Liz Shea:

Good morning and thanks for joining us. Also on the call with me today are Rob Michael, Chief Executive Officer; Jeff Stewart, Executive Vice President, Chief Commercial Officer; Roopal Thakkar, Executive Vice President, Research and Development, Chief Scientific Officer; Scott Reents, Executive Vice President, Chief Financial Officer; and Carrie Strom, Senior Vice President, AbbVie and President, Global Allergan Aesthetics. Before we get started, I’ll note that some statements we make today may be considered forward-looking statements based on our current expectations. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in our forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements except as required by law. On today’s conference call, non-GAAP financial measures will be used to help investors understand AbbVie’s business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we’ll take your questions. So, with that, I’ll turn the call over to Rob.

Jeff Stewart:

Thank you, Rob. We continue to demonstrate strong commercial execution across our therapeutic portfolio. I’ll start with the quarterly results for immunology, which delivered total revenues of approximately $7 billion. Skyrizi and Rinvoq are performing exceptionally well, contributing more than $4.1 billion in combined sales this quarter, reflecting operational growth of 50% in their fifth full year on the market. These assets are approved across a broad set of indications and are collectively supported by nine compelling head-to-head studies that demonstrate clear differentiation across multiple novel therapies, which has resulted in strong share capture. For Skyrizi, we continue to advance our clear leadership position in psoriasis, where total prescription share of the U.S. biologic market has increased to approximately 38%. Share is also ramping nicely in PSA, especially in the dermatology segment, where Skyrizi has achieved roughly 15% total prescription share in the U.S. biologic market. And for Rinvoq, we are seeing increasing share across each of the rheum indications, as well as additional momentum in atopic dermatitis, including total prescription share of 10% in the U.S. We are very excited about the growth potential in gastroenterology, where Skyrizi and Rinvoq are on pace to double their respective sales in IBD this year. The adoption in Crohn’s disease has been impressive, with Skyrizi and Rinvoq now achieving a combined in-place share in the U.S. of more than 40%. Skyrizi has achieved overall in-place share leadership in Crohn’s, with in-place share approximately now 13 points ahead of Stelara, following our compelling head-to-head sequence data published last year. This positive trial, which demonstrated Skyrizi’s high efficacy versus Stelara, including a more than doubling of effect in endoscopic remission has driven a significant inflection in performance and we anticipate continued share momentum. Commercialization for Skyrizi and ulcerative colitis is now underway in the U.S., with broad formulary access anticipated to ramp quickly over the next several months. Early feedback from gastroenterologists has been very encouraging, with Skyrizi’s UC data viewed as impressive, particularly for naïve patients who have not been exposed to biologics. We also expect the European launch in the coming months. We also see very robust adoption of Rinvoq in UC, where the brand is now achieving a leading in-place share in the U.S. Internationally, Rinvoq UC is now approved in 75 countries, with reimbursement and share gaining momentum. Having two novel therapies that each deliver differentiated levels of efficacy to treat both of these IBD conditions demonstrates our commitment to transforming the treatment landscape for physicians and patients in this area of high unmet need. Turning now to Humira, which delivered global sales of $2.8 billion, down 28.9% on an operational basis due to biosimilar competition. Erosion in the U.S. was in line with our expectations in the quarter and our guidance complicates -- contemplates the impact of additional formulary changes over the course of the year. Importantly, we continue to anticipate that Humira will maintain parity access to biosimilars for a significant majority of patient lives this year. Moving now to oncology, where total revenues were more than $1.6 billion. Imbruvica global revenues were $833 million, down 8.2, reflecting continued competitive dynamics in CLL. Venclexta global sales were $637 million, up 15.8 on an operational basis, with strong momentum across CLL and AML. Elahere is also performing very well, with sales of $128 million and our compelling overall survival data, recent positive updates in the NCCN guidelines and the expansion of commercial resources will continue to drive rapid uptake. Lastly, we continue to be pleased with the prescription trends for Epkinly in DLBCL. Commercialization is now underway for Epkinly’s second indication, follicular lymphoma, in the U.S., with European approval expected later this year. Neuroscience total revenues were nearly $2.2 billion, up 15.2% on an operational basis. This robust performance is driven by continued double-digit growth of Vraylar, with global sales of $774 million, Ubrelvy with total revenue of $231 million and Qulipta with global sales of $150 million. Each of these leading assets continue to gain share and remain competitively well-positioned. Botox Therapeutic is also performing well, especially in chronic migraine. Total global sales were $814 million, up 9.6% on an operational basis. Finally, we are pleased with the early launch trends for 951 in Japan and Europe, and look forward to bringing this innovative therapy for advanced Parkinson’s to the U.S. soon. Overall, I’m extremely pleased with the momentum across the therapeutic portfolio. And with that, I’ll turn the call over to Carrie for additional comments on aesthetics. Carrie?

Roopal Thakkar:

Thank you, Carrie. We continue to make very good progress advancing our pipeline with several regulatory and clinical milestones since our last earnings call. I will start with immunology. We received FDA approval for Skyrizi in ulcerative colitis, which marks its second inflammatory bowel disease indication. Skyrizi is now the only IL-23 specific inhibitor approved for both ulcerative colitis and Crohn’s disease. Skyrizi has proven to be a highly effective, durable, safe and well-tolerated treatment option for patients with moderate to severe inflammatory bowel disease. And this recent approval further strengthens AbbVie’s leadership position in this market. We also received a positive CHMP opinion recommending Skyrizi for the treatment of moderate to severe ulcerative colitis in Europe, with an approval decision anticipated soon. Earlier this month, we submitted our regulatory applications in the U.S. and Europe for Rinvoq and giant cell arteritis. Our submissions are based on the previously announced Phase 3 results from our SELECT-GCA trial, where Rinvoq demonstrated superiority compared to placebo on sustained remission from week 12 through week 52 on disease flare and showed a reduction in total steroid exposure at week 52. We expect approval decisions for this indication next year. We also recently began a Phase 3 study for lutikizumab, our anti-IL-1-alpha-beta-bispecific in hidradenitis suppurativa. HS is a skin disease that can be debilitating and there are limited treatment options. In our Phase 2 study, lutikizumab demonstrated strong clinical response rates and improvement in skin pain in a very refractory patient population. Based on these results, we believe lutikizumab has the potential to become an important new treatment option for patients with moderate to severe HS. We look forward to providing updates on the Phase 3 program as the data become available. In the second quarter, we announced two additional immunology transactions as we continue to invest in external innovation to expand our pipeline. These include the acquisition of Celsius Therapeutics, which brings a Phase 2 ready anti-TREM1 antibody for IBD and a license agreement with FutureGen to develop a next-generation anti-TL1A antibody for IBD that is designed to have less frequent dosing compared to other TL1As in development and will be evaluated in combination with Skyrizi. This follows the four immunology deals we announced earlier this year, which, as a reminder, included the acquisition of Landos and their oral NLRX1 agonist in Phase 2 for UC, a partnership with OSE to develop a novel ChemR23 agonist for IBD and RA, a collaboration with Parvus to utilize their immune tolerization platform for novel IBD therapies and a collaboration with Tentarix to develop conditionally active multi-specific biologics in immunology and oncology. Moving to oncology, where we continue to make very good progress across all stages of our heme and solid tumor pipeline. In the area of solid tumors, we recently announced positive topline results from our Phase 2 PICCOLO study evaluating Elahere as a monotherapy in ER alpha positive third-line plus platinum-sensitive ovarian cancer for those not eligible for retreatment with platinum-based therapies. Elahere met the primary and key secondary endpoints in the study, demonstrating an objective response rate of 52% and median duration of response of 8.25 month. Detailed results will be presented at an upcoming medical congress. Following discussions with the FDA, we will be submitting to Teliso-V for accelerated approval as a monotherapy in patients with previously treated c-Met overexpressing EGFR wild-type non-squamous, non-small-cell lung cancer. This submission will be reviewed under FDA’s real-time oncology review program. Teliso-V has also received breakthrough therapy designation from the FDA. Our submission will be based on the results of our Phase 2 LUMINOSITY study, where Teliso-V demonstrated strong clinical benefits across key endpoints, including overall response rate, duration of response and overall survival, with a tolerable safety profile. Submission is expected in the third quarter, with an approval decision anticipated in 2025. The confirmatory Phase 3 study for this potential accelerated approval is currently ongoing. We continue to see encouraging data for ABBV-400, our next generation c-Met ADC, which uses a topo payload. Recall that we’ve advanced 400 in late-line colorectal cancer based on the deep responses and prolonged durability observed as a monotherapy in our Phase 1 trial. And we remain on track to begin a Phase 3 study later this year in third-line CRC. We’re also seeing encouraging signals of activity for this next-gen ADC in the non-small-cell lung cancer cohort from our Phase 1 study. The preliminary data will be presented at an upcoming medical meeting. And based on the emerging Phase 1 results, we plan to begin a Phase 2 program for 400 in lung cancer. In the area of hematologic oncology, we received accelerated approval in the U.S. for Epkinly as a monotherapy treatment for patients with relapsed refractory follicular lymphoma after two or more lines of prior therapy. Epkinly is now the only T-cell engaging bispecific approved in the U.S. to treat both follicular lymphoma and diffuse large B-cell lymphoma. We’re extremely excited to bring this new subcutaneous treatment option to patients suffering from follicular lymphoma. We also recently received positive CHMP opinion with an approval decision in Europe expected later this year. In the quarter, we initiated a Phase 3 monotherapy study for ABBV-383 in third-line multiple myeloma. 383 is designed for high affinity binding to BCMA on malignant cells and low affinity binding to a unique CD3 epitope on T-cells, which has the potential to mitigate some of the adverse events associated with other T-cell engaging BCMA-based therapies while preserving high levels of efficacy. We remain excited about this asset’s potential to become a best-in-class BCMA CD3 bispecific by providing deep, durable responses and low incidence and severity of CRS, with the potential for outpatient administration, limited or no step-up dosing and monthly administration from the beginning of treatment. In addition to our Phase 3 monotherapy program, we have an ongoing Phase 1 study in later lines of multiple myeloma to evaluate 383 in various combinations, including with Pomalyst, Revlimid and Darzalex. Based on this work, we will begin Phase 2 combination studies in earlier lines of therapy next year. Moving to neuroscience, where in the quarter we announced that we received a complete response letter for our 951 regulatory application in the U.S. The CRL is based on observations identified during an inspection at a third-party manufacturing site that was unrelated to 951. The CRL did not identify any issues related to the safety, efficacy or labeling of 951, nor has the FDA requested any additional clinical data or device-related testing. We’re working closely with the site and the FDA to get clarity on timelines and we’ll provide updates as soon as information becomes available. Moving to an update on one of our Alzheimer’s disease programs. We recently completed an interim analysis of a Phase 2 study evaluating ABBV-916, our A-beta antibody. The emerging efficacy and safety profile in this study is similar to what has been demonstrated by approved agents. However, given the evolving landscape, we do not believe 916 as a monotherapy treatment will be sufficiently differentiated from other emerging therapies. As a result, we are discontinuing further development for 916 as a standalone antibody. As Rob mentioned, we remain on track to close the Cerevel transaction soon and we look forward to welcoming the team into our R&D organization. The emraclidine pivotal studies in schizophrenia remain on track to begin reading out near the end of this year. We’ll also see data from two additional Phase 3 studies for davapidon in Parkinson’s disease later this year. We look forward to providing updates on these programs once the transaction has closed and data are available. In aesthetics, we recently received approval for Botox in China for masseter muscle prominence, marking the first global approval in this indication for any neurotoxin. Masseter prominence is common in Asian populations and there is significant unmet need for minimally invasive treatment options. We anticipate high demand for Botox in this novel indication in China, which will help to further build our portfolio in the face-shaping segment. A regulatory application is under review in the U.S. for Botox and platysma prominence, which is another novel indication that will help build our position in the lower face and neck segment. We continue to expect an FDA approval decision later this year. And we remain on track to submit a regulatory application for BoNT/E near the end of this year. A rapid-onset, short-acting toxin has a highly differentiated clinical profile and once approved would offer patients a novel option compared to currently available toxins. So, in summary, we’ve made great progress across all of our therapeutic areas in the first half of the year and we look forward to additional data readouts, regulatory submissions and approvals throughout the remainder of 2024. With that, I’ll turn the call over to Scott.

Liz Shea:

Thanks, Scott. We’ll now open the call for questions. In the interest of hearing from as many analysts as possible over the remainder of the call, we ask that you please limit your questions to one or two. Operator, first question, please.

Terence Flynn:

Great. Thanks for taking the question and congrats, Rob, on the CEO position. Looking forward to the forward here. The question I had is, last quarter you guys gave some early commentary on how to think about 2025, looking at the business, obviously, momentum in immunology, some headwinds in aesthetics. So any update on how you’re thinking about the 2025 outlook, particularly, growth for revenue relative to EPS? Thanks.

Liz Shea:

Thanks, Terence. Operator, next question, please.

Chris Schott:

Great. Thanks so much. Just two questions for me. Maybe first on Rinvoq and Skyrizi, great results in the quarter. Can you elaborate a little bit more on the price versus volume dynamics this quarter? It seemed like results were maybe a little bit stronger than the RX trends would have implied, and I just was wondering if there was anything notable there. My second question was on the immunology portfolio, and as we think about 2025, I know we’re probably in the middle of contracting season right now, but just directionally, what are you anticipating for Humira, and should we be thinking about any incremental pressures on Rinvoq and Skyrizi just given biosimilar Humira dynamics going forward? Thanks.

Rob Michael:

And Chris, this is Rob. Just to reiterate an important point that Jeff made, I mean, one trend that we are watching very closely is the switching from the Humira molecule to new mechanisms. I mean, we are starting to see an inflection that is accruing to new mechanisms like Skyrizi and Rinvoq, as Jeff mentioned. And it makes sense, doctors that are reevaluating the patients in their practice are likely looking at more than just the patients that are covered by CVS. What we have factored in is the CVS impact. What we didn’t factor in necessarily is an impact beyond just the CVS-wise. And to the extent that trend continues, it would represent a downside for Humira and an upside for Skyrizi and Rinvoq, which is a very good long-term tradeoff for us. That’s an important point. We want to make sure that was captured.

Liz Shea:

Thanks, Chris. Operator, next question, please.

Carter Gould:

Good morning. Thanks for taking the question and congrats on the results. I guess first, just a housekeeping point. I guess, one -- I guess, on the last call, you had talked about earnings growth not being quite at the rate of revenue growth and it sounds like today you see those more in line. Any, I guess, further color on kind of what’s driving that? I would assume it’s sort of the key I&I drivers, but any other color there would be appreciated. And I guess the more pertinent question, maybe on the commentary on Cerevel, should there be any expectation for divestments or other concessions as we contemplate that deal closing? Thank you.

Rob Michael:

Hey, Carter. This is Rob. I’ll take your question on Cerevel. Look, we’ve made very good progress with the FTC and have certified substantial compliance to their second request. No divestments are expected. I would expect the transaction to close soon, potentially as early as next week. We’re obviously very excited about the potential best-in-class therapies in Cerevel’s pipeline, especially emraclidine for schizophrenia, davapidon for early Parkinson’s and their core antagonist for major depression. I mean, these assets clearly will be great additions to our neuroscience franchise.

Operator:

Next, we’ll go to the line of Vamil Divan. Please go ahead.

Rob Michael:

Yeah. Vamil, thanks for the question. So, the $11 floor, again, was on an ex-IPR&D basis, where obviously with this guidance, ex-IPR&D, I think, we’re just a little bit over $11.40 and we’re certainly positioned to return to robust growth. I mean, we’re delivering robust revenue growth this quarter. When you look at the outlook for 2025, it’s very strong and so we should be beyond the conversations on the floor at this point. As we think about the tradeoffs for the long-term and the short-term, clearly we have an on-market portfolio today that can drive the growth that we need to deliver on that high single-digit, top-tier outlook in this decade. So our BD efforts continue to be focused on early-stage assets that can drive growth in the next decade, and you’ve seen us execute nearly a dozen deals this year along those lines. These include new mechanisms in immunology that can combine with Skyrizi or Rinvoq or be pursued as model therapies. We’ve also added new platforms, including multi-specifics, that have applicability in immunology and oncology. Our deal targeting in situ CAR-T therapy is another example of a platform investment in oncology. And we added a novel mechanism for psychiatric disorders, given our focus in neuroscience. So we intend to continue adding more depth to our pipeline in our core areas, particularly think about early-stage deals, because what we’re really trying to set up for is that growth in the next decade. We have a clear line of sight to top-tier growth this decade and we want to position the company to deliver strong growth in the next decade as well.

Operator:

Next, we’ll go to the line of Chris Shibutani from Goldman Sachs. Please go ahead.

Carrie Strom:

Hi. This is Carrie. I’ll address the questions. So, first let’s talk about the market dynamics for market growth in the U.S. for facial injectables. So, late last year, we started to see a recovery and a return to growth of the toxin market and we’ve seen that market growth recovery continue this year in that mid-single-digit range. And that’s volume, that is traffic into our customers’ offices and that’s really been consistent for the past few quarters. So, the market dynamics for our business are really driven by patient demand and volume. Although, when we think about price, price is a factor that we’ll be looking for the second half of the year, which will give us some favorable pricing dynamics. We did take a price action at the beginning of the year for toxins and then we’ll have some more efficiency when it comes to our strategic shifts in our pricing promotions for the second half of the year. So, one example of that would be promotions we did last year, for example, around competitive launches that we won’t need to do this year based on the success of our competitive strategy last year. So really our performance is driven by market growth and we also had some nice stability in our market share. Anything you’d like to add?

Liz Shea:

Thanks, Chris. Operator, next question, please.

Mohit Bansal:

Great. Thanks for taking my question. I just wanted to talk a little bit about the pipeline in IBD space as well. I mean, you have done a bunch of these and then there has been some movement, especially in the oral IBD drugs as well. I mean, given your expertise, I would love to understand, how do you think about a pipeline moving beyond the likes of Skyrizi, IL-17s and all, because these drugs are pretty good. But when you think about an oral, what is the ideal profile of the drug that could be a first-line drug and then when you think about combinations, I mean, what are you exactly looking for? Thank you.

Mohit Bansal:

Okay. Thank you.

Operator:

Next, we’ll go to the line of Chris Raymond from Piper Sandler. Please go ahead.

Jeff Stewart:

Yeah. Thanks for the question. It’s almost like a bimodal phenomenon. So, the 20% I highlighted, so if you just look from our data, when we just look at the CVS template, so we can see the degradation of Humira that goes down pretty steeply because, remember, it’s an exclusion. So, Humira is no longer widely available at all. So, most of it happens within the first two weeks or three weeks. And in that one segment, we see that the biosimilar doesn’t take up all the Humira loss and we can see it moving to other mechanisms, particularly Skyrizi and Rinvoq. So that’s within, let’s say, the acute biosimilar event. Now, to Rob’s point, what he highlighted is, if you take a step back and you look at the macro market, we’ve started to see in the first quarter and second quarter that the overall molecule, so that’s the adalimumab molecule, inclusive of biosimilars, has started to compress faster than it did before there was the availability of this action that was taken by CVS. So, it’s a doubling of effect, acutely in the segment that takes place with the exclusion and then the wider market. Now, we’re watching this pretty carefully because we haven’t -- obviously haven’t seen something like this before in terms of the compression of a molecule. So, that’s basically the dynamics that we’re seeing. And we do think it’s because some physicians or segments of physicians are, they realize that these biosimilars where there’s an acute interruption, they want to check how the patients are doing. And if they’re not fully in remission when they come in for their appointment, let’s say before the switch, sometimes they’re transitioned at the rates that I described. So that’s sort of the prescriber behavior. Now, where is it coming from? Like, well, we actually see that it is accruing across all of the indications, particularly Humira has quite robust, let’s say, base dynamics in the rheumatology indications. But we can see it in rheum. We can see it in derm. Derm to Skyrizi in particular, which is probably not a surprise given the position. I highlighted a 38% share and a 60% in-place share for Skyrizi and derm. And we also do see it to some degree in gastroenterology. So, to Rob’s point, we’re going to continue to monitor that. If the overall molecule would continue to compress, obviously, there would be some mitigation of some of it accruing over to Skyrizi and Rinvoq, and so we’ll have to continue to see how these weeks and months play out here over the third quarter.

Operator:

Next, we’ll go to the line of Gary Nachman from Raymond James. Please go ahead.

Jeff Stewart:

Yeah. Thank you for the question. A very important question in terms of how we commercialize these. Roopal highlighted it. Obviously, you have the two big indications with two assets within those indications. And so we have constructed, not just in the U.S., but around the world, a very sophisticated approach in terms of multiple sleeves of representatives and medical experts that are representing both drugs across both indications. And it really is, let’s say, for example, in our largest market, the U.S., it’s relatively easy to execute, because what we see is that our representatives can highlight Skyrizi’s data and potential as the obvious frontline agent, which is obviously tremendous data. I mentioned the sequence data. I mentioned our core data. The naive to biologic data in UC is absolutely fantastic for the Skyrizi data. And then, really ironically, because of the label changes that took place a few years ago, Rinvoq is positioned in later lines. So, really, that sort of approach is highly synergistic in terms of we recommend that physicians consider starting with Skyrizi and the efficacy will be fantastic. But to Roopal’s point, there’s still pressure on that disease and then you have a backstop with tremendous, tremendous data on Rinvoq in later lines. And so that’s how we position it. We look and we monitor the cannibalization. It’s quite modest, and overall, when you look at the dynamic of share capture, it’s quite encouraging to see how the infield teams and the commercial teams are managing all of those assets. So, we’re very encouraged about how we’ve approached the market in terms of our execution and I think the results are speaking for themselves.

Operator:

Next, we’ll go to the line of Steve Scala from TD Cowen. Please go ahead.

Scott Reents:

Steve, this is Scott. I will talk regarding the revenue. So, just to clarify, we did raise the revenue guidance in total from $55 billion to $55.5 billion, a $500 million raise and that included a $300 million raise for Skyrizi, a $100 million raise for Rinvoq, a $100 million raise for Venclexta, a $200 million spread across other products and then a $200 million reduction in the guidance for aesthetics. So, we do see very strong momentum in the business and we did raise our sales guidance from $55 billion to $55.5 billion.

Jeff Stewart:

And Steve and Jeff, so to give some sense, so we’re looking at coming up on the third year of biosimilar. So, the first way to think about it, in the first year 2023, we had very strong parity access across all the channels and we really exited the year around, I think, 97% or something like that. This year, I think, when we look at all the ins and outs, I think, the three-quarter approach is quite reasonable, and as I mentioned in my remarks to early one of the questions, it will certainly be lower next year and I would think that that range would be around that 0.5 point, but again, we’re not fully complete with all the dynamics. So, that gives you some broad spectrum over three years, maybe around the halfway point, plus or minus, as we go into 2025.

Operator:

Next, we’ll go to the line of Trung Huynh from UBS. Please go ahead.

Scott Reents:

Trung, this is Scott. I’ll start with your question regarding the long-term guidance on aesthetics. So you’re right. We’ve guided to a long-term $9 billion in 2029 and we’re not changing that guidance. The guidance changed, as you noted, that I mentioned today is just a short-term guidance change for 2024. We remain very confident in our ability to hit that $9 billion in 2029. When you think about these markets, there’s very low penetration in the markets globally. There’s a lot of excitement in the space and we expect the market to recover and grow at historical rates. I would say when we look at the market growth, we do see that rebounding and growing well. And then you also should think about there’s additional innovation coming that will drive that. So, we have some of the additional indications in Botox that Roopal walked through, as well as the quick onset short-acting toxin BoNT/E that will also drive additional market growth. And so we continue to feel very comfortable with our ability to achieve that on a long-term basis in 2029.

Liz Shea:

Thank you, Trung. Operator, next question, please.

Evan Seigerman:

Hi, guys. Thank you so much for taking my question and it was really, really helpful to update today. So, just looking at kind of the expected growth for…

Evan Seigerman:

All right. Can you guys hear me all right? Does that work?

Liz Shea:

It’s still faint, but we’ll do our best.

Jeff Stewart:

Yeah. Hi. It’s Jeff. We’re very pleased with how both of the indications are performing and we monitor them very carefully, certainly with bipolar and aMDD. So when we look at our quarterly surveys of our target physicians and really our whole call cycle, we can see now that Vraylar is the most preferred agent overall for bipolar disease based on its indication set, its tolerability, its efficacy, et cetera. And we’ve really gone to the very top of the lead table for aMDD as well. So, if we look overall on our demand, we’re tracking above 20% in terms of the push. We continue to focus our team and where necessary add share a voice in terms of our sales force. So, we’re quite comfortable that we can continue to grow our share, which has been growing very, very nicely, particularly on the MBRX side, and certainly, face the competitive dynamics and navigate those as we go forward.

Liz Shea:

Thanks, Evan. Operator, next question, please.

James Shin:

Hi. Good morning. Thanks for taking our question. You mentioned some of the Humira contracts going to 2025. Does that also apply to Skyrizi and Rinvoq, and that’s what gives you visibility on the low single-digit price erosion? And secondly, has the introduction of co-branded Humira and now that PBMs are more intertwined with biosimilars, changed the negotiation dynamics at all? Thank you.

Liz Shea:

Thanks, James. We have time for one final question, Operator.

Louise Chen:

Hi. Thanks for taking my questions here. So I wanted to first ask you, do you still feel that your aesthetics business is a good strategic asset for you, and if so, where do you see the synergies within your organization? And second question I wanted to ask you is, how do you think pharma will fare under a Democratic versus a Republican presidency and how are you going to navigate through that uncertainty in the near term? Thank you.

Liz Shea:

Thanks, Louise. That concludes today’s conference call. If you’d like to listen to a replay of the call, please visit our website at investors.abbvie.com. Thanks again for joining us.

Liz Shea:

Good morning, and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Rob Michael, President and Chief Operating Officer; Jeff Stewart, Executive Vice President, Chief Commercial Officer; Scott Reents, Executive Vice President, Chief Financial Officer; Carrie Strom, Senior Vice President, AbbVie and President, Global Allergan Aesthetics; and Roopal Thakkar, Senior Vice President, Chief Medical Officer, Global Therapeutics. Joining us for the Q&A portion of the call is Tom Hudson, Senior Vice President, Chief Scientific Officer, Global Research. Before we get started, I'll note that some statements we make today may be considered forward-looking statements based on our current expectations. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in our forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements except as required by law. On today's conference call, non-GAAP financial measures will be used to help investors understand AbbVie's business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions. So with that, I'll turn the call over to Rick.

Rob Michael:

Thank you, Rick. Before I comment on our first quarter performance, I want to congratulate Rick on his exceptional leadership of AbbVie over the past 11 years. During his tenure, Rick made several strategic moves that have positioned AbbVie to have a bright future beyond Humira, consistently drove the organization to deliver very strong performance and demonstrated the genuine care for our employees, patients, shareholders and communities that has defined who we are as a company today. It has been my privilege to work closely with Rick over many years, and I look forward to working with him in his role as Executive Chairman. AbbVie's outlook is very strong and I am excited about the remarkable impact that we the remarkable impact that we will continue to have on patients' lives. Turning to first quarter performance, we're off to an excellent start to the year with strong top and bottom-line results. We reported adjusted earnings per share of $2.31, which is $0.11 above our guidance midpoint. Total net revenues were $12.3 billion approximately $400 million ahead of our expectations. This overachievement was driven by our ex-Humira growth platform, which delivered revenue growth of more than 15% this quarter and includes continued robust sales from Skyrizi and Rinvoq, with combined growth above 50% in their fifth full year on the market, as well as double-digit revenue growth from several other key products including Venclexta, Vraylar, Ubrelvy and Qulipta. This broad based sales momentum clearly demonstrates the strength of our diversified portfolio with multiple growth drivers to support our long-term outlook. We are also making excellent progress with several of our near-term priorities. We recently completed the acquisition of ImmunoGen, which accelerates our entry into the solid tumor market and strengthens our oncology pipeline. The integration has been seamless and we are impressed by the caliber of talent we have welcomed into AbbVie. We also remain on track with the pending acquisition of Cerevel, which we anticipate will close in the middle of the year. Cerevel's pipeline of differentiated assets will further augment our neuroscience portfolio. In addition, we continue to advance our R&D pipeline and invest for long-term growth. This progress includes the FDA's full approval of Elahere for FR alpha positive platinum resistant ovarian cancer, a meaningful first in class treatment for patients and a significant long-term growth opportunity for AbbVie in solid tumors. We also gained U.S. approval of Juvederm Voluma XC for temple hollows, further strengthening our leadership in aesthetic fillers, and we executed several business development opportunities adding novel early stage programs and partnerships in oncology and immunology. Given the strong results this quarter, we are raising our full year adjusted earnings per share guidance by $0.16 and now expect adjusted EPS between $11.13 and $11.33. In summary, this is an exciting time for AbbVie and I am extremely pleased with the momentum of our diverse portfolio. We're off to an excellent start to the year and we are well positioned to deliver a high-single-digit revenue CAGR through the end of the decade. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff?

Carrie Strom:

Thank you, Jeff. First quarter global aesthetic sales were over $1.2 billion, reflecting a modest decline on an operational basis. In the U.S., aesthetic sales of $776 million were roughly flat versus the prior year. We continue to see sustained momentum in the facial injectable market recovery that emerged in the back half of last year. Consistent with the past few quarters, the toxin market grew by a mid-single-digit percentage. We saw similar year-over-year increases in the number of facial filler procedures, representing a return to quarterly market growth for the first time since early 2022. From a competitive perspective, our U.S. aesthetics portfolio continues to perform well. Market share for both Botox Cosmetic and Juvederm was stable in the first quarter as these assets remain the clear market leaders. While we're pleased that the market and share trends across U.S. facial injectables are aligned with our previous expectations, our first quarter results were impacted by customers holding lower than normal inventory levels at quarter end. This dynamic relates to a decision made during the quarter to shift the timing of certain promotional activities into the second quarter. We therefore expect inventory levels to normalize in the second quarter and remain on track to deliver full year aesthetics sales growth in the U.S. Internationally, first quarter aesthetic sales were $473 million reflecting an operational decline of 5.5%. Consistent with our expectations, growth in China was impacted by persistent economic headwinds as well as a challenging comparison versus the first quarter of last year, which benefited from a robust recovery post-COVID. We are monitoring the economic developments across China and continue to anticipate a recovery in the second half of this year. Our pipeline continues to generate important new assets. Uptake of our recently launched Volux and SkinVive products remain strong, underscoring the importance of innovation within aesthetics. Given this context, we are excited for the upcoming launch of Juvederm Voluma XC for the treatment of temple hollows. As the only dermal filler approved for use in the upper face, we anticipate the Voluma XC introduction will activate more consumers and support the long-term growth of our filler portfolio. And within our toxin pipeline, we continue to expect FDA approval of the platysma prominence indication for Botox near the end of this year, enhancing Botox growth potential as a noninvasive treatment to reduce the appearance of vertical neck bands and improve jawline definition. We also remain on track to submit a new drug application for our short acting toxin, BoNT/E, before the end of this year. This novel toxin has demonstrated a rapid onset of action as well as a short duration of effect, meaningfully lowering the barrier for toxin adoption across consumers who have been considering but hesitant to try Botox. Given this profile, BoNT/E has significant market expansion potential as satisfied patients would naturally convert to Botox. Overall, the underlying trends across our aesthetics portfolio align well with our previous expectations and we remain on track to deliver high-single-digit global aesthetics growth this year. With that, I'll turn the call over to Roopal.

Scott Reents :

Thank you, Roopal. Starting with our first quarter results. We reported adjusted earnings per share of $2.31, which is $0.11 above our guidance midpoint. These results include an $0.08 unfavorable impact from acquired IP R&D expense. Total net revenues were $12.3 billion, $400 million ahead of our guidance and reflecting a return to growth of 1.6% on an operational basis, excluding a 0.9% unfavorable impact from foreign exchange. Importantly, these results reflect more than 15% sales growth from our ex-Humira growth platform. The adjusted operating margin ratio was 42.2% of sales. This includes adjusted gross margin of 82.9%, adjusted R&D expense of 14.7%, acquired IP R&D expense of 1.3% and adjusted SG&A expense of 24.6%. Adjusted net interest expense was $429 million. The adjusted tax rate was 14.8%. Turning to our financial outlook. We are raising our full year adjusted earnings per share guidance to between $11.13 and $11.33. This increase of $0.16 at the midpoint includes $0.26 of operating overperformance partially offset by $0.10 of higher dilution due to the earlier close of ImmunoGen. As previously communicated, this earnings per share guidance includes $0.42 of dilution related to the recently closed acquisition of ImmunoGen and the pending acquisition of Cerevel. Please also note that this guidance does not include an estimate for acquired IP R&D expense that may be incurred beyond the first quarter. We now expect total net revenues of approximately $55 billion, an increase of $800 million. At current rates, we expect foreign exchange to have a 0.9% unfavorable impact on full year sales growth. This revenue forecast includes the following updated assumptions with the entire sales increase driven by our ex-Humira growth platform. We now expect Skyrizi global revenue of $10.7 billion, an increase of $200 million due to strong momentum across all approved indications. Rinvoq total sales of $5.6 billion, an increase of $100 million, reflecting robust uptake in IBD. Imbruvica total revenue of $3.1 billion, an increase of $200 million, reflecting lower erosion and Elahere total sales to AbbVie of $450 million, an increase of roughly $200 million, reflecting a partial year of revenue following the February close of the ImmunoGen acquisition. Moving to the P&L for 2024. We continue to forecast adjusted gross margin of approximately 84% of sales, adjusted R&D investment of 14%, adjusted SG&A expense of 23.5% and an adjusted operating margin ratio of roughly 46.5%. We now expect adjusted net interest expense of $2.2 billion, which includes the partial year cost in 2024 to finance the ImmunoGen and Caravel transactions. Turning to the second quarter, we anticipate net revenues of approximately $14 billion, which includes U.S. Humira erosion of approximately 32%, reflecting a step-up in volume erosion and with the recent CVS formulary change, partially offset by a onetime price benefit also associated with that change. At current rates, we expect foreign exchange to have a 1.3% unfavorable impact on sales growth. We are forecasting adjusted operating margin ratio of approximately 49.5% of sales, and we are also modeling a non-GAAP tax rate of 16.4%. We expect adjusted earnings per share between $3.05 and $3.09. This guidance does not include acquired IP R&D expense that may be incurred in the quarter. In closing, I'm very pleased with the excellent start to the year. We are demonstrating strong momentum across the portfolio and our financial outlook remains very strong. With that, I'll turn the call back over to Liz.

Operator:

First question comes from Mohit Bansal with Wells Fargo.

Robert Michael :

This is Rob. I'll take that question. So if you think about ’24, ‘25. I mean, clearly, the ex-Humira growth platform is demonstrating great momentum. If you just think about Skyrizi and Rinvoq alone are growing by more than $4 billion per year. Aesthetics will recover to high single-digit growth. Our neuroscience franchise will grow by over $1 billion this year on the heels of strong momentum for Vraylar and our migraine portfolio and we will have incremental contributions from Vyalev and Elahere in '25. So we have several drivers that will offset Humira erosion next year as well as the Part D benefit redesign impact and allow us to still deliver robust revenue growth. When you think about that redesign impact, it will really spread across our business, most concentrated in immunology and oncology. And we would estimate that total revenue impact could be worth several points of growth, while we'll still deliver robust revenue growth, we will have that headwind in '25. But keep in mind, for us, the IRA impact really hits us in '25 and isn't a significant headwind in the years that follow as products that are subject to negotiation will not have that Part D cost share impact. So the way to think about it is despite that headwind in '25, we will still deliver robust growth, with that growth rate accelerating in the years that follow. And then if you think about on a margin perspective, we're going to continue to expand operating margins. So that will be a tailwind. You should be, though modeling annualization of interest expense from these transactions. And keep in mind that we essentially would have -- think of it as a roughly half year for Cereval and 10.5 months this year for ImmunoGen. So that should be something that you do model for '25. So we'll have robust revenue growth we'll have earnings growth, not quite at the rate of the revenue growth because of that annualization impact. But then when you get to ‘26 and beyond, you have even faster revenue growth and very robust earnings growth. So that's probably the best way to think about the profile of the company. But when you look at that ex-Humira growth platform, there's a lot of momentum there and we are very well positioned to deliver very robust growth.

Operator:

The next question is from Vamil Divan with Guggenheim.

Carrie Strom :

This is Carrie. So first, I'll give a little bit of context to the fundamentals in terms of market growth and market share, which were in line with our expectations. So our market share continues to be strong and stable. For Botox Cosmetic, despite a new competitor, strong stable share at high levels. And then for our Juvederm line continued share strength, even some share pickup in in the past few quarters, as we launch our new products. So like you said, those fundamentals are in line with our expectations. As we were going through the quarter, we really realized that the aesthetics market is quite sensitive to seasonality with Q2 and Q4 typically having the highest volume. And after a few years of COVID and economic disruption, we're now anticipating a return to that typical seasonality. So we shifted investment in some of our sales and marketing efforts into Q2, which impacted customer and sales promotional timing and activities, which then resulted in lower inventory held by our customers in Q1. And we do expect that to come back in Q2 and the rest year. And I'll let Scott address the rest of that question.

Liz Shea:

Thanks, Vamil. Operator, next question, please.

Chris Shibutani :

When we think about the 2024 upcoming contracting season, which obviously has been quite dynamic for Humira over the past year plus. Can you provide us with any insights in terms of structural aspects within your contracts that you build in that may help provide offsets. We often have limited visibility. We're looking at the prescription volume trends. And it feels as if our calculus is sometimes incomplete. But what can you reassure us in terms of the dynamics as we're seeing this year two play out and how you're approaching contracting for the forward?

Liz Shea :

Thanks, Chris. Operator, next question, please.

Chris Schott :

Just a couple more on the Humira front. I think Humira you had mentioned that in 2024, you expected most of the impact would be price versus volume. I think the street has been concerned that we're seeing more volume erosion, particularly with the CVS book of business. I'm just interested in your latest thinking as we think about price versus volume for the remainder of this year as we consider CVS [Signa], et cetera. How should we think about that balance just so there's kind of surprises, I guess we watch these volume trends playing out? And then maybe just on a related topic, can you talk at all about the tail for Humira sales in the U.S.? I guess the part of the question, do you expect that you'll see most players or payers eventually switch out Humira like we're seeing at CVS? And if so, is it still reasonable to think about there being a kind of a decent tale of revenue, I guess, for this product in the U.S. over time?

Robert Michael :

And Chris, this is Rob. On your question regarding the guidance for this year. I think it's important to note yes, we've said that the vast majority of the erosion is price. We've talked about that dynamic. If you think about first half, second half, we have the annualization impact given the mid-year step-up in rebates last year. So the annualization impact comes through in the first half, you'd expect price erosion to be greater in the first half or the second half. But at the same time, we did contemplate volume erosion because we were very well aware of the CVS contract. We gave you that guidance. And so we have contemplated that volume erosion, but that's more of a second half versus first half as well as the potential for we knew with an interchangeable coming in, there could be some marginal amount of volume pickup there. So we did put in volume erosion in our guidance, but the vast majority of it is price, but I don't want investors to think that we didn't put any volume into our guidance. We were very well aware of the CVS contract. And I think we made some prudent assumptions on potentially other impacts. But overall, we're still tracking in line with that guidance.

Operator:

Our next question comes from Terence Flynn with Morgan Stanley.

Jeff Stewart :

It's Jeff. I'll take the first question. So Crohn's is larger than you see. I mean, if you look at the overall market or revenue, I think it's 65%, 70%. So it's -- Crohn's is very, very significant. Having said that, ulcerative colitis is a multibillion-dollar opportunity for us. It's still a very, very underpenetrated and substantial indication. So it's weighted about 65 -- 35 --70-30, but still, I wouldn't underestimate what ulcerative colitis means. And I think I would add in concert with my prepared remarks, we've seen very, very significant acceleration into frontline Crohn's disease with Skyrizi. And what's remarkable, we studied a very, very difficult population in ulcerative colitis, but we still had substantial amount of naive patients. And the performance in that naive population is exceptional. I mean, it is at the very, very top of the league table terms of overall ability to get to endoscopic clearance and symptom control. And so we like that setup because, obviously, we have exactly the same representatives who are establishing the Crohn's indication in frontline, and we know that we can bring UC very fast afterwards when we get the approval this year. So it's a substantial global opportunity, not the size that we'll see over the LRP with Crohn's, but still one of our largest opportunities that we have in the category. And I'll ask Roopal based on the safety data he highlighted to comment on the second question.

Jeff Stewart :

And Terence, it's Jeff again. One more comment. I mentioned how we're excited about the naive position for both Skyrizi, CD and UC coming. But what's also nice is those same representatives are in the office and are able to highlight basically a one-two punch, where you use Skyrizi first in earlier lines based on this exquisite data. And then obviously, for later lines, you can use Rinvoq. And so we actually see in the marketplace that, that combination and that positioning is allowing us right now in real time, capturing almost towards 40% of all in-play share with Skyrizi first and Rinvoq second. So it's an encouraging position as we fill out that portfolio.

Operator:

The next question comes from Carter Gould with Barclays.

Jeff Stewart :

Yes, it's a great question. So it's early, but we believe the data is accurate. I mean, if you look at the first two weeks to give you some sense, and this is inclusive of the Cordavis Humira. There was a downdraft of about 13,000 prescriptions for Humira from baseline. And the biosimilars captured about -- which was primarily the Cordavis Humira, captured about 10. So there's 3,000 prescriptions or over 20% that we can see in our data moving to other mechanisms of action, including our Skyrizi and Rinvoq. And again, it's very logical because this is just not a one-to-one type of switch like these physicians are interviewing and discussing with patients, their care path forward. And so we think that clearly, some are moving to other mechanisms, and we've seen that in other analogs as well. So we believe the data is accurate. Again, it's early. We're going to continue to monitor it. Where that ultimately lands, we'll have to see. Again, I want to reiterate the pure Humira downdraft is within line with what we assumed and we are seeing this other market behavior that's taking place.

Liz Shea:

Thanks, Carter. Operator, next question, please.

Simon Baker :

Two quick ones, if I may. Just going back to Humira, but in a slightly broader sense. There's been a degree of political noise around the role of PBMs in blocking or rather than assisting biosimilar uptake. I just wondered if you expect that to come to anything in terms of structural changes within the market? And then secondly, on Rinvoq and the Level Up deal -- Level Up data. I wonder how you see the competitive dynamics evolving in that space? Is this about switches? Or is this about market expectation expansion. I asked because this morning Sanofi said that they welcome competition as a way of expanding the number of people treated in an area that's still relatively unpenetrated. So I just wonder how you see the opportunity commercially?

Liz Shea :

Thanks, Simon. Operator, next question, please.

Tim Anderson :

I have questions on contracting for Skyrizi in '25. How many lives do you already have locked up through your general multi-year contracting? And then do you continue to think that the availability of cheap versions of Humira, either brand or biosimilar won't lead to any increase in step edits on Skyrizi under the idea that while Skyrizi is better, something like Humira or biosimilar Stelara might be just fine. That same arrangement can be made in the statin category, for example, Crestor is the best Zocor might do just fine.

Liz Shea:

Thanks, Tim. Operator, next question, please.

Luisa Hector :

It's on Elahere. I wonder whether you might be able to tell us the full quarter of sales. And then any commentary around penetration rate of Elahere and how much off-label use you think may be happening with the guideline inclusion?

Jeff Stewart :

And it's Jeff. What we also see in the marketplace, a big catalyst that we saw in the first quarter was the movement from the accelerated approval to the full approval that Roopal highlighted with the MIRASOL data. So we were rapidly able to basically integrate that into all the material of the medical liaisons and certainly account managers and sales folks. And having that definitive table in the label and the ability to go deeper into our call plan is going to be very positive to continue the growth rates through the rest of the year. In terms of off-label, that's difficult to say. We think that the majority of the sales thus far are in that platinum-resistant population. However, the guidelines do allow for reimbursement with different levels of FRA alpha some of the updates that I mentioned in my prepared remarks. So we'll continue to monitor it, but there's certainly a significant headroom in terms of the populations that are coming in terms of the ovarian cancer marketplace.

Operator:

The next question comes from Gary Nachman with Raymond James.

Jeff Stewart :

It's Jeff. I'll take the competitiveness comment in terms of what we're looking at. We're very pleased with the competitive -- our ability to gain market share in these segments. I'll start off with migraine. We continue to be the new to brand share leader in Botox for chronic migraine, and we see that Qulipta is accelerating significantly. So Qulipta is now the leading preventative agent. And what's nice is there's very little interaction with Botox because if you're an injector, you use Botox, if you're not an injector, you have access to a fantastic drug with Qulipta. So Qulipta is really clearly taking over the market leadership position among the injectable and the oral CGRPs. Ubrelvy continues to have a very meaningful and substantial lead over the main competitor, Nurtec and we are seeing some increased penetration into the larger triptan segment, which is key to our long-term growth. Vraylar continues to perform very well, ongoing market growth. And it's really because we have -- if we look at our perceptions, Gary, of our key prescribers, you're at the very, very top of the table, the league table in terms of perceptions around the efficacy around adjunctive major depression, which is our most recent indication and we have probably the best scope of indications for bipolar 1. And so both of those are allowing us to continue to gain share. So we're in a pretty good position. We also feel that the gross to net our vouchers, our co-pay, which sometimes can get a little funky in the first quarter. We have strong controls there and we're seeing a lot of stability. So overall, those businesses are performing very well

Liz Shea:

Thanks, Garry. Operator, next question, please.

Steve Scala :

And I apologize in advance for asking you to clarify on Humira. But you mentioned several times that things are playing out as planned. But in the prepared remarks, you said U.S. erosion played out slightly better than you thought in Q1. So is the conclusion that whatever was better is temporary. You also mentioned volume pressure, but price -- offset by price benefit. Can you quantify that? But when you sum it all up, it sounds like you expect volumes to underperform the expectations you set three months ago? And is that in part maybe due to the Accredo news from yesterday. So that's a big -- that's a long question, but that's only one question. And the second question is curious if the FDA has contacted at the about the potential safety issues with Emlacridine post the competitor issue with convulsions in rabbits. And have you seen this with your agent?

Robert Michael:

Yes, this is Rob. I'll confirm that, what Jeff is saying. I mean it's tracking in line with our expectations. We are not saying that volume is worse than we originally guided. We're saying this is tracking in line with our expectations. We try to characterize for you the price versus volume dynamics? Obviously, saying it's the price erosion is the vast majority of the decline, but there is volume, and it's tracking exactly as we anticipated. So there isn't an additional downside here. As Jeff mentioned, we did have slightly better performance in the first quarter. But again, it was -- I mean, I think, to the tune of $30 million to $40 million on this book of business, not overly material, but ahead of the initial expectation.

Robert Michael :

Steve, this is Rob. I'm going to come back to your previous question and maybe I understand where the confusion could be. That one-time price benefit is a year-over-year dynamic. It was contemplated in our guidance. When you have a formulary change you essentially have those rebates go away and you recognize that. That was part of our guidance. That was not a benefit versus our guidance. That's a benefit in the year-over-year. So if you look at Scott guided to I think it was 32%.

Robert Michael :

Erosion in the second quarter, which is lower than -- it was around 40% in the first quarter. So naturally, you'd wonder why would you have less erosion. Well, there's that year-over-year dynamic but that was how we planned the year. We anticipated it because we knew about the change that was coming in April 1. So I don't want to interpret that as a benefit versus our guidance, that's a benefit in the year-over-year calculation.

Operator:

The next question comes from Trung Huynh with UBS.

Scott Reents :

Trung, this is Scott. I'll start with your question regarding the price benefit. So in my remarks, I indicated that with the formulary change in CVS and the volume step-down we saw there that there's a onetime price benefit associated with that. And you can think of this as we have the volume declines, that volume had been associated with price that we would have been paying in terms of rebate that those rebates will no longer be paid. Therefore, there's a one-time price benefit associated with that initial step down in the quarter. So that's what that relates to.

Liz Shea:

Thanks, Trung. Operator, we have time for one final question.

Evan Seigerman :

On the aesthetics business, maybe talk to me about some of the dynamics you're seeing in China. I know that there's a lot of macro headwinds and this is a pretty big part of your business. And then a bit of housekeeping on Skyrizi, where the last quarter you disclosed the $1.9 billion cash payment for royalties. Can you provide us any color on what this quarter's royalty was? And I believe that was for the full year last year but maybe just for the quarter.

Scott Reents :

It's Scott. So you're right. With respect to the schedule relative payments. So you have to remember that these are on a bit of a lag, so they don't track each quarter sales. But the $400 million was the amount in the first quarter that we paid in cash payment.

Operator:

Thank you. That concludes today's conference. You may all disconnect at this time.

Liz Shea:

Good morning, and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Rob Michael, President and Chief Operating Officer; Jeff Stewart, Executive Vice President, Chief Commercial Officer; Scott Reents, Executive Vice President, Chief Financial Officer; Carrie Strom, Senior Vice President, AbbVie and President, Global Allergan Aesthetics; and Roopal Thakkar, Senior Vice President, Chief Medical Officer, Global Therapeutics. Joining us for the Q&A portion of the call is Tom Hudson, Senior Vice President, Chief Scientific Officer, Global Research. Before we get started, I'll note that some statements we make today may be considered forward-looking statements based on our current expectations. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in our forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements except as required by law. On today's conference call, non-GAAP financial measures will be used to help investors understand AbbVie's business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. In addition to the news release issued this morning, we have also posted slides on our website at investors.abbvie.com that supplement some of the content we'll be covering this morning. Following our prepared remarks, we'll take your questions. So with that, I'll turn the call over to Rick.

Rob Michael:

Thank you, Rick. Today we reported another strong quarter and highly productive year for AbbVie. We delivered full year adjusted earnings per share of $11.11, which is $0.63 above our initial guidance midpoint, excluding the impact of IPR&D expense. Total net revenues were $54.3 billion, roughly $2.3 billion ahead of our initial guidance. Most importantly, each of our five key growth areas outperformed our initial expectations. As it pertains to AbbVie's near-term outlook, we are focused on three key priorities. First, driving strong performance of our ex- Humira Growth Platform. This platform is the critical driver of our return to robust growth in 2025 and beyond. In our therapeutic portfolio, we have several key brands including Skyrizi, Rinvoq, Vraylar, Ubrelvy, and Qulipta, which are each expected to contribute double-digit sales growth in 2024. We also expect meaningful growth for aesthetics this year, driven by improving market trends in the US and continued execution across our international business. We are well positioned to drive strong long-term growth in this highly under-penetrated market. Second, we are focused on prioritizing investment in our pipeline, which encompasses numerous opportunities to elevate the standard of care for patients. We anticipate updates this year from several important R&D programs including approvals for Skyrizi in UC, 951 in the U.S., and potentially accelerated approval for Epkinly in third line plus follicular lymphoma. We also anticipate regulatory submissions for BoNT/E, our novel short-acting toxin, and potentially Teliso-V, an advanced non-squamous non-small cell lung cancer. And third, we are focused on closing and integrating ImmunoGen and Cerevel. These two exciting opportunities represent substantial sources of revenue growth well into the next decade. We remain on track with the anticipated closing of both deals in the middle of the year. Today, we are also reaffirming our long-term sales outlook, which includes a return to robust revenue growth in 2025 with a high single digit CAGR through the end of the decade. Included in this outlook is an updated forecast for Skyrizi and Rinvoq. Based on the impressive growth of both therapies, which we expect will collectively generate approximately $16 billion of revenue in 2024, we now anticipate Skyrizi and Rinvoq will collectively exceed more than $27 billion in sales by 2027 with robust growth continuing into the next decade. This updated forecast reflects an increase of more than $6 billion in revenue compared to our prior 2027 guidance. We expect global sales for Skyrizi to reach more than $17 billion in 2027, reflecting continued share capture in psoriasis where we are the clear market leader, as well as strong uptake in IBD. And we expect Rinvoq to achieve more than $10 billion of global sales in 2027, reflecting continued market growth and share momentum across each of Rinvoq's approved indications, including four in rheumatology, two in IBD, and atopic dermatitis. This forecast comprehends modest contributions from several new disease areas for Rinvoq, which we anticipate will be launching in the second half of the decade. These new indications have a collective peak sales potential of several billion dollars. Our updated forecast also includes higher estimates for Ubrelvy and Qulipta. We now expect total oral CGRP peak revenue of more than $3 billion, reflecting an increase of more than $1 billion. Our previously issued long-term forecasts for aesthetics, Vraylar, and 951 remain unchanged. In summary, this is an exciting time for AbbVie. We are demonstrating outstanding execution across our portfolio and our long-term outlook remains very strong. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff?

Carrie Strom:

Thank you, Jeff. Fourth quarter global aesthetic sales were approximately $1.4 billion, an operational increase of 6.9%. In the U.S., aesthetic sales of $884 million increased 5.7%, marked by accelerating market growth and strong key product performance. Fourth quarter U.S. Botox Cosmetic sales were $453 million, an increase of 7.3%. We continue to see sustained momentum in the recovery of the U.S. facial toxin market, which was a primary driver of growth in the fourth quarter. Botox Cosmetic remains the clear market leader with strong and stable share, despite new competitive entrants. U.S. Juvederm sales were $156 million in the fourth quarter, an increase of more than 20% versus the prior year. This robust growth was driven by the strong launches of Volux and SkinVive, which continue to drive new consumers and greater penetration in the dermal filler category. Consistent with our expectations, the U.S. filler market recovery trails out of toxins, but it's continuing to show improvement as year-over-year growth was roughly flat in the fourth quarter. As we look at 2024, we are pleased with the momentum of our U.S. aesthetics portfolio. We expect full year sales growth as our market leadership positions us very well from a competitive perspective, and we anticipate continued recovery in both toxin and filler markets. Internationally, fourth quarter aesthetic sales were $487 million, representing an operational increase of 9%. We experienced strong performance in most regions and growth benefited from the impact of China's COVID lockdowns in late 2022. Within China, the softening economic conditions that emerged in the third quarter continued to impact results. Consistent with what we experienced in the US, the economic slowdown has impacted fillers more than toxins, based upon their relatively higher price. We anticipate economic headwinds will continue in China over the near term, balanced against our expectations for continued strong performance in other international regions. Looking to the long-term, Aesthetics remains an area with very low market penetration. And we have demonstrated our ability to drive growth through investments in our customers, consumers, and innovation. As such, we anticipate Aesthetics will be a strong growth portfolio for years to come and remain confident in our ability to deliver more than $9 billion of sales by the end of the decade. With that, I'll turn the call over to Roopal.

Scott Reents:

Thank you, Roopal. I'm very pleased with AbbVie's strong performance in 2023. We have substantial momentum across the portfolio to support our long-term growth outlook. Starting with our fourth quarter results, we reported adjusted earnings per share of $2.79, which is $0.05 above our guidance midpoint. These results include a $0.15 unfavorable impact from acquired IPR&D expense. Total net revenues were $14.3 billion, $300 million ahead of our guidance, and down 5.4%. Most notably, these results reflect 15.3% sales growth from our ex-Humira growth platform. The adjusted operating margin ratio was 43.8% of sales. This includes adjusted gross margin of 83.9% of sales, adjusted R&D expense of 13.4% of sales, acquired IPR&D expense of 2% of sales, and adjusted SG&A expense of 24.7% of sales. Adjusted net interest expense was $363 million, the adjusted tax-rate was 17.2%. Turning to our financial outlook for 2024, our full year adjusted earnings per share guidance is between $11.05 and $11.25. This earnings per share guidance includes dilution related to the ImmunoGen and Cerevel acquisitions of $0.32, which assumes closing in the middle of the year. Please note this guidance does not include an estimate for required IPR&D expense that may be incurred throughout the year. We expect total net revenues of approximately $54.2 billion, reflecting a return to modest operational growth. At current rates, we expect foreign-exchange to have a 0.5% unfavorable impact on full year sales growth. This revenue forecast contemplates the following approximate assumptions for our key products in therapeutic areas. We expect global immunology sales of $25.6 billion, including Humira sales of $9.6 billion, including US erosion of roughly 36%. Skyrizi revenue of $10.5 billion, reflecting growth of more than $2.7 billion due to strong market-share performance in psoriasis, as well as robust uptake in IBD. And Rinvoq sales of $5.5 billion, reflecting growth of nearly 40% with continued market growth and share momentum across all approved indications. On a full-year basis, we anticipate that our strong volume growth for Skyrizi and Rinvoq will be modestly offset by low-single digit negative net price. In oncology, we expect sales of $5.7 billion, including Imbruvica revenue of $2.9 billion and Venclexta sales of $2.4 billion. As well as contributions from Epkinly, and partial year sales from Elahere. For Aesthetics, we expect sales of $5.7 billion. Including $2.9 billion from Botox Cosmetic and mid-single-digit revenue growth from Juvederm. For Neuroscience, we expect revenue of $8.9 billion, representing growth of more than 15%, including Vraylar sales of $3.4 billion, Botox Therapeutic sales of $3.2 billion and total oral CGRP revenue of $1.6 billion. For eye care, we expect sales of $2.2 billion. Moving to the P&L for 2024, we are forecasting full-year adjusted gross margin of 84% of sales. Adjusted R&D investment of 14% of sales, adjusted SG&A expense of 23.5% of sales, and adjusted operating margin ratio of roughly 46.5% of sales. We expect adjusted net interest expense of $2.1 billion, which includes the partial year cost in 2024 to finance the ImmunoGen and Cerevel transactions. We forecast our non-GAAP tax rate to be approximately 15.7%. Finally, we expect share count to be roughly flat to 2023. Turning to the first quarter, we anticipate net revenues of approximately $11.9 billion. At current rates, we expect foreign exchange to have a 0.5% unfavorable impact on sales growth. This revenue forecast comprehends the following approximate assumptions for our key therapeutic areas. Immunology sales of $5.1 billion, including Skyrizi sales of $1.9 billion, and Rinvoq revenue of $1 billion. These estimates reflect typical first quarter seasonality as well as low single digit unfavorable net price. We expect Humira global revenue of $2.2 billion, including US sales of $1.7 billion. We also anticipate oncology revenue just above $1.3 billion, Aesthetic sales of $1.3 billion, Neuroscience revenue of $1.9 billion, and eye care sales of $600 million. We are forecasting an adjusted gross margin of approximately 83.5% of sales and an adjusted operating margin ratio of roughly 44.5% of sales. We also model a non-GAAP tax rate of 14.8%. We expect adjusted earnings per share between $2.30 and $2.34. This guidance does not include acquired IPR&D expense that may be incurred in the quarter. Finally, AbbVie's strong business performance and outlook continues to support our capital allocation priorities. Our cash balance at the end of December was $12.8 billion. And we expect to generate free cash flow of approximately $18 billion in 2024, which includes roughly $1.9 billion in Skyrizi royalty payments. The strong free cash flow will fully support a strong growing dividend, which we have increased by more than 285% since inception, continued debt repayment, where we expect to pay down the approximately $7 billion of maturities this year, and also provides capacity for continued business development to further augment our portfolio. In closing, AbbVie has once again delivered outstanding results and our financial outlook remains very strong. We'll turn the call back over to Liz.

Operator:

Yes, the first question comes from Chris Schott with JP Morgan. Your line is open.

Jeff Stewart:

Yes. Hi, Chris. It's Jeff. Maybe I'll walk through a little bit of the process there and answer your questions. So we can see historically actuals and sort of fast forward in terms of the first thing we look at is the bio penetration of these big indications. And there still remain significant headroom in terms of the ability for moderate to severe patients with these diseases to continue to be exposed to these biologics and these advanced orals, absolutely. And we can see for sure that psoriasis still in -- even in the US is about 15%, it's relatively modest, atopic dermatitis, the penetration rate is only about 7%. And then you have higher penetrated markets like IBD and I'll talk about what's interesting about IBD, that’s somewhere in the 40% or 50% range across those. And then we can see clearly as these markets develop and I've highlighted this before that you see line of therapy expansion. So first-line becomes less and less important, as you move towards second and third-line over time. And right now, IBD is a big story about that, that we calculate into our long-term estimates, because it's still largely despite the severity a frontline oriented market, because physicians, just kind of hang on to their frontline agents, that's going to change quite dramatically believe over this mid-term and even in the long-term perspective. We have a good peg on the market growth rates. Many of these market growth rates are very significant, very stable. And we'll have good growth rates going into the next decade because of these dynamics around bio penetration and line of therapy expansion. I highlighted in my remarks around share, share we -- we have a very good competitive position, very high capture rates. And we're really in the sort of low end of the range in terms of the total prescription share, that will feed up and catch up to that. Pricing, I think we talked a little bit. We're not going to give detailed pricing. But certainly, you can see based on Scott's comments that, the idea of a high CAGR on high single-digit pricing is not something we've contemplated. So, we believe that there is significant room for growth even past 2027. Especially, as we'll have more Rinvoq indications coming that we've talked through. So we think that we're going to see robust growth based on our share capture and also how dynamic these markets are into the next decade.

Liz Shea:

Thanks, Chris. Operator, next question, please.

Terence Flynn:

Great. Thanks so much for taking the questions. Maybe two for me. Rick, I was just wondering if you could give us an update on succession planning and timing, we've been fielding that question from a number of investors recently, given you're now pass the Humira LOE. And positioned the company very well here given Skyrizi and Rinvoq commercial success and also some of the recent pipeline build-out. And then the second question I have was on our pipeline on lutikizumab. I know you guys have highlighted this, not a lot of focus from the investor side yet. Maybe if you could just talk about the size of the commercial opportunity in HS. And then why you're confident that, that Phase 2 HS data will translate into success in the IBD side. Thank you.

Jeff Stewart:

And Terence, this is Jeff, I'll start-off and have Roopal will address the second part of your second question. So we established many years ago now this HS market with the approval of Humira. And we thought it was a relatively small market, and it turned out to be quite a surprise. There is a significant amount of patients around the world that suffer from HS, it's already a multi-billion dollar category. And we think it's going to continue to expand. And I say that, because we can see that like IBD, there's just some new approvals just coming. So, everyone sort of holds on Humira as long as they can if they're exposed to a biologic. And so we see the same dynamic as you start to see IL-17s come into this space, and certainly, we're very excited about lutikizumab because of the profile that we're seeing emerge in the clinic. So it's a significant commercial opportunity. And I would say that when we look back over all the Humira indications, over the last decade or more, HS was one of the most rapid indications that moved to $1 billion plus business. So it's an exciting opportunity, both commercially and certainly for patients. And Roopal can address your comment on IBD.

Liz Shea:

Thanks, Terence. Operator, next question, please.

Andrew Baum:

Hi, many thanks. Couple of questions. One, given AbbVie's strength in market access in managed market, I'd be curious the extensive future contagion from RNA IRA-mediated price cuts on the Medicare book spending over onto the commercial book of business. How much of concern do you think this is, given that has basically the same. And then second question on lutikizumab, if I remember from the canakinumab trials secondary to neutropenia, there was an increase in fatal infections. If you lay on this on top of another immunosuppressive, how are you thinking about the safety concerns in these IBD patients?

Roopal Thakkar:

Hi it's Roopal, I'll talk about luti and your question around neutrophils. Yes, we do see impact on neutrophils, it's dose-driven. However, I think we think about inflammatory bowel disease, probably lupus, others to have a different tolerance for benefit-risk, because today in those disease states despite the success that we've seen with Skyrizi and Rinvoq, there's still substantial headroom to lead to more transformational efficacy, not every patient is getting into remission, though high levels, not every patient. So we still believe that a combo can get to that and break that efficacy threshold. The other opportunity there is what we'll do with the combination is obviously optimize the dose to assure safety. And thus far in the HS trial, even at the highest dose we saw very little infections.

Operator:

Yes, the next question comes from Mohit Bansal with Wells Fargo. Your line is open.

Roopal Thakkar:

Hi, Mohit. It's Roopal, I'll take that. So, I think as you've seen in resistance we've seen that overall survival benefit, a very substantial one, unprecedented thus far. And to your point, the plan is to move into earlier lines of therapy. Secondly, it's also part of the strategy to move into sensitive populations, which is around 55% of the population, resistance is around 45%. And then the third aspect is, we've seen encouraging data in medium expressers of FR alpha. And those are approximately 30% of the patients, high is around 35%. So those are the three strategies to go forward. Now how do we get into earlier lines of therapy? Well, a couple of things, insights that we've seen. One is, we've seen Elahere been able to combine at full dose with carbo-platinum. So that's encouraging, that gives you an opportunity to upfront combine. And then as you stated, maintain on Elahere or with Elahere plus BEV. So the other approaches that we would do getting to earlier line of maintenance is have that upfront therapy and then we see patients that go onto BEV, we can combine with BEV at that time point. And we'll be looking at combinations with PARP inhibitors, which is about the other half of the patient populations, which are HRD deficient. So, taken altogether, we see there is an opportunity. Now, the PFS is going to be a little bit longer, along with OS. So that is something that we're planning for, we'll start these studies as soon as possible, but they will read out in the later part of the decade and into 2030.

Operator:

Our next question comes from Vamil Divan with Guggenheim Securities. Your line is open.

Rob Michael:

Hi, it's Rob. I'll take that question. So we do expect that in the US tail will start to emerge in 2025 or 2026 timeframe. Keep in mind 2024 is the first full year for US biosimilars. We'll have to see what happens with volume uptake this year and also where interchangeability lands. And ultimately, what does contracting look like next year. So, I wouldn't expect us to quantify the tail this year. But it's certainly possible, something we would do either in 2025 or 2026. As it relates to international, you're seeing, I think this year, it's a step-down of about $400 million. Half of that is really the last wave of markets like Canada, Puerto Rico where we're seeing, I'd say, some incremental erosion we would expect this year. And then the other half would be your typical international price erosion you see across therapeutic areas. So not really specific to biosimilars. And then the other quarter of it would be what we're seeing is just the strength of Skyrizi and Rinvoq as these newer agents elevate standard-of-care, you see some share go to those newer agents. And so, probably the best way to think about international would be, if you want to adjust for half of the erosion this year as being more of the final waves, and then you get a sense of what could potentially be the ongoing beyond that. But we'll be more specific, I think we need to see really how the US plays out with this being the first full year for biosimilars, before we can really give you more color. But we're very, very pleased with the progress we've made so far.

Operator:

The next question comes from Carter Gould with Barclays. Your line is open.

Jeff Stewart:

Yes. Hi, it's Jeff. I'll take the first question. So what we look at when we see this market at a macro -- at a macro-level, you have a significant number of patients, 85% of patients are just on these oral medication. So, oral [indiscernible]. Okay. And they essentially need to consume more and more and more orals, and sometimes at the end of it they're taken 12 pills a day, it's very, very difficult to manage. But then they're faced with a very difficult decision, which we kind of call like a surgical barrier. And that surgical barrier is to get any sort of more advanced relief, you either have to think about deep brain stimulation, which is a brain surgery or our own DUOPA, which is a GI surgery. So the way we see this market developing is we see that 951 starts to establish a very nice transition zone, because you don't have -- it's a subcu. So a new market segment that starts to emerge before bigger interventions like DBS or DUOPA. And obviously, the ability to basically move quicker to more relief from these chronic oral basically over treatment. So that's how we see it. And as Roopal highlighted, we're seeing some very nice uptake in Japan, where we launched late last year, and also in Germany and some of the first European launches. So that's how the market is exactly playing out. We're establishing essentially a new high efficacy category here with 24 hours of ongoing relief. You can do super specific dosing titration and the pump is much smaller and again, it's a subcu injection that you move around every three days. So it's a nice -- it's a nice opportunity for the company.

Liz Shea:

Thanks, Carter. Operator, next question, please.

Unidentified Analyst:

Thanks for the question. Just on the reaffirmed long-term guide, can I clarify if the Cerevel and ImmunoGen deals are in this 2029 guide given you included them in the 2024 guide? And you up Skyrizi and Rinvoq by $6 billion, migraine by $1 billion. If these are the pushes, what are the pulls in reaffirming that long-term guidance?

Liz Shea:

Thanks, [indiscernible]. Operator, next question, please.

Gary Nachman:

Thanks and good morning. First on Aesthetics, could you talk a bit more why you're confident in what seems to be a pretty decent return to growth in 2024. So how much of a headwind could China be offsetting the US growth. And what are other regions will you be getting some somewhat of a lift this year. Just talk about the dynamics on that front. And then secondly, just -- as you return to more robust revenue growth in 2025, what are reasonable expectations for operating margins directionally in 2025. Can that expand at all or is it more likely to be depressed from the ImmunoGen and Cerevel deals? Just give us some directional way to think about that for next year. Thank you.

Rob Michael:

And Gary, this is Rob. To build on the Aesthetics story, I said in the past to get to our guidance of greater than $9 billion, we need to deliver annual growth of high-single-digits on average. And as Carrie just walked you through, we haven't quite seen the recovery for the fillers market yet this year. And we will, but it's not going to be a normal year, we'll see a ramping. And we also had a slowdown in China. But despite that we're still delivering high single digit growth. And given how under penetrated these markets are, we can drive that market growth that's required to achieve the long-term guidance. And then on top of that, we have several innovations that will further support that growth. I've said this before, but the masseter and platysma indications for Botox will add a few $100 million each. Our novel short-acting toxin BoNT/E has the potential to activate new patients who have not started toxin due to fear of an unnatural look. So that could drive an inflection in market growth and market share. And then our region, our fillers pipeline is really aimed at providing both short and long-term treatment benefits for consumers. So we have several avenues to get to our greater than $9 billion guide. I have seen consensus estimates at $8 billion for 2029, but we're very confident in our guidance of greater than $9 billion by that period.

Liz Shea:

Thanks, Gary. Operator, next question, please.

Steve Scala:

Thank you very much. Two questions. Is the current tax rate fully reflecting likely tax changes in the US and outside the US? So, it represents a high watermark for the foreseeable future. Previously the company spoke to a 16% tax rate. And we're pretty much there. So I am wondering if the increases are kind of behind us? And then Rick, a slightly different kind of question, but there are clear, obvious reasons such as the success of Skyrizi and Rinvoq, but I'm curious if you would share with us a few of the externally less visible factors that are leading to AbbVie's success traversing the Humira patent expiration that your pharma peers missed when dealing with their own pressures. I would assume contracting formulary management, allocation of overhead are all part of it. But what would you be willing to share with us? Thank you.

Rick Gonzalez:

Steve, this is Rick. I think if you step back and you look over the last, I'd say, 10 years, we were trying to develop a strategy that we fundamentally believed will allow us to be able to offset the Humira LOE and continue to deliver top-tier financial performance as we have for the past 10 years. That was the whole objective. And we knew we had to build a very diversified growth platform in order to be able to do that, to be able to absorb that impact and return to growth as rapidly as possible. And so, we as an executive team focused a lot of energy around how do we do that, how do we build it, how do we do it in the right markets. I think AbbVie, I'm obviously biased, I guess, but I would say our commercial execution has always been exceptional in my opinion. We understand the markets we're in extremely well. We understand the competitive environment that we compete in those markets extremely well. We understand the patient journey and how that patient journey is affected by access to medicines to ensure that patients can get their medicines routinely and be able to get the benefit of those medicines. It takes all of those things I think to end up with kind of success that we see with assets like Skyrizi and Rinvoq. But it also takes I think a company that is very good at what I describe as read and react. There are always challenges in businesses as big and as complex as this. And I think the difference between companies that can continue to perform at the top tier, year in and year out is they're good at seeing issues, and then quickly reacting to how they're going to either offset those, or deal with those. We had many of those examples. I'd say the label change on Rinvoq was a great example. But look at where Rinvoq is growing now. And despite that label change many would not have predicted that. Migraine, was a very challenging market for a period of time. We look at how we've operated with Ubrelvy and Qulipta. And the kind of success we've seen against the competitors in those markets. Neuroscience, very different kind of market with Vraylar. That's all about trying to grow market-share and expand your position there with a very good asset. And so, we're good at that, and I think that is the real differentiator. The other thing I'd say is, I think we have been very efficient at our R&D investment. We obviously don't have the largest R&D investment in the industry. But we produced a tremendous amount of return against that R&D investment. Now having said that, as we go forward, we know we need to increase R&D as I've said in my comments. We did a fairly significant increase last year despite dealing with the Humira LOE. And we're going to do another fairly significant increase this year because we had some assets that had very, very significant opportunities like 383 and like 400 and several others. They are going to require a large Phase 3 -- multiple large Phase 3 studies to be able to get the kind of label that we need, and that's another thing, I'd say, we're good at. Understanding how you have a competitive label and building your clinical programs to get that. So, I think it requires all of those things. I don't think there is one magic formula. I think those are the kinds of things that we have honed here at AbbVie an executive team. And we execute very well against those.

Operator:

Yes, our next question comes from Evan Seigerman with BMO Capital Markets. Your line is open.

Jeff Stewart:

Yes. Hi, it's Jeff. I'll take that one. We've learned a lot from watching Skyrizi and Rinvoq in Crohn's. And to Rick's points, look, we're very careful about how we position these assets, you know how we basically represent them with our medical teams and our commercial teams. And so what we see certainly in our biggest markets, we see that they are actually complementary positioning. So, Rick highlighted the label change, right. So Rinvoq, in the US, is basically indicated for use after a TNF. So it's basically a later-line therapy. Skyrizi, if you look at the Skyrizi, you see results, it's very, very impressive. We've studied some very, very tough patients there. The bio-naive patients, the efficacy is just outstanding. I would say it's best-in-class. So we can see that based on the profile of the agents for many of our representatives, we're able to talk to physicians about the consideration for Skyrizi frontline. And then in later lines Rinvoq. So the cannibalization or the overlap is very manageable and minimal. And what happens is you start to see this, this very significant build for total AbbVie share because of that complementary positioning. So we're quite confident that we'll be able to navigate this very well just as we see in the larger Crohn's market.

Operator:

Yes, our next question comes from Tim Anderson with Wolfe Research. Your line is open.

Carrie Strom:

Hi, this is Carrie. So the short answer is, we have not seen an impact on our Aesthetics business positive or negative so far. That said, absolutely, our customers and our consumers are participating in this market. We are seeing it integrated into some of these Aesthetics practices. And to your point, there are instances where a patient will make a trade-off in terms of her share of wallet. But that said, we do see it as a long-term tailwind anytime people are getting more engaged in their appearance, that's a positive thing for Aesthetics. And as we ask our consumers and our customers about it, really that -- what we've learned is that it does reinforce its long-term tailwind because the majority of people who engage in these medical weight-loss products are more interested in Aesthetics afterwards than they never before. So, that's really how we see it in terms of the that dynamic impacting Aesthetics.

Operator:

Yes. Our next question comes from Tim Lugo with William Blair. Your line is open.

Rob Michael:

Hi, Tim, it's Rob. I'll take that question. So our BD efforts continue to be focused on identifying assets, really that can drive growth in the next decade across immunology, oncology, neuroscience, aesthetics and eye care. But we have what we need in our current portfolio to deliver on growth expectations in this decade. So our external efforts are really aimed at early-stage opportunities, which are typically smaller-sized deals. As we look across the growth areas, if you think about immunology Skyrizi and Rinvoq will drive robust growth into the next decade. So our focus in immunology in terms of BD is really looking for new mechanisms of action that can elevate standard-of-care whether monotherapy or in combination. I'd say there's a lot of interest in combination. In oncology, ImmunoGen really nicely complements our efforts with ADCs, it gives us a head start, an entry in the solid tumor space, that we're not in today. But in addition to ADCs, we're focused on bispecific, multi- specifics immuno onc agents. We also recently announced a collaboration with Umoja studying insight to CAR-T therapy. So a lot of focus in oncology, but these again would be earlier-stage smaller-sized deals. In Neuroscience, Cerevel adds depth to our neuropsych pipeline, but we also have a focus on migraine and neurodegeneration. In eye care, we're extremely excited about the REGENXBIO program in wet-AMD and diabetic retinopathy. But we continue to look for innovation in glaucoma and retinal disease. So we certainly have an interest there. And then in Aesthetics, it's always about looking for innovation that can drive new consumers into our providers practices. So our BD group is still very active. We certainly have the financial wherewithal to pursue those opportunities to further bolster our pipeline. But those are the areas that we're most interested in.

Operator:

Yes, the next question comes from James Shin with Deutsche Bank. Your line is open.

Liz Shea:

Unfortunately. Your line is not very clear. Can you maybe try to repeat the question one time.

Liz Shea:

It's still little echoey, it's a little bit better, but go ahead.

Liz Shea:

Yes, unfortunately, it's just not coming clear -- coming through clearly. Happy to address the question following the call. Apologies for that. Operator, next question please.

David Risinger:

Yes, thanks very much, and congrats on the long term updates. So with respect to the Alzheimers commentary, a product was left out of the TREM2 AL002, which has an estimated primary completion in September. If you could comment on that as well. That would be helpful. And then with respect to the GILTI tax change that's coming, so can you please provide some more color on that, including the timing and the potential impact? Thanks very much.

Scott Reents:

Sure, this is Scott. Regarding the GILTI tax. So this is the US tax, the foreign minimum tax on foreign earnings that the US supplies. That tax rate today is at 10.5%, it's going to move up to 13.1% a little bit more than that. That will occur -- the implementation date is a little bit mixed, because it depends on fiscal year-ends of legal entities, but let's call it 2026 is when we can look at that. And only part of our income is subject to that rate. So, I would say that's approximately a 1.5% impact to our tax rate that you would see. And that's baked into my 1% on average over the next three years.

Operator:

Okay. And our final question is Luisa Hector with Berenberg. Your line is open.

Jeff Stewart:

Yea. Thank you, Luisa. It's Jeff. And we have we have contemplated in our planning and long-term guidance, both the Part-D redesign and of course the IRA impacts based on our projections over when some of our drugs might be negotiated. To give you some color on the Part-D redesign, we have clearly a very good visibility over the pricing dynamics that will take place as you say, many of our brands basically will be under the catastrophic redesign component. Now we've also understood based on one of the policy items, which is the cap and smooth, we've also countered some of that price with volume offsets based on patients having the ability to acquire these. Now that volume does not fully offset the pricing impact. But suffice it to say that, that's been very much contemplated into that. I'll let Rob comment over how that sort of feeds into the growth rates.

Rick Gonzalez:

And then, this is Rick on the Imbruvica price, yes, we have received the initial offer on Imbruvica recently. As you know, there is a process that CMS is going through here to set pricing. And because none of us have any experience with this, we don't know exactly how that process will proceed. There will be some back and forth between the manufacturer and CMS. CMS has indicated that they'll have the final price by September 1st. It's certainly premature for us to talk about the price now, because it's not the final price. I don't know that we'll know the final price until very close to the point at which they are prepared to publish that price, having not had any experience here. So, I wouldn't anticipate we will get any updates until that date or very close to that date.

Liz Shea:

Good morning and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Rob Michael, President and Chief Operating Officer; Jeff Stewart, Executive Vice President and Chief Commercial Officer; Scott Reents, Executive Vice President and Chief Financial Officer; Carrie Strom, Senior Vice President, AbbVie and President, Global Allergan aesthetics; and Tom Hudson, Senior Vice President, R&D and Chief Scientific Officer. Joining us for the Q&A portion of the call is Roopal Thakkar, Senior Vice President, Development and Regulatory Affairs and Chief Medical Officer. Before we get started, I'll note that some statements we make today may be considered forward-looking statements based on our current expectations. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in our forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements, except as required by law. On today's conference call, non-GAAP financial measures will be used to help investors understand AbbVie's business performance. These non-GAAP financial measures are reconciled with 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. So with that, I will turn the call over to Rick.

Rob Michael:

Thank you, Rick. Our results once again demonstrate the strength of our broad portfolio and support AbbVie's long-term growth outlook. We reported adjusted earnings per share of $2.95, which is $0.14 above our guidance midpoint. Total net revenues were $13.9 billion, roughly $225 million ahead of our guidance. The performance of our ex-Humira growth platform continues to be very strong with revenue growth above 12% this quarter, including more than 50% growth from both Skyrizi and Rinvoq, our best in category immunology medicines. We continue to anticipate that these two products will collectively exceed Humira peak revenues by 2027 with robust growth expected into the next decade. Neuroscience also delivered strong performance with operational sales growth of more than 20% this quarter, driven by our leading portfolio for migraine and psychiatric conditions. And lastly, aesthetics performance was highlighted by the return to growth of the U.S. toxin market. This outstanding execution across our well-diversified portfolio gives us the confidence to once again raise our near-term financial outlook. We are increasing our full year revenue guidance by $600 million and have now raised total revenue by $2 billion since our initial guidance in February, including more than $1.4 billion from our ex-Humira growth platform. As a result, we are also raising our full year adjusted earnings per share guidance by $0.25, and now expect adjusted EPS between $11.19 and $11.23. Given the strong momentum of our growth platform, which is significantly outperforming our expectations this year, we are now raising the floor guidance for 2024 adjusted EPS to $11, which is $0.30 better than our previous expectations. This floor guidance continues to exclude any impact from IPR&D expense. As is our typical practice, we'll provide our formal EPS guidance range for 2024 on the fourth quarter call. Finally, today, we are announcing a 4.7% increase in our quarterly cash dividend from $1.48 to $1.55, beginning with a dividend payable in February 2024. Since inception, we have grown our quarterly dividend by more than 285%. In summary, I'm very pleased with the strong execution across our portfolio. We remain confident in our long-term outlook, including a return to robust revenue growth in 2025 with a high single digit CAGR to the end of the decade. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff?

Carrie Strom:

Thank you, Jeff. Third quarter global aesthetics sales were approximately $1.2 billion, an operational decline of 4%. In the U.S., aesthetic sales of $759 million were roughly flat to last year as growth for Botox Cosmetic was offset by declines in other brands that continue to be impacted by lower consumer spending related to inflationary pressures. U.S. Botox Cosmetic sales were $388 million, an increase of 5%. We are beginning to see a recovery in the U.S. toxin market, which posted positive year-over-year growth in the third quarter following three consecutive quarters of declines due to economic pressures. Botox continues to perform very well despite increasing competition. It remains the clear market leader with a strong and stable share, and we have seen little to no share impact from new competitive entrants. U.S. Juvederm sales were $116 million in the third quarter, a decline of 6.4% versus prior year as recovery in the facial filler market continues to lag the cosmetic toxin market. The filler market is improving, however, as a higher priced, more deferrable procedure relative to toxins. The segment of the aesthetics market continues to be suppressed by lower consumer spending. In the third quarter, the U.S. facial filler market was down low teens percentage compared to the prior year. Juvederm remains the market-leading facial seller in the U.S. and share was stable in the quarter. While the U.S. facial injectable markets continue to be impacted by lower consumer spending in this inflationary environment, we are seeing signs of stabilization and even a return to growth in the cosmetic toxin segment. This gives us confidence in a stable to improving outlook in the U.S. as we end this year and enter 2024. Internationally, third quarter aesthetic sales were $480 million, representing an operational decline of 9.7%. As anticipated, year-over-year performance in the quarter was impacted by a shipment timing benefit we experienced in the third quarter of last year. Results were also impacted by softening economic conditions across major international aesthetic markets, primarily China. Despite the economic pressures that are currently impacting our aesthetics portfolio, we remain very confident in its long-term growth outlook. In September, we began launching Skin Vive in the U.S. And in the next few years, we plan to launch new indications for Botox in the lower face segment, and our novel fast-onset, short-duration toxin BoNT/E. In addition to our R&D programs, we have a robust Alle technology pipeline, which will bring new tech products into the U.S. market to help our customers acquire, retain and cross-sell more aesthetic patients. Our strong leadership positions in both cosmetic toxins and facial fillers combined with the significant investments we're making to drive market acceleration will position us for strong growth going forward. With that, I'll turn the call over to Tom.

Scott Reents :

Thank you, Tom. I'm very pleased with the momentum of our business. The strong performance we are demonstrating from our ex Humira growth platform continues to support AbbVie's long-term growth outlook. Starting with our third quarter results. We reported adjusted earnings per share of $2.95, which is $0.14 above our guidance midpoint. These results include a $0.04 unfavorable impact from acquired IP R&D expense. Total net revenues were $13.9 billion, roughly $225 million ahead of our guidance and down 5.8% on an operational basis excluding a 0.2% unfavorable impact from foreign exchange. Importantly, these results reflect double-digit sales growth from our ex-Humira growth platform. The adjusted operating margin ratio was 46.7% of sales. This includes adjusted gross margin of 83.5% of sales, adjusted R&D investment of 12.4% of sales acquired IP R&D expense of 0.5% of sales and adjusted SG&A expense of 23.9% of sales. Net interest expense was $398 million. The adjusted tax rate was 15.7%. Turning to our financial outlook. We are raising the midpoint of our full year adjusted earnings per share guidance by $0.25 and now expect adjusted earnings per share between $11.19 and $11.23. This guidance does not include an estimate for acquired IP R&D expense that may be incurred in the fourth quarter. We now expect total net revenues of approximately $54 billion, an increase of $600 million. At current rates, we expect foreign exchange to have a 0.5% and unfavorable impact on full year sales growth. The updated revenue forecast contemplates a full year sales increase of $300 million roughly split evenly between Skyrizi and Rinvoq, reflecting strong uptake in IBD. The remaining $300 million full year sales increase is primarily attributed to better-than-expected performance of international Humira and Restasis. Moving to the P&L. We continue to forecast an adjusted operating margin ratio of approximately 46.5% of sales. We now expect adjusted net interest expense of roughly $1.7 billion. And we forecast our non-GAAP tax rate to be approximately 15.5%, reflecting IP R&D occurred through the third quarter. Turning to the fourth quarter. We anticipate net revenues of approximately $14 billion. At current rates, we expect foreign exchange to have a modest unfavorable impact on sales growth. We expect adjusted earnings per share between $2.87 and $2.91. This guidance does not include acquired IP R&D expense that may be incurred in the quarter. Finally, AbbVie's strong business performance continues to support our capital allocation priorities. We generated more than $16.5 billion of adjusted free cash flow which is net of approximately $1.1 billion of Skyrizi royalty payments in the first 9 months of the year. And our cash balance at the end of September was approximately $13.3 billion. Underscoring our confidence in AbbVie's long-term outlook, today we announced a 4.7% increase in our quarterly cash dividend, beginning with the dividend payment in February of 2024, and we remain on track to achieve by the end of this year, $34 billion of cumulative debt paydown since the Allergan transaction, maintaining a net leverage ratio around 1.8x. In closing, AbbVie has once again delivered outstanding results and our financial outlook remains very strong. With that, I'll turn the call over to Liz.

Operator:

First question comes from Chris Shibutani with Goldman Sachs.

Rob Michael :

Chris, it's Rob. I'll take that question. So since we provided that guidance in February, recall we gave a $10.70 EPS floor to really help investors model earnings regardless of whether the trough recurred in '23 or '24 we've raised growth platform sales by $1.4 billion covering immunology, neuroscience and aesthetics. We're seeing the IBD indications for Skyrizi and Rinvoq very nicely, and we continue to capture more share in their other indications, both Vraylar and our migraine portfolio have outperformed our share forecast and the strong recovery of Botox has led us to raise guidance for aesthetics twice this year. So given the clear over-performance of the growth platform, we decided to raise the floor to $11 ex IPR&D. We hope this provides investors the view of the low end of the 2024 guidance range and also confirms that '24 will indeed be the trough year. And given that we expect to deliver a high single-digit CAGR from '24 to the end of the decade, it should allow investors to value the company with a better growth multiple.

Mohit Bansal :

And I have a question regarding aesthetic. So it seems like you are keeping the guidance here. So the first part of the question is it seems like across the board, there is a 10% quarter-over-quarter decline on all the products. Can you help us understand what's happening sequentially? And then if you are keeping the guidance, it seems like there would be quite a bump in fourth quarter. So how should we think about that?

Rick Gonzalez :

Lee, this is Rick. The other thing that you're looking at sequentially, you have to keep in mind is we do Botox today in the fourth quarter. So that elevates revenue in the fourth quarter, and that occurs every year. So if you're looking at third quarter to fourth quarter and trying to understand why is there a big step up, part of that step-up is that.

Operator:

Our next question comes from Chris Schott with JPMorgan.

Jeff Stewart :

Yes. It's Jeff. I'll take the first question. Yes, we're very comfortable as we see things start to evolve and close here as we move into 2024. I mean if you think about all the indications that we've had 7 over the last 18 months, I highlighted in my remarks, 9 head-to-head trials. We're just a very, very nice position for Skyrizi and Rinvoq as we move into '24 to continue some very strong momentum that we're seeing in the actual. So quite confident in terms of how we're looking at that. And to your key point there on the price, we continue to see that we're not going to have a repeat of what we saw this year. And remember, the background there were those 7 indications that came very fast all on top of each other. And so that was the root cause of that -- of those concessions that won't repeat. Next year, we have really one more big indication, not 7, and that's Skyrizi you see that Tom highlighted. So we'll see the normalized price erosion more in line with industry forms versus what we saw this year.

Operator:

Next question comes from Terence Flynn with Morgan Stanley.

Rick Gonzalez :

Okay. Terence, this is Rick. I'll cover it. That question for you. Yes, I think as we look at the business, as Rob indicated, we're extremely comfortable with how the growth platform is performing. And I'd say how we're managing the biosimilar erosion, which gives us a lot of confidence that we can deliver this high single-digit going forward. From '25 -- going forward through the end of the decade. So I'd say the bulk of what we're looking at, and we're in a fortunate position from that standpoint. There are many companies in our sector we need to go out and do lots of BD to be able to drive the growth that they're trying to achieve. We're not in that position. But I'd say the bulk of what we're looking at is we're looking to add assets that could give us incremental pipeline and revenue growth towards the end of this decade and into the 30s. That's what our -- the bulk of our focus is on. . And I'd say if I look at AbbVie's track record, certainly, BD has been a critical part of how we've grown this company over the last 11 years. And I'd say, for the most part, we have done a pretty good job when we acquire assets and bring them in we can make them perform quite well. Skyrizi is a good example of that. Certainly, Allergan was another good example of that, and there are many others. So I'd say we value BD as a very important tool and how we should grow the business and how we should position our leadership positions in these franchises. Our primary focus is within the franchises that we're operating in. So let's take immunology as an example. I would say our greatest focus in immunology is to continue to add additional mechanisms in particular, that could be used in combination in order to create deeper levels of clinical response in areas like IBD, rheumatology and other areas. So we continue to look for those. We have several already that are in development now, like Luti, like RIPK1 and several others in our pipeline, but we'll continue to look for additional assets that we could add to that. And like I said, especially focused on combination therapy because we think that is the way to get much deeper clinical remission or responses in those patients who aren't responding to things like Skyrizi, Rinvoq, which obviously performed exceptionally well. So that's a big area. Oncology is another big area. We have a high level of interest in next-generation CAR-T technology. We have a high level of interest in T cell engagers beyond our BCMA product. I think as we look at that asset continue to develop, we are very convinced it has a best-in-class profile. And it shows us that for the right indication, T cell engagers can be extremely effective, and they're much easier to use and can be much more broadly brought to patients and CAR-Ts, at least the current version of CAR-Ts. So I'd say that's an area that we have a high level -- in psychiatry, we're interested in additional assets in anxiety and mood, and a variety of other assets, but that gives you some feel for it. And we obviously have the financial wherewithal to go out and do transactions. We need to make sure we find the right transaction. So it's a value-enhancing asset for the company. And when we find them, we will act on and we will act on quickly.

Alice Nettleton :

This is Alice Nettleton on for Tim Anderson. A question on obesity and its interface with I&I and a lot of other drug categories, frankly, are views that payers have to cover OBD medicines. And if that's correct, it's a big expense, and payers will be looking for offsets. One-off that would be for payers to squeeze other therapeutic areas as hard as they can. An example could be I&I, where there's now a really good product, your own HUMIRA at a much lower price. So we're wondering how much payers might start to force a step edit for products like Skyrizi? It's a relevant question because yesterday, one of the issues Bristol noted with its TYK2 product is step edits and they cite biosimilar Humira as the reason.

Operator:

Next question comes from Vamil Divan with Guggenheim Securities.

Rick Gonzalez :

Divan, this is Rick. I'll take the first question, and then Scott will take the second question. So on the pipeline, I think as I look at the pipeline and how we built the pipeline and how it's playing out, I think -- I don't know that I would call it underappreciated because you don't necessarily have access to all the data that we have on some of these programs. But we obviously invested significantly over the last several years in rapidly developing the indications for Rinvoq and Skyrizi and a lot of our focus had been built around that. But in parallel, we were advancing a number of other programs along the way. And I would say the investment that we made on Skyrizi and Rinvoq are pretty clear the kind of return that we are getting for those assets. I mean, they're growing at a phenomenal rate. In fact, in the not-too-distant future, the combination of those two products on a running rate basis will be larger than Humira, to give you some idea of how rapidly those products are growing and how large they are. But if I look at our pipeline, the real meaningful programs that we have in our pipeline that will be true needle movers for the company, there are several of them that are advancing now I think we have a high level of confidence in 400, our topo warhead platform with our c-Met version of that, we're seeing very encouraging data in CRC. We'll follow that with non-small cell lung cancer. And that platform is demonstrating to us that it is a broad-based platform that we can expand to a number of other areas. And that should be a fairly significant opportunity for us going forward. Later sort of the '27, '28 timeframe, I think it's going well have meaningful benefit play through. And then I'd say the second one is 383, our BCMA bispecific. As we indicated earlier, we're seeing more and more data out of that program that clearly tells us this has a best-in-class profile, high levels of efficacy and very good safety and very convenient dosing. We think it has that ideal profile to be able to enter this market. And as you know, multiple myeloma is a very large market. There are very significant products in this market. So those are two opportunities. I would obviously say, $16 million. And some of our TA programs are also exciting programs that are running in parallel to these. We'll be getting more data on those next year. And I think those have significant opportunities as well. The third program I talked about is in our eye care business. It's our REGENXBIO program for both wet AMD and diabetic retinopathy. We're seeing some very, very encouraging data out of that program, and that could be a nice opportunity for us as well, and it continues to advance. So there are a number of important programs that you'll start to see more and more data as we go through '24 and into '25 that I think will give the market an opportunity to be able to better assess those.

Operator:

Next question comes from Steve Scala with TD Cowen.

Rob Michael :

Steve, this is Rob. I'll take your first question. So the base year is '24. And if you think about it, we signaled that we expect to return a robust growth in '25. And so that high single-digit CAGR really would pick up that first year of robust growth of 25%. If you start in '25, you miss that your growth. So our intention has always been '24 is a base year and that high single-digit CAGR starts from '24 to the end of the decade.

Scott Reents :

Yes. It's Scott. So with respect to the tax legislation, I certainly when can talk about what our facts are. But when we've looked at -- certainly, this results out of tax reform legislation a few years ago. The tax rules, there's always a little bit of uncertainty. And what happened this quarter, there was guidance that came out that, I would say, clarified a certain approach in treatment. Prior to that guidance, though, there was a little bit of a diversity of opinion amongst advisors as to -- and ourselves as to how we might implement. So I would tell you that we were already implementing consistent with how that guidance ultimately came out, and that's why you're not seeing any impact to us on our tax rate.

Gary Nachman :

So first, back to the trough raise in 2024. How are you thinking about spending levels for both SG&A and R&D into the trough year next year to set up for growth in '21 and beyond? Do you have a better sense of where the operating margin might end up next year? And then secondly, Scares and Rinvoq have been doing very well in the IBD indications talk about how much headroom you see for those products in UC and Crohn's with that landscape likely getting more competitive in the coming years? And any updated thoughts on 2025 guidance for those products?

Jeff Stewart :

Yes. This is Jeff. I'll highlight the -- your comment on the head space and IBD. I mean the IBD market is very, very attractive. If we think back historically, we were always, frankly, a little surprised at how fast Humira back in the day grew when we started to achieve the UC and the Chrome's indications. And again, I would say we're very, very pleasantly encouraged about the momentum. The momentum is very, very significant. So there is significant headroom. And what we see in the market dynamic is that unlike what you might think that patients would always want to rotate off of their medications because of the severity of the disease, actually physicians haven't been able to really move the market very much over the years, simply because it's very dangerous to try to go to another drug that hasn't provided any increase in benefit for those patients. It puts those patients at risk. So when you look at what Tom had highlighted, our ability with two complementary assets -- for example, in the U.S., Skyrizi position in the early lines, Rinvoq position in later lines, both of which have exceptional performance criteria versus the market. That gives us a lot of confidence. The other thing that gives us a lot of confidence because there will be more competitive entries in the future is we think our profiles are going to hold up exceptionally well. And then there's the commercial executional component in most of the countries around the world, we have dual sales forces that basically will carry two products with four big indications. So our ability to compete in the market for share even as it gets a little more competitive over time, is still going to be very, very strong. So lots of headroom in the market, lots of unmet need in the market, and we believe we have the best position in the market for the foreseeable future.

Operator:

Next question comes from Luisa Hector with Berenberg.

Roopal Thakkar:

It's Roople. I'll take the IBD question. So you've heard already some mention of Lutikizumab. That's our IL-1 alpha beta bispecific antibody. That's an in-house antibody. And we have observed data where there's resistance to anti-TNF and other biologics with patients with 1 beta signal. So we'll be entering into ulcerative colitis looking at a potential biomarker approach. But in addition to that, we will also be looking at a set of combinations as was already mentioned, for example, with Skyrizi, we have Lutikizumab. We have other agents as well. RIPK1 was also mentioned. There's also some partnerships that we have is another mechanism we're interested in. And another one I'll mention is an IL-2 mutein. All of these are under assessment. And we do believe either you find a biomarker approach where you can see the high efficacy or if you want to see real transformational efficacy, you're going to have to go a combination approach. So those are the assets we'll be looking at. Now moving on to the question, I think it was around depression and suicidal ideation if I heard it correctly. This was in an IL-17 class agent that was recently approved. We've also observed a similar warning and precaution previously also in the IL-17 class. In fact, that previous asset, in fact, had a REMS in place. Remember, Skyrizi is an anti-IL-23 very different class. And to date, with all the data that's been generated across numerous indications, we don't see that type of signal at all nor do we have any of that in our label. And as we look at psoriasis therapy, that particular agent that's been mentioned has been available in Europe and our physicians really don't tell us that there's much of an uptake there. So Skyrizi continues to perform well. Also, our label does not have the high rate of fungal infections that have been observed with the new 1 in the '17 class -- and also, we've talked a lot about IBD. We -- the Skyrizi doesn't also lead to IBD, which is another risk for the IL-17 class. And also with our dosing regimen -- you get it at 0 and week 4, and then it's quarterly after that. With the new one, I think there's 5 doses that are required and potentially every 8 weeks or in heavier patients every 4 weeks. So we're very confident in Skyrizi's position across indications, especially in psoriasis.

David Risinger :

Upon your vision for oncology, clearly, the company has compelling assets. But in light of an increasingly complex and competitive oncology landscape, could you just paint a picture of how you see your portfolio evolving and opportunities to acquire assets when it may be difficult to see what's around the corner from, let's say, an emerging oncology competitor in 3 to 4 years?

Roopal Thakkar :

It's Roopal. Let me add on a little bit. I think you may be also reflecting on some of the ESMO data that came out I will mention long a little bit, we still see an opportunity with Teliso-V. We're going to get data later this year. But what we've already observed is 50% ORRs in a biomarker-selected population in the EGFR wild type. If you look at some of the data that has come out, the ORRs are probably right around 20% to 30%. We don't have all the breakdown of all the different lung subtypes. But 1 approach is to use a biomarker and then select the patient population rather than going so broadly that was observed at ESMO. The other thing I would say reflecting on the data that came out, if you looked at EGFR mutants in lung, you see some higher levels of efficacy, either in the frontline or second line in that space. But that comes at a cost, and that's a chemo-like adverse event profile. And those are things like nausea, vomiting, stomatitis, alopecia, fatigue. These are things that you may see slight increases in efficacy, but clearly, patients don't want that. And like -- as Tom was mentioning with our platform and including Teliso-V, we have an opportunity there in the mutant side to combine with osimertinib, which has a nice profile. And those mutant patients when they progress, half of them have highly expressed c-Met. So that's where a combo looks good. And then we're also seeing 50% ORR in that segment as well. And we have a plan to get into Phase 3 into that next year. And then as we think about heme, we spoke about 383, which we feel has best-in-class potential. And one of the things that we're observing with that one is the high level of efficacy. [PRFs], we're driving down past grade 3 and now driving down to get past grade 2. So that enables the potential where you may not need hospitalization. And what you see now with the BCMA dual engagers is not just hospitalization but a REMS. And what we would add to that is dose spacing potentially every other month. So that one is a very nice profile, and we're moving into Phase 3 with that one, and we continue to conduct a variety of combinations there so we can move into earlier lines of therapy in multiple myeloma. We are still moving into earlier lines in Phase 3s with EPKINLY in heme, which is another dual engager. We have an asset called 453, which is our next-gen BCL2 blocker. And then we have a BTK degrader called 101 that's also in clinic. So quite a comprehensive approach across oncology.

Geoff Meacham :

Just have a couple of quick ones, one on immunology. So you guys have evaluated the impact from Humira biosimilars beyond even 25%, is it your view that tail revenues are likely to be better than you initially modeled. And what, if anything, do Stelara, the delay in Stelara biosimilars impact this. And the second question, just on capital deployment. Just given your higher guidance, I know you guys just raised the dividend, but would you also say that the deal capacity is higher. I know you recently raised kind of M&A range and wondering if that's even going higher.

Rob Michael :

And Jeff, this is Rob. You're right. We did lift the cap. We had put that $2 billion BD cap in place, although we are rapidly paying down debt. And we lifted that at the beginning of this year because we essentially -- by the end of this year, we're going to have paid off all the incremental financing from the Allergan transaction. As Scott mentioned, our net leverage ratio is around 1.8x. And I have said previously that as long as we're going to pass back to 2x that leverage in 2 to 3 years, that's the way we're thinking about balance sheet capacity. So as we look at it, there's nothing from a balance capacity standpoint that would limit us today for pursuing the opportunities we'd be interested in. So that's not a limiting factor. And to the extent that we continue to raise guidance and perform more strongly. That just means there's even more capacity. But there's -- at this point, that's not a rate limiter for the types of opportunities we'd be interested in.

Evan Seigerman :

Congrats on a progress. I just wanted to touch on the dividend growth. So at first line, it seems that your dividend growth, while impressive, is slowing a bit relative to other recent periods. Maybe you could help us understand kind of what's driving this dynamic at play? Is it concerns around near-term performance of key products you Humira erosion continuing next year? Or are you preserving capital for you to help further? Maybe some color on that would be very helpful.

Operator:

Our last question comes from [Jon Hung] with UBS.

Rob Michael :

This is Rob. So clearly, we've communicated a floor for earnings. And Scott previously mentioned that I expect a similar level of operating margin year-over-year. And so you can model the sales accordingly. It should be fairly clear.

Rob Michael :

Operating margin profile, yes. So we said the 46% to 47% is the way to think about operating margin profile in '23 and '24. We've given you the $11 EPS ex IPR&D as a floor for next year. So I was just using those parameters to model revenue. .

Carrie Strom :

And this is Carrie. For your question around the weight loss products and the impact on the aesthetics business, I mean as we look at the long-term view of this market, we continue to think that anything that gets a subset of patients engaged in their appearance, which these weight loss products can do, that is a positive tailwind for our business. And we hear that from our customers and many of our customers are bringing these GLP-1s into their practice, and they see it as a natural opportunity to cross-sell. Now that said, in the short term, especially in an environment where discretionary spending is pressured and there could be trade-offs for higher-priced products such as fillers or body contouring. Now we're not necessarily seeing that as a driver. Right now, what we're seeing is the broader macroeconomic dynamics. But in the short term, that could be a trade-off in terms of share of wallet. But absolutely long term, this is something that is going to help patients get engaged in aesthetics and be an opportunity for cross-selling.

Operator:

Thank you, and that concludes today's conference. You may all disconnect at this time.

Rick Gonzalez:

Thank you, Liz. Good morning, everyone, and thank you for joining us today. 2023 is an important year for AbbVie as we experience Humira biosimilar competition in the U.S. market, and as we execute our long-term diversification growth strategy. Now roughly seven months into the year, I'm extremely pleased with the progress that we're making against these objectives. The U.S. Humira biosimilar impact is playing out as projected and slightly better than our planning assumptions. We are competing very effectively with the various biosimilar offerings. We have exceeded our guidance in burst in second quarters with the overachievement predominantly driven by our growth platform, the base portfolio, excluding Humira which, as you know, is the critical driver in our rapid return to growth in 2025 and beyond. To that point, this platform demonstrated operational revenue growth of nearly 8% this quarter with growth expected to further accelerate in the second half of this year. We are also once again raising our full year revenue guidance by $1 billion, which is on top of the $400 million sales increase we delivered in the first quarter for a total overachievement of $1.4 billion. And lastly, we are making good progress with our pipeline, across all stages of development, including recent strong data for Skyrizi in ulcerative colitis as well as the recent U.S. approvals for Rinvoq in Crohn's disease and Epkinly in relapsed or refractory DLBCL, both important new therapies for patients. So in summary, I'm extremely pleased with the strong momentum and execution across the business. It reinforces our confidence in our ability to return to robust growth in 2025 with high single-digit compounded growth rate to the end of the decade. With that, I'll turn the call over to Rob for additional comments on our business performance. Rob?

Jeff Stewart:

Thank you, Rob. I'll start with immunology, which delivered total revenues of $6.8 billion, exceeding our expectations. Skyrizi continues to perform exceptionally well. Global sales were approximately $1.9 billion, reflecting very strong operational growth of 51%. Our performance in psoriasis continues to be impressive. Total prescription share in the U.S. biologic market is now at 32%, double the share of the next closest biologic therapy. When you consider that Skyrizi is capturing roughly one out of two every in-play patient, which are either new to therapy or switching, there remains substantial opportunity for continued robust sales growth. And based on the available clinical data we are seeing from emerging competitive therapies in psoriasis, including orals, we feel very confident in Skyrizi's long-term potential with robust sales growth expected through the early part of the next decade. We are also seeing very nice prescription growth in psoriatic arthritis, especially in the U.S. dermatology segment where Skyrizi is approaching the leading new patient biologic market share. Skyrizi's momentum across psoriatic disease is very solid globally as well with total in-play share leadership in nearly 30 key countries. Turning now to IBD, where Skyrizi has demonstrated a very compelling clinical profile, including strong endoscopic data paired with convenient dosing. Uptake in Crohn's disease has been rapid, with total in-play patient share of approximately 25% in the U.S., roughly at parity leadership with Stelara. This uptake is very encouraging for Skyrizi's potential in ulcerative colitis, where we recently reported positive maintenance data with approval and commercialization anticipated next year. Given the momentum we are seeing across all of the approved indications, we will be raising our full year sales outlook for Skyrizi. Moving now to Rinvoq which delivered global sales of $918 million, reflecting operational growth of nearly 57%. A key element of Rinvoq's success is its strong differentiation. It is now approved across seven distinct indications, including four in rheumatology, two in IBD as well as atopic dermatitis. It's the only potent daily oral medication with compelling head-to-head data against multiple novel therapies, including superiority to Humira in RA and Dupixent in AD. It's the only JAK inhibitor now approved to treat both Crohn's disease and ulcerative colitis. And we have established strong and broad commercial access for each of the core diseases with formulary coverage for Crohn's expected to ramp quickly over the next months. As it pertains to Rinvoq's book performance, we are seeing increasing prescriptions across each of the room indications globally, further market share momentum in atopic dermatitis, including now high-teens in-play patient share in the U.S. and robust uptake in IBD, where Rinvoq has demonstrated strong rates of remission and endoscopic improvement. Rinvoq is now capturing roughly one out of every four in-play ulcerative colitis patients in the second line plus setting. And the early data for Crohn's, which launched just in May, also shows a very strong ramp in new patient starts. We remained well positioned for continued momentum in this new indication as the only jack inhibitor approved to treat Crohn's disease. This level of performance, along with the development of ongoing projects across several other diseases, such as giant cell arteritis and systemic lupus in rheumatology and multiple additional derm indications, reinforces the long-term potential for Rinvoq with strong sales growth expected through the early part of the next decade. Global Humira sales were $4 billion, down 24.8% on an operational basis due to biosimilar competition. Erosion in the U.S. remains slightly better than our expectations due to volume with the vast majority of the impact this quarter driven by price. Turning now to hematologic oncology, where total revenues were approaching $1.5 billion. Imbruvica global revenues were $907 million, down 20.8%, consistent with our expectations. Venclexta global sales were $571 million, up 15% on an operational basis with strong demand for both CLL and AML, and we are particularly pleased with the international performance here, following continued reimbursement progress in the EU and inclusion in China's national reimbursement list. We also recently received the U.S. approval for Epkinly in third line plus DLBCL further expanding our on-market portfolio in hem onc. Early prescription trends have been encouraging, with a more robust opportunity expected as we progress development in earlier lines of therapy. We also anticipate approval and commercialization in Europe and Japan later this year. In neuroscience, revenues were nearly $1.9 billion, up 14.2% on an operational basis. Vraylar continues to exceed our expectations. Sales of $658 million were up 33.9% on an operational basis with increasing momentum across all indications following the MDD approval late last year. Within migraine, we remain the clear market leader with unique treatment options for both acute and chronic conditions. Our oral CGRP portfolio contributed $292 million in combined sales this quarter reflecting growth of more than 30% as we continue to see strong prescription demand for both Ubrelvy and Qulipta. Lastly, total Botox Therapeutic sales were $748 million, up 11.3% on an operational basis, reflecting nice momentum in chronic migraine as well as other approved indications. This franchise continues to outperform our expectations, and we will be raising our full year guidance for the collective neuroscience portfolio. So overall, I'm extremely pleased with the performance and execution across the therapeutic portfolio with growth expected to accelerate through the second half of the year. And with that, I'll turn the call over to Carrie for additional comments on aesthetics. Carrie?

Tom Hudson:

Thank you, Carrie. We've continued to make very good progress with our pipeline over the quarter. We had a substantial amount of activity across our R&D pipeline, resulting in new approvals and advancements of several programs. In immunology, we received FDA approval for Rinvoq in Crohn's disease, marking its seventh FDA approval across gastroenterology, rheumatology and dermatology. In our Crohn's development program, Rinvoq demonstrated a very rapid and strong impact on symptoms as well as endoscopic improvement. Given its strong benefit risk profile, we believe Rinvoq will be an important new medicine for patients suffering from moderate to severe Crohn's disease. While Crohn's disease approval marks the completion of the core indications, we believe Rinvoq revokes the potential to become a highly effective therapy in several additional important diseases. We recently began Phase III studies for Rinvoq in systemic lupus, hidradenitis, suprativa, and we remain on track to begin Phase III studies in alopecia areata later this year. We'll also see later this year from a Phase II study in vitiligo, which could support advancement to Phase III in this indication as well. Moving to Skyrizi, where in the quarter, we announced positive top line results from our Phase III maintenance trial in ulcerative colitis. In this study, Skyrizi met the primary and key secondary end points at week 52 compared to the withdrawal arm, demonstrating that patients continuing treatment with Skyrizi maintain high levels of clinical remission as well as more stringent endpoints such as endoscopic improvement, histologic endoscopic mucosal improvement and steroid-free remission. It's important to note that approximately 75% of the patients in this study had failed advanced therapy, including not only anti-TNFs, but also other biologics, JAK inhibitors and S1P modulators. This represents a very difficult-to-treat population in ulcerative colitis. Skyrizi's strong performance in patients with and without failure to advanced therapies including patients who were naive to advanced therapy demonstrate its utility across the spectrum of moderate to severe UC patients. We remain on track to submit our regulatory applications in the third quarter with approvals anticipated in 2024. We also recently published results from a head-to-head trial comparing Skyrizi to Otezla in patients with moderate psoriasis with Skyrizi demonstrating clear superiority to Otezla on all primary and ranked secondary endpoints at week 16 and 52. At week 52 of this study, 64% of patients achieved absolute skin clearance as measured by PASI 100 an SPGA clear compared to just 3% for Otezla, underscoring Skyrizi's ability to drive very high and durable responses in these moderate patients. In addition to higher clinical efficacy outcomes, the patients treat with Skyrizi which is a self-injectable administered quarterly reported improvements in health-related quality of life measures and greater treatment satisfaction compared to those treated with Otezla, which is an oral administered twice daily. Additionally, Skyrizi demonstrated favorable safety and tolerability compared to Otezla. The rates of adverse events, including serious and severe AEs were numerically higher with Otezla than with Skyrizi treatment. Previous to -- similar to previous studies, Otezla treatment was associated with high rates of gastrointestinal distress such as nausea, diarrhea and vomiting, which resulted in a 7% discontinuation rate in the first 16 weeks of treatment compared to no discontinuations for Skyrizi patients. We're incredibly pleased with these results, which further underscores Skyrizi's position as the best in category treatment for moderate-to-severe psoriasis, providing very high efficacy, durable responses a safe and tolerable profile and convenient quarterly administration. In oncology, we received accelerated approval in the U.S. for Epkinly as a monotherapy treatment for patients with relapsed or refractory DLBCL who had received two or more systemic therapies. We also recently received positive CHMP opinion with an approval decision in Europe expected later this year. DLBCL is a very aggressive disease where later-line patients have limited options. We're extremely excited to bring this new subcutaneous treatment option to patients. In the quarter, we also announced positive top line results from the follicular lymphoma cohort of a Phase II trial evaluating Epkinly in patients who have received at least two prior lines of therapy. In this study, Epkinly performed very well as a monotherapy, demonstrating an overall response rate of 82%. We are pleased with these results and plan to discuss these data with regulatory agencies about the potential to support a submission for accelerated approval. Beyond the mid-stage studies supporting accelerated approvals in later lines of therapy. We also have Phase III trials ongoing in earlier lines of DLBCL and for follicular lymphoma, and we look forward to providing updates on these programs as the data mature. In our navitoclax program, we recently saw top line results from the Phase III TRANSFORM one trial, evaluating navitoclax in combination with ruxolitinib in for patients with treatment naive myelofibrosis. This study met the primary endpoint at week 24, demonstrating a statistically significant improvement in the percentage of patients who achieved complete volume reduction of at least 35% compared to rux plus placebo. For the primary endpoint, the navitoclax combination showed a doubling of improvement over rux alone with 63% of patients on the navitoclax combination achieving SVR35 compared to 32% in the rux plus placebo combination. In this study, the navitoclax combination did not achieve the first ranked secondary endpoint, which was improvement in total symptom score at week 24. Additional follow-up data on SVR and TSS as well as other endpoints are expected in the fourth quarter of this year. We plan to wait for these more mature data before engaging with regulatory agencies in order to have a more comprehensive picture of the patient's clinical response and clinical benefit that navitoclax can provide. Looking to the remainder of this year. We remain on track for several additional data readouts from our late-stage oncology programs, including Phase III data from Venclexta's CANOVA trial in relapsed/refractory multiple myeloma patients with t(114) mutation. As a reminder, this is an event-driven study, and we're just waiting -- we're waiting for just a handful of remaining events. So, we'd expect to have these data in-house in the coming months. And we remain on track to see Phase II data for Teliso-V in second-line plus advanced non-squamous, non-small cell lung cancer in the fourth quarter. We're also making very good progress with several earlier line, earlier stage solid tumor programs. We recently initiated a Phase II study for ABBV-151, our anti-GARP antibody in hepatocellular carcinoma and plan to begin Phase II in several additional solid tumors over the course of the next 12 months. At the recent ASCO meeting, we presented promising initial results from a Phase I study evaluating our next-generation c-Met ADC, ABBV-400 in several advanced solid tumor types. We're seeing responses across multiple tumors, indicating broad activity. Results in late-line colorectal patients were particularly encouraging, where monotherapy treatment with 400 resulted in a confirmed overall response rate of 22% well in excess of standard of care, which is typically less than 2% to 3%. We're also encouraged by the durability of response seen in these early results. These patients had an average of five prior lines of therapy, so this level of efficacy is very encouraging. Based on these results, we plan to start our Phase II program later this year, beginning with a second line colorectal cancer study. Now moving to neuroscience, where in the quarter, we received a positive CHMP opinion recommending approval of atogepant for migraine prevention. We anticipate a decision in the coming months. And if approved, atogepant would be the only oral CGRP antagonist approved in Europe for prevention of both episodic and chronic migraine. This is a debilitating condition that impacts tens of millions of people in Europe, and we look forward to making this new oral treatment option available to patients once approved. Also, in the area of neuroscience, ABBV-916, our A-beta antibody for Alzheimer's disease is rapidly advancing to dose escalation studies. This antibody is demonstrating a long half-life and very low antidrug antibodies, both important attributes to achieve a best-in-class profile for our A-beta antibody. Dose selection in Phase II is expected to begin early next year. And lastly, in our aesthetics pipeline, we recently submitted our regulatory application for Botox in masseter muscle prominence in China, which is the initial focus for our program given the prevalence of masseter muscle prominence in Asian populations and a significant unmet need for minimally invasive treatment options. In our platisima prominence program for Botox, we remain on track to see data from two additional Phase III studies later this year with our regulatory submission in the U.S. expected near the end of the year. So, in summary, we had a very productive first half of the year across all stages and therapeutic areas of our pipeline, and we look forward to the second half of 2023 with several important clinical and regulatory milestones. With that, I'll turn the call over to Scott.

Liz Shea:

Thanks, Scott. We will now open the call for questions in the interest of hearing from as many analysts as possible over the remainder of the call, we ask that you please limit your questions to one or 2. Operator, we'll take the first question, please.

Vamil Divan:

So one, I'm just curious, given the strong quarter and the guidance raise, in terms of that you talked about your floor EPS, is that -- do you still see a floor of $10.70 or is it different? And can you talk anymore at this point or when you see that floor happening? And then my second question is around IRA, and you obviously a lot of focus there. I'm curious if you have any thoughts around what the first list of products around September 1. Are you expecting AbbVie products to be included in that first group of 10. And then infused just Rinvoq specifically and how you see that might be at risk from IRI, given you bring obviously a lot of life cycle development there. And is there a chance that a life cycle may not be quite as long? Or kind of how are you thinking about prioritizing investing in a small molecule like Rinvoq?

Rob Michael :

I'd just add that we've now collectively raised revenue guidance by $1.4 billion, as Rick mentioned, we raised $400 million in the first quarter, $1 billion this quarter. When you look at it, it's really across the key therapeutic areas that will drive long-term growth. We've raised Skyrizi, aesthetics, neuroscience, and also Humira. So we do feel very good about the performance of the business. We've debated when we update the floor that will come at some point may not come until we actually give the Q4 guidance -- on the Q4 call of 2024 guidance, but as we look at it, the fundamentals of the business are very, very strong, and we're seeing performance across all of the therapeutic areas.

Rob Michael :

When IRA was passed a year ago, we obviously modeled the impact and we reaffirmed the long-term guidance expectation of high single-digit growth in the second half of this decade. That remains. We looked at what it means in terms of inflation penalties, party benefit redesign, negotiations. So we did make assumptions around that. I think Rick is correct in that there is still enough uncertainty we're going to know soon, right? September one is when they expect to announce the first list. We have modeled it, but we feel good even with IRA although it does have an impact -- has impacted everyone in the industry, we can still deliver on our long-term growth expectations. On your question -- and I think keep in mind, too, when you look at the Medicare percent of business for AbbVie. In the U.S., it's about 20%. Globally, it's a little bit lower, obviously. And so you look at us relative to our peers, we have a lower percent of the business as exposed to Medicare. And then when we look at specific at Rinvoq, you have to keep in mind with Rinvoq with indication expansion, the percent of sales you're talking about by the time it potentially be selected for negotiation, potentially in the later part of the decade, you're talking about something where like 10% to 12% because if you keep in mind, new indications, in many cases, serve younger patient population. And so that's the way we're looking at Rinvoq continuing to develop it. We obviously have a number of indications that could launch later in the decade. We feel very good about that. Those indications can collectively contribute a couple of billion dollars of revenue. We'll continue to drive that robust growth we expect from Rinvoq and Skyrizi as well. And so, we've modeled the impact of IRA, we don't expect it to impact the development plans for Rinvoq.

Operator:

Chris Schott, JPMorgan.

Jeff Stewart:

Yeah. Hi, Chris. It's Jeff. And I'll answer your first question. So in a nutshell, we haven't been surprised at any of the dynamics that we've seen play out, we've called it very, very accurately. So again, nothing that's really other than some small volume holding on a little bit better that's really different. So we're quite pleased with how our contracting and access has played out. And that parity access for Humira has been important. And again, it's what we believe would happen. We think it's good for patients, obviously, who can maintain their therapy with very little volatility, and it certainly provided us with a lot of predictability. And so I think we've managed sort of the first half with the Amgen launch and then the second half dynamics very, very well. And if you look to '24, as I've highlighted before, we do have 2-year agreements with some of our accounts. And we negotiated those in good faith, and we expect them to be honored. And remember, these are parity contracts for both '23 and '24 with Humira access coexisting with these multiple biosimilars. So I would say based on these dynamics, we're confident that Humira access will remain quite meaningful in 2024. And we know that as more biosimilars become established, we're also, as we've highlighted, appropriately planning for some volume loss in those certain so-called wax-sensitive accounts over time. So really no surprises in terms of what we've seen overall. So we're quite pleased.

Liz Shea:

Thanks, Chris. Operator? Oh, sorry.

Liz Shea:

Operator, next question, please.

Mohit Bansal:

Great. Thank you very much for taking my question. And congrats on the quarter. One clarification question and then one question. So clarification. So Rick, you mentioned that you think, like, again, at this point, you're not talking about increasing the floor, but you feel comfortable about the floor EPS range of $10.70. Is that fair to be in 2023 or '24, that's the first clarification question. And then second one is, when we talk to investors, they do feel comfortable about the ex-Humira portfolio. But one question that cuts up all the time is that, I mean, the lack of shiny object or pipeline beyond Skyrizi and Rinvoq. To the extent you agree with that assessment, how do you plan to mitigate that? Or is there anything in the pipeline that investors are missing at this point? Thank you.

Liz Shea:

Okay. Thank you, Mohit. Operator, next question, please.

Terence Flynn:

Maybe a couple for me. Maybe Rick, just to follow-up on that last comment, maybe just an update on your M&A BD appetite here, particularly assets that can contribute more near term to growth? And then again, I want to see what you guys are hearing out there regarding the long-acting Botox competitor. It sounds like you're seeing stable market share, but any feedback on that product?

Carrie Strom :

Thanks, Rick. So in terms of DAXI, it's been more than six months since their launch and the uptake has been quite limited from our perspective in the low single digits. So for context, as we benchmark our competitive launches. And you would benchmark this launch versus the most recent toxin to enter the U.S. market you would see it's tracking to about 25% of where another product would be at the same point in its launch. And in terms of customer feedback, we continue to hear that expectations are just not being met on duration, that expectations on the customer side and on the consumer side. So we have yet to see impact on Botox share and Botox will continue to be the clear market leader as the other toxins compete for the number 2, 3, 4 position in our customers' offices. We are very pleased with the team's ability to execute on these competitive strategies here. And actually, their clear focus not only on the competitive strategies, but also on the broader focus and vision to grow the entire toxin market in the U.S., which we continue to see as biggest opportunity now and in the future.

Operator:

Evan Seigerman, BMO.

Jeff Stewart:

Yes. Evan, it's Jeff. I'll take that one. One of the aspects that we have that I highlight and we look very carefully at, we look at both sort of in-play capture which I often refer to, for example, right now, the in-play capture for Skyrizi in psoriasis is about 50%. So we're capturing one out of every two patients. And our market share is about 32%, as I highlighted. So theoretically, as we study these markets that if there's not major innovation or major disruption that comes in place. And we really don't see that in psoriasis. You get such a high level of efficacy with Skyrizi, your market share, so the 32% starts to ramp up over time towards your in-play capture because you get the persistency effects and the fall off that take place in the market. So really, when you look at that, I could say the same thing, for example, with Rinvoq. I mentioned that it's capturing 25% of second line plus in-play share. It has like a 3% market share. So in terms of the ability to sort of grow that market share over time, we really monitor that capture rate in the early years, and then you just sort of -- the in place sort of pulls up your market share over time. So that's why we're quite encouraged at the speed of the ramps that we're seeing there and the ability to move that market share. Now when we study the models, you don't fully get there because typically, something else launches, time goes by. But we can feel very, very encouraged as we look at our in-play momentum that the market share starts to approach that over our long-range planning cycle.

Liz Shea:

All right. Thank you, Chris. Operator, next question, please.

Chris Raymond:

Just maybe a pipeline line of questioning here. Rick, I heard you mention maybe ABBV-951, but it wasn't in your prepared comments. Maybe -- I know you guys were saying you're working to respond to the CRL later this year with PDUFA in the first half. Is that still the case. And then maybe also on the pipeline. A couple of quarters ago, I think you guys talked about an interesting combo opportunity in IBD with that GLP-2 in-licensed, I think, from Scripps. Any updated thoughts here with this sort of mechanism as a combo agent?

Tom Hudson:

If I can just add, we didn't really opt in yet. Our collaboration with Caliber, which we expanded this week to more programs includes them doing a Phase Ia study which is almost finished. We're going to see the data and make that decision. It does fall into our -- part of our immunology program, which is in epithelial repair, which Roopal just mentioned. And so this is one of the assets which we think if you get a healthy gut to prepare that there will be in combination with immunomodulators will get a better response over time. We have another program called RIPK1, which also is involved in epithelial repair. So as multiple strategies, but this is one where we'll be making a decision and announcing a later time this year.

Operator:

Steve Scala, TD Cowen.

Jeff Stewart:

Yeah, hi Steve, it's Jeff. No, we don't see any slowdown in the IBD market. I mean this market has been just one of the highest growth markets we've seen from a CAGR perspective over many, many years. There's such unmet need. And so no, we're not seeing any patient slowdown. I would say, look, if we look at our particular data, I mean, you're seeing very fast ramps on this in-place share from Skyrizi and Crohn's disease. Now you're seeing an equally fast ramp in the early weeks from Rinvoq and Crohn's disease. And again, we're capturing up to 25% of the second line plus patients in ulcerative colitis. So I don't know what data Takeda is looking at, but we're seeing that the competitors in that space. And the leading competitors are Stelara and Entyvio and of course, our own Humira, but it's Stelara and Entyvio, they're under pressure in terms of incremental patient capture since our launch, and we'll continue to monitor. But we don't see any patient flow issues in the marketplace.

Liz Shea:

Thanks, Steve. Operator, next question, please.

Carter Gould:

Thank you for taking my questions, and congrats on the quarter. I guess, two, acknowledging all your comments on the pipeline and previous comments on BD. Rick, was looking to get your thoughts on how the more assertive FTC here is limiting your target list on BD or your ability to complete deals? And then maybe just on Botox. Just was hoping for a little bit more color on the sustainability of the ex-U.S. trends versus maybe some of that demand getting pushed into the quarter after some of the shutdowns, COVID impacts and whatnot ex-U.S. Thank you.

Carrie Strom:

Sure. In terms of the aesthetics market internationally, like we said, we've been very pleased with the performance so far, and we expect to -- we continue to expect to see that type of strong performance through the rest of the year. We're continuing to invest in key growth markets like Japan and in markets like Brazil. And of course, China has become our second biggest market globally. And in China, in the first quarter, we did see significant growth as the market was reopening from COVID and some pent-up demand that came through in Q1 and early Q2. And now China has returned to normalized high growth rates. And so despite some economic pressures there, we really continue to see strong growth as we continue to invest and expand our promotional footprint there through field force, through injector training and our consumer efforts. And China will continue to be a really attractive market for us. Based on that commercial expansion and also, we're going to have a steady flow of new product launches throughout the decade in that market. One thing to note, which we did mention in our prepared remarks is that we do expect Q3 to be relatively flat internationally based on shipment timing from last year with that return to growth in Q4 and high single-digit growth for the full year internationally.

Liz Shea:

Thanks, Carter. Operator, next question, please.

David Risinger:

Yes. Thanks very much. So I have two questions. Rick, you had mentioned that you're expecting stabilization of Humira sales at some point. Could you provide some perspective on when you might expect that? And then second, with respect to the filler franchise, obviously, it's performing strongly, could you discuss the prospects including the driver of weight loss drug patients seeking to compensate for facial hallowing? Thank you very much.

Carrie Strom:

Sure. So, in terms of the filler opportunity and outlook, I guess, as that big -- I'll start -- I'll zoom out a little bit and just comment on that the filler market continues to be really attractive, especially internationally, as you've already seen here right now. with China driving some strong growth. And really some of the key Juvederm brand have just become available in China in the past few years, and we'll continue to have, like I said, a cadence of Juvederm launches in China. And then our increased investment all over the world and continues to drive our filler business and gives us a lot of optimism there internationally. Now in the U.S., we have said that the inflationary dynamics have impacted the U.S. market for filler and more than toxin just by the nature of the filler pricing and procedure. And also in terms of the patient journey patients tend to start on toxin before they add filler. And so, for all those reasons, we believe that the top -- the filler market will continue to improve in the second half of the year. although it will lag the toxin market recovery a bit. Now in terms of the question around Ozempic, we have been keeping an eye on that and how these weight loss products could have an impact on the aesthetics market. And what we see is that really anything that gets a consumer engaged in their appearance, including products like Ozempic are a positive tailwind for the aesthetics business. And we are hearing some customers say that these facial hollowing fillers or for -- that's a result of these products is an opportunity for fillers. We see that on social media. We're tracking it in other forms of media. And we think that like many other consumer trends around aesthetics, this will just continue to be a tailwind and the positive dynamic of the business.

Operator:

Tim Anderson, Wolfe Research

Rick Gonzalez:

Okay. So, I think Jeff and I will tag team this one. It's a great question because, look, I think we all know there has been some question out in the marketplace since the first quarter about I&I pricing. And so let me try to frame our perspective on the pricing because I think there's some misconception that's developed in the marketplace to some extent around I&I pricing. I guess the first thing I'd say to you, this is a market we know well. We've been in this market for a long time. We're obviously a leader in this market. So, it's a market we know extremely well. And obviously, we know any trend that's occurring in this market to a high degree of detail. And what I would tell you is that we see no fundamental change in the way pricing is being dealt with in this marketplace nor do we expect to see any fundamental change that occurs in the foreseeable future. So that brings me to the rebate question in the first quarter. And I would tell you that we're operating exactly the same way we have historically operated in this segment as it relates to rebating or discounting. When we get a new indication or a new product, one of the things that we evaluate is -- okay, what level of rebating should we do in order to maximize two things for the product. The speed at which we can drive the ramp and the ultimate peak sales that we can drive for that asset. We weigh those two things against how we look at contracting and getting on formulary. And so when you get an indication, you make a trade off. Do I want to be on formulator? I don't. If I do, I have to provide some level of incremental rebates. Is that a financially positive decision for the asset in the company. And if it is, we make that decision. And I would say that Skyrizi and Rinvoq are classic examples of that strategy. And I would say, look at how they're performing. We're going to grow those two assets despite the increased rebates, $3.5 billion this year. And that's a pretty good trade-off. I don't know, Jeff, anything you'd add?

Rob Michael:

And Tim, on your second question, I mean we've said this before, the high single-digit price impact this year is a function, again, as Jeff mentioned, seven new indications. We do not expect that type of price erosion going forward. It should not be what investors are modeling. So I wouldn't be concerned about high single-digit price erosion in '24.

Operator:

And that will be from Geoff Meacham, Bank of America.

Rob Michael:

So Jeff, this is Rob. I'll answer your question on International Humira. If you look at the '23 erosions, about $600 million it's really split in, I'd say, three buckets. About $300 million of it is new biosimilar markets, markets like Canada, Puerto Rico, Mexico. Those are -- remember, we have additional waves coming in. So that's the next wave coming in so about half of it is that. And then I characterize about $200 million being really the impact of new agents like Skyrizi and Rinvoq, right? So you have agents that deliver higher standard of care, and so you're going to see share erosion just through that dynamic. And fortunately, we've brought forward our own products that do that. And so I'd say of that $600 million, $200 million is roughly that. And then in the international markets, you typically see some, I'd say, low to mid-single-digit price erosion, just typically year-over-year. So that's about another $100 million. So it's important to characterize it the right way. It's not so much markets that were biosimilar several years ago. It's more recent biosimilar markets, our own competition from our own agents as well as the typical price erosion you see in the international market.

Operator:

As we are concluded. Again, thank you for your participation. You may please disconnect at this time.

Thomas J. Hudson:

Thank you, Carrie. We've continued to make very good progress with our pipeline to start this year. In immunology, we recently received European approval for Rinvoq in Crohn's disease, making it the first JAK inhibitor approved for this indication. We continue to anticipate FDA approval for Rinvoq in Crohn's disease next month. We also recently announced positive top line results from our Phase III induction study for Skyrizi in ulcerative colitis, which is a disease with unpredictable symptoms and frequent players making it challenging to manage.

Elizabeth Shea:

Thanks, Scott. We will now open the call for questions. In the interest of hearing from as many analysts as possible over the remainder of the call, we ask that you please limit your questions to 1 or 2. Operator, first question, please.

Terence Flynn:

Great. Maybe 2 for me. Just on immunology, can you quantify the amount of destocking for both Skyrizi and Rinvoq in the quarter? I think Biogen on their call spoke to some tighter working capital requirements at wholesalers due to rising interest rates. So just wondering if you're seeing something similar here and just to want to be sure that it's not a pricing dynamic. And then can you elaborate at all about your ALS program when we might see some data there?

Jeffrey Stewart:

And it's Jeff. Just to clarify on your wholesale comment, I think, as Rob highlighted, it's in the retail. So it's in the specialty pharmacy channel. And you'll recall, as you know, there's about 18 specialty pharmacies that basically distribute the I&I products, and there are some big ones there. So it was not a wholesaler dynamic. It was a retail inventory dynamic, which, again, as these products get bigger, we do see and contemplate in our projections.

Elizabeth Shea:

Thanks, Terence. Operator, next question, please.

Steve Scala:

A couple of questions. Some of your peers have called out co-pay resets early in the year that have led to more modest performances in products such as Dupixent and Cosentyx. AbbVie has been less vocal on this point. How much was that a factor? Or are Skyrizi and Rinvoq different in some way? And then secondly, despite the solid performance in Q1, the EPS guidance range continues to be very wide. What factors would have to play out for you to hit the high end of that and the low end of that?

Robert Michael:

And Steve, this is Rob, on your EPS range question. We've typically given a $0.20 range; this year, we gave a $0.40 range. And the key driver of that is obviously the U.S. Humira dynamics. As we see that play out, particularly in the second half, we would typically tighten that range. Now keep in mind, that $0.20 wider range represents about 1% of U.S. Humira growth. So it's not as wide as you might think. But we did widen it given the dynamics of U.S. Humira. And I think we'll be able to give you more color as we see those 7, 9 biosimilars coming in the market in the middle of the year. We'll have more clarity for you on the second quarter call.

Operator:

Our next question comes from Chris Schott with JPMorgan.

Elizabeth Shea:

Thank you, Chris. Operator, next question, please.

Mohit Bansal:

I have one clarification and one question. So clarification is regarding the price decline for I&I. You said that high single digit, but should we assume like going forward, year-over-year, we should -- versus volumes, should we assume high single-digit decline still going forward for at least for rest of the quarter and then more stable pricing quarter-over-quarter term, just that clarification.

Richard Gonzalez:

So this is Rick. I'll cover number two and maybe just touch on number one. If you think about our pipeline, obviously, as we look at Skyrizi and Rinvoq, they clearly have restated the immunology market across most of the segments that we operate in. We view those assets as being able to drive strong growth through the early part of the next decade.

Elizabeth Shea:

Thank you, Mohit. Operator, next question, please.

Alice Nettleton:

This is Alice Nettleton on for Tim Anderson. So a question on PBMs, which are under renewed scrutiny. If there were material changes to the rebating structure currently in place, would that put big incumbent products at risk because it might remove the so-called rebate wall? And more generally, do you think there is any chance of some of the proposed legislative changes actually becoming law? And then secondly, any collateral impact you're seeing on Skyrizi or Rinvoq since Humira biosimilars have launched? And given the overlapping indications, do you think that you'll start to see some picking off of patients from these 2 brands to biosimilars in the second half of the year?

Operator:

Our next question comes from Carter Gould with Barclays.

Richard Gonzalez:

This is Rick. I'd say the environment hasn't changed materially in the last 24 months from my perspective. I still think it's certainly more difficult to raise money for biotech companies. So it probably makes them a bit more willing to engage with players like us or engage in a process, if they're at a point where they've generated data that makes them attractive. But I'd say the interest level in that engagement is similar to what has been for the last 12 to 24 months. And there's a lot of opportunity to be able to find assets that are in the biotech area. The question is you have to find the right kind of asset and you have to find one that's attractive and meet your needs. And I'd say being able to negotiate a transaction, I think, is a reasonable probability.

Elizabeth Shea:

Thanks, Carter. Operator next question, please.

Vamil Divan:

Maybe a couple from me as well. So one, just a couple of data points you have coming up this year that I think may be a little bit less focused on is on Navitoclax and Teliso-V. So maybe you can just sort of frame so what we should be looking for, what your expectations are, what you're hoping to see from those assets, especially Teliso-V given your comments on the sort of next-gen ABBV-400?

Roopal Thakkar:

It's Roopal. I'll take the ones on Navitoclax and Teliso-V. So for Navitoclax, it's the combination with the JAK2 in myelofibrosis. And there, we're looking to be better than monotherapy with JAK2 in that space and improving spleen size and symptoms like abdominal pain, fullness, fever, fatigue. Also, perhaps uniquely, what we've observed is also an improvement in bone marrow fibrosis and a decrease in variant allelic frequency. So that's what we would be looking for, and we should get a readout by midyear or so.

Richard Gonzalez:

I'll take the second question. And maybe I'll make a little bit of a comment on Teliso-V because I think you mentioned 400. I think the early data that we're seeing in 400 is impressive to us. There's no question about it. And I think we're going to have some data presented at this ASCO, right, where you'll have an opportunity to see that in CRC.

Operator:

Our next question comes from Evan Seigerman with BMO Capital Markets.

Jeffrey Stewart:

Yes. It's Jeff. I'll take your comment on psoriasis. I think that, as I mentioned, it's -- the share is very, very impressive. So we have a 30% total market share now which is really putting significant headroom against any other drug in that category by a lot. And one way to think about it is, I think what you're asking is how much further can it run? And it can run quite a bit further. To some degree, if you think about it, so we're capturing on the dynamic share roughly 50%. So 1 out of every 2 patients. And our market share is about 30.

Elizabeth Shea:

Thanks, Evan. Operator, next question, please.

Carson Wong:

This is Carson on for Trung. Just on Imbruvica, how confident are you for the [ 5.7 ] hem-onc guide given the significant competitive pressures there? I mean I understand Brukinsa did particularly have legs in the U.S. until late January. What level of pricing pressures can we expect through the year? And is there a potential for further step downs in your guide for later in the year? And if you do that, could the trough be pushed out given the delay with 951 as well?

Elizabeth Shea:

Thanks, Carson. We are cognizant of a number of peers reporting today. And so in the interest of time, we have one last question.

Unknown Analyst:

This is [ Susan ] on for Geoff Meacham. We had a follow-up on Imbruvica. Do you guys expect any changes to outlook following MCL/MDL withdrawal? And then do you expect any read-through to follicular lymphoma from that withdrawal?

Roopal Thakkar:

Yes, I can talk about FL here for a minute. So a Phase III readout is expected later this year. It's not clear if the MCL outcomes would be reflected in what we see there. But what I would say about FL is our focus would be with epcoritamab, or dual engager, which we expect DLBCL actions here soon. And then we have programs and we're seeing very high levels of response in FL with epco either as monotherapy or in combination, which we'll see some data in those combos in DLBCL and FL at ASCO as well.

Operator:

Thank you for your participation. Participants, you may disconnect at this time.

Liz Shea:

Good morning and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Rob Michael, Vice Chairman and President; Jeff Stewart, Executive Vice President, Chief Commercial Officer; Carrie Strom, Senior Vice President and President, Allergan Aesthetics; and Tom Hudson, Senior Vice President, R&D and Chief Scientific Officer. Joining us for the Q&A portion of the call are Scott Reents, Senior Vice President and Chief Financial Officer; and Roopal Thakkar, Vice President, Global Regulatory Affairs. Before we get started, I'll note that some statements we make today may be considered forward-looking statements based on our current expectations. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements, except as required by law. On today's conference call, non-GAAP financial measures will be used to help investors understand AbbVie's business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings release and regulatory filings from today which can be found on our website. Following our prepared remarks, we'll take your questions. So with that, I'll now turn the call over to Rick.

Jeff Stewart:

Thank you, Rick. I'll start with the quarterly results for immunology which delivered total revenues of more than $7.9 billion, up 19.5% on an operational basis. SKYRIZI and RINVOQ are performing exceptionally well, contributing more than $2.3 billion in combined sales this quarter, reflecting operational growth of 70%. SKYRIZI continues to exceed our expectations, outperforming our initial full year guidance by more than $750 million. Global revenues this quarter were nearly $1.6 billion, up 12.8% on a sequential basis. SKYRIZI is achieving strong market share momentum globally with in-play psoriatic disease leadership in 24 countries and total market share leadership in more than a dozen key markets. In psoriasis, SKYRIZI's total prescription share of the U.S. biologic psoriasis market has increased to more than 28%. And there is substantial room for continued growth in psoriasis based on SKYRIZI's leading in-play share of new and switching patients which remains at nearly 50%. Psoriatic arthritis is also providing a nice inflection to SKYRIZI sales, especially in the U.S. Dermatology segment, where we have achieved approximately 10% share of the total biologic market. And we are also seeing encouraging SKYRIZI new patient starts in the U.S. room segment as well which accounts for more than 80% of all PSA treatments. SKYRIZI is being co-positioned with RINVO to rheumatologists where these 2 products combined have already achieved a leading in-play PSA room share of approximately 16%. In Crohn's disease, we are making excellent progress with the U.S. launch. Feedback from gastroenterologists has been very positive, especially as it relates to SKYRIZI's novel dosing and overall clinical profile. We recently started DTC promotion for this indication and are already achieving a total in-play patient share of more than 15%. Turning now to invoke which delivered global sales of $770 million, representing double-digit sequential growth. In rheumatology, global prescriptions are ramping nicely across RINVOQ's 4 approved indications, RA, PSA, ankylosing spondylitis and non-radiographic axial SpA. We continue to see positive market share momentum in both the U.S. and across key international geographies. In atopic dermatitis, RINVOQ is demonstrating strong uptake in both treatment naive and second-line patients globally. Feedback from the global derm community supports the importance of RINVOQ as a long-term chronic therapy to control atopic dermatitis, especially as it relates to skin clearance and rapid itch relief. RINVOQ AD prescriptions are trending up globally with 20% to 35% in-place shares across our major international markets and a mid-teens in-place share in the U.S. which are both tracking in line with our expectations. In gastroenterology, the launch trends for RINVOQ in ulcerative colitis are very strong. Physicians have been pleased with RINVOQ's high rates of endoscopic healing as well as the speed of onset which has quickly resulted in RINVOQ achieving approximately 20% in-play share in the U.S. second line plus setting. Internationally, RINVOQ UC is now approved in 50 countries with reimbursement discussions progressing in line with our expectations. This strong adoption in UC amongst gastroenterologists is very encouraging for RINVOQ's potential in Crohn's disease as well. We are on track for U.S. and EMA regulatory decisions in the second quarter and are preparing for the commercial launch. Global HUMIRA sales were approximately $5.6 billion, up 6% on an operational basis with 9.9% growth in the U.S. partially offset by international, where revenues were down 16.9% operationally due to biosimilar competition. In the U.S., we have secured broad formulary access for HUMIRA encompassing more than 90% of all covered lives which enables us to compete for patient volume at parity to biosimilars. Turning now to hematologic oncology, where total revenues were $1.6 billion, down 11.2% on an operational basis. Imbruvica [ph] global revenues were approximately $1.1 billion, down 19.5%. The U.S. performance continues to be impacted by challenging market and share dynamics attributed to the pace of COVID recovery as well as increasing competition. Venclexta global sales were $56 million, up 12.2% on an operational basis, with continued strong demand in both AML and CLL. We are particularly pleased with the international performance driven by robust share gains in the EU and across Asia. In neuroscience, revenues were $1.7 billion, up 5.1% on an operational basis. Vraylar continues to demonstrate robust growth. Sales of $565 million were up 15.5% on an operational basis, reflecting increasing market share, primarily in bipolar 1 disorder. Vraylar was also recently approved as an adjunctive treatment for major depressive disorder, marking its fourth approved indication and adding a new substantial opportunity for long-term growth. We are very pleased with the AMDD label which confirms Vraylar's strong benefit risk profile, dosing flexibility with positive efficacy results for both the 1.5 and 3-milligram dose and the ability to reduce depressive symptoms as an add-on for the partial responders who present and this is important, with or without symptoms of anxiety. The AMDD launch is off to a strong start and we are already seeing a nice inflection in total new prescriptions in the marketplace. Within migraine, our leading oral CGRP portfolio contributed $249 million in combined sales this quarter, reflecting growth of nearly 30% as we continue to see strong prescription demand for both Ubrelvy and QULIPTA. We are also pursuing in the U.S. commercial approval for QULIPTA as a preventative treatment for patients with chronic migraine which would further strengthen our competitive profile and uniquely position QULIPTA as the only oral CGRP available as a preventative treatment for patients with both chronic and episodic migraine. Rounding out the migraine portfolio is BOTOX Therapeutic, a unique treatment with a dozen approved therapeutic indications and the clear branded leader in chronic migraine prevention. Total BOTOX Therapeutic sales were $728 million, up 10.7% on an operational basis. And last, we continue to prepare for the launch of ABBV-951 in both the U.S., Europe and Japan later this year. 951 represents a potentially transformative next-generation therapy for advanced Parkinson's disease and a $1 billion-plus peak sales opportunity. So overall, I'm pleased with the performance and the momentum across the therapeutic portfolio. And with that, I'll turn the call over to Carrie for additional comments on aesthetics. Carrie?

Tom Hudson:

Thank you, Carrie. We expect significant program advancement across all stages of our pipeline this year. In immunology, we continue to make very good progress with programs in our core diseases as well as in adjacent areas of rheumatology and dermatology, where we are expanding our portfolio. We're nearing completion of SKYRIZI's registrational program in ulcerative colitis which is the last major indication expansion program for SKYRIZI. In the first half of this year, we'll see data from the Phase III induction and maintenance studies for SKYRIZI in ulcerative colitis with our regulatory submissions anticipated later this year. We'll also see data this year from our head-to-head comparison studies evaluating SKYRIZI versus other commonly used agents which we expect will further distinguish its profile from competitive offerings. These studies include our Phase III trial in Crohn's disease versus STELARA and our Phase III trial in psoriasis versus Otezla. Results from these studies will add to the body of evidence supporting SKARIZI as a best-in-category agent in these indications. We're also nearing completion of the core indication expansion programs for RINVOQ. Our regulatory applications for RINVOQ and Crohn's disease are under review and we anticipate approval decisions in the second quarter. RINVOQ demonstrated very strong rates of remission and endoscopic improvement in our Phase III induction and maintenance studies and we believe RINVOQ will be an important new treatment option once approved in Crohn's disease. This is a market where approximately 80% of bioexperience patients have used the TNF inhibitor and there remains considerable unmet need for therapies that can deliver high rates of response and long-term remission. Beyond our core immunology indications, we're developing RINVOQ in several diseases where we've seen strong evidence that our JAK inhibitor has the potential to become a highly effective therapy. Our Phase III program is already underway in 1 of these indications, giant cell arteritis. And later this year, we plan to begin Phase III studies for 4 additional diseases, systemic lupus, hidradenitis suppurativa, vitiligo and alopecia areata. Moving now to our oncology portfolio, where we expect several important regulatory and clinical milestones this year. In the area of hematology oncology, we'll see data from several Phase III studies, including results from Venclexta's event-driven de novo trial in relapsed/refractory multiple myeloma patients with a T114 mutation and Navitoclax' TRANSFORM-1 trial in frontline myelofibrosis. Results from these studies are expected to support regulatory submissions in the second half of the year for Venclexta and navitoclax in their respective indications. We also anticipate regulatory approval this year for epcoritamab in relapsed/refractory large B-cell lymphoma in several major geographies, including the U.S. in the second quarter and in Europe and Japan in the second half of the year. Based on the very deep and drillable responses demonstrated thus far in our clinical program, we believe that epcoritamab has the potential to significantly improve upon treatment options for these patients. We believe that epcoritamab has the potential to become a core therapy for B-cell malignancies. And we continue to make very good progress, expanding our development programs for epcoritamab across several indications. Over the course of 2023, we expect to begin several new studies, including a Phase III study in frontline DLBCL in combination with R-CHOP and multiple Phase II studies in CLL and MCL. We remain very excited about epcroritumab's potential to become a best-in-class therapy across multiple B-cell malignancies and look forward to providing updates on these programs as the data mature. Now moving our solid tumor pipeline. We remain on track to see data later this year from our Phase II study evaluating Teliso-V in second-line plus advanced non-squamous non-small cell lung cancer. As a reminder, we received a breakthrough therapy designation for Teliso-V, our c-Met ADC, based on the encouraging results from Stage 1 of this Phase II study and the data we'll see later this year has the potential to support an accelerated approval. Our Phase III confirmatory study in patients with overexpressed c-MET is also ongoing. Treatment options for these cancer patients who have exhausted platinum-based chemotherapy, immunotherapy and targeted therapy are very limited and prognosis for these patients is extremely poor. As a targeted therapy for patients with overexpressed cement which represents approximately 25% of the non-squamous non-small cell lung cancer population, we believe Teliso-V has the potential to become an important new treatment option for these patients. We're also making good progress with our next-generation c-MET ADC, ABBV-400 which utilizes a more potent topoisomerase inhibitor payload, to potentially drive deeper tumor responses as well as broaden the range of solid tumors where c-MET therapies can be used such as gastroesophageal and colorectal tumors. We expect to see early data from our Phase I program in 2024. Elsewhere in the solid tumor pipeline, we have begun to see encouraging data from several programs which we plan to advance into Phase II studies this year. Our anti-GARP antibody, ABBV-151 is showing strong signals of activity, including deep responses with prolonged durability. Based on this preliminary efficacy, we plan to initiate Phase II studies in several tumor types. We also plan to advance ABBV-647 into Phase II dose optimizing studies this year based on the promising results from our early stage program. This ADC targets PTK7 which is a subset of non-squamous non-small cell lung cancer and represents approximately 25% of patients and has little overlap with c-MetSo our c-Met ADCs and PTK7 ADC combined will target approximately 45% of non-squamous non-small cell lung cancer patients. Now moving to neuroscience, where we recently received FDA approval for Vraylar as an adjunctive treatment for major depressive disorder which marks its fourth indication approval. We're very excited by this approval and pleased with the label which highlights Real or strong benefit risk profile in this indication. Vraylar is an important new treatment option for patients who are currently taking an antidepressant but continue to have unresolved depression symptoms. We also recently received approval in Japan for ABBV-951, our novel subcutaneous levodopa carbidopa delivery system for treatment of advanced Parkinson's disease. This innovative approach to delivering DUOPA-LIKE efficacy through a subcutaneous delivery system represents a potentially transformative improvement to current treatment options. With a less invasive, nonsurgical delivery system, it also has the potential to significantly expand the patient population currently addressed by DUOPA or other more invasive therapies for advanced PD patients such as deep brain stimulation. We remain on track for approval decisions this year in both the U.S. and Europe. In the U.S., we anticipate approval in the first half of the year, with product launch expected in the second half after we secured reimbursement. And in Europe, we anticipate approval in the fourth quarter of this year. And in the area of migraine, we remain on track for an FDA approval decision in the second quarter of this year for QULIPTA as a preventive treatment for patients with chronic migraine. In Europe, we anticipate an approval decision in the third quarter for atogepant as a preventive treatment for patients with both chronic and episodic migraine. If approved, this would be another differentiating feature for Lipa as it would be the only oral CGRP approved for prevention in patients with chronic migraine. This is a common and debilitating disease that significantly impacts quality of life and we look forward to make this new oral treatment option available to patients once approved. And in our aesthetics pipeline, we expect to see results this year from several toxin programs including data from our Phase III study for Botox in platysma prominence with regulatory submission in the U.S. expected near the end of 2023 as well as data from our Phase III study for BOTOX in masseter muscle prominence, where we expect to submit regulatory applications in certain international markets in the second half of the year, including China and Canada. These 2 novel indications for prominent neck and jaw muscles will help to further build our portfolio in the lower phase segment. We'll also see data from our Phase III trial for Bot-AE or short-acting toxin in glabellar lines near the end of this year with regulatory applications plan for 2024. So in summary, we continue to demonstrate significant progress across all stages of our pipeline and anticipate numerous important regulatory and clinical milestones again in 2023. With that, I'll turn the call over to Rob for additional comments on our fourth quarter performance and our 2023 financial outlook. Rob?

Liz Shea:

Thanks, Rob. We will now open the call for questions. [Operator Instructions] Operator?

Mohit Bansal:

And so maybe a question -- a bigger question for Rick. So AbbVie -- when we talk to investors, AbbVie has always been 1 of those. The R&D as a percent of sales has always been low. And right now, even it is still less than 15% and that's the pushback we get that the company cannot grow organically. And in some ways, you have always been playing defensive given that since inception, HUMIRA has always been an issue. Now that you're beginning to get past that, do you think something you'll change -- you want to change fundamentally with the company and the way you allocate internal versus external R&D spend? That would be very helpful.

Rob Michael:

Mohit, this is Rob. I'll just add that. If you look at this year's guide, it's a great example of our willingness to increase R&D investment where it's needed. So if you look at we're increasing it from $6.4 billion to $6.8 billion. Those increases are focused on epcoritamab as well as midstage assets such as GARP and PTK7. We also have several new Phase III studies for additional RINVOQ indications which could contribute several billion dollars of revenue in the latter half of the decade. So even in the year where we're seeing a decline in the top line, we're increasing R&D investments. We're very committed to increasing innovation investment, whether it's internal or external.

Terence Flynn:

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

Rob Michael:

I think if you reflect back on the history of AbbVie, we've had a long track record at delivering exceeding our guidance. I think 2022 is an exception. And if you look at on the top line now, we didn't make earnings. So that's important to highlight. If you look at the top line, the 2 biggest factors that drove the miss versus original guidance in 2022 were with Imbruvica and Venclexta, the CLO market, we did not anticipate that, that market would actually not recover. I mean that's -- it's down 20% versus pre-pandemic levels. And then we did see some additional share impact on IMBRUVICA. And then aesthetics, we saw, obviously, in the month of May, we started to see a slowdown in the economy. We had a very strong first quarter. So both of those things really are what drove the top line miss, we made earnings. Now we have factored both those things in the 2023 guidance to give investors confidence that we said it appropriately. But we always look to set the most responsible guidance we can and we feel good about where we set 2023.

Chris Schott:

Just 2 for me. Maybe just following up on the 2023 guidance being a trough number. It seems like you're still going to have about a $12 billion U.S. HUMIRA franchise here. So can you just provide maybe a little bit more color of what you're envisioning 2024 to look like for HUMIRA? Like is it reasonable to think about the down 35% to 40% year as we look out to '24. I think we just turn your hands around just the how much growth in that core platform and how much of a headwind, I guess, HUMIRA is going to be facing at the same time. My second question was just on aesthetics trends as we move through this year. You've talked about some signs of at least sequential stability the last few quarters. You're talking about stepping up investments. You've got a couple of new products launching. I guess why shouldn't we think about some recovery in this business as we look out to the second half of the year?

Rob Michael:

I think you characterized it well, Rick. I mean the thing to highlight for this year for '23, the way you think about HUMIRA really in the first half of the year, the vast majority of that erosion will be priced. In the second half, you'll see because we've contracted rebates, you'll see a step-up in the price erosion, although you also will see more volume with biosimilars coming in the market in the middle of the year, we would expect more volume erosion. I think as we think about '24, we would expect, based on the contract to see a step up in price but albeit not at the same level as we see in '23 but '24 would be more volume. It's probably the best way to think about it right now. We're not going to give you guidance but if you think about how to model HUMIRA '23, '24, that's the way to think through it.

Carrie Strom:

Yes. This is Carrie. The -- in terms of the aesthetics market and how we're thinking about it for 2023, I mean, first, I'd say, yes, this is still a very strong fundamental market with consumers who are very interested in entering the category. And so that remains a strong opportunity the now and in the future. But what we saw as we exited 2022 is as these economic metrics were softening, we also saw that reflected in demand for aesthetic procedures. And in our conversations with customers, we saw that reflected in their practices, market research with consumers, where they said, yes, we're interested in the category but we want to see what's going on with the economy, perhaps before a new patient might want to enter the category. And based on that, we are modeling for those trends to continue in 2023. And what that means for U.S. toxin market is the market growth would be around a mid-single-digit decline for U.S. filler market around a 10% decline. And like we said, those growth rates would be different by quarter as we lap a strong first part of the year. Now of course, if there is a scenario like a deep recession, where unemployment skyrockets, that is not something that we've contemplated. Or on the other hand, if the macroeconomic environment stabilizes or improve that would represent favorability to our plan.

Gary Nachman:

First question is on neuro in the quarter. It's actually weaker than we thought. So was there any additional pressure on gross to net, maybe for the oral CGRPs? And what sort of inflection are you expecting for Vraylar and MDD, how rapid do you think that adoption might be this year? And then, Rick, you recently said that you would be in an article that you would be lifting the self-imposed $2 billion annual cap on business development that you have more capacity to do deals. So how much capacity do you guys have what areas are you looking to be most aggressive? And how important is it to add sizable marketed products into the mix? Or would it be mostly focused on pipeline?

Rick Gonzalez:

And on deal capacity, we obviously look at business development based on what we believe are -- we're trying to accomplish strategically in each of the therapeutic areas that we're operating in. we identify areas that we think would be good opportunities for us and then we look to see if we can find those kinds of assets. As I mentioned before, I think we're in the fortune of a position that we can drive very strong growth. with the assets that we have on the market today as well as what's coming out of our pipeline over the next 3 or 4 years. That gives us the ability to be able to return to growth and then drive that high single-digit growth through the end of the decade. And we're also fortunate that after HUMIRA, we have a -- relative to our peers, we have a very low LOE [ph] exposure. So we don't have a lot of downward pressure on the business. Now having said that, we've done an excellent job of paying down the incremental debt from the Allergan transaction, we put that $2 billion cap in place when we did the Allergan acquisition that allowed us to focus again on some earlier-stage assets. And I'd remind everyone that was about 4x what our historical practice has been for those kinds of assets. So there was plenty of capacity to do that. But we're certainly in a position now that if the right thing were to come along, we could do a transaction that would be much larger. We certainly have the financial wherewithal to be able to do that. And we've certainly shown that we were able to do that and create value in the assets that we bring in. The areas that we typically look at are aligned with our therapeutic growth areas. So immunology, oncology, certain areas of neuroscience and eye care, I would say, are the predominant areas as well as aesthetics. We obviously continue to look for opportunities in the states. They tend to be smaller acquisitions, though. And so at the end of the day, I feel good about where we are and we've been quite active. We have a very active business development group. And we'll continue to look at those. And like I said, we find something that's of interest and it could really help us round out a category that we're in, then you should expect us to act on that.

Carter Gould:

Maybe to come back to aesthetics. It does sound like you built in conservatism on a number of fronts. I wanted to also -- you didn't touch much around sort of China reopening and how you expect that sort of business to -- as it comes back, if you expect it to sort of return to how it was? Or if that will evolve differently. And then in the -- I guess as we think then around the guidance for '23 and the link you've drawn to as you sort of maybe if the guidance potentially evolves over '23, should we think about that link remaining intact? Or is that sort of a near-term phenomenon and that will sort of, I guess, disappear going forward.

Carrie Strom:

Yes. So your question around China and I'd say China is our second largest global business. It has demonstrated significant growth in the past few years and proven to be very responsive to the increased promotion that we're putting into that market. Of course, in 2022, China COVID-related issues did impact the aesthetics market, especially in the second and fourth quarters. Now, as we look at the year beginning in China and as everyone is returning from the Chinese New Year, it does look like the current wave has peaked. And that the situation is beginning to improve and will continue to improve through the first half of 2023 and we're expecting a full recovery in the market in Q3 and for the second half the year. So despite the challenges in 2022, China still posted positive growth and we will definitely be continuing our investments in China in 2023 and beyond.

Rick Gonzalez:

Maybe just let me add 1 thing that might help clarify it. I think you should think about HUMIRA in '24. We believe we're going to get to a certain level of price and volume in '24, almost regardless of what happens in 2013 because of the competitive dynamic. And so when we talk about the shift, what we're really talking about is inflating '23. If you anchor '24 is a solid point that we have a high level of confidence of where HUMIRA's tail will be in '24. And the only thing that happens to shift it between '23 and '24 is that we do much better in '23 than we expected, right? So that inflates but it still anchors against the '24 point [ph]. That's the way to think about this.

Steve Scala:

The low end of 2023 guidance implies 22% EPS erosion, the high end of Q1 guidance assumes 21% EPS erosion. How is it possible that Q1 could be in line with the full year and not appreciably better? It seems as though the Q1 guide is low? Or is that because AbbVie believes the floor on HUMIRA price is already reached? Maybe another way to restate the question. What should be our anticipation for the quarterly cadence of EPS as we go through the year?

Operator:

It will come from Tim Anderson with Wolfe Research.

Rob Michael:

So Tim, on your question related to price and volume. The way to think about it is in the first half of the year, the 27% in the first quarter, is the vast majority of that is price, right? So there is some volume impact but not very much. it's in the second half, what you'll see is in the second half, the overall erosion will step up and think of it as equivalent between price and volume because you're going to have -- we know we'll have rebate rates in some cases, increasing as well as the biosimilars coming to market, we expect to see more volume erosion. So as you think about -- as you're trying to triangulate the price volume with the guidance you've given, 27% vast majority's price, second half of the year, you'll have some more volume kicking in. That's I think the best way to think about the price volume split. And then your question on '24, is your question in terms of the percentage or the absolute percentage [ph]?

Rob Michael:

So we're not going to give you a 2024 guidance, Tim. I think the way to think about '24 is we would expect to see additional price but albeit not at the same level as '23 and more volume coming through because you're going to have up to 10 biosimilars in the market for the full year. So we would expect to see more of a volume impact in '24 that we would expect to see in '23.

Chris Shibutani:

You previously commented about the operating margin trajectory of '23 into '24. I believe characterizing them is basically flattish. Is that still the case? And then across the immunology category broadly, we're seeing some -- a lot of cross-currency [ph] mix dynamics, clearly, with your portfolio being part of that. What is your expectation about the potential for some of the newer mechanisms that are emerging with clinical data. Are you keen to figure out whether you want to invoke those as part of your portfolio? What do you see the outlook for novel mechanisms, given that we're going to have some biosimilars to some of the most standard of care approaches PNSIL-23.

Jeff Stewart:

And Chris, it's Jeff. I'll maybe kick off on your immunology question and then ask Tom to comment on some dynamics as well. So it is very, very clear that certainly in the midterm, the most excitement across these immunology categories are for SKYRIZI and RINVOQ. It's quite striking. And I think Tom mentioned there's still incredible interest in a next wave of dermatologic indications that follow on for atopic dermatitis that he highlighted. And really, as I noted in my remarks, I mean, the amount of excitement around the IL-23 and particularly our IL-23 across these indications is really profound. Now having said that, we are watching the competitive landscape for some maybe potentially some novel orals. We don't see them as major players. As we look deeper in the pipeline, we can see that there is the possibility for combination use of novel biologics or biomarker-driven approaches, particularly in IBD. And we monitor those very carefully as we look at our long-range plan. And Tom, I don't know if you want to address some of the things that are back in our pipeline in terms of immunology.

Operator:

It comes from Colin Bristow with UBS.

Jeff Stewart:

Yes, I'll take the one on the immunology marketplace. I think that the impact overall in the category for net price would be modest. And I think a lot of it has to do what Tom and I've discussed before which is the -- just the pure profile of some of these agents particularly SKYRIZI and RINVOQ and either others in the pipeline that are coming. I mean they really are setting different standards of care versus what they've seen in the past. And certainly, the physicians and the payers are recognizing this. I'll give a really quick example on 1 of our major products which is RINVOQ. I mean RINVOQ, based on the label changes that have taken place is already a post-TNF type of dynamic. And so the pricing is going to be the pricing there's no incremental ability to step it, for example. The other thing I would note is on SKYRIZI, we have 4 head-to-head trials against all the major competitors and another one coming with Otezla, as Tom noted. So you start to see that level of performance, whether it's against STELARA, multiple TNFs. Otezla, as I said, that's pending here. And it just becomes very clear that you're just going to achieve much higher levels of clearance and relief. So we feel pretty confident that the pricing impact over time, particularly in the U.S. market will be very modest. And certainly, we can navigate that based on the power of the performance of the portfolio.

Operator:

Our next question is from [indiscernible] with Credit Suisse.

Jeff Stewart:

Yes. Thanks for the question. I'll take the first one there in terms of the EU. We do see some movement there, particularly in the, let's say, industry tax and I'll comment on the so-called VPaaS [ph] in the U.K. In some ways, whether or not we were in that voluntary program or outside of the voluntary program, the impact is about the same. And frankly, it was a policy decision because we really think that the U.K. government needs to reform that VPaaS. They didn't plan properly for how things might dynamically evolve in the U.K. and it's a very substantial part of the revenue now that is causing problems, I think, across all of the company. So it was a position of policy position, net neutral. It didn't matter, frankly, whether we were in or not and the U.K. is a relatively modest business for us. We are seeing perhaps more importantly, some changes in the German law, as you're probably aware of. And that is, I think, a modest net pressure that will come in Europe in Germany, in particular, because there's the move, as you may know, from 1 year of free pricing to 6 months. There's a modest increase in rebates, for example. So we do see some austerity impact. But on the bigger scheme, it's -- I wouldn't say it's material to our growth platform that we've been discussing.

Rick Gonzalez:

And then on pharma, this is Rick. Obviously, every year, we evaluate any kind of significant investment that we're going to make. And we make a decision as to whether or not we believe that investment is appropriate and is going to have the right level of return at that point in time. And ultimately, we made the decision around pharma based on that. We have a very significant government affairs group that's been active and been in place ever since we came into existence. Back in 2013, we've grown that organization. We did grow it somewhat this year as well in anticipation of not being part of pharma. We plan on being active as we have been in the past to try to appropriately advocate for things that we think are appropriate for patients. And I think that group is quite capable of being able to do that. And I would tell you that at a point in the future, we might decide to go back into pharma. But at this point, we've made the decision that we think that investment could be used elsewhere to be more effective. It's as simple as that.

Geoffrey Meacham:

I appreciate all the perspective on guidance. I just had a follow-up on it. Rick, on your comments on the HUMIRA scale for starting next year in the U.S. I think when you look at other geographies, international revenues, you're still seeing double-digit declines after 4 years or so. Maybe just give us some context for what you're seeing there broadly versus what we could expect for the U.S. And just to be clear, when you see next year the impact from all the HUMIRA biosimilars, how much do you think that biosimilar STELARA may play a role here when you look at your assumptions for HUMIRA erosion? And then second question, just on the BD front, you guys talked about some of the therapeutic categories that you're interested in. But with the appetite to expand to expand the menu here and to say more orphan indications, I think across the landscape, some companies in the I&I space are getting into more niche indication. I wasn't sure if that was something that you guys would consider?

Rob Michael:

Jeff, this is Rob. Just to add to that. So if you just look at this year, so about half of the erosion is going to come from newer markets like Puerto Rico, Canada and Mexico. So that, as Rick mentioned, we have different waves. And so you're still seeing some of those waves come through. You also have some volume going to new agents like SKYRIZI and RINVOQ, right? So that's something to keep in mind that that's a dynamic that's also playing out for HUMIRA in those markets. And then you typically see negative price trends in international markets, again, low to mid-single digits. So you're going to see some level of pressure there. So those are all factoring into the year-over-year on international HUMIRA something to make sure you're keeping in mind.

Rick Gonzalez:

I think on your third question, again, what tends to drive our BD strategy is the long-term strategic road map that we put in place across the branch. So if you think about it, you mentioned immunology as an example. I would say in immunology, we have 2 fundamental objectives that we're trying to drive. There are still areas within immunology, where we believe we can significantly raise the effectiveness of the therapies that are used on patients to drive higher levels of remission or higher levels of endoscopic healing. In other words, better clinical outcomes within the areas that we're in. And so we have a tremendous amount of effort in those areas to bring next-generation assets or as Tom mentioned in his comments, there are opportunities to potentially combine 2 mechanisms together to achieve that level of therapeutic benefit. But then we look outside those areas at the adjacencies. And we look for where are the opportunities for us to be able to bring in either an existing mechanism or something we can either develop within our own discovery group or something that we can acquire on the outside as a mechanism that we don't currently have. But we tend to look for where there are areas of large unmet needs and relatively significant patient populations. So, I use 2 examples to illustrate. Vitiligo. Vitiligo is a disease that's very prevalent. There aren't good therapeutic options in it today at all. We do believe there are mechanisms that will allow you to effectively treat vitiligo. If those are effective, that could be a very significant opportunity overtime. Alopecia is another good example of that. So that's how we focus BD in these areas. That's not to say we would never look at a more much opportunity or an orphan opportunity but I wouldn't say orphan is something that is core to our strategy.

Robyn Karnauskas:

It was great with all the color you've given. I just had some -- I want to follow up on, you mentioned Vitiligo. With the competition with topical rux [ph] which might have a first mover advantage and then they have an oral as well in Pfizer. How do you see the opportunity for you in vitiligo for RINVOQ? Can it compete? And then my second question last earnings call, you highlighted your GARP TGF beta. So that's 151. And I know there's been a lot of cardio-tox [ph] in the space. So what gives you some confidence what features and what indications, like how do you focus on this? And how do you view the competition profile?

Jeff Stewart:

Just to build on that. When we look at the valuation of, for example, that indication or HS or alopecia which again are those derm oriented indications that will follow on pretty quickly in the middle of the decade on top of atopic dermatitis. We do exactly what Rick highlighted. We will segment the patients based on the body surface area. We know that the topicals will be important for a certain percentage of population. For example, if it's maybe highly located to the face, that might be more appropriate, at least as the first course of action. But we do believe that in almost all indications that we've looked at for RINVOQ, it just performs exceptionally well in the clinic. And we would anticipate that as well above a base case scenario. Perfect example is Crohn's disease. There will not be another JAK inhibitor in Crohn's disease for the United States just because they just don't work. And you have spectacular results with the selective JAK with RINVOQ. So We take that all into that competitive context all into our calculations as we look forward to return for those future derm indications.

Rick Gonzalez:

She asked about what tumors potentially.

Operator:

It comes from Simon Baker with Redburn.

Rob Michael:

Simon, this is Rob. I'll take your first question. So when we give guidance, we typically give approximate assumptions and we do use point estimates. We don't typically give product level range. So it has been our practice. So we said approximately 37% erosion for U.S. HUMIRA. We have confidence in that number, obviously. But I think in terms of the pushes and pulls, it's really going to be about volume erosion, right? I think that's -- if you think over the course of the year, we made assumptions around volume erosion. We have good visibility of the price. Now it's a question of what will the volume erosion look like? And obviously, as we go through the year, we'll update you on that.

Operator:

It comes from Navann Ty with BNP Parabas.

Rick Gonzalez:

Carrie?

Jeff Stewart:

And it's Jeff. On your comment on AMGEVITA, the range of pricings that were released were not really a surprise. There's been some external thoughts that this is of interest where there were 2 different AMGEVITAs, 1 high WACC and on low WACC. But again, we've seen this across very different categories and studied it very carefully, as you would expect. So we've seen variably priced WACC products in our own HCV market with authorized generics from competitors. We've seen it in the diabetes space across multiple competitors, including biosimilar competitors. And certainly, with the -- with Amgen and the other segments of their own business. They were often moving around the list prices as well. So all in all, within the range that we would expect from Amgen. Yes.

Operator:

Our final question will come from Gavin Clark-Gartner with Evercore ISI.

Rob Michael:

It's Roopal. I'll take those. So for the ISV that you referenced, we have that in Europe and I think you're talking about the ASH data, overall survival. There as it clears couple of years is 0.5% or less and the PFS still stays low. At this time, we're not submitting here at the FDA. They would like to see a little more prospective data in another trial setting. So that's the hype. On 951, this is interesting on the competitors you bring up. So the when you run these patients in, you could have discontinuation rates. And if you include them or not include them, it's going to impact what happens post run in. So for example, when you see our data set, we count the run-in discontinuation and post run-in as you get into the main part of the trial. So you see that in the 20 percentile range or so. And that's fairly consistent with what you would see with a subcutaneous infusion. And it's not clear to us how that data, as you're speaking about is reported. Also, we don't know if that's more than 1 injection is that 2 injections and is it rotated daily. I can tell you about 951. We have dosing exposure that gets up to DUOPA unique from DUOPA to 24 hours. It's a single injection and you can leave it in for 72 hours.

Operator:

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

Rick Gonzalez:

Thank you, Liz. Good morning, everyone, and thank you for joining us today. I'll briefly comment on our overall performance then Jeff, Tom and Rob will review our third quarter business highlights, pipeline progress and financial results in more detail. AbbVie continues to perform very well, a testament to the strength of our broad, diversified portfolio. I'm especially pleased with the performance of our immunology assets, Skyrizi and Rinvoq. We delivered adjusted earnings per share of $3.66, exceeding our expectations. Total net revenues of $14.8 billion were up 5.4% on an operational basis, in line with our expectations. Immunology once again demonstrated impressive results with Skyrizi and Rinvoq now on pace to deliver more than $7.5 billion in combined sales this year, well ahead of our initial expectations. This performance is especially encouraging, recognizing that we're in the early launch phase for both assets in IBD and PSA, as well as Rinvoq in atopic dermatitis. Skyrizi and Rinvoq have established outstanding launch trajectories across existing and new indications, giving us a high degree of confidence in the collective potential of these two assets to ultimately exceed the peak revenues achieved by Humira, achieving the strategic objective we had for replacing Humira. We also saw a continued strong double-digit operational sales growth from several additional key products, including Botox Cosmetic, Vraylar, Venclexta and Botox Therapeutic. This strong momentum is helping us offset some of the interim economic pressure we now see in our Aesthetics portfolio. Based on these results, we remain confident in the outlook of our business and are reaffirming the midpoint of our full year 2022 EPS guidance at $13.86, which represents strong double-digit growth. As many of you are aware, we have a leading consumer-facing aesthetics portfolio, which is largely cash pay. We have been monitoring the global economic situation. Based on all the data we have been observing, especially in the U.S. with both the consumer confidence index and real personal consumption expenditures trending down and continued high inflation, these factors are putting pressure on consumers' discretionary spending. This metric correlates with a slowdown in treatment procedures that we're seeing across the aesthetics markets, impacting the growth rates for toxins, fillers and body contouring. While our U.S. aesthetics market share remains stable across both toxins and fillers, we now believe it's prudent to adjust our full year aesthetics forecast to reflect the moderating market growth over the near to medium term, which is expected to predominantly impact Juvederm as well as our body contouring portfolio products, which represent higher price points for consumers. While it's difficult to predict the duration of these economic dynamics, we expect these conditions to persist into 2023. As consumer confidence improves, we would once again expect the market growth to accelerate. Our aesthetics portfolio experienced a rapid and sustained recovery following the 2008-2009 recession, so we anticipate any impact will be transient. Over the long-term, the aesthetics business continues to be an extremely attractive, underpenetrated market with significant growth potential. The current market dynamics do not change our long-term guidance for aesthetics and we remain confident in our ability to achieve total sales of more than $9 billion in 2029. I also want to provide a brief update on the outlook for 2023. With regards to the status of contracting for Humira, our intent has always been to maintain broad formulary access so that we can compete effectively with forthcoming biosimilars. We are making very good progress consistent with this objective, and are currently projecting formulary access for at least 80% of all U.S. covered lives. We expect this percentage to increase further as we conclude additional contract discussions between now and the end of the year. As a result, we anticipate strong access for U.S. Humira throughout 2023, and project biosimilars will share access as they become available. We will provide sales guidance for Humira on our fourth quarter call. While we're not issuing 2023 guidance today, it is important to note that when we issue our EPS outlook, we expect the lower end of the range to represent for earnings. So while it's possible 2023 could outperform our guidance regardless of the shape of the erosion curve, we don't anticipate 2024 earnings will be lower than the initial 2023 EPS guidance given the momentum and growth from another year of our ex-Humira portfolio, which is expected to more than offset any incremental Humira erosion in 2024. We know that many investors have an interest in the timing of AbbVie's trough earnings, whether that would be 2023 or 2024. The guidance range will provide and give investors additional clarity regarding our expectations for the company's core EPS. In summary, we continue to deliver strong results and see numerous opportunities for our diverse portfolio to drive long-term growth. To that end, as noted in our news release, today we're announcing a 5% increase in our quarterly cash dividend from $1.41 per share to $1.48 per share, beginning with the dividend payable in February 2023. Since our inception, we have grown our quarterly dividend by 270%. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff?

Tom Hudson:

Thank you, Jeff. In the area of immunology, we had several important regulatory milestones since our last earnings call, receiving FDA approval for Rinvoq in non-radiographic axial SpA and positive CHMP opinion for Skyrizi in Crohn's disease. These developments demonstrate the continued progress we are making with a global indication expansion of our next-generation immunology assets. In the quarter, we also saw longer term data from our Phase 2 study for Rinvoq in systemic lupus, where strong responses and flare reductions continued through 48 weeks of treatment. Based on these results, we plan to advance Rinvoq development in this indication and will be discussing our Phase 3 program with regulatory agencies in the coming months. Now, I would like to provide a few updates on our earlier stage immunology pipeline. We recently began a Phase 2 study in ulcerative colitis for our RIPK1 inhibitor, ABBV-668. This small molecule inhibitor is designed to address chronic inflammatory diseases by preventing necroptosis and reducing TLR4-driven inflammation. This could be a differentiated approach that has a potential to provide significantly improved efficacy to patients suffering from ulcerative colitis. We look forward to providing updates as data mature. Turning now to ABBV-154, our anti-TNF steroid conjugate, which is being evaluated in multiple indications. We recently completed the primary analysis for the Phase 2 dose-ranging study in RA patients. The hypothesis for this program was that by delivering the steroid directly to the site of inflammation, you could drive higher rates of efficacy with limited or no effects of systemic steroid exposure. In this study, all doses of ABBV-154 met the primary endpoint of ACR50, as well as the majority of secondary endpoints at week 12. At the medium and high doses, ABBV-154 delivered ACR scores that are similar to Rinvoq or slightly better, which validates the platform's ability to drive high levels of efficacy. The safety profile for ABBV-154 was generally consistent with the safety profile for adalimumab. As part of our safety assessment in this study, we analyze metabolic parameters including cortisol levels. The data showed minor decreases in cortisol levels at the higher exposures, which are consistent with evidence of systemic steroid effects. Given the number of effective therapies available in RA and a more limited use of steroids in these patients, we do not plan to move forward in development for the RA indication. However, we continue to believe ABBV-154 has the potential to provide a benefit in other diseases such as PMR and Crohn's disease, where steroid use is part of the typical treatment paradigm. Our exploratory Phase 2 studies in these two indications are ongoing and we expect to see data from the PMR study in 2023 and from the Crohn's study in 2024. Also in the area of immunology, we recently made the decision to stop the clinical studies and discontinue development for ABBV-157, our RORγt inverse agonist. This decision was made due to new findings observed in our preclinical chronic toxicology study. Moving now to our oncology portfolio where we continue to make excellent progress across all stages of our pipeline. We recently submitted our regulatory application in Europe and our partner, Genmab, submitted an application in the U.S. for epcoritamab in relapse-refractory large B-cell lymphoma. We're seeking accelerated approval based on the positive Phase 2 study results for epcoritamab in this indication where we saw very deep and durable responses in these highly refractory patients. We expect decisions in both U.S. and Europe in 2023. We are also nearing completion of the registrational studies for two additional key programs in our heme/onc portfolio; Venclexta in multiple myeloma; and navitoclax in myelofibrosis. We remain on track to see results from the Phase 3 CANOVA trial in relapsed/refractory multiple myeloma patients with a t(11;14) mutation near the end of this year. Following the event-driven data readout, we anticipate submitting our regulatory applications in the first half of next year. For navitoclax, we remain on track to see data in the first half of next year from both the Phase 2 REFINE and the Phase 3 TRANSFORM-1 trials. Results from both studies will be included in our regulatory submissions, which we expect in the second half of 2023. Moving to neuroscience where we have applications under active review for several key assets. We anticipate a decision from the FDA in December for Vraylar as an adjunctive treatment for major depressive disorder. We believe Vraylar has a potential to be an important new therapy in this patient population and we look forward to bringing this new treatment option to patients. We also expect a decision from the FDA in the first half of next year for a ABBV-951, our innovative, subcutaneous level levodopa/carbidopa delivery system for treatment of advanced Parkinson's disease. And in the area of migraine, we have regulatory applications under review in both the U.S. and Europe for Qulipta as a preventive treatment for patients with chronic migraine with decisions expected in the first half of next year. If approved, this would be another differentiating future for Qulipta as it would be the only oral CGRP approved for prevention in patients with chronic migraine. This is a common and debilitating disease that significantly impacts quality of life, and we look forward to making this new oral treatment option available to patients once approved. And in eye care, our partner REGENXBIO recently announced positive interim data from the Phase 2, AAV8 dose escalation trial for RGX-314 using in-office, suprachoroidal delivery for the treatment of wet AMD. RGX-314 continues to be well tolerated with no drug-related serious adverse events, and a meaningful reduction in treatment burden was observed at six months across all dose levels. Two pivotal trials evaluating RGX-314 for wet AMD using subretinal delivery are active and enrolling patients. So in summary, we've continued to make significant progress advancing our programs this year and we look forward to many more important pipeline milestones in the remainder of this year and into 2023. With that, I'll turn the call over to Rob for additional comments on our third quarter performance and financial outlook. Rob?

Liz Shea:

Thanks, Rob. We will now open the call for questions. [Operator Instructions] Operator, we’ll take the first question.

Chris Schott:

Great. Thanks so much. Just my question is really centered around Humira. And I know you – appreciate some of the access commentary you made at beginning of the call, but are there any surprises so far in these discussions as we think about where either rebates or price is settling out for Humira? And I’m really sure I was trying to get my hands around, I think previously, you’ve commented you expected U.S. Humira erosion to be down roughly 45%, plus or minus 10%. And I just was wondering if that range holds given what you know today about the negotiations? And if I could just do a quick follow up, second question, immunology. There was a European JAK update out this morning, and I just was wondering any impact you expect to the Rinvoq franchise for that? Just maybe some context about how relevant, I guess, Europe was as part of the mix? And does that label update kind of impact your outlook at all? Thanks so much.

Jeff Stewart:

No. Just to confirm, Rick, that no real surprises in terms of where we’ve been. And as we’ve communicated before, our principles of co-existing over time with one or more biosimilars seems to be the way that the market will play out. And certainly, like we saw in Europe that we had the principle of – for patient continuity to concede pricing to maintain that patient access. So Chris, no major surprises that we’ve seen so far.

Jeff Stewart:

Maybe, Roopal, you could address the procedure and where we are in the procedure, and I’ll cover the commercial.

Jeff Stewart:

And Chris, to that point, I mean, this is largely consistent with what we see from oral surveillance and the Xeljanz label, which is widely sort of understood by the European physicians. And so to cut to the quick, we don’t anticipate a material impact as this continues through the process.

Operator:

Thank you. Our next question is from Tim Anderson from Wolfe Research.

Rick Gonzalez:

Yes, Tim, this is Rick. I’ll cover that one. So, I think we’ve talked a number of times on these calls about what we project in the third quarter call, and I believe what we said is that we would ultimately provide you an update on where we were in the process. And so that’s what we attempted to do. I can’t give you a number for 2023 until I know what the total access is, and not all those contracts are done yet. They’re proceeding well, so I feel good about that. But until we actually know that the contract is solid and we know what that access looks like, we can’t give you an accurate projection. And I understand the desire by the investment community. I understand what that number is, but I think you probably also understand that we want to give you the most accurate number that we can give you, and we don’t want to give you a number that’s not accurate. And so it is going to require us until we get to the fourth quarter call to provide that for you. You are correct, in a sense, about the way you describe how these contracts work. They can be reopened at some point in time. I wouldn’t say that’s all that common usually, and in particular, I’d say around this kind of a situation, you’re going to anticipate what you think is going to happen in the second half of the year and try to position the contract in a way that it can ultimately deal with those changes going forward. But you are correct to say that they could reopen a contract if they chose to do that. There are various kinds of contracts that we use. In some cases, there are penalties or repercussions that would have to come into consideration if a contract got reopened at some point in time. They’re not all like that, but many are like that. So it varies. And I’d say generally speaking, your concept is valid. But I would say it’s probably a little less fluid than the way you necessarily described it, particularly in this environment where we know there will be a number of biosimilars coming in. So you anticipate that we’ve built the contracts around that set of assumptions. Jeff, anything you’d add?

Liz Shea:

Thanks, Tim. Operator, next question please.

Mohit Bansal:

Great, thanks for taking my question. And maybe one more question on the contracting side. Could you help us understand if the pricing part of the contracts is something that you have a good handle on at this point? And then a follow-up question is that how do you think about the cadence of BD activity once you hit the mark of less than two times leveraged by end of the year? Thank you.

Jeff Stewart:

Yes, so look, in terms of what Rick had highlighted in terms of our confidence in projecting the 80%. Obviously, there’s a couple components to that. So we have – while all the contracts aren’t fully complete with the ones that we’ve done. We’ve done some significant modeling work to understand if we’re retaining the ability to stay on the formulary. We would model our volume like how much would we retain versus would go to one or more biosimilars. That’s something that we can understand. And we have made base case, both first half and second half pricing assumptions based on those contracts. Now what’s been highlighted in the last couple of questions is there’s still uncertainty on the rest of the contracts that are yet to been secured and also a bid on that second half price dynamic. So those are the elements that are going to give us more confidence as we go to the fourth quarter call to give everyone a secure number for next year.

Liz Shea:

Thanks, Mohit. Operator, next question, please.

Terence Flynn:

Hi, thanks for taking the questions. Maybe two for me. Rick, I appreciate your comments on 2023 and the aesthetics business. No, you don’t want to give guidance. But I guess at a high level, do you think you can grow that franchise next year versus this year? And then on epcoritamab, congratulations on the filing there. Just wondering what you’re expecting regarding the requirement for inpatient administration. J&J recently got approval of their bispecific and myeloma and looks like there’s a requirement there for inpatient administration of the drug during the step up period. So just wondering how we should think about inpatient versus outpatient dosing of epco? Thank you.

Rob Michael:

And this is Rob. I would just add that if you think about more long term. If you think about what happened in 2008 and 2009, the business declined high single digits and then we saw, after that very robust growth in the mid-teen to the next decade. So given that penetration rates are still very low today. There’s clearly ample opportunity to grow this market. I think once you get on the other side of the economic impact which we expect to be transient. We still expect as business to deliver long-term growth as Rick highlighted earlier, we’re still on track for that. Long-term high single digit growth getting to greater than $9 billion by 2029. So we’ll have to navigate, obviously, the short-term economic impact. But we still have tremendous confidence in the long-term outlook for aesthetics.

Neil Gallagher:

Hey, this is Neil Gallagher. I will take the epco question. So the first thing I just want to caution, put a word of caution before I answer your question directly around inpatient stay, which is that the patient population that our competitors studied with the BCMA, CD3 is quite different in terms of overall benefit risk. So the indication that was granted was in fifth line plus multiple myeloma, which is very heavily pretreated and frail population. So to extrapolate any interpretation of benefit risk from that population into the relapsed/refractory DLBCL population that we have studied and filed for with epcoritamab would not be valid, so just a word of caution there. That said the study that we have filed had required for a 24-hour patient stay overnight – one overnight stay. However, in subsequent studies we are aiming to remove that requirements so patients would not require – be required to remain overnight. And we do believe because of the emergent and stable overall benefit risk for epcoritamab, a couple of things that we believe that it has the potential to be best-in-class, and we also believe that our strategy to remove overnight stays is a very valid one and reasonable one to pursue. Hope that answered your question.

Operator:

Thank you. Our next question is from Andrew Baum from Citigroup Global.

Jeff Stewart:

Yes. Hi Andrew, it's Jeff. I'll take your – I'll take your first question. So when we – obviously we're still studying very carefully the IRA and we're also discussing directly with CMS not just through pharma, but our own company in terms of how they're going to basically select the different drugs that will be negotiated. That's a little bit unclear at this point. It's not unreasonable based on the size of Imbruvica to suspect it will be one of the earlier drugs that could potentially be negotiated, so just to clear that. In terms of what may take place before that potential negotiation in 2026, I would expect to see some modest changes in rebate. We see very small levels at this point now but we do have a third competitor coming. So that would be something that we would continue to plan – to plan for as we move into that potential event.

Liz Shea:

Thanks Andrew. Operator, next question please.

Steve Scala:

Thank you. What is your level of confidence in a positive outcome for Vraylar in MDD at the end of the year? I imagine the review is well along, so you probably have good visibility. So for instance our labeling discussions underway, is the sales force being trained, et cetera. This is a very large opportunity that does not seem to be a point of external focus as far as I could tell. So I'm wondering what you could tell us about how things are going? Thank you,

Jeff Stewart:

Yes. Steve, and just in terms of your salesforce question, I mean, we are very encouraged and excited about this potential approval. I mean, obviously we continue to gain share week-by-week sequentially for our base indication – the bipolar indications. And we know that based on the profile that we have with Vraylar. So very, very strong efficacy – proven efficacy of a very good tolerability profile for an antipsychotic, no material weight gain, low metabolic effects, and I think importantly maybe not as appreciated it's, there's no titration. You have a very simple starting dose of 1.5 milligrams. So as we do our research, we see that that profile is very strong as this potential add-on therapy and depression. In the last decade there's been only one drug that's been approved for this indication and that's Rexulti, and we think that's a branded drug, obviously, and we think we can compete very, very well. So we have a big existing sales force and infrastructure. We are gearing up in terms of training. We have the established relationships across the big primary care doctors as well as the psychiatrist. So we are – we agree with your approach. That's a meaningful commercial opportunity that could evolve very quickly here once we get the approval.

Operator:

Thank you. Our next question is from Gary Nachman from BMO Capital Markets.

Rick Gonzalez:

Jeff?

Rob Michael:

So Gary, this is Rob. I’ll take your question on OpEx. If you look at the benefit we’re seeing, about half of it is actually coming from the stronger U.S. dollar, so it’s more of an FX impact. The other half is spend productivity. We always look for opportunities to drive more productivity in our spend. It’s not so much about scaling back in parts of the business, we always look for ways to spend better, buy better. And ultimately, that helps us. In many cases also, over the long-term, redeploy that investment to drive growth. If you think about 2023, I’ve said – given that 46% to 47% operating margin directional input. I’ve also said we’re not going to cut back investment. We’ll obviously be prudent given that you will see a decline in gross margins next year, but we’re not going to be cutting back investment because we expect to return to growth quickly. So you’ll see us not necessarily cut back, but certainly put more behind this business to drive that long-term growth that we expect to be industry-leading over the long term.

Operator:

And our next question comes from Colin Bristow from UBS.

Tom Hudson:

Well, this is Tom, I’ll answer the CF question. Again, this is very challenging to actually make that abnormal CF protein get to the membrane and act as a chloride channel, and it takes three different drugs to make it effectively to get it to the cell membrane and open up in the right way. And so we all felt that we had – intakes we call them Corrector 1, Corrector 2 and Potentiator, these three different compounds. We always see good results with double our C1 corrector. We think it’s best-in-class. Our potentiator is very good. What we had difficulty is to get a good C2 corrector, and what I presented earlier this year was that it wasn’t good enough. But what we’ve done since then, we will continue to look at better ones and we came out with a differentiated product, 576 [ph], which is structurally different and the data supports higher safety margin, higher exposures, good PK. Hopefully, a single pill. And then we’d be able to get to this – to be able to have this triplet which is really important to be competitive. So again, our doublet, the data we had was very strong. But we need that third piece, and that third piece seems to be coming along really well. That’s what you really saw on the website at ct.gov is moving to evaluate this triple combo with our new C2 corrector.

Liz Shea:

Thanks, Colin. Operator, next question please?

Liz Shea:

Chris, are you there? We can’t hear you.

Chris Shibutani:

Yes, apologies. Two questions, if I may. On Rinvoq, you had previously commented that you were seeing some use in the first-line setting. Can you update us at all with any color there? Secondly, for Skyrizi, obviously, a very attractive market and an opportunity in Crohn’s disease. Can you show us how you’re thinking about the potential impact given the LOE in 2023 of a major branded players, STELARA? Thank you.

Chris Shibutani:

Yes, no. In AD.

Liz Shea:

Thanks, Chris. Operator, next question please?

Geoff Meacham:

Hey guys. Thanks so much for taking the question. I just have one quick one. Rick, lots of questions on Humira for next year, but I wanted to ask at a high level environment beyond that. I know there are formal treatment guidelines in I&I, but what’s the risk that payers mandate cycling through one or more biosimilars? And what’s the risk – the pricing environment doesn’t really recover in 2024 and beyond? Just obviously thinking about the Skyrizi and Rinvoq franchises over the long term? Thank you.

Jeff Stewart:

Yes, so thank you for the question. I mean, one of the things that we see certainly in the near term is that the formularies in I&I are actually expanding. So many years ago, you might have six or seven preferred agents. The payers are now requesting sometimes up to 11 or 12 preferred agents, so you’re seeing an expansive nature in the short term. Now as you go forward, maybe middle of the decade or later where you have more and more biosimilars, could the U.S. environment move towards sort of a step through? I mean, it’s possible. But we have, again, as I mentioned in my last statement, we have anticipated that with the right types of data, the trials. We have five head-to-head studies in Skyrizi in psoriasis; we have more coming in Crohn’s. And so we think that basically, we have a data-driven approach that’s going to continue to allow us to significantly differentiate our products. The other dynamic that we watch very carefully, and we talked about this during the Immunology Investor Day, is the lines of therapy as there’s more and more high efficacy products that get introduced, continue to expand. So in the middle of the decade or longer, the second plus and the third line markets are going to be very, very significant at that point. So when we put all of that into the calculus we feel again, we have a pretty set up for the middle of the decade and longer.

Liz Shea:

Thanks, Geoff. I believe we have taken all the questions in the queue, so that concludes today’s conference call. If you’d like to listen to a replay of the call, please visit our website at investors.abbvie.com. Thanks again for joining us.

Liz Shea:

Good morning, and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Rob Michael, Vice Chairman and President; Jeff Stewart, Executive Vice President, Chief Commercial Officer; and Tom Hudson, Senior Vice President, R&D, and Chief Scientific Officer. Joining us for the Q&A portion of the call are Laura Schumacher, Vice Chairman, External Affairs, Chief Legal Officer and Corporate Secretary; Carrie Strom, Senior Vice President and President of Global Allergan Aesthetics; Scott Reents, Senior Vice President and Chief Financial Officer; Neil Gallagher, Vice President and Chief Medical Officer; and Roopal Thakkar, Vice President, Global Regulatory Affairs. Before we get started, I’ll note that some statements we make today may be considered forward-looking statements 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 these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements, except as required by law. On today’s conference call, non-GAAP financial measures will be used to help investors understand AbbVie’s business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we’ll take your questions. So with that, I’ll now turn the call over to Rick.

Jeff Stewart:

Thank you, Rick. I’m very pleased with the momentum across our therapeutic portfolio, including the continued progress we’re making with new product and recent indication launches. I’ll start with our immunology portfolio, which delivered total revenues of $7.2 billion, reflecting growth of 19.2% on an operational basis. Global Humira sales were approximately $5.4 billion, up 6.8% on an operational basis with 9.6% growth in the U.S., partially offset by international performance where revenues were down 7.3% operationally due to biosimilar competition. Skyrizi is performing extremely well, well ahead of our expectations. Global revenues were more than $1.2 billion, up 33% on a sequential basis. We continue to advance our leadership position in psoriasis where Skyrizi’s total prescription share of the U.S. biological market has increased to approximately 26%, driven by an in-play share of new and switching patients that is now approaching 50%. We have also achieved in-play market share leadership in 23 key international markets, including Japan, Germany, France, Canada, and Australia. Psoriatic arthritis is also adding significantly to Skyrizi’s momentum, where we are now approved in 54 countries. In the U.S. dermatology segment, where approximately 30% of patients exhibit both skin and joint involvement, Skyrizi is already achieving an in-play patient share of nearly 20%. We have also launched Skyrizi for PSA in rheumatology, where we’re seeing strong utilization, which is driving accelerated share growth. Our recent launch of Skyrizi for Crohn’s disease in the U.S. represents the first new biologic approval in six years for an area where there continues to be considerable unmet need. We believe Skyrizi represents a highly effective and differentiated treatment option for Crohn’s patients, including the potential to provide meaningful levels of endoscopic improvement with novel and infrequent dosing. Managed care access is expected to ramp strongly for this indication in the coming months. Turning now to Rinvoq, where we’re seeing good momentum across each of the approved indications. Global sales of $592 million were up more than 27% on a sequential basis. Prescriptions in RA remained strong with a total market share of 5.8% in the U.S. and approximately 6% across key international markets. Rinvoq is now achieving an in-play RA share of approximately 13% in the U.S. In PSA, Rinvoq continues to see nice uptake, especially in the room segment with commercial access now equal to RA. We also recently received FDA approval for ankylosing spondylitis and European approval for non-radiographic Axial SpA, further expanding Rinvoq’s potential across rheumatology. In atopic dermatitis, new patient starts are tracking in line with our expectations with Rinvoq’s in-play patient share in the mid-teens. Strong commercial access in AD, which is also now equal to RA and PSA, is expected to considerably increase paid prescription volume in this highly underpenetrated market over the remainder of the year. Lastly, our recent launch of Rinvoq for ulcerative colitis in the U.S. is progressing well. And we recently just received European approval for the same indication. Commercial access in the U.S. is ramping strongly, and we are seeing encouraging new patient starts. Physician feedback regarding Rinvoq’s approved profile in UC has been favorable, especially given the very high rates of remission and endoscopic improvement demonstrated across our UC development program. The addressable patient population for Rinvoq in UC is substantial, with nearly 50% of patients currently on or having used TNF therapy. Turning now to hematologic oncology, where total revenues were $1.65 billion, down 7.9% on an operational basis. Imbruvica global revenues were approximately $1.1 billion, down 17.1% and below our expectations. The CLO market continues to remain challenging in the U.S. with new patient starts down double digits relative to pre-pandemic levels. Now, as you may recall, our initial 2022 Imbruvica sales guidance contemplated a partial market recovery, which, unfortunately, we have not yet observed. In fact, the latest data reflects new patient starts in the U.S. were actually down high single digits versus last year. So, based on recent trends, we no longer believe it’s prudent to anticipate a meaningful market recovery in CLL over the second half of this year. Therefore, we will be removing this assumption from our 2022 guidance. In addition, increasing competition from newer therapies, including other BTK inhibitors as well as our own Venclexta also continue to lower Imbruvica’s share of new patient starts, especially in frontline CLL. Despite this increasing competitive pressure, Imbruvica continues to be the total market share leader across all lines of therapy in CLL. Venclexta global sales were $505 million, up 21.2% on an operational basis. In CLL, we continue to see share gains in the U.S. and across all major international markets. We’re also seeing continued strong performance in AML. Venclexta is now approved in 80 countries and in many markets is already considered the new standard of care for frontline AML patients who are ineligible for intensive chemotherapy. As a result, we are seeing ramping market share throughout the countries where we have launched. In neuroscience, revenues were more than $1.6 billion, up 15.2% on an operational basis. Vraylar once again delivered strong growth. Sales of $492 million were up 13.9% on an operational basis, reflecting continued share gains in the U.S. atypical antipsychotic market. Our launch preparations remain well underway in anticipation of our MDD approval in the fourth quarter. This is a potentially large indication that would represent incremental upside to our current projections for Vraylar. Within migraine, Ubrelvy remains the market-leading oral CGRP treatment for acute migraine with revenue of $185 million, up 34% on a sequential basis. Qulipta continues to increase its leading new-to-brand share in the U.S. preventative CGRP class when we consider both, paid and bridge volume. We continue to make good progress with expanded commercial access, which will support strong Qulipta sales growth over the remainder of this year. We are also pursuing the commercial approval for Qulipta as a preventative treatment in patients with chronic migraine in the U.S. as well as a new therapy for Europe, potentially further strengthening our competitive product profile and long-term growth opportunity. Botox Therapeutic is also performing well in chronic migraine as well as its other indications with total sales of $678 million, up 14.5% on an operational basis. So overall, I’m pleased with the commercial execution across the therapeutic business. Our broad portfolio of differentiated therapies and new launches is demonstrating strong revenue growth. And with that, I’ll turn the call over to Tom for additional comments on our R&D programs. Tom?

Rob Michael:

Thank you, Tom. AbbVie’s second quarter results demonstrate the strength of our diversified portfolio. Momentum from new products and recently launched indications allows us to maintain our earnings outlook despite market dynamics for Imbruvica, higher inflation and the stronger U.S. dollar. We reported adjusted earnings per share of $3.37, reflecting growth of 11.2% compared to prior year and $0.11 above our guidance midpoint. These results include a $0.14 unfavorable impact from acquired IPR&D expense. Total net revenues were $14.6 billion, up 6.1% on an operational basis, excluding a 1.6% unfavorable impact from foreign exchange. The adjusted operating margin ratio was 51% of sales, an improvement of 220 basis points versus the prior year. This includes adjusted gross margin of 84.7% of sales, adjusted R&D investment of 11% of sales, acquired IPR&D expense of 1.8% of sales and adjusted SG&A expense of 20.8% of sales. Net interest expense was $532 million, and the adjusted tax rate was 13.4%. Turning to our financial outlook. We are confirming our full year adjusted earnings per share guidance between $13.78 and $13.98. This earnings per share guidance does not include an estimate for acquired IPR&D expense that may be incurred beyond the second quarter. We now expect net revenues of approximately $58.9 billion, reflecting growth of 6.5% on an operational basis. At current rates, we expect foreign exchange to have a 1.7% unfavorable impact on full year sales growth. Included in this guidance are the following updated assumptions. We now expect Skyrizi global sales of approximately $4.8 billion, an increase of $400 million due to strong market share performance. For Imbruvica, we now expect global revenue of approximately $4.7 billion, given the lack of recovery in the CLL market and increasing competition. Moving to the P&L, we now expect adjusted gross margin of 84.7% of sales and continue to forecast an adjusted operating margin ratio of 51.8% of sales. Turning to the third quarter. We anticipate net revenues of approximately $14.8 billion. At current rates, we expect foreign exchange to have a 2.1% unfavorable impact on sales growth. We expect adjusted earnings per share between $3.55 and $3.59. This guidance does not include acquired IPR&D expense that may be incurred in the quarter. In closing, we delivered strong performance again this quarter, including meaningful contributions from new products and recently launched indications. Given the momentum of our business as well as our pipeline advancements, we are well positioned for the long term. With that, I’ll turn the call back over to Liz.

Operator:

Thank you. Our first question is Andrew Baum, Citi. Your line is open.

Rick Gonzalez:

Okay. Andrew, this is Rick. Thank you for the questions. I’ll cover the first one, and then Tom can cover the second one. So, we are in the process now, as we’ve indicated before, of negotiating with the managed care organizations and the PBMs to establish our contract position for Humira in 2023. This is a normal time that you would go through that. It is progressing as we would expect. I would say we’re midway through that process right now. I would expect it to conclude near the end of the third quarter, early the fourth quarter. At that point, that’s an important part of refining our model for 2023 in particular. And what that will tell us is that the positions that we have formulary status for 2023 in for Humira, and that will help us define clearly the volume aspect of it. And so, that’s going well, and that’s going to be an important part of us being able to refine that model. And so, as we get further along in that process, that will give us the ability to be able to potentially refine the model that we have. Now, the one thing that’s important to remember in all of this is price is the other key aspect here. And there, we won’t know real pricing until the actual event starts to occur. So, we will make assumptions around what that price looks like. And I think those will be informed assumptions, but they are just that they’re assumptions. And so, that’s the one piece that will still be somewhat of an unknown until we see the landscape start to play out in 2023, and particularly in midway through 2023 when more biosimilars enter the market. So, as we get more information and we can provide more clarity, we’ll certainly try to do that, but I think that’s where we are right now. Tom?

Liz Shea:

Thanks, Andrew.

Terence Flynn:

Maybe two for me. Just wanted to make sure that you are maintaining your 2022 aesthetics guidance of $5.9 billion. Rob, I didn’t hear you call it out, so I’m assuming that was a reiteration, just given what you’re seeing with Juvederm in the U.S. And then the second question I had relates more of a, I guess, strategic one, Rick. I know you’re still going through the conversations with 2023 for Humira. But, as you think about providing an update to guidance, whether that happens with the 3Q results or with the 4Q results, do you think you’ll be able to provide some outlook on 2024 because I think something investors are discussing now is just if the possibility of the impact is more in ‘24, how we should think about revenue margins in ‘24 versus ‘23. So, just wondering strategically how you’re thinking about that at this point, not asking for guidance, more just thought process.

Operator:

Our next question is Mohit Bansal with Wells Fargo.

Rick Gonzalez:

Well, let me take a shot at that, and certainly, Jeff is closer to it. So, Jeff, if you want to add anything in, feel free to jump in and add. Typically, when you contract for an asset like Humira, you’re contracting for a formulary position. And there aren’t volume requirements or other kinds of requirements. I think it’s also -- it would be prudent to assume that biosimilars will be on these contracts, whether it’s one or more than one that will coexist with Humira. So, price plays an important role in that because they will coexist. And so, I’d say -- and as that becomes fluid, you would have to make decisions around how you try to deal with that to maintain the kinds of volumes that you want to maintain. And we’ve said all along, the strategy that we’ll have in the U.S. is similar to the strategy that we had internationally, and that is maintain as much volume as we can at the highest level of profit that we can maintain it at. And that is the logic that we will employ. But that doesn’t mean we won’t have to be somewhat responsive to prices in the marketplace on Humira. Jeff, anything you’d add?

Operator:

Next question is Gary Nachman with BMO Capital Markets.

Jeff Stewart:

Yes. Thank you. It’s Jeff. Thanks for the question. So, your instinct and observation is right. The big dynamic change for Skyrizi here, largely what you’re seeing is from the psoriatic arthritis indication. And obviously saw very, very large sequential moves. And let me give you some sense of what we’re looking at. So, we’re seeing that we’re putting more and more basically headroom into the overall share position, first in psoriatic disease, so that’s psoriasis plus PSA. So, we’re at 26% in terms of total TRx share and moving very, very nicely up. So, that’s being driven by this PSA acceleration. So first, remember that the PSA indication, we were the -- really the last large product that didn’t have that indication. So first, what happens is it starts to interact very positively in the dermatology segment. So, as I mentioned, about 30% of patients both have skin and joint involvement. And so we actually had a lower despite the fact that we had the leading psoriasis share, we had a lower psoriasis share because we weren’t covered with the joints with that indication. So, you see an immediate, very rapid acceleration of our overall derm business that I highlighted. Secondly, strategically important to the performance is that we’re able to launch the PSA indication for Skyrizi in rheumatology. So, it starts to work together with the Rinvoq PSA indication, and the rheum segment is 3 times as large as the derm segment. So, it’s a very, very good dynamic in terms of our momentum in two large segments, even before we get to Crohn’s. Now, I would say that as we’ve talked about before, I mean, Skyrizi is a very special product, very unique dosing, very stable, incredible efficacy. And so, we are encouraged on the early results of Crohn’s. It’s too early to start to see numbers or et cetera. But all of that is playing into the raise that Rob talked about.

Jeff Stewart:

And maybe I can also then chime in on the second question. Certainly, that is a -- the new assets are a very important part of our growth story for hem/onc. Certainly, as I mentioned, we’re still continuing to ramp around the world with CLL. We have more and more impressive data, particularly in the unfit frontline population. We have five years of data in the fit population for frontline for Venclexta. We’re encouraged with the myeloma data, which is very unique in terms of biomarker driven approach for the (11;14). Navitoclax would be really one of the first new entrants for myelofibrosis, where there’s really only been rocks in terms of that market. Epcoritamab, increasingly encouraging data in terms of the simple subcu, very rapid ways to get this medication in later lines and then building into frontline. So we are very, very encouraged while we see some pressure on Imbruvica, the new indications in base for Venclexta helps to offset that. And then we start to build with those near-term hem assets and super encouraged in terms of what we’re seeing in terms of the probability that we can get there.

Chris Schott:

First one, I just wanted to come back to dynamics on the U.S. dermal filler market. I guess specifically, can you just quantify how much of the weakness we saw this -- or the decline year-over-year was due to the promotion events last year versus the impact from the economic pressures that you’re seeing? And I guess, in the same context, are you seeing any signs of weakness in the European business? I’m just -- and what I was just trying get your hands around, what type of magnitude of impact you’re talking about here in terms of either of its inflation or economic sensitivity to that business. My second question was just thinking about Rinvoq and Skyrizi formulary and pricing dynamics going forward as biosimilar Humira enters the market. I guess, are you expecting or are you hearing through discussions, any major shifts in the way payers are thinking about those products as we think about pricing coming down and obviously the largest kind of product in the space there.

Jeff Stewart:

In terms of your second question, again, it’s Jeff. Thanks for that. We’re -- we don’t see some significant pressures on Skyrizi and Rinvoq. Now, we always have discussions with the payers, we look at our contracting strategy. But I think we fall back on our clinical evidence that we have on these two major assets. I mean, we have four head-to-head trials against other major competitors with Skyrizi, where we have just really growth superiority versus whether it’s an IL-17, whether it’s Humira, which one day will be biosimilar, STELARA, et cetera. So just the pure performance there and the momentum, it’s clearly a distinguished asset. We’re going to be first in terms of Crohn’s to start to establish that new area and build the market there. And I think on Rinvoq to some degree, there’s only one other JAK inhibitor that is not going to have the scope of indications and it’s Xeljanz. And Xeljanz has been significantly wounded based on the oral surveillance data. So, in terms of our ability to build and protect and grow Skyrizi and Rinvoq into the next stage of development, we’re quite confident that we have the assets to be able to do that.