艾伯維 (ABBV) 2016 Q4 法說會逐字稿

Good morning and thank you for standing by.

Welcome to the AbbVie fourth-quarter 2016 earnings conference call.

(Operator Instructions)

I would now like to introduce Ms. Liz Shea, Vice President of Investor Relations.

Ma'am, you may now begin.

Good morning and thank you for joining us.

Also on the call with me today are Rick Gonzales, Chairman of the Board and Chief Executive Officer; Michael Severino, Executive Vice President of Research and Development and Chief Scientific Officer; and Bill Chase, Executive Vice President of Finance and Chief Financial Officer.

Before we get started, I want to remind you that some statements made today are or 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 2015 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.

Following our prepared remarks, we will take your questions.

With that, I will turn the call over to Rick.

Thank you, Liz.

Good morning, everyone, and thank you for joining us today.

This morning I will briefly discuss our fourth-quarter performance and our 2016 operational highlights.

Mike will then provide updates on recent advancements across our R&D efforts, and Bill will discuss the quarter and our 2017 guidance in more detail.

As always, following our remarks we will have an opportunity to take your questions.

We delivered another strong quarter with adjusted earnings per share coming in at the upper end of our guidance range, despite an unexpected negative impact of foreign exchange, demonstrating the strength of our overall business.

Our adjusted earnings per share of $1.20 represented growth of 6.2% versus the fourth quarter of 2015.

Our performance in the quarter caps off another excellent year for AbbVie.

For the full year we delivered more than 13% global operational sales growth and we increased our ongoing earnings per share by more than 12%.

In 2016 we drove strong commercial, operational, and R&D execution, resulting in industry-leading performance on both the top and bottom lines.

AbbVie's EPS growth for 2016 ranks us among the top growth companies within our industry.

We saw exceptional growth from Humira, which drove 16% global operational growth in the year, including US growth of 24% and international operational growth of 4.3%.

Despite increasing competition from new classes of drugs and indirect biosimilar competition in international markets, Humira remains the clear market leader and continues to perform very well across the rheumatology, dermatology, and GI markets.

We also saw strong momentum and growth from Imbruvica, with full-year 2016 sales in excess of $1.8 billion, a 67% increase over the prior year.

We are continuing to drive strong uptake in CLL, a market segment that represents the largest revenue contributor to Imbruvica's growth over our long-range plan and a major growth opportunity for the Company.

We also continue to advance our clinical development efforts in other blood cancers, supporting robust, long-term growth of the brand.

Further expansion into NHL and other indications represents another major growth driver for Imbruvica.

We continue to remain excited about the vast potential for this unique asset.

Global Viekira performance, which was below our original expectations, generated over $1.5 billion in the year and we had continued strong performance from other products within our portfolio.

Over the past year we have seen significant pipeline advancement and achieved a number of important development and regulatory milestones.

We received approvals for several assets: Imbruvica in first-line CLL, including a label with overall survival data; Venclexta in relapsed/refractory CLL with patients with 17p deletion; Zinbryta for relapsing/remitting multiple sclerosis; and Humira for uveitis, our 10th Humira indication in the US.

We successfully completed registrational studies and submitted regulatory applications for a number of key pipeline assets, including our pan-genotypic, next-generation HCV therapy and Imbruvica in marginal zone lymphoma, which received FDA approval last week.

We also reported compelling data from several mid- and late-stage development programs that Mike is going to discuss in just a few moments.

The progress we've made with our pipeline, including the data we've shared over the past year, has further increased our level of confidence and derisked many of our key R&D programs.

Numerous assets in our late-stage pipeline have the opportunity to generate multibillion-dollar peak-year sales and represent an opportunity for meaningful revenue growth in the years to come.

We expect to see a significant number of regulatory and clinical milestones for these assets in 2017, which again Mike will discuss in more detail.

In 2016, we also augmented our portfolio and our pipeline through strategic licensing and acquisition activity.

In June, we completed our acquisition of Stemcentrx, providing AbbVie an exciting late-stage asset in Rova-T as well as a highly attractive discovery and early development platform.

Rova-T represents a significant market opportunity as we advance into first-line small cell lung cancer and other indications.

In addition to Rova-T, the acquisition of Stemcentrx also brought with it a pipeline of additional clinical development programs, including four additional novel compounds currently in human trials covering solid tumors from small cell lung cancer to ovarian cancer and colorectal cancer, among others.

We announced a collaboration with Boehringer Ingelheim to develop and commercialize risankizumab, an anti-IL-23 monoclonal antibody that has the potential to be a transformative therapy in a number of immune-mediated diseases.

We have entered 2017 with strong momentum we are committed to delivering strong results.

Our full-year 2017 adjusted earnings-per-share guidance of $5.44 to $5.54 positions AbbVie to be among the industry leaders for EPS growth once again this year.

We also continue to track towards delivering on our long-term objectives, which will generate double-digit EPS growth on average through 2020, putting AbbVie in the very top of our peer group.

In summary, we are pleased with our execution and performance and we've delivered an outstanding return for our shareholders.

We've also demonstrated a strong track record of managing and overcoming challenges, while still delivering on our expectations.

We've established sustainable leadership positions in some of the largest and most attractive market segments and we have built a compelling derisked pipeline within these areas, which is poised to fuel long-term growth.

With that I will turn the call over to Mike for additional comments on our R&D programs.

Mike?

Thank you, Rick.

In 2016 we significantly advanced and derisked our pipeline and achieved a number of important regulatory milestones, and we expect 2017 to be a very productive year as well with the potential for several regulatory submissions and approvals, key data readouts, and important phase transitions.

Today I will highlight recent pipeline updates and discuss some of the milestones we anticipate in the year to come.

I will start with oncology, an area where we are advancing our pipeline in both hematologic malignancies and solid tumors.

In the area of hematologic oncology, we continue to make significant progress with both Imbruvica and Venclexta.

Since our last earnings call at the end of October, we, along with our partner Janssen, received approval for the use of Imbruvica as a chemotherapy-free option for patients with marginal zone lymphoma who have failed prior therapies with the approval coming two months ahead of the PDUFA date.

This marks the seventh FDA approval and fifth major indication for Imbruvica.

Currently there are no other approved therapies specifically indicated for MZL, making Imbruvica the first FDA-approved treatment for this disease.

We also received conditional approval of Venclexta in Europe for the treatment of CLL patients with a 17p deletion or TP53 mutation, as well as in CLL patients who have failed both chemotherapy and a B-cell receptor pathway inhibitor, regardless of their mutational status.

We, along with our partner, Roche Genentech, are pleased to be able to bring this new treatment option to patients in more countries around the world.

At the recent ASH meeting we presented data from 25 abstracts evaluating use of our portfolio of blood cancer medicines.

This included results from several studies evaluating Imbruvica across a number of hematologic malignancies, including long-term data in patients with CLL showing that nearly nine out of 10 patients achieved complete or partial response at the five-year mark.

These data demonstrate the promise that Imbruvica holds as a CLL treatment that can offer long-term, progression-free, and overall survival.

In addition, we presented favorable efficacy and safety data in two common types of non-Hodgkin's lymphoma, diffuse large B-cell lymphoma and follicular lymphoma, as well as new Phase 2 data in marginal zone lymphoma, demonstrating that nearly half of patients with relapsed/refractory MZL respond to treatment with Imbruvica.

And we also presented data in chronic graft-versus-host disease, demonstrating complete or partial response in two-thirds of patients.

For Venclexta, we presented data in a range of tumor types including Phase 1 safety and efficacy data in both AML and multiple myeloma, as well as results from mid-stage studies in follicular lymphoma and diffuse large B-cell lymphoma.

This coming year there will be several key data readouts from our hematologic oncology portfolio that could enable registration of both Imbruvica and Venclexta in new indications.

For Imbruvica, we anticipate data from an interim analysis in front-line mantle cell lymphoma later this year, as well as additional potential interim analyses in other forms of non-Hodgkin's lymphoma.

Later this quarter we expect to submit our US regulatory application for the use of Imbruvica in patients with chronic graft-versus-host disease who failed prior systemic therapy.

Chronic GVHD in a serious and debilitation complication of stem cell or bone marrow transportation and, with no approved therapies for the disease, there is a significant unmet medical need.

We are also making progress in a number of important studies evaluating Imbruvica monotherapy and combination therapy versus regimens such as BR and FCR, often considered the gold standards in the treatment of CLL.

In addition, studies are being run in different patient segments, including young and fit patients and the watch-and-wait population.

The results of these studies will add significantly to the breadth of data supporting Imbruvica, providing physicians more evidence of its compelling clinical benefits in the front-line setting.

For Venclexta, we are expecting data from the MURANO study later this year, which we believe will support a broader label in relapsed/refractory CLL.

Last year we received approval for Venclexta's first indication as monotherapy in patients with relapsed/refractory CLL and the 17p deletion mutation, a small, but medically important, segment of the CLL market and an important first step for this exciting new treatment.

Also last year, Venclexta received its third breakthrough therapy designation for use in untreated AML patients who are ineligible to receive standard induction with high-dose chemotherapy and we recently began our Phase 3 program in AML.

We look forward to additional data read outs and regulatory approvals for Venclexta in the coming years.

I will now turn to our solid tumor programs, where we continue to make good progress with our late-stage programs for Rova-T, veliparib, and ABT-414, as well as with our early-stage oncology pipeline.

In the Rova-T program we expect to report data from the TRINITY study in the second half of the year, with regulatory submission following soon thereafter.

Additionally, in the latter part of the year, there is the potential for initial data from our basket study where we are evaluating Rova-T in a number of neuroendocrine tumors.

We are also making good progress advancing new Stemcentrx assets into the clinic, as we expect to see up to four additional novel assets enter the clinic this year, adding to our portfolio of five clinical-stage Stemcentrx programs already underway.

We've also continued to make progress with our other pipeline assets targeting solid tumors, including our PARP inhibitor, veliparib, and ABT-414, an antibody drug conjugate for glioblastoma multiforma.

In 2017, we are expecting to see data from three Phase 3 studies of veliparib conducted in neoadjuvant breast cancer and both the squamous and non-squamous forms of non-small cell lung cancer.

We are also expecting to see data in the second half of this year for ABT-414 in second-line glioblastoma multiforma, the most common and most aggressive type of malignant primary brain tumor.

These trial results, if positive, would support regulatory submissions.

In our early-stage oncology pipeline we are continuing to explore new technologies that will extend our reach into the solid tumor market.

For example, our next-generation immuno-oncology programs are designed to broaden and deepen responses beyond what has been seen with the first wave of IO therapies.

We are using novel approaches, including our bispecific technology, to elicit T-cell activation in close proximity to tumor cells.

Over the next 12 months we expect to have as many as five next-generation immuno-oncology assets in the clinic, which adds to our growing oncology pipeline of more than 35 late preclinical or clinical-stage assets.

Moving now to our immunology programs, where we continue to make great progress with our two late-stage assets, risankizumab and ABT-494, both of which are tracking ahead of our initial development timelines.

Risankizumab, our anti-IL-23 monoclonal antibody licensed from Boehringer Ingelheim, has the potential to be a transformative therapy in a number of immune-mediated diseases by providing best-in-category efficacy and increased dosing convenience with quarterly administration.

Risankizumab is currently in Phase 3 development for psoriasis with mid-stage trials ongoing in both Crohn's disease and psoriatic arthritis.

The risankizumab Phase 3 program in psoriasis continues to progress well and we expect to see data from three of the pivotal studies later this year, with commercialization expected in 2019.

This year will also see a number of additional data readouts and important phase transitions for risankizumab, including Phase 2 data in Crohn's disease, which, if successful, would trigger the start of a Phase 3 program later this year, as well as Phase 2 data in psoriatic arthritis, with Phase 3 studies expected to begin in the first half of 2018.

Additionally, we are expecting to begin a Phase 2 study for risankizumab in ulcerative colitis in the second half of the year.

Our selective JAK1 inhibitor, ABT-494, is currently in Phase 3 development for RA and has the potential to be best in class with what we believe will be an optimized benefit/risk profile.

This program is progressing ahead of schedule and we will begin to see some data from the Phase 3 RA program later in the year.

We are particularly excited about this asset's potential in the difficult-to-treat anti-TNF inadequate responder population, a growing segment of the RA market, representing roughly 35% of the biologic-treated patient population.

The development program for ABT-494 in gastrointestinal disorders is also progressing well, with a Phase 2 study in Crohn's disease ongoing and a Phase 2 study in ulcerative colitis getting underway in the third quarter.

Data from the Crohn's study should be available in the first half of 2017, with Phase 3 Crohn's studies starting later in the year.

We also recently began a Phase 2 study to evaluate our oral selective JAK1 inhibitor in atopic dermatitis patients, with data expected later in the year.

We continue to advance our early-stage immunology pipeline as well, with clinical programs recently initiated or expected to begin very soon for several key early-stage assets, including our RORgammaT inverse agonist, our anti-TNF steroid, ADC, our CD40 antagonist, and our JAK-BTK inhibitor combination.

Moving now to virology, where our emphasis is on addressing the remaining unmet medical need for pan-genotypic next-generation HCV regimen.

We believe this objective can be accomplished with our once-daily oral combination of two novel antivirals that has demonstrated cure rates approaching 100% across genotypes with just eight weeks of therapy for the majority of patients.

Last month we filed our regulatory submissions in both the US and Europe.

Our US application was submitted under breakthrough designation and the EU submission was granted accelerated assessment.

We are on track to launch this new regimen in both the US and EU later in the year, and we are also on track to submit our regulatory application in Japan later this quarter.

In the area of women's health, we are nearing completion of our Phase 3 program for Elagolix in endometriosis.

Later in the year we expect full data from both Phase 3 endometriosis studies, including extension data, and also plan to submit our US regulatory application in the third quarter.

We remain excited about this potential new medicine for women with this highly-prevalent condition where there are few effective treatment options.

In addition to the endometriosis program, we have Phase 3 studies underway in uterine fibroids and we anticipate beginning to see data from that program towards the end of this year.

And lastly, in the area of neuroscience, where we are focused on developing disease-modifying therapies to treat neurodegenerative conditions, we recently began Phase 2 studies in Alzheimer's disease and PSP with our anti-tau antibody.

We see significant potential in tau-based approaches for delaying the progression of neurodegenerative diseases and look forward to one day being able to bring new treatment options to patients with these debilitating conditions.

So in summary, we've continued to see significant evolution of our mid- and late-stage pipeline programs over the past year and 2017 promises to be another very productive year.

With that, I'll turn the call over to Bill for additional comments on our fourth-quarter and full-year performance.

Bill?

Thanks, Mike.

This morning I will review the highlights of our full-year 2016 performance, provide an overview of our fourth quarter, and then walk through our outlook for 2017.

We had another year of outstanding performance, delivering top- and bottom-line growth in 2016 that is among the highest in our industry.

We reported adjusted earnings per share of $4.82, up more than 12% compared to 2015.

For the full year, adjusted net revenues were $25.6 billion.

As you are aware, in November we saw a strengthening of the dollar, which drove higher-than-expected negative foreign exchange in the quarter.

Additionally, continued competitive dynamics in the HCV market had an impact on Viekira sales.

As a result, sales for the year and the quarter came in at the lower end of our expected range.

Despite these dynamics, full-year sales growth was 13.3% on an operational basis and we exceeded our EPS guidance for the year.

Total adjusted net revenues for the fourth quarter were $6.8 billion, up 6.9% operationally, excluding the negative impact of foreign exchange.

Humira delivered another quarter of strong growth with global sales of $4.3 billion, up 16.2% operationally.

In the US, Humira sales increased 23.5% compared to the prior year, driven by volume growth of roughly 14% plus price.

Wholesaler inventories remained below half a month in the quarter.

International Humira sales were more than $1.4 billion in the quarter, up 4.1% on an operational basis and in line with our expectations.

For the full year 2016, global Humira sales were $16.1 billion, reflecting incremental sales of more than $2 billion.

Full-year sales of Humira in the US grew more than 24% with midteens prescription growth and a contribution from price in the high single-digits.

International Humira operational sales growth for the full year was 4.3%, consistent with our expectations of mid single-digit growth.

Excluding the impact of conditions in Venezuela, operational sales growth for full year was approximately 7%.

We continue to see good growth despite the entry of indirect biosimilar competition in the international markets.

This exceptional performance was driven by Humira's overall level of efficacy and safety, long physician experience, and continued biologic penetration across disease categories.

Its unique product profile and AbbVie's strong commercial execution has made Humira the number one prescribed biologic and it remains the undisputed market leader, despite competition.

Global Imbruvica net revenues in the fourth quarter were $511 million, up 49% over the fourth quarter of last year, driven by strong prescription growth trends.

For the full year, Imbruvica sales exceeded $1.8 billion, in line with our previously communicated guidance.

Global Viekira sales in the fourth quarter were $311 million, down versus the prior year and below our expectations.

As we have previously communicated, we have seen market share loss and price erosion due to competitive dynamics within the HCV market.

Global sales of Duodopa, our therapy for advanced Parkinson's disease, grew 26.7% on an operational basis in the quarter and we also saw strong operational sales growth in the quarter from Creon, which was up nearly 15%.

Turning to the P&L profile for the quarter, adjusted gross margin was 81% of sales.

On a comparative year-over-year basis, this ratio reflects an adverse impact from foreign exchange of roughly 150 basis points.

In addition, adjusted gross margin reflects 50 basis points of unfavorable impact related to partnership accounting.

Equalizing for these impacts, the gross margin profile improved by approximately 250 basis points versus the prior year.

Adjusted R&D was 17.3% of sales in support of ongoing programs in oncology, immunology, HCV, and other areas.

Adjusted SG&A was 23.9% of sales in the fourth quarter and operating margin profile was impacted by R&D investment related to Stemcentrx and risankizumab as well as the adverse impact of foreign currency.

Equalizing for these impacts, adjusted operating margin profile improved by 250 basis points versus the prior year.

Adjusted net interest expense was $251 million and the adjusted tax rate was 20.2% in the quarter.

Fourth-quarter adjusted earnings per share, excluding non-cash intangible amortization expense and other specified items, was $1.20, up 6.2% year over year.

As we look ahead to 2017, we expect full-year adjusted EPS of $5.44 to $5.54, reflecting growth of 13.9% at the midpoint.

This guidance excludes $0.89 per share of non-cash amortization and other specified items.

On the top line, we expect revenue growth of approximately 10% on an operational basis.

Holding exchange rates constant at current levels, we would expect foreign currency to have a 1% unfavorable impact on reported sales growth.

Included in our top-line guidance are assumptions for our key product as follows.

In 2017, we expect Humira to once again be an important contributor to our performance with mid to high teens growth expected in the US.

Internationally, we are forecasting mid single-digit operational growth.

If currencies hold constant with current rates, reported growth would be in the low single digits.

For Imbruvica, we expect global revenues to AbbVie of greater than $2.4 billion with sales in the US of more than $2 billion.

We anticipate global Viekira sales of approximately $1 billion in 2017.

While we are on track to launch our next-generation HCV therapy later this year, based on the timing of managed care contracting cycles, we don't expect to see meaningful sales contributions until 2018.

Regarding AndroGel, we are forecasting 2017 sales of roughly $500 million.

For Creon, we expect mid to high single-digit sales growth.

For Venclexta, we expect sales of approximately $125 million in 2017.

As we have previously communicated, our initial indication for Venclexta, relapsed/refractory CLL patients with the 17p deletion, addresses a $300 million market where Imbruvica currently holds more than 50% of market share.

Between both assets will hold a strong market leadership position in this segment.

For Lupron, Synagis, and Synthroid we expect sales to be roughly flat year over year.

Regarding the P&L for 2017, we are forecasting an adjusted gross margin ratio roughly flat to 2016, inclusive of the dilutive impact of our partnered products on gross margin.

We expect 2017 to be a year of significant R&D investment as we provide the appropriate level of funding across our pipeline in order to fuel our future growth.

This includes the incremental funding and budget annualization associated with the Stemcentrx and risankizumab programs.

As a result, we are forecasting adjusted R&D expense of approximately 17% of sales.

We expect adjusted SG&A to approach 21% of sales, reflecting the benefit of sales leverage.

In 2017, we are forecasting an adjusted operating margin profile of approximately 43% inclusive of the annualization of stem and BI transactions.

We remain committed to achieving the operating margin profile improvements that we have communicated in our long-range guidance.

We are forecasting adjusted net interest expense of approximately $1 billion for the full year and we expect an adjusted tax rate of approximately 19.5% to 20% in 2017.

Regarding our first-quarter outlook, we expect adjusted earnings per share between $1.24 and $1.26.

Our first-quarter adjusted EPS guidance excludes roughly $0.23 of non-cash amortization and other specified items.

We are forecasting revenue growth in the first quarter to approach 10% operationally.

Holding exchange rates constant at current levels, we would expect foreign exchange to have an unfavorable impact on reported sales growth of approximately 1%.

For US Humira, we expect sales growth in the first quarter to exceed 20% over the prior year and we expect US Imbruvica sales in the first quarter to grow in the high single-digits sequentially over the fourth quarter.

In closing, we are very pleased with AbbVie's strong performance in the quarter and the full year.

We have driven strong, top-tier revenue and EPS growth, while also advancing our strategic priorities and our pipeline.

And we are well-positioned for strong growth again in 2017.

With that I will turn the call back over to Liz.

Thanks, Bill.

We will now open the call for questions.

Operator, we will take the first question.

(Operator Instructions) Jami Rubin, Goldman Sachs.

Thank you.

I guess my first question is for you, Bill.

On operating margins, we didn't see leverage this year in large part because of R&D expenses, and when we think about 2017, continued pressure on R&D as you are making significant investments from the partnership programs.

But I think that the Company gave long-term guidance of operating margins approaching 50%.

I'm looking at other companies that have a similar mix as you do, like Amgen; they have over 50% operating margins.

You are well below that.

Can you talk about how we should think about the evolution of operating margins going forward?

Because the partnership -- Imbruvica will continue to put pressure on gross margins; how we think about that.

And R&D as a percentage of sales, should that stay in the 17% of sales range?

And how should we think about you guys getting to a 50% operating margin?

Because that's a long ways away from where we are right now.

Then I have a follow-up question for you, Rick.

Just if you could comment on FDA's interchangeability guidance.

Anything that surprised you, anything that gives you pause in terms of timing, and in terms of impact to the Humira franchise once biosimilars come to the market.

Thanks.

Hi, Jami; it's Bill.

So on your operating margin questions, first of all, I think we've made enormous progress on operating margin if you look at where we have come since spinoff.

And we certainly did last year in the quarter -- sorry, 2015 in the third quarter communicate our intent to hit 50% by 2020.

Everything as we look at it right now is still on that plan.

Obviously we're in the process of pulling the other new LRP and we are going to look at it again, but that's our goal as a management team and we certainly are constructing a path to get there.

If you look at 2017 relative to 2016, we are showing improvement.

We had said in our long-range guidance that we would anticipate 100 to 200 basis improvements per year.

It is true in 2017 we're coming up a little short of that, but you have to recognize that the utilization of Stem and BI, as well as the required investment on those programs, has pretty much added about 120 basis points of dilution.

So if you back that out, we would be back within that range of what we communicated back at the end of 2015 before we did Stem and BI.

So we think it is -- the base business is showing the right level of performance.

And, obviously, we are having the opportunity to invest in those two very important programs and still deliver operating margin expansion, so we are quite pleased with the number in 2017.

In terms of how we get to 2020's target of 50%, you have to recognize that we, first and foremost, have the royalty stack on Humira rolling off that will have impacts on the P&L in 2018 and 2019.

Just as we've communicated before, but to remind you, that royalty stack is 5% to 6% of global Humira sales.

One-third of the stack disappears at the end of 2017 with P&L benefit in 2018, two-thirds at the end of 2018, P&L benefit in 2019.

So that will give you some idea of how that flows in.

And then we are always committed to driving more efficient supply chain.

We are enjoying those benefits right now and we have enjoyed them since spin, as well as other cost-containment programs.

We have pretty, I'd say, strong targets internally to deliver on those.

And then, finally, you can't overlook the importance of sales leverage across this P&L.

Most notably, 2018 and beyond as we start launching new products and we start getting the full indication (technical difficulty) Venclexta.

And again, obviously Humira in the US we anticipate growth throughout that period.

So when you add all of those things up -- even despite partnership accounting, which we think will present about 200 basis points of drag -- we feel that we've got enough positives in the mix to drive to that operating margin profile goal.

Good morning, Jami; it's Rick.

On interchangeability, I think, as we all know, the FDA has communicated for some time that they were going to come out with this guidance by the end of 2016, so I think the timing of it was as expected.

We have had a chance to go through it.

I think it clearly reflects that interchangeability is a higher standard than biosimilarity.

It describes that biosimilars will have to do a three-way switching study between the biosimilar and the innovator, and it strongly suggests that those studies be done with US reference product as the comparator.

I would also say the FDA devoted a considerable amount of time in the guidance to packaging and the delivery system or the device differences and potentially, depending upon what those differences are, it could require human factor studies in order to demonstrate that there is no significant difference between the biosimilar and the innovators' product.

So I think as we step back we are continuing to, obviously, analyze this.

When direct biosimilars come into the marketplace we've said that our strategy will be a strategy that's designed to maintain market share while maximizing the profitability of the brand.

That remains the same.

And I think, unlike small molecules where the erosion curve is really driven by retail pharmacy substitution, which is what makes it so challenging, on a small molecule very little or almost none of biologics go through retail pharmacy.

They go through and are dispensed through specialty pharmacies, where your formulary position is really what dictates what product is dispensed, not the individual pharmacy.

So I don't think it fundamentally changes that part of the strategy.

As far as the competitive dynamics, I think it's too early.

We don't believe, based on what we know, that any of the single-switch studies that are being done now would meet this standard, but we'll have to see how the competitive dynamics play out as people look at this and start to design programs in order to try to achieve interchangeability.

And so I think we will need to see how that plays out over time.

Can you just, Rick, throw out a guesstimate of when you would expect an interchangeable biosimilar to be introduced to the market?

Well, that's probably not something I just want to guess on.

You know, obviously there are significant issues that play through your question.

First and foremost, it's when are there biosimilars on the market to begin with, from the standpoint of our IP production.

We remain committed to the position that we took back in 2015; that we believe our portfolio of IP will protect Humira within the US until 2022.

And so beyond that it's difficult for me to project, based on where we are today because I don't -- I'm not aware of anyone doing a study that would be compliant with what's described here.

That doesn't mean it's not happening; it just means I'm not aware of it.

Okay, thank you.

Jeffrey Holford, Jefferies.

Thanks very much.

Good morning, everybody.

Rick, I wonder if you could just comment with your thoughts around pricing exposure for your company with regard to every single time we get a tweet or a comment out the new government here, the new president, your stock does seem to get impacted the most of those amongst your peer group.

Can you just talk about what you see as some of the biggest potential issues that could get discussed, whether it's dual eligibles or direct price negotiation and just how exposed you think your company is relative to others?

The second question is on Imbruvica.

Just Q4 just seemed a little light in the US just against the volume trend.

Can you just let us know if there's any factor there, like destocking, that impacted in quarter at all?

Then just lastly, we are all expecting Humira biosimilars in 2018 -- October 2018 I think is the date that we are mostly all looking at -- but you only give us Humira numbers ex-US.

So can you just help us at all; geographically, what's the mix of exposure in the territories from 2018 October in what you would expect biosimilars to be in the market ex-US and what percentage you wouldn't?

Thank you.

All right.

So, Jeff, maybe let me talk a little bit about pricing or reforms in the Affordable Care Act.

There, obviously, are a lot of things out in the environment swirling around, but there's not a lot of specificity yet.

So it's probably, one, difficult and, two, inappropriate for me to try to speculate on what some of those changes might be.

I think as we look at our business and the mix of our business, certainly we are being conscious of pricing our products in a way that is responsible.

I think you've seen that.

I think what's important for all of us in the innovative pharmaceutical space is to continue to demonstrate the value of the medicines that we have.

In many cases, as you know, these medicines actually reduce overall healthcare costs and pharmaceuticals are still a relatively small percentage of the overall spend within the healthcare system, the Medicare system.

Specifically when we look at our business, I think most of our medicines are underpinned by strong evidence base; that they are not only clinically very important and very effective, but also provide a good economic value proposition for the system itself.

And we see that in the usage that we get in fully-socialized systems where they can determine what products they use and to the extent that they use those systems.

You see products like Humira do extremely well in those markets.

Additionally, if you look at our business overall, it's not heavily weighted towards Medicare.

In fact, only about 12% of our total revenues go into Medicare, so we are not overly heavily weighted within that sector.

But I'd say what our goal will be is to continue to advocate for access to innovative medicines for all patients across all the channels.

And I would hope that one of the things that as we look at reforming the Affordable Care Act that we could deal with is the burden at the donut hole and co-pays put on seniors in a Medicare program, because I think that creates a lot of challenge that we see.

So we will have to see how it plays out.

I think some of the effort in this area I think will benefit over the long haul, but we have to see some more of the details.

On Imbruvica, if you actually look at Imbruvica, it continues to perform extremely well.

Global sales were $511 million in the quarter.

The US was $434 million; that's up about 47% year over year.

Full year we were above the guidance that we gave, slightly above the guidance we gave of $1.8 billion.

That represents 67% growth.

If you look at the IMS prescription growth, it's up about 38% in the quarter versus the prior year.

And if you look quarter to quarter it's up about 6%, which we think is more indicative of the growth of the brand.

There was -- if you look at just pure revenue in the two quarters, there was about $15 million or $20 million worth of channel or inventory that occurred in the third quarter that depressed revenues in the fourth quarter.

So that is essentially what you see when you look at the sequential growth quarter to quarter.

As we look at fourth quarter, as Bill mentioned in his comments, we are forecasting sequential growth in the high single-digit range.

I'm sorry, in the first quarter, in the high single-digit range.

But I would say, overall, we are very pleased with how Imbruvica is going.

It continues to track where we had hoped or slightly ahead, so we are very comfortable with Imbruvica.

Then your last question is on the mix of biosimilar impact outside the US.

I'd say for the vast majority of our countries the fourth quarter 2018 is the time at which biosimilars will be able to enter the marketplace.

And as far as the geographic mix, that will be driven by the competitors, how they launch and when they get access.

Maybe one of the things would be indicative, or at least directionally helpful, is to look at the biosimilars that are in the marketplace today.

So if you look at the Remicade biosimilar, I think they are in about 66 countries today.

At least 50 countries have reimbursement or pricing for those biosimilars.

They have about just under 5% of the overall market and they have about just under 25% of the molecule's share after being on the market for several years.

If we look at the Enbrel biosimilar, which has only been in the market for a shorter period of time, today they are approved in about 34 countries.

They have pricing in 19 countries; pricing and reimbursement in 19 countries.

The latest data says that they have just over 3% share of the overall category and about 14% or 15% share of the molecule.

So I think, directionally, that gives you a feel for how it will probably rollout.

That is consistent with what we had assumed when we provided guidance back in 2015 where we described to you what we thought the erosion curve would look like.

We continue to monitor this and we feel comfortable with what that erosion curve continues to look like.

That's very helpful, thank you.

Chris Schott, JPMorgan.

Great, thanks very much for the question.

Just had two here.

First, can you elaborate on your Humira volume expectations in the US for 2017?

It looks like another very strong year of growth again.

Can you talk a little bit about price versus volume mix?

And then which indications in particular are driving the growth for this year?

My second question was a higher level one on immunology.

You obviously have a very significant position with Humira.

You've got two important late-stage assets with the JAK and the IL-23, but it does seem like the competitive pressures in this space are growing.

We've got new mechanisms.

We've got biosimilars ex-US.

We've got what seems like increased payer focus on the category.

So how do you see that all playing out going forward?

And do you think there's any risk that we see something similar happen here that has happened to diabetes, where we get more restricted formularies, we get more intense competition among the various players?

I guess some high-level thoughts on how you see that space playing out.

Thank you.

So maybe I'll cover most of this and then, Bill, you can talk a little bit about the mix.

If you look at Humira, maybe first for the competitive standpoint, this has been highly-competitive category for quite some time.

I there are something like 14 different mechanisms; there were 10 or so for the last four or five years.

It's really driven by -- the growth in this category is really driven by the performance of the brand, the breadth of the brand, the safety and efficacy of the brand, and the overall growth in biologic penetration; that the underlying market continues to grow.

I don't see those dynamics changing.

Certainly there's been a lot of discussion around the competitive nature of this market.

We certainly operate in a competitive environment.

We work very closely with payers to ensure that we are striking the right balance.

We've obviously negotiated all of our managed care contracts for 2017, and many of them for 2018 as well, so I don't see anything on the horizon today that would give me pause as to the fundamental trajectory of Humira.

Then if I step back, the US, where we probably have the best market share data, if you look at our market share overall, it's increased slightly.

Rheumatology has increased the most and it's the largest category.

We are up about 0.5 point overall in rheumatology.

We are roughly flat in derm and GI.

One of the most important leading indicators for your growth is what your first-line share is doing.

So if you look at RA, our first-line share is about 40%.

If you look at psoriasis, as an example, our first-line share, if you include Otezla, it's just under 40%.

And if you exclude Otezla, which really competes in the mild to moderate, not where we compete, then it's just under 60%, so very significant first-line share.

Then if you look at GI, between Crohn's and UC, our first-line share is about 55%.

And so we continue to see very strong performance based on both our execution and, obviously, the performance of the brand.

I'd say we have a high level of confidence in now Humira is going to perform going forward.

Bill, anything you want to add?

Yes, so Chris, picking up from there, obviously our guidance on Humira in the US is mid to high teens.

I think the way you want to think about that is continued volume in low double-digits, price single-digits.

Price will have more of an impact earlier in the year and that's why we are guiding first quarter above 20%.

But we expect that volume to remain low double-digits throughout the year.

Thanks very much.

Marc Goodman, UBS.

Morning.

In the past you've talked about the amount of SG&A spend you have done on Humira.

Can you just give us an update on where that is for 2016?

And then second, for M&A, Stemcentrx was a platform deal.

Are you looking for more platform-type deals or should we be expecting more of these BI one-off type product deals as you look at M&A this year?

Thanks.

Mark, I'll pick up SG&A on Humira.

There's really been nothing about that business that has been negative and would lead us to pull back on SG&A.

Now obviously we are thoughtful.

When we had the discussion about SG&A on Humira, we said that largely the required base was in place.

Obviously, though, we do have things like merit, inflation, those sorts of things, and we are always looking for ways to make our spend more efficient, but there's been nothing about the performance of the brand that would have us pull back on SG&A.

I think it's also important to recognize that we have a pretty sophisticated, rigorous process of evaluating ROI on every one of our SG&A programs.

Certainly if you look at the growth that Humira has contributed in the quarter and the year and forecasted in 2017, you can see why we would be confident that that ROI is still holding up and that that investment is wise.

Then as far as transactions or acquisitions or licensing opportunities, we continue to be active.

But as we said when we did the Stem transaction, for the next year and a half from that point we said we would be wouldn't be looking for any kind of a platform, kind of a transaction.

It would be more individual products.

What really drives our efforts here is the strategy we have within each one of the verticals.

We have a very specific set of criteria within each one of those verticals of assets that we are looking for and, as we find those kinds of opportunities, then obviously we pursue those opportunities.

But I would say today that we don't view that we need any kind of a platform play or technology within any of those verticals.

So I think we can assume more individual products, whether they be a straight-out acquisition or a structure that is more similar to the IL-23 transaction that we did.

I think that's what you should expect.

Gregg Gilbert, Deutsche Bank.

Good morning, thanks for the questions.

Rick, back on the subject of price, we are hoping you could clarify whether your pledge to stick to single-digit price increases also means just one per year.

And do you agree with some of your peers' beliefs that the US system is broken as it relates to the subject of list price versus actual net price growth?

And shifting over to Mike, I was hoping you could share a little bit more color about your Phase 2 Alzheimer's compound.

I realize it's early, but when will you learn something more meaningful that would inform your willingness to move it ahead?

Is it final Phase 2 data or are there other sort of key break points within then that we could hear about in the next year or two?

Thanks.

On price, as I communicated in our talk at the JPMorgan convention, we will only do one price per year and all brands will be under double digits, so all increases will be single digits.

And so we will only do one.

We've obviously done one already on most assets and that will be it for the remainder of the year.

On the system being broken, if you look at the -- I don't know that the system is broken.

I think the perception that list price increases is what gets passed along to the patient in the way of cost, it -- clearly that is not the case.

Very little of our revenue goes at list price.

I mean it's a tiny, tiny percentage.

But there are other people along the value chain who obviously participate in the overall cost of the system and so the fall-through of any increase is usually much lower than the overall increase.

And so I think it is a misconception that many people take when they look at list price increases, whether it's ours or anybody else's, that those are reflective of what the brand is actually being able to achieve in the marketplace.

I think that's just reality of the system.

Okay, this is Mike.

With respect to Phase 2 asset, in Alzheimer's disease, we are very excited about this program; this is our anti-tau antibody.

Tau is a protein that is very tightly correlated to dysfunction in Alzheimer's disease and other neurodegenerative diseases and our antibody is thought to block the spreading of this pathology through the brain.

And so we think it holds great promise as a potential treatment for Alzheimer's disease.

We just started Phase 2, right now basically, and so it's going to take a bit of time before we get to meaningful data readouts.

I think the way we have designed the study, there are a number of opportunities for us to see data along the way so we can learn meaningful things, certainly before we get to the end of a large Phase 2 study.

But I think it's too early today to predict when along the course of that study that might be.

Obviously it's a program that we're going to be focused on and we're going to drive as quickly as possible.

Geoff Meacham, Barclays.

Good morning.

Thanks for taking the question.

Sticking with the pipeline, Mike, just had a few for you.

Can you give us some perspective on Elagolix?

Just based on the extension study, what do you think the real world duration of therapy may be?

Then just back to the tau program.

I saw on the trial design that there's a screen for beta-amyloid by PET scan.

Are you guys also looking at tau imaging in that study?

Does that have much value, in your view?

And then you mentioned tau being the marker of disease progression.

I wanted to get your perspective on looking at tau as the marker versus beta-amyloid.

And some would argue that time a patient sees tau accumulation, they may be too far gone, but I wanted to get your thoughts on that.

Thanks.

Okay.

With respect to Elagolix, the ultimate duration of therapy is going to be part of the regulatory discussion and labeling discussion around that molecule, so I think it's early to predict an exact duration.

But we have an extensive clinical trials program, one that included both extension studies for longer duration of therapy and off-treatment periods, so we believe that we will have the data set to optimally support a strong duration of therapy at the time of launch.

And we are also pursuing post-launch Phase 3b programs to further extend both that data set and, ultimately, to extend duration of therapy, we believe, through approaches such as our add-back program.

So I think it's early today to give you a concrete answer, but I think we're going to have the data to support a good duration of therapy.

Turning to the tau study, the a-beta imaging in that protocol is necessary to ensure that the patients who are enrolled in the studies do, in fact, have Alzheimer's disease.

We know that if one doesn't take that measure, that there are other forms of dementia that look clinically similar to Alzheimer's disease that could be enrolled essentially in error.

Those patients wouldn't be expected to benefit from a therapy aimed at Alzheimer's pathology and so that's the role there.

It's a little bit different than the response biomarkers that are being incorporated in our trial and in many others in the Alzheimer's field.

We have a range of biomarkers in our program and a range of clinical measures that we think will allow us to interrogate this.

And those include imaging markers.

We think we are going to have the data set to make a decision out of this trial.

With respect to the correlation of tau with neuronal dysfunction, what we know about a-beta and tau is that the pattern of the pathology is different between the two.

A-beta pathology peaks very early and is essentially stable at the time that disease progression occurs.

It also doesn't correlate particularly well with the area of the brain that exhibits dysfunction.

What we know about tau is that the rise in tau pathology tracks much more closely with both neuronal dysfunction and clinical symptoms, making it very tightly linked in time to the progression of Alzheimer's disease.

It's also very tightly linked in space with respect to the progression of Alzheimer's disease.

So there are these regional variants where you have different regions of the brain that are primarily affected.

If you look at a-beta in those patients, the distribution of a-beta is essentially unchanged across them.

But if you look at tau, tau pathology is most prominent in the areas where there is neuronal dysfunction, so we think that those data would indicate a strong role for tau and a strong role for our mechanism.

Ultimately, of course, the Phase 2 study and downstream studies will answer those questions definitively.

That's helpful, thanks.

Mark Schoenebaum, Evercore ISI.

Thanks for taking my question.

First, big thanks to Liz and the team for all the help she gave, in my absence, to my team.

Really appreciate that, Liz.

My question -- and I apologize if I missed this in the prepared remarks.

But just for rest of world Humira, would it be possible for you to just give us very clearly the quarter-on-quarter, that is sequential, volume change as well as the quarter-on-quarter, that is sequential, 3Q versus 4Q, change in price?

And then this was sort of covered in the last -- in some ways in the last questions.

But on the US side, you have obviously, as you said earlier in response to a question, you have committed to limiting gross price increases for Humira.

I'm wondering how, in a general sense, we should think about trends for the gross to net, that is the discounting that occurs.

Would that be expected to rise, fall, stay the same?

Maybe help us think through that over the next couple years in this new pricing environment.

And if you are willing to, can you give us the average gross to net for 2016?

Thank you.

In the US.

Mark, it's Bill Chase.

I'll start with the sequential questions on Humira.

Price was pretty flat sequentially rest of world.

Volume was up about 2% rest of world, so the numbers look pretty good.

Excellent.

I think on gross to net, we've never communicated the gross to net before and, for competitive reasons, we just don't think that is something that is appropriate for us to communicate, Mark.

As far as trends are concerned, as we indicated, I think it was in the third-quarter call, that we have negotiated all of our managed care contracts for 2017 and there was not a significant change or I would say very little change in the gross to net between those two.

And some of those are both 2017 and 2018 and some are just 2017.

So I would say there's relative stability in gross to net going forward, at least for the next year and a half, two years, let's say.

Obviously, the environment can change, but that is the view of it right now.

If you go back to the OUS, as you look at sequential -- I think we had this discussion maybe a year or so ago, I remember.

Outside the US, because there are tenders in certain places, the quarters can jump around quite a bit and so sequential growth quarter-to-quarter sometimes is not a very good indicator of the overall growth of the brand in time.

So that's the only caution I would have.

If you're trying to understand, okay, how is it actually performing in the backdrop of the biosimilars, which may be what you're trying to understand, I essentially gave to an earlier question some of the latest biosimilar data, the latest data that we have of the three-month market share for the biosimilars.

They've had a very modest impact thus far and we would expect that to continue going forward.

If you look at our international Humira business in 2016 and you adjust out the one-time impact for Venezuela, for the devaluation of Venezuela, as Bill said in his comments, the brand is growing, from a revenue standpoint, about 7%.

If you actually look at volume, it's probably 2 points higher than that, so high single-digit volume growth.

And that's indicative of what we are seeing across most major markets where we operate in the backdrop of having Remicade and Enbrel biosimilars in many of those markets.

Geoffrey Porges, Leerink Partners.

Thanks very much.

I really appreciate all the color that you are providing.

Bill, could you just give us a sense of your current cash position and the US/OUS cash?

And then, in light of the suggestions about tax and sort of thing, have you flexibility to move manufacturing or any of your assets back to the US?

And is that something that you've contemplated as you are going through the proposals?

Sure.

At the end of the quarter we had about $8 billion of cash.

I think it's always safe to assume the vast majority of that is overseas, given that to hold cash in the US under the current tax paradigm is somewhat uneconomical to us, so we try to keep that cash offshore.

In terms of our ability to manufacture in the event that there is a tax paradigm that favors US manufacturing, look, if you look at manufacturing assets, mostly around Humira, which is the main point of I believe your question, we've got manufacturing facilities in the US.

The original plant that Humira was manufactured is out in Massachusetts.

We also have manufacturing facilities in Puerto Rico.

So obviously we would have to look closely to whether Puerto Rico is considered part of the US, which we obviously think it should be, but if that was the case, then there would really be no requirement to move our supply chain around drastically.

David Risinger, Morgan Stanley.

Great, thanks very much.

So I have a couple of questions, some of these topics were discussed.

But first, Rick, I was hoping that you could just paint a picture for us for Humira patent litigation to watch ahead and how we should think about it.

Just what some of the key inflection points are to watch.

And I'm talking about litigation here, not the IPRs.

I think everybody is pretty clear on the IPR actions that are forthcoming in late spring/early summer.

Second, with respect to the tau antibody, I believe that the Phase 2 that you have discussed as having just started completes in 2020, that it's scheduled to complete in 2020.

I just wanted to confirm that and I think you mentioned that there could be an interim assessment, but wanted to confirm the timing for that Phase 2 conclusion.

And then finally, with respect venetoclax, could you just provide the fourth-quarter sales?

Thank you.

Sure.

David, this is Rick.

Because we are in the active phase of litigation now, obviously I can't provide you a lot of color on how that will proceed.

I mean obviously we are actively involved with Amgen on that litigation.

You've seen now publicly when the trial date is scheduled for, which was consistent with the timeline that I think we discussed when we provided the longer-term guidance.

And so I think it's tracking on a path that ultimately is consistent with what our expectations were.

Obviously, as others file we will be going through a process of them, which will be somewhat similar to Amgen process.

We will have to see as that plays out, but nothing that I can give you color on.

On the IPRs -- although you said excluding the IPRs.

I guess the one thing I would point out on the IPRs is just -- it's another form of this -- is we have had two IPRs now on some of our formulation patents, broad formulation patents.

We were very successful and prevailed on those.

We have two more that are coming up now on method-of-use patents in the RA area.

Some of our method-of-use patents in RA are being challenged.

I think one thing that is important for investors to understand, the strategy that we have in place is not one that hinges on one or two patents.

At the end of the day, we have a portfolio of patents now -- I think it is 110 -- and it is that portfolio of patents that provides us confidence that ultimately we can protect the position which Humira --.

Based on all the innovation that we've done and the investment we have made in Humira, that's a very broad portfolio of IP that protects it.

And so regardless of which way the IPRs go, this strategy is not hinged on one or two patents.

That will play out over the course of this year and the rest of litigation will continue to play out.

But I think that's an important perspective for investors to have.

With respect to the Phase 2 study for the tau antibody program, the completion date that would be listed on clinicaltrials.gov is the date in which the study would conclude if it went out to the final analysis.

With a Phase 2 study such as this one, there are opportunities to learn along the way.

As I mentioned a bit earlier, there are planned interim assessments.

It's too early today to predict the exact timing of those assessments, but there will be opportunities along the way between and that 2020 to 2022 time frame for us to learn a lot more about the tau program.

And obviously, as we learn more we will communicate that.

On venetoclax I think it's probably more indicative to look at the overall revenue so far in 2016, and it was roughly $20 million.

So relatively modest and I think there are a couple of factors that you have to think through here.

As Bill mentioned in his comments, this is -- 17p deletion is a relatively small market; it's about $300 million.

Today Imbruvica has between 50% and 60% of that market, so our other asset has a very significant share position.

In addition, when you start patients up, because you step them up in dose, the initial month or so of therapy is at a reduced cost because of the way the product is priced.

Because it's priced on a milligram basis and so essentially you step the patients through.

When you are in the early phase of starting patients up, you generate less revenue because you're taking them through this startup phase.

If you look at where we are right now, our exit share was about a little over 20% or so, 20%, 22%.

So the combined share between Imbruvica and venetoclax is significant, obviously, in this segment and we are starting 80, 90 patients a month on average, roughly.

Chris Raymond, Raymond James.

Thanks for taking the question.

Just another pipeline question, maybe for Mike, on veliparib.

Just curious; the literature paints maybe a less certain role for PARP inhibition in indications like lung than, say, ovarian cancer.

And this year I think your first pivotal data is likely in lung.

You've got squamous and non-squamous trials reading out.

I wonder if you could maybe comment on that and maybe help expectations as these readouts happen.

And then maybe a companion question to that.

The preclinical potency data seems to suggest that other PARPs are maybe more potent than your molecule and I think I've detected a decent amount of discount assigned to veliparib by investors because of that.

I wonder if you could maybe comment on that dynamic as well.

With respect to veliparib, as you point out, the role for PARP inhibition in germline carriers of BRCA mutations with either breast cancer or ovarian cancer is really quite clear.

And, of course, veliparib is registered based on single-arm studies in BRCA germline carriers.

We have chosen to follow a different development path, specifically because we didn't think it made a lot of sense for us to take our PARP and try to follow others into relatively small, although medically important, indications, like those BRCA germline carriers.

That need had already been met in our view.

So we are testing a different hypothesis.

We are testing the hypothesis that that first hit doesn't have to come from a germline mutation.

That in the setting of DNA-damaging chemotherapy, particularly platinum-based therapy, the role of DNA repair mechanisms becomes more important and that PARP inhibition may have an effect.

Now there's good preclinical rationale for this.

The Phase 2 data were supportive of it, but it really is a Phase 3 question to answer.

And so we have a broad Phase 3 program that will begin to read out over the course of this year and the readouts this year will be in a couple of areas, neoadjuvant breast cancer as well as in two non-small cell lung cancer studies.

So we will start to see over the course of this year whether that broader hypothesis is going to play out.

We do also have a study in ovarian cancer.

That study is just not as advanced as the non-small cell lung cancer study.

With respect to potency, I think it's very hard to determine whether preclinical potency assays, such as the ones that have been used for PARPs are going to translate into the clinic.

Potency can vary based on assay conditions and a number of other factors, and we believe the clinical activity is ultimately what we will define the role of these PARP inhibitors.

And in our early phase studies we saw good single-agent activity, in line with the degree of PARP inhibition that we would have hoped to have achieved.

Thanks, Chris.

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