 3 or registration this year.

We have got a very robust pipeline and we've got things moving into Phase 3 in the subsequent years.

And then likewise on the SG&A side, what we know is Humira is promotionally responsive.

We have driven very, very nice growth on that brand.

We have our HCV launch kicking into full gear in 2015.

And then, of course, we will have new products launching in the period right after 2015 and we want to make sure that we provide appropriately for those products and opportunities as well.

So we will have to see.

Thank you.

Alex Arfaei, BMO Capital.

Good morning.

And I will add my congratulations as well on your first successful year.

In follow-up to your comments on TURQUOISE-II, to what extent do you think that trial -- having that dedicated Phase 3 trial in those important patients is a marketing competitive advantage?

And then a couple of follow-ups if I may.

Are we going to see ABT-199 data this year and could you give us some color on you market opportunity for Elagolix?

Thank you very much.

Alex, hey, it's Scott Brun.

I mean with regard to the TURQUOISE-II, when you consider the fact that cirrhotic patients have traditionally been the hardest to treat, and certainly as we see the aging of the HCV population and the rates of cirrhosis going up, we thought it was extremely important to well-characterize the response in this patient population.

And so absolutely we feel these data are going to be of critical value to our clinicians, to patients, to payers in really demonstrating the characterization and certainty of response that you can achieve in this population.

And as Rick said, we are extremely pleased; the results certainly surpassed my initial expectations.

They are unprecedented and provide considerable benefit over anything that is currently available.

With regard to 199 data flow, we are going to be presenting some initial Phase 1 combination data with ABT-199 and Rituxan this year.

Remember that that is the combination that is being studied in the Phase 3 trial that is getting underway that Rick referred to.

We will also be showing some additional data in CLL that will demonstrate the longer-term durability of our monotherapy, building on the very strong results that we've already showed where we had a 24% complete response in CLL with 199 as a single agent in relapsed refractory patients, comparing extremely favorable to the new agents that are currently being studied there.

And we are also hoping to be able to get some AML data out later this year.

Elagolix, he also asked about in terms of potential and opportunity and our view on the product.

Yes, so certainly Elagolix currently in Phase 3 on endometriosis and Phase 2B in uterine fibroids.

I mean when you consider endometriosis, a condition that affects millions of women worldwide resulting in considerable symptomatology for which there are really no good therapies right now, existing ones, while they may be able to control symptoms, create their own set of problems by really putting women into a menopausal-like state.

We feel there is significant potential for Elagolix as a chronic therapy in endometriosis, certainly allowing patients to avoid more extreme measures such as surgery, which, when you consider the population of women here who are of an age where they are considering childbirth, certainly they don't want to have to take that type of option.

So with regard to its overall tolerability and efficacy profile, certainly, we feel that there is a very significant opportunity in endometriosis, as well as fibroids where again there is no chronic therapy available and all the other limitations that exist in therapy that I outlined in endometriosis are also present.

Thank you.

Thanks, Alex.

We will take our next question please.

Chris Schott, JPMC.

Hey, there.

It is Jessica Fye on for Chris.

I just wanted to follow up on your expectations for the HCV market.

Can you talk about how you are thinking about competition based on price?

Is that a lever that you'd consider to gain share?

I will take that.

This is Rick.

As we have said a number of times, when you look at the attributes of this product, the performance speaks for itself.

This is a highly competitive product against anything that we've seen out in the marketplace.

If you look at our capabilities from a commercial standpoint and a market access standpoint, I think they speak for themselves as well.

You only have to look to Humira, which has a lot more competitors than this market is going to have.

So I think from that standpoint, we feel good about our ability to be able to go into the market and compete effectively.

Having said that, I would also tell you this is a highly competitive market and it is not prudent for us to lay out what our commercial strategy is going to be and we are not going to lay out what our commercial strategy is going to be.

And that includes we are not going to lay out what our pricing strategy is as part of that.

So that is probably not the answer you were looking for, I'm sorry, but certainly I think if you were sitting in our chair, that would be the prudent way to deal with this.

Thanks.

Thanks, Jessica.

Next question please.

Colin Bristow, Bank of America Merrill Lynch.

This is Colin on behalf of Gregg.

Thanks for taking the questions.

Hep C and TURQUOISE-II, can you comment either quantitatively or qualitatively on the rates of anemia seen.

I just want to get to sense of the tolerability as you think about the real-world setting.

Also on TURQUOISE-II, could you speak to the relapse in breakthrough rates in the genotype 1a population and/or the treatment-experienced?

And with regards to AndroGel and the testosterone replacement market, script trends have indicated a modest decline over the last few months and I just wanted to get your sense on what you're hearing from the front line regarding this and your expectations for the overall market in 2014.

Thanks.

Colin, it's Scott Brun.

Regarding TURQUOISE-II, first getting at the tolerability.

When you look at the results in both the 12 and the 24-week arms, again, we saw very low rates of discontinuations for adverse events, only on the order of about 2%.

Certainly when you look at rates of anemia, while I don't want to quote specific numbers, certainly they were not different from what we've seen in the non-cirrhotic populations within our programs.

Again, I don't want to parse the TURQUOISE-II data to any greater extent than we have released.

We are going to be providing more detail on that at EASL, but what I can say is that we anticipate that the majority of patients will only require 12 weeks of therapy to achieve these very high SVR rates and certainly the 24-week therapy, it will likely only be applicable to a very limited minority subset of patients.

And Colin, on AndroGel, certainly the market has slowed up, particularly versus what we saw in 2012.

That said, we are picking up share and we have seen nice progress on that in the back half of 2013 and frankly a lot of the pricing pressures are now behind us and pretty stable.

So we are pretty pleased with our position.

That said, we are taking a realistic view of that market and brand in 2014, which is really the logic behind the guidance that we provided this morning.

Great, thanks a lot.

Thanks, Colin.

We will take our next question please.

(Operator Instructions) Vamil Divan, Credit Suisse.

Thanks for taking the questions.

Two on the pipeline, one on the ABT-888.

Just want to get a sense of how you see that essentially differentiating itself from other agents in the breast cancer space.

Obviously, some interesting data so far, but how you see that playing out and then when will we actually see the data behind that one in breast cancer and in the other indication that you mentioned?

And then the other one just on 199, do you see any change in your expectations around that being competitive in the front line or a relapse CLL setting just given the strength we are seeing with Pharmacyclics and the new data they've commented on with the early stop of their study there with the strong data?

Why don't I go ahead, Scott Brun.

So with regard to 888 and its ability to differentiate itself from other agents in breast cancer and certainly I think it is important to mention other malignancies as well.

Certainly there are some characteristics of Veliparib, 888, relative to other PARP inhibitors that suggested it may actually be superior.

It is able to cross the blood brain barrier and perhaps even more importantly, we are able to combine effectively with other chemotherapies where some of the other PARP inhibitors have really had challenges with that.

So as a consequence, the other PARP inhibitors are really limiting themselves to cancers with genetic susceptibility to PARP, those with the BRCA mutation and certainly also going more into late-stage populations.

We feel that again, particularly with Veliparib's ability to combine with other modalities like platinum chemotherapies and radiations that also damage DNA, that we are able to have a much broader opportunity with our PARP.

Certainly, the neoadjuvant study allows us again to take advantage of treating patients with earlier-stage triple negative breast cancer.

And going even beyond breast cancer, we have got ongoing studies with combination therapies in ovarian cancer, lung cancer and in use with whole brain radiation in the case of brain metastases from lung cancer.

So we feel that we are able to fully leverage the full potential of the PARP platform with Veliparib as a consequence of these characteristics.

With ABT-199, when you look at the exquisite potency of the agent, its ability to drop CLL malignant cell counts in the blood by 90% within eight hours, we feel that this factor is what is going to allow us to differentiate.

Indeed, later in 2014, in collaboration with our partner, we'll be starting a Phase 3 study in first-line CLL in combination with GA101.

And the thought here is that through the potency of 199, we can drive disease state to an extremely low level.

I referred earlier to the very promising complete response rate that we've seen, 24% with 199 as a single agent in patients who have cycled through on average four prior therapies.

When you look at Ibrutinib in a similar population, those complete response numbers as a single agent are in the low, single digits.

And so what we are doing is working on study designs to again really be able to take advantage of the full potential to drive to very low levels of disease activity and potentially move away from chronic therapy, which is going to be the case with Ibrutinib and Idelalisib and really look at can we achieve disease state, disease-free remissions and possibly even functional cures.

Thanks, Vamil.

And sir, I am showing no further questions at this time.

Okay, terrific.

Well, thanks.

We will conclude today's call with some final remarks from Rick before I wrap up the call today.

All right.

Thank you, Larry and I would like to thank everyone for joining us.

As we indicated when we launched the Company, we had a primary objective for making sure that we've set up the organization in a way that we could be successful in 2013 and I think we accomplished that and I think we are off to a good start in 2014.

We always said those would be transition years for us and then we were setting ourselves up to be able to return to strong growth in 2015 and beyond.

And that is still our intent and I think we are tracking well against that objective.

If you think about 2015, as Bill mentioned to you, it is early to talk about guidance, but -- although we will get an impact, a positive impact on HCV in 2014 as we launch the product, we will get a very significant impact in 2015.

And we will be in a position to be able to drive that product and see significant margin dropthrough in the 2015 timeframe from that product.

In addition, we will have worked our way through the loss of exclusivity of our lipid franchise, which is obviously creating a significant headwind for us in both 2013 and 2014.

That will be gone and we will see the emergence of strong Humira growth again driving the bottom line.

And we should start to see some efficiencies again in that area as well.

By the same token, we will be in a position to be able to start to launch some of the new products that we have in our pipeline.

We are particularly excited about our oncology pipeline with 199 and I will tell you personally I am excited about what I have seen about 888 as well.

I think it will have a significant opportunity for us going forward.

Daclizumab will also be a product that we are excited about.

It can launch in that 2015 timeframe and Elagolix following that.

So I think we have built a robust pipeline that should give us an opportunity to be able to deliver on the expectation that we have for ourselves and the one that we communicated to you.

So we're looking forward to doing that.

Well, thanks, Rick.

And that concludes today's conference call.

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Thank you and this does conclude today's conference.

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