abbvie (abbv) earnings report: q3 2015 …i'll briefly discuss our third-quarter 2015...

CompanyName:AbbVieIncCompanyTicker:ABBVSector:HealthCareIndustry:Drugs

EventDescription:Q32015EarningsCallMarketCapasofEventDate:87.03BPriceasofEventDate:59.55

©2014TheStreet,Inc.Al l R ightsReserved Page1of28

AbbVie(ABBV)EarningsReport:Q32015ConferenceCallTranscriptThefollowingAbbVieconferencecalltookplaceonOctober30,2015,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

LarryPeepo;AbbVie;InvestorRelationsRickGonzalez;AbbVie;Chairman&CEOBillChase;AbbVie;CFOLauraSchumacher;AbbVie;GeneralCounselMichaelSeverino;AbbVie;ChiefScientificOfficer

OtherPart icipants

JamiRubin;GoldmanSachs;AnalystJeffreyHolford;JefferiesLLC;AnalystMarcGoodman;UBS;AnalystChrisSchott;JPMorgan;AnalystMarkSchoenebaum;EvercoreISI;AnalystVamilDivan;CreditSuisse;AnalystAlexArfaei;BMOCapitalMarkets;AnalystColinBristow;BankofAmericaMerrillLynch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheAbbViethird-quarter2015earningsconferencecall.

(OperatorInstructions)

Thiscallisbeingrecorded.Ifyouhaveanyobjections,youmaydisconnectatthispoint.

I'dnowliketointroduceMr.LarryPeepo,VicePresidentofInvestorRelations.

LarryPeepo (InvestorRelations):

Goodmorning.Thanksforjoiningustoday.

AlsoonthecallwithmeisRickGonzalez,ChairmanoftheBoardandChiefExecutiveOfficer;LauraSchumacher,ExecutiveVicePresident,BusinessDevelopment,ExternalAffairs,andGeneralCounsel;MichaelSeverino,ExecutiveVicePresidentofResearchandDevelopment,andChiefScientificOfficer;andBillChase,ExecutiveVicePresidentofFinanceandChiefFinancialOfficer.

Beforewegetstarted,I'llremindyouthatsomestatementswemaketodaymaybeconsideredforward-lookingstatementsforpurposesofthePrivateSecuritiesLitigationReformActof1995.AbbViecautionsthattheseforward-lookingstatementsaresubjecttorisksanduncertaintiesthatmaycauseactualresultstodiffermateriallyfromthoseindicatedintheforward-lookingstatements.AdditionalinformationaboutthefactorsthatmayaffectAbbVie'soperationsisincludedinour2014annualreportonForm10-Kand




ourotherSECfilings.AbbVieundertakesnoobligationtoreleasepubliclyanyrevisionstoforward-lookingstatementsasaresultofsubsequenteventsordevelopments,exceptasrequiredbylaw.

Ontoday'sconferencecall,asinthepast,non-GAAPfinancialmeasureswillbeusedtohelpinvestorsunderstandAbbVie'songoingbusinessperformance.Thesenon-GAAPfinancialmeasuresarereconciledwithcomparableGAAPfinancialmeasuresinourearningsreleaseandregulatoryfilingsfromtoday,whichcanbefoundonourWebsite.Wewanttoremindyouthatweissuedtwoseparatenewsreleasesthismorninginadvanceoftoday'scallandhavealsopostedslidesonAbbVieinvestor.comthatsupplementsomeofthecontentwe'llbecoveringthismorning.

Followingourpreparedremarks,we'lltakeyourquestions.Sowiththat,I'llnowturnthecallovertoRick.

RickGonzalez (Chairman&CEO):

Thankyou,Larry.Goodmorning,everyone,andthankyouforjoiningus.AsLarrymentionedwe'llbecoveringtwotopicsonthecallthismorning.

I'llbrieflydiscussourthird-quarter2015performancehighlights,andBillwillwalkyouthroughthequarterinabitmoredetail.I'llthendiscusstheCompany'slong-termstrategicandfinancialobjectivesthatweoutlinedthismorning,includingourexpectationsforgrowthandotherfinancialmetricsoverourlong-rangeplan.Andasalways,we'llprovideampletimetoansweryourquestions.

Wedeliveredanotherquarterofstrongperformance,withthird-quarterresultswellaheadofourexpectations.Adjustedearningspersharewere$1.13,representinggrowthofnearly27%versusthethirdquarterof2014.

Thisisthethirdconsecutivequarterofdeliveringroughly30%EPSgrowth.Ourresultsinthequarterincludedoperationalsalesgrowthofmorethan26%.

BeforeIprovideanoverviewofourhighlightsinthequarter,I'llbrieflyprovideourperspectiveontherecentupdatetoourUSViekiralabel.Asyouarelikelyaware,lastweekweupdatedtheprescribinginformationtoreflectachangeintheuseofViekiraincertainpatientswithadvancedcirrhosis,specifically,Child-PughBpatients.Viekirawentfromnotrecommendedtocontraindicated.ViekirawasandremainscontraindicatedinChild-PughCpatients.Inaddition,theupdatedlabelrecommendsaclinicalandlaboratoryassessmentforpatientswithcirrhosistoensurethatthosewithdecompensateddiseaseareidentified.

Turningnowtotheotherquarterlyevents,inthequarter,weadvancedseveralimportantstrategicpriorities,continuedtoenhanceoperationalefficiency,andachievedanumberofclinicalandregulatoryobjectives.Ourthird-quarterperformancewasdrivenbygrowthfromseveralproductsinourportfolio,includingstronggrowthfromHumiraandImbruvica,continuedglobaluptakeofViekira,andcontinuedgrowthfromCreonandDuodopa.

Wealsocontinuedtoimproveefficiencyacrossouroperations,deliveringroughly640basispointsinoperatingmarginexpansionthisquarterversustheprioryear,achievinganoperatingmarginof44.9%.I'lldiscussourcommitmenttofurtherdrivethismetricinthecontextofourlong-termfinancialobjectivesinjustafewmoments.

Wecontinuetobeverypleasedwiththeadvancementandderiskingofourmid-andlate-stagepipeline.Duringthequarter,wereportedpositivedata,advancedprogramsintotheregulatoryapprovalcycle,andreceivedapprovalforseveralassets.

Lastmonthwereportedpositivetop-lineresultsfromtwoPhase2bstudiesofourselectiveJAK1inhibitor.WebelieveABT-494hasaverycompellingprofile,withthepotentialforbest-in-classefficacyeveninthe




mostdifficult-to-treatTNF-inadequateresponderpatientsandwithonce-dailydosing.We'llpresentthefullresultsfromthetwomid-stagetrialsatanupcomingmedicalmeetingandareontracktoinitiatethePhase3studiesbyyear-end.

Wealsoreportedpositivetop-linefindingsfromaPhase2btrialofelagolixinpatientswithuterinefibroids.Preliminaryresultsfromthesix-monthstudydemonstratedthatallofthetreatmentarmsachievedthestudy'sprimaryendpoint.Basedonthesefindings,weplantoadvanceelagolixintoPhase3developmentforfibroids,withinitiationexpectedinthefirstquarterof2016.

WerecentlysubmittedtheUSregulatoryapplicationforImbruvicaasatherapyintreatment-naivepatientswithCLL.InJune,weannouncedthetop-lineresultsfromthePhase3RESONATE-2trialcomparingImbruvicamonotherapytochlorambucilinpatientsaged65orolder.TheresultsillustratethattreatmentwithImbruvicasignificantlyimprovedprogression-freesurvivalandmultiplesecondaryendpoints,includingoverallsurvivalinfirst-linetherapy.

Aswehavesaid,asignificantportionofourvaluationforPharmacyclicswasattributedtoadvancingintofirst-linetreatment.Andwhileweassumedaveryhighprobabilityofsuccess,theRESONATE-2dataprovidesstrongevidenceofImbruvica'sefficacyinafrontlinesetting,furtherderiskingthiscomponentofourmodel.

Thetrialresultswillbepublishedinapeer-reviewedmedicaljournalandpresentedatanupcomingmedicalmeeting,andweanticipatearegulatorydecisiontouseintreatment-naivefirst-linepatientsinthefirsthalfof2016.GiventherobustresultswehaveahighdegreeofconfidencethatImbruvicawillbeverysuccessfulasfrontlinetherapy.

WealsorecentlycompletedourUSregulatorysubmissionforvenetoclax,orABT-199,inrelapsed-refractoryCLLpatientswith17pdeletion.Wealsorecentlyreceivedregulatoryapprovalforourtwo-pill,once-dailyHCVtherapyinJapan.WeexpecttoreceivereimbursementandlaunchinJapaninthenextmonthorso.

Latelastmonthwesubmittedourregulatoryapplicationforaonce-dailyformulationofViekiraPakintheUS.Finally,duringthequarter,wereceivedUSregulatoryapprovalforHumiraasatreatmentforHS,andwesubmittedourUSandEuropeanregulatoryapplicationsforHumiraasatreatmentforuveitis.

Insummary,wedeliveredanotherquarterofstrongresults,exceedingourguidancerangeforthequarter,andweraisedourfull-year2015outlooktotheupperendofourpreviousguidancerange,reflectinggrowthofroughly28%.Ourresultsyear-to-datedemonstratethesignificantprogresswe'vemadetowardsourobjectiveofdeliveringindustry-leadinggrowth.

I'lldiscussourstrongoutlookfor2016aswellasourlonger-termfinancialcommitmentsafterBillcoversourthird-quarterresultsinmoredetail.Withthat,I'llturnthecallovertoBill.Bill?

BillChase (CFO):

Thankyou,Rick.ThismorningI'llreviewourthird-quarterperformanceandprovideanupdateonouroutlookfor2015.AsRickmentioned,inadditiontodeliveringstrongtop-linegrowthinthethirdquarter,weagainexceededourearningspershareguidancerangewithgrowthofnearly27%versusthethirdquarterof2014.

Operationalgrowthonthetoplinewasverystrongat26.2%,excludinga7.8%negativeimpactfromforeignexchange.Reportedsaleswereup18.4%.

Humiradeliveredglobalsalesofmorethan$3.6billion,up19.6%onanoperationalbasis.WecontinuetoseestrongmomentumforHumiraasthemarketleaderaroundtheworld.Onareportedbasis,currency




hadanegative7.5%impactonglobalHumirasalesandreducedinternationalHumirasalesby16%.

USHumirasalesincreased30.4%.We'veseenaccelerationandmarketgrowththisyearintheUS,withHumiradrivingstronggrowthacrossthegastro,rheum,anddermsegments.Wholesaleinventorylevelsremainedconstantatroughlyhalfamonth.

Internationally,Humirasalesincreased7.1%onanoperationalbasisinthethirdquarter,roughlydoubletherateofgrowthwereportedinthesecondquarter.Humira'smomentumhasnotbeenadverselyimpactedbytheRemicadebiosimilar.Wecontinuetoseeonlymodestoverallsharegainsforthebiosimilarinthemajormarkets,inlinewithourplanningassumptions.

Humira'slistofindicationscontinuestogrow,withrecentEMAandFDAapprovalsforHS.Humiraisalsocurrentlyunderregulatoryreviewforuveitis,withapprovalexpectedbytheendof2016.GlobalpeakyearsalesforHSareexpectedtobeapproximately$1billionperyear,whileuveitissalesareexpectedtoreachseveralhundredmilliondollarsperyear.

Forthefull-year2015,wenowexpectglobalHumirasalesgrowthinthehighteensonanoperationalbasis,anincreasefrompreviousguidanceofmidteensoperationalgrowth.ThisreflectsaforecastforUSgrowthapproaching30%andhigh-single-digitinternationaloperationalgrowth.

ThiswasthefirstfullquarterofImbruvicasalessincetheclosingofthePharmacyclicsacquisition,andglobalsaleswerestrongat$304million.USsaleswere$267million,andourinternationalprofit-sharingwas$37million.For2015,wecontinuetoexpectPharmacyclicstoaddmorethan$750milliontoourtoplineforrevenueoccurringaftertheMay26closingdate.

GlobalViekirasalesinthethirdquarterwere$469million.Theinternationallaunchhascontinuedtoexceedourplanningexpectationsandhasresultedinahighermixofinternationalsalesthisyear.

AsRickmentioned,werecentlyreceivedregulatoryapprovalinJapanforourtwo-drug,once-dailyribavirin-freecombinationforthetreatmentofgenotype1b.WeanticipatelaunchinginJapannextmonthfollowingthetraditional60-dayreimbursementreviewcycle.

WealsosawastrongperformanceacrossanumberofourotherproductsincludingDuodopa,Creon,andLupron.

TurningtotheP&Lprofile,wearepleasedwithourprogressinthequarter,asweshowedcontinuedimprovementingrossmarginasapercentageofsales.Theadjustedgrossmarginratiowas83.3%,drivenbyexchange,operationalefficiencies,aswellasproductmix.

AdjustedR&Dwas15.4%ofsales,reflectingfundingactionsinsupportofourpipelineassets.AdjustedSG&Awas23%ofsalesinthethirdquarter,downfromtheprioryear,contributingtocontinuedimprovementinouroperatingmarginprofile.

Wedeliveredanadjustedoperatingmarginof44.9%ofsales,up640basispointsversustheprior-yearquarter.AfteradjustingforamodestnegativeimpactfromPharmacyclics,morethan500basispointsofthisimprovementwasdrivenbyefficienciesandP&Lleverage.

Netinterestexpensewas$197million,reflectingtheimpactofdebtissuedinconnectionwiththePharmacyclicsacquisition.Theadjustedtaxratewas21.9%inthequarter.

Third-quarteradjustedearningspershare,excludingnoncashintangibleamortizationexpenseandspecifieditems,were$1.13,upnearly27%year-over-yearandexceedingourpreviousguidancerange.OnaGAAPbasis,earningspersharewere$0.74.




Movingontoouroutlookfortheremainderoftheyear,weareraisingour2015adjustedEPSguidancetoarangeof$4.26to$4.28.ThisreflectsEPSgrowthofapproximately28%atthemidpoint.Thisguidanceexcludes$1.10pershareofintangibleamortizationexpense,dealcosts,integration,andotherspecifieditems.

Weexpectfourth-quarterrevenuegrowthonanoperationalbasisinthelow20%range,excludingapproximately5%negativeimpactfromexchangeinthequarter.Forthefull-year2015,weareforecastinganoperatingmarginof42%to42.5%ofsales.

AndasRicknoted,todayweprovideda2016adjustedearningspershareguidancerangeof$4.90to$5.10.We'llprovidemoredetailregardingthisguidanceaswenormallydoonthefourth-quartercallinJanuary.

So,inconclusion,wearepleasedwiththedriversofourstrongperformance,furtherdemonstratingthequalityofourresultsinthequarterandthusfarin2015.Wehavedrivenstrongtop-andbottom-linegrowthanddeliveredoperatingmarginexpansionwhilealsoadvancingourstrategicpriorities.Thisputsusinastrongpositiontodelivertop-tierindustrygrowththisyearandinthecomingyears.

Withthat,I'llturnitbacktoRicktowalkyouthroughourlong-termstrategicobjectives.


Thanks,Bill.Asareminder,wehavepostedslidestoourWebsitewhichyoucanusetofollowalong.Myremarksregardingourlong-termstrategygenerallycoincidewiththepresentation.

Today,we'llsharewithyousomeofthekeyassumptionsfromourlong-rangeplan,whichwereviewannuallywithourBoardofDirectors.Overthepastcoupleofquarterstherehasbeenanincreasinglevelofinterestfrominvestorsformoredetailonourviewsregardingavarietyoftopics,includingAbbVie'slong-termgrowthprospectsoverthenextseveralyears,ourabilitytoexpandmargins,ourexpectationsaroundbiosimilars,andourpipelineprospects.

Additionally,asweevaluatedourlong-rangeplan'sexpectedperformanceversusWallStreet'sconsensus,thereisacleargapinrevenueandEPSgrowth.Basedonthesedynamics,wedecideditwasappropriatetoprovideinvestorswithaclearviewofourexpectedperformanceandthesignificantdriversofthatperformance.

Turningtoslide3,ourmissionwhenwelaunchedasanindependentcompanywastocreateaninnovation-drivenpatient-focusedspecialtybiopharmaceuticalcompanycapableofachievingsustainabletop-tierperformancethroughoutstandingexecutionandaconsistentstreamofinnovativenewmedicines.Ouractionssinceourinceptionhaveclearlysupportedthatmission.

We'vebuiltaninnovation-drivenculture,attractingtoptalentfocusondevelopingnewproductstoaddresssomeofthemostserioushealthconditions.We'vedeliveredoutstandingperformancefromourpromotedportfolio.ThisincludesHumira,wherewehaveacceleratedgrowthanddevelopedacomprehensivestrategyforthefuture.

OurheightenedlevelofR&Dinvestmenthasgeneratedabove-industrysuccessratewithpositiveclinicaldataandregulatoryoutcomesfromanumberofdevelopmentprograms.Ourpipelinenowhasanumberoflate-stagederiskedassetswithmultibillion-dollarpotential.

WeacquiredPharmacyclics,providingamajornewgrowthplatforminakeystrategicareaandsignificantlystrengtheningourlong-termgrowthprospects.

Wehaveplacedasignificantfocusondrivingoperatingefficiencies,withimpressiveresultstodate.




We'vebuiltshareholdervalueandconfidencewithinvestorsbasedonconsistent,strongperformance.Andwehavedeliveredstrongreturnofcapitaltoinvestors,includingarapidlygrowingdividend.

OuractionshaveplacedAbbVieinapositiontoachievetop-tierperformance,andyouclearlyseethatinourresults.AsImentionedearlier,ourcurrentguidanceprojectsEPSgrowthofmorethan28%in2015.Ourfundamentalstrategyisstrong,andwe'vebuiltanexcellentfoundation.

Asyoucanseeonslide4,since2013wehaveconsistentlydeliveredstrongfinancialresults,includingaccelerationacrosskeyfinancialparameters.We'vegeneratedsignificanttop-andbottom-linegrowthandrobustoperatingcashflows.

Turningtoslide5,despiteourenhancedlevelofR&Dspendasyoucanseeonthisslide,whichhasgrownsubstantiallysincewewereadivisionwithinAbbott,we'vedrivensignificantimprovementinbothgrossandoperatingmarginprofiles.Weremainfocusedonfurthermarginexpansion,andI'lloutlineourcommitmentstoenhancingthesemetricsinjustamoment.

Movingtoslide6,we'vealsoestablishedastrongtrackrecordofdeliveringonourfinancialcommitments,consistentlymeetingorexceedingourearningsestimates.We'reproudofthisoutperformance,andweremaindisciplinedinachievingourstatedobjectives.

Asnotedonslide7,AbbVie'stotalshareholderreturnsinceseparationisnearly76%,aresultthatplacesAbbVieinthetopthirdofourpeergroup.Thesestrongreturnshavecreatedmorethan$35billionofvalueforourshareholdersandamarketcapofnearly$90billion.

Turningtoslide8,whilewe'vedemonstratedaverystrongtrackrecordofhistoricalperformance,wearealsocommittedtodeliveringtop-tierresultsintheyearstocome.Asweevaluateourprospectsoverourlong-rangeplan,webelievewe'rewellpositionedforsuccess.

We'restrategicallypositionedinattractive,high-growthmarketsegments.Andbasedoncontinuedstrongperformancefromourexistingportfolioofon-marketproducts,includingourflagshipbrandsHumiraandImbruvica,aswellasgrowthfromourpipelineproducts,weexpecttodelivertop-tierrevenuegrowththrough2020.

Today,asyoucanseeonslide8,we'reprovidingguidancefortotalCompanysalesofapproximately$37billionin2020.Thisreflects10%top-linesalesgrowthonaverageoverthefive-yearperiod.

ThisguidanceincludesestimatedglobalHumirasalesofmorethan$18billionin2020,whichwebelieveappropriatelycapturestheexpectedbiosimilardynamicsglobally.I'llsharemoredetailonourcomprehensivestrategytocontinueourleadershippositioninimmunologylaterintheseremarks.

Additionally,weexpectAbbVie'sImbruvicarevenuestoreachapproximately$5billionin2020,drivenbycontinuedgrowthwithinthehematologicaloncologymarket.Andourpipelinehasthepotentialtoachievenominalpeakrevenuesofnearly$30billionby2024.ThisestimateexcludesnewHumiraandImbruvicaindicationsandsalesfromournext-generationHCVcombination,whichareconsideredon-marketproductsforthepurposeofthiscalculation.

Wehavethepotentialtolaunchmorethan20newproductsorindicationsthrough2020,includingsevenapprovalsthatwillcontributein2016andbeyond.I'lldiscusssomeofthesepromisingprogramstoday,butwewillbecoveringourfullpipelineinmoredetailatanR&DPipelineReviewtobeheldinChicagoduringthe2016ASCOmeeting.

AsImentioned,oursignificantfocusonoperatingefficiencieshasresultedinstrongimprovementofourgrossandoperatingmarginprofiles.TheCompanyiscommittedtodrivingcontinuedexpansionofoperatingmarginandistargetinganadjustedoperatingmarginofgreaterthan50%by2020,withan




averageof100to200basispointsofimprovementperyear.

AbbViealsoremainscommittedtoreturningcashtoshareholdersthroughastrongandgrowingdividend.Tothatend,todayweannouncedthatourBoarddeclaredanincreaseinourquarterlycashdividendfrom$0.51pershareto$0.57pershare,anincreaseofapproximately12%beginningwiththedividendpayableinFebruary2016.

Ourcommitmenttotop-linegrowthandcontinuedoperatingmarginexpansionwilldrivedouble-digitearningspersharegrowthonaveragethrough2020.Andtoday,we'reissuingstrongfull-year2016adjustedEPSguidanceof$4.90to$5.10.Thisoutlookrepresents17%growthversus2015atthemidpointandpositionsAbbVietobeamongtheindustryleadersforEPSgrowthagainnextyear.

Turningnowtoslide9.ToaccomplishthesegoalswehavenarrowedourfocusandpositionedAbbVieforleadershipinextremelyattractivemarketsegments.Ourcoreareasoftherapeuticfocusincludeimmunology,wherewehaveastrongleadershippositionacrossrheumatology,GI,anddermatology.We'releveragingourscientificleadershipandexpertisetodevelopnext-generationbiologicsandsmallmoleculesthatelevatestandardofcare.Wehavemultiplepipelineassetsinmid-tolate-stagedevelopmentwithbestinclasspotential.

Theoncologymarketrepresentsan$85billionsegmentprojectedtogrowatacompoundedannualgrowthrateof12%through2020.Withinthismarket,wehaveadevelopingleadershippositioninthehematologicalsegmentwithImbruvica,andwehaveseveralothermechanismsindevelopmentincludingourBcl-2,PI3-kinase,andouranti-CS1antibodydrugconjugate.

WealsohaveanemergingpipelineofassetsforthetreatmentofsolidtumorsincludingourPARPinhibitor,veliparib,andABT-414forglioblastomamultiforma.

Virologyalsorepresentsalargeanddurablesegmentforus.We'veestablishedafootholdinthemarketplacewithourcurrentoffering,Viekira.OuremphasisisoncontinuingtoevolveHCVtreatment,andournext-generationcombinationispoisedtodelivermeaningfulimprovementsrelativetocurrentlyavailabletherapies.

EarlierthisyearwedisclosedpreliminaryresultsfromaPhase2bstudyofournext-generationproteaseinhibitor,ABT-493,andournext-generationNS5Ainhibitor,ABT-530.Theinterimdatashowednon-cirrhoticgenotype1aand1btreatment-naiveandexperiencedpatientsreceivingtheribavirin-freetherapyfor12weeksachievedSVR12ratesof99%.ThedoseweintendtopursueinPhase3droveSVR12ratesof100%.

Preliminaryresultsfromtheeight-weektreatmentcohortweredisclosedlastweek.Thesedatashowedthat34of34,or100%,ofgenotype1patientsachievedSVR4.We'llshareadditionalresultsfromournext-generationcombinationattheAASLDmeetingnextmonth.

Neurologyrepresentsalargemarketwithsignificantunmetneed.We'refocusedondevelopingdisease-modifyingtherapiesforAlzheimer'sandotherneurodegenerativeconditions.OurexistingportfolioincludesDuopaforthetreatmentofadvancedParkinsondiseaseandZ inbryta,whichiscurrentlyunderregulatoryreviewintheUSandEuropeformultiplesclerosis.

We'realsoplacingfocusedinvestmentinourlate-stageprogramsinwomen'shealthwithelagolix,andrenaldiseasewithatrasentan,aswellasearly-stageprogramsincysticfibrosis.Endometriosisanduterinefibroidsarebothhighlyprevalentconditions,andelagolixhasdemonstratedpromisingresultsinthetreatmentofbothoftheseconditions.

Nowturningtoslide10.Basedonourlong-rangeplanforourmarketedproductportfolioandourrisk-




adjustedpipeline,wearetargetingtotalrevenueofapproximately$37billionin2020,reflectingatop-linecompoundedannualgrowthrateof10%.Asyoucansee,ourestimatesareroughly$5billionabovethecurrentWallStreetconsensus.

Our2020targetrevenueisbasedonanumberofperformancedrivers.WeexpectHumiratocontinuetobeastronggrowthdriver,addingcloseto$4billioninsalesby2020.AbbVie'sImbruvicarevenueswillreachapproximately$5billionby2020.

OurHCVfranchisewillremainasignificantcontributorthroughourlong-rangeplan.Ourpipelinewilladdmorethan$4billioninrisk-adjustedsales,andDuopawillreachblockbusterstatusglobally.

Turningnowtoslide11,weexpectseveralkeyproductswithinourcurrentmarketedproductportfoliotoaddsignificantgrowthintheyearstocome.IncludingHumira,Imbruvica,HCV,andDuopacollectivelywilladd$10billioninincrementalsalesby2020.

GrowthofHumirawillbedrivenbycontinuedbiologicpenetrationacrossdiseasecategoriesandnewindications.I'lltalkmoreaboutourplanningassumptionsaroundHumiragrowthandtheimpactofbiosimilarsinjustamoment.

Imbruvica'sgrowthinthistimeframewillbepredominantlydrivenbyincreasingpenetrationwithinourcurrentlyapprovedsetofindicationsandmovementintofrontlineuseforthoseindications.TheRESONATE-2datafurtherreinforcesourviewthatImbruvicawillbeahighlysuccessfulagentinfrontlinetherapyforCLL.GrowthwillalsocomefromlabelexpansionintonewhematologicalcancerssuchasdiffuselargeB-celllymphoma,follicularlymphoma,andmultiplemyeloma.

GrowthinourHCVfranchisewillbedrivenbycontinueduptakeofViekiraPakacrossgeographiesincludingJapan,thesecond-largestHCVmarketglobally.Weexpecttocommercializeournext-generationHCVofferingin2017,whichwillbeapan-genotypiconce-dailyretonovir-andribavirin-freecombination.Giventhesignificantglobalprevalenceofthisdisease,weexpecttheHCVmarkettobeverydurablewellinto2020.

AsIsaid,weforecastDuopawillachievesalesgreaterthan$1billiongloballyby2020.Andfinally,otherproductsinouron-marketportfolioincludingCreon,Synagis,Lupron,andSynthroidrepresentsteadyanddurablesalescontributorsoverourlong-rangeplan.

Turningtoslide12,ourgrowthoutlookforHumiraisbasedonathoroughanalysisoftheglobalmarketdynamicsandthestrategythatweputinplace.We'vetakenwhatwebelieveisarealisticviewofthemarketandthecompetitiveenvironmentoverthenextfiveyearsandexpectglobalHumirasalesin2020toexceed$18billion.

Turningtoslide13,wehaveacomprehensivestrategyinplacewhichwebelievewillallowustoprotectandgrowourleadershippositioninimmunology.OurmultifacetedstrategyiscomprisedofHumiraintellectualproperty,enhancementstoHumira,innovationincludingarobustimmunologypipeline,andstrongcommercialexecution.

Turningnowtoslide14,weareplanningconservativelywithrespecttothetimingforEuropeanbiosimilarsandforplanningpurposesexpectdirectHumirabiosimilarcompetitionuponexpirationofourcompoundpatentinEuropeinOctober2018.However,wearepursuingadditionalIPinEuropeandexpectthesituationtoevolveovertime.Again,though,theguidancewe'veoutlinedtodayexcludesanypotentialbenefitfromourIPinEurope.

TurningtoourUSpatentestate,asyoucanseeonslide14wehavebuiltarobustportfolioofintellectualproperty.Beyondourcomposition-of-matterpatent,wehadmorethan70additionallater-expiringUS




patentsrelatedtoHumira.Thevastmajorityofthesepatents,whichreflectsignificantinnovationandinvestment,weregrantedbytheUSPatentandTrademarkOfficewithinthepasttwoyears.Thesepatentsexpirebetween2022and2034.

ThesizeofAbbVie'spatentestateisadirectconsequenceofthegroundbreakingworkofAbbVie'sscientistsinthenewfieldofbiologics.Small-moleculedrugshavebeenaroundformanydecades,buttherapeuticantibodiesaremuchnewer,larger,andmorecomplex.Becausetheymustbemadeinlivingorganisms,biologicsaremoredifficulttomanufacture.Inaddition,becausetheyareforeignproteinsthatareintroducedintothehumanbody,biologicspresentuniquechallengesintermsofformulationandtreatment.

Notonlyisthefieldnew,butHumiraitselfwasanewtypeofbiologic.Itwasthefirstfully-humantherapeuticantibodyeverapprovedbytheFDA.ThedevelopmentofHumirawasuncharteredterritory.

ThoseeffortsresultedintheUnitedStatesPatentOfficegrantingAbbViedozensofpatentscoveringHumira.Thecoverageofourlater-expiringpatentsincludesmethodsofuseforthedruginallHumiraindications,methodstoformulatethedrug,andmethodstomakethedrug,aswellasotheraspectsoftheHumiraproductsuchasthedeliverydevice.AnycompanyseekingtomarketabiosimilarversionofHumirawillhavetocontendwiththisextensivepatentestatewhichAbbVieintendstoenforcevigorously.

Withrespecttoformulatingthedrug,wehavepatentsonformulatingtheHumiraantibodythatalsoexpirenoearlierthan2022.Biologicdrugsmustbeadministeredintravenouslyorasinjectionsandcanbedifficulttoformulateproperly.GivenourextensiveexperiencewithHumira,thesepatentscovernotonlyourcommercialformulationbutalsootherrelatedformulationsthatbiosimilarcompaniesmightemploy.14patentshavebeenissuedcoveringdifferentformulationsofHumira.

Withrespecttomakingthedrug,wehaveimportantpatentsonthemethodsofmanufacturingHumirathatexpirenoearlierthan2027.ThelivingcellsthatproducebiologicdrugssuchasHumiracanbesensitivetosmallchangesinthemanufacturingprocess.Minordifferencesinmanufacturingprocesscanaffectthenatureofthebiologicdrugandevenitsclinicaleffect.24patentshavebeenissuedcoveringmethodsofmanufacturingHumiraandHumiracompositionsresultingfromthosemethods.

TodayI'llfocusonthosepatentswhichcoverusingthedrug,otherwiseknownasmethodoftreatmentpatents.WhileAbbVie'sformulationandmanufacturingpatentsforHumiraalsohavebroadcoverage,withoutfurtherinformationonthebiosimilarwecannotknowwithcertaintytheextenttowhichthesepatentswillbeinfringed.

Nowturningtoslide15.Sincethebiosimilarstatuterequiresthebiosimilartoobtainapprovalforoneormoreindicationspreviouslyapprovedfortheinnovatordrugandhavethesamerouteofadministration,dosageform,andstrength,weknowbiosimilarswillinfringethesemethod-of-usepatents.WehavemethodoftreatmentpatentscoveringalltheindicationsforwhichHumirahasbeenapproved.

Thesepatentsdonotexpireuntil2022orlater.Thesepatentsreflectthedevelopmentworkofmorethan100clinicaltrialsspanning18years.

AsdiscoveredthroughthisworkandreflectedintheHumiralabel,differentdiseasesrequiredifferenttreatmentregimens,whichAbbViediscoveredfollowingsignificantinvestmentinclinicaldevelopment.ThesepatenteduseshavebeenkeytothesuccessofHumira.Theyhaveopenedupnewandbettertreatmentoptionsforanincreasedpatientpopulationandimprovedthequalityoflifeforthosepatients.

Ourmethodoftreatmentpatentscovertheapproveddosingregimensforeachindicationandarenotmererefinementsofpreviousdosingregimens,whichisoftenthecasewithmethodoftreatmentpatentsinthesmall-moleculearena.




Furthermore,biologicslikeHumiraaremorecomplexandunpredictablebytheirnaturethansmallmolecules.Assuch,biologicspresentuniquechallengesintermsoftreatment.

OnechallengewasthefactthatHumiratargetsTNF-alpha,aproteinthatplaysanimportantroleinthehumanimmunesystem.ItiscriticaltofindtherightbalanceintermsofblockingtheharmfuleffectscausedbyexcessiveTNF-alphawithoutinterferingwiththenormalfunctioningoftheimmunesystem.

ThismadethedevelopmentofsafeandeffectivemethodsofadministeringHumiraallthemoredifficult.AndbecauseHumirawasthefirsthumantherapeuticantibodyeverapprovedbytheFDAofanytype,theworkbyAbbVie'sscientistwasunprecedented.

Intotal,puttingasidethecomposition-of-matterpatentsonHumira,thereare22issuedpatentsdirectedtothetreatmentofTNF-mediateddiseasesthatexpirein2022orlater.AdditionalapplicationsarependingandstillbeingexaminedinthePatentOffice.Again,abiosimilarcompanywillhavetocontendwithourmethodoftreatmentpatentsforeveryindicationforwhichitseeksapproval,aswellasourformulationandmanufacturingpatents,whicharenotlimitedtoanyparticularindication.

Turningtoslide16.AsyouevaluatethetimeframeforapotentialUSbiosimilarmarketentry,itisimportantthatyouconsiderthelegalprocessandthelikelytimelineforresolution.Whileit'salwaysdifficulttoestimatetheprecisedurationofthelitigationprocess,theaveragetimetotrialforapatentactionisnearlythreeandahalfyears.Appealstothefederalcircuitcourtusuallytakeoneyear,sobasedonsimilarcases,thetotallitigationtimingmaybeaslongasfourorfiveyears.

At-risklaunches,whenaCompanylaunchesagenericproductbeforepatentexpirationandbeforeafinaldeterminationthatapatentisinvalidornotinfringed,arerelativelyrareduetothepotentialexposure.BecauseofHumira'ssuccess,suchdamagescouldbeextremelylarge.

Ofcourse,wecan'tknowhowothercompanieswillevaluatethatrisk.However,intheeventabiosimilarattemptstolaunchat-risk,AbbViewillseekinjunctiverelief.Forthereasonswe'vealreadydiscussed,biosimilarswillnecessarilyinfringeourpatents.

GiventheuniquepropertiesofHumiraandthelackofanypriorexperiencewithfullyhumanmonoclonalantibodies,thesepatentsarestrong.Courtsconsideringrequestsforpreliminaryinjunctionshaveconsideredthesefactorsimportantandhavegrantedinjunctionswheretheyarepresent.

Turningnowtoslide17.Anotherimportantaspectofourimmunologystrategyisourpipeline.ThisincludesbothenhancementstoHumiraaswellasourpromisingpipelineofnewproductsindevelopment,whicharedesignedtorestatestandardofcareineachofourareasofleadership.

WehavetwonewindicationsforHumirathatwillcontributesignificantlytotheproduct'scontinuedgrowth.WealsorecentlyreceivedapprovalinEuropeforanewformulationofHumirawhichprovidesmeaningfulpatientbenefit,includinglowerlevelsofpainversusthecurrentformulation.

WearesubmittingregulatoryapplicationsforanimprovedHumirapendevice,whichweexpecttointroducein2016.Finally,wearecontinuingtoworkondevelopingproprietarydeliverytechnologiesanddevicestofurtherenhancetheproduct.

BehindHumira,wehaveapipelineofmid-andlate-stageimmunologyassetsinclinicaldevelopment.AbbVieistheclearleaderinimmunology.Itisacategoryweunderstandextremelywell,andourperformanceisreflectiveofourdeepexpertise.

Asweembarkedupondevelopingasetofnext-generationassets,wedidsowithourknowledgeofthetypeofbreakthroughprofileanewdrugwouldrequireinordertoachieveasignificantmarketshareposition.Eachoftheassetsthatwehaveinourimmunologypipelinehasthepotentialtodeliverthat




typeofmarket-changingproductprofilethatwearetargeting.

Wewereverypleasedwiththemid-stageresultsfromourselectiveJAK1inhibitor,ABT-494,whichshowedthepotentialtobebest-in-classinRA,withhighefficacy,once-dailydosing,andafavorablebenefit/riskprofile.WeareparticularlyexcitedabouttheresultsofABT-494demonstratedinthemostchallengingpatientpopulation,theanti-TNFinadequateresponders.Giventhatanti-TNFtherapieshavebeenavailablenowfornearlytwodecades,thispatientpopulationhasgrownovertime;infact,thispopulationcurrentlyrepresentsroughly35%oftheUSpatientpopulation.

WearerapidlymovingABT-494intoPhase3studies,anditisourgoaltolaunchthisassetintotheUSmarketwellinadvanceofanybiosimilarentry.Ourlargeandexperiencedcommercialorganization,whichcurrentlyrepresentsHumira,willpromoteABT-494andourotherimmunologypipelineassetsupontheirUScommercialization.Wehavetremendousconfidenceintheorganization'sabilitytosuccessfullyrepresenttheseassets.

WealsobelieveourDVDantibodyplatformholdstremendouspromiseinthetreatmentofcertainimmune-mediatedconditions.ABT-122isourcombinationanti-TNF,anti-IL-17,twoprovenmechanisms,whichiscurrentlyinPhase2trialsforRAandpsoriaticarthritis.OurearlierdevelopmentworkwiththeplatformhasestablishedthatourDVDshavefavorabledrug-likeproperties,similartomonoclonalantibodies,andcanbemanufacturedreliably.

We'llseedatafromthemid-stagetrialinRAinearly2016andresultsfromourstudyinpsoriaticarthritislaterintheyear.Iftheresultsarepositive,wewillquicklyadvanceABT-122intoPhase3development.

Wearealsoworkingtoadvanceseveralotherearlyandmid-stageimmunologyprogramsincludingourpartneredanti-IL-6nanobody,andwecontinuetoexploretheL&Alandscapeforassetsthatfitourtargetproductprofile.

Movingontoslide18,Humira'suniqueproductprofileandAbbVie'sstrongcommercialexecutionhasmadeHumirathenumber-oneprescribedbiologic,withthehighestcommercialprescriptionmarketshare,includingthehighestpercentageofnewpatientstarts.Humiraholdsapreferredorco-preferredpositiononmanagedcareofmorethan90%ofUScoveredlives.

Patients,physicians,andpayersrecognizethemeaningfulclinicalandeconomicvalueofHumiraasatreatmentoptionforthebroadestsetofimmune-mediateddiseases.We'vedemonstratedthattreatmentwithHumiraismorecost-effectiveandsavespayersondownstreamcostsassociatedwithdiseaseslikeRA,Crohn's,andpsoriasis.

Movingonnowtoslide19.AsIsaid,wehavetakenwhatwebelieveisarealisticviewofourprospectsoverourlong-rangeplan,giventhecompetitivelandscape,potentialforbiosimilars,andotherfactors.Ourplanisbuiltaroundakeysetofassumptionsthatvarybygeography.

Letmestartwithinternational.Internationally,weareplanningformid-single-digitmarketgrowthoverthelong-rangeplan.OurplanassumessomelimitederosionuponEnbrelbiosimilarlaunchesstartingin2016.Asoutlined,embeddedwithinourguidanceisanexpectationforaHumiraex-USbiosimilarlaunchinthefourthquarterof2018,withtheexpectedpricingandmarketshareperformanceforsuchproducts.WeanticipatemoderateerosionfromdirectHumirabiosimilarcompetitionbeginningin2019.

IntheUS,ourlong-rangeplanassumesthatUSmarketsdelivermid-tohigh-single-digitmarketgrowthdrivenbyroughlya4pointincreaseinbiologicpenetration.Despitecompetitiveentries,weexpectthatHumirawillonlyexperienceminorerosionofmarketshareoverourLRP.Andaswe'veoutlined,webelievethelitigationprocessandourintellectualpropertyestatewillprotectHumirafrombiosimilarentryuntil2022.




OurLRPalsoassumessuccessfulpenetrationofnewHumiraindications,andourimmunologypipelinewillbegintocontributenewrevenueswithcommercializationofABT-494in2019andotherassetstofollow.ItisourexpectationthatAbbVie'simmunologypipelinewillcontributenearly$8billioninnominalsalesin2024,withABT-494--asignificantlyderiskedasset--representingroughlyhalfthatexpectedcontribution.

Nowmovingtoslide20andmovingontoouroncologyportfolio.Aswe'vesaid,weacquiredPharmacyclics,andImbruvicarepresentsapipelineinamoleculewithsignificantgrowthpotentialthroughitsexistingandexpandinglistofindicationsandlinesoftherapy.Thistransformativetherapyhasalreadysecuredapprovalforthetreatmentoffourindications,andtherearemorethan25Company-sponsoredclinicalstudiestoevaluateImbruvicaasatreatmentforawiderangeofadditionalcancers.

Initsfirstyearonthemarket,Pharmacyclicsandourpartnerhavedrivenmarket-leadingperformanceandtherapeuticuptakeofImbruvica,clearlydemonstratingthestrengthofthemedicine'sattributesanditsclinicalprofile.WeexpectImbruvicatoachieveblockbusterstatusin2015,withAbbVie'sprojectedImbruvicarevenuesgrowingtoapproximately$5billionin2020.

Imbruvicahasvastpotentialforlabelexpansionandfutureindications.Itiscurrentlybeingevaluatedinmid-andlate-stagetrialsinfollicularlymphoma,marginalzonelymphoma,diffuselargeB-celllymphoma,andmultiplemyeloma.

WearealsoencouragedaboutImbruvica'spotentialingraft-versus-hostdiseasebasedondatafromanearlier-stagestudy.IfImbruvicademonstratesclinicalvalueinsolidtumors,therewouldcertainlybesignificantupsidetoourexpectations.WerecentlyinitiatedaPhase3trialevaluatingImbruvicainpancreaticcancer,andwearecurrentlystudyingImbruvicainothersolidtumortypesincombinationwithimmuno-oncologyagents,includingearly-stagestudiesinbreastandlungcancer.

Turningnowtoslide21.OuracquisitionofPharmacyclicssignificantlyacceleratedAbbVie'sclinicalandcommercialpresenceinoncology.WithImbruvica,we'veestablishedaleadershippositioninthehematologicaloncologymarket,whichispoisedtonearlydoubleto$50billionby2020.

Wearewellpositionedtobuilduponourleadershipinthiscategorywithotherpromisingassetsindevelopment.BeyondImbruvica,wehaveseveralotherproductsindevelopmentthathavethepotentialtoofferdifferentiatedefficacyinawiderangeofbloodcancers.

OurBCL-2inhibitor,venetoclax,isinlate-stagedevelopmentforCLLandmid-stagetrialsforseveralothercancertypesincludingNHL,AML,andmultiplemyeloma.Duvelisibisinmid-andlate-stagetrialsforCLLandNHL.Andwehaveaninnovativeantibodydrugconjugateinearlydevelopmentformultiplemyeloma.

Givenourbroadportfolio,webelievewehavethepotentialtocontinuetoevolvethetreatmentlandscapewithininnovativecombinationsoftheseandothermechanisms.Ourgoalistomarkedlyimproveefficacybyachievingdeep,durablediseasecontrolorremissionswhilereducingoreliminatingtheuseoftoxicchemotherapy.

WerecentlycompletedthedesignforourfirstclinicaltrialevaluatingvenetoclaxincombinationwithImbruvicaandGazyvainfirst-lineCLL,andweexpecttoinitiatethestudyinthefirsthalfof2016.

Wealsohaveanactivediscoveryprogramwiththeobjectivetodrivethenextwaveofimmuno-oncologydevelopmentbeyondcheckpointinhibitors.We'reparticularlyfocusedontheuseofourbispecificbiologicplatformtosupportconditionalactivationoftheimmunesysteminthevicinityoftumorcells,andweareleveragingtheemergingscienceofsolubleT-cellreceptortechnologyaswell.Weanticipatemultipleimmuno-oncologyassetsmovingintohumantrialsin2016.




Movingtoslide22.Theassetsinourpipelinespanattractivespecialtycategories.Alltold,wehavemorethan50productsorindicationscurrentlybeingevaluatedinhumantrials,withmorethan20currentlyinregistrationaltrialsorunderactiveregulatoryreview.

Turningnowtoslide23.We'vebuiltarobustpipelinecomprisedofpotentiallytransformationalmedicinesinlargemarketswithprofoundunmetmedicalneed.Ourpipelinehasthepotentialtodelivernearly$30billioninnominalnewrevenueby2024.Severalproductscurrentlyinlate-stagedevelopmenthavethepotentialtobemultibilliondollarassetsthatwilloffergrowthandtop-linediversification.Wealsohavenumerousprogramsinearly-stagedevelopmentunderwaythathavethepotentialtocometofruitioninthelateryearsofourlong-rangeplan.

Now,turningtoslide24.Overthepastyear,we'veseendatafromnumerouskeyassetsthathavefurtherincreasedourlevelofconfidenceinourlikelihoodofclinical,regulatory,andcommercialsuccess.Basedonourprogress,wehavesignificantlyderiskedalargenumberofmajordevelopmentprogramsthatnowhaveaveryhighprobabilityofsuccess.

Forexample,ourfirstregistrationalstudyforvenetoclaxinrelapsed-refractoryCLLpatientswith17pdeletionmetitsprimaryendpointandiscurrentlyunderregulatoryreview.Asmentionedearlier,thefrontlinedataforImbruvicainCLLwererobust,andourregulatoryapplicationsareunderactivereview.

RegulatorysubmissionsforZ inbrytainMSarewellunderway,supportedbyalargeregistrationprogramthatshowedthenovelbiologicwassuperiorversusanactivecomparator.We'veseenpositivedatafromseveralelagolixstudiesinendometriosisanduterinefibroids.

Ourpartneredasset,elotuzumab,iscurrentlyunderregulatoryreviewforrelapsed-refractorymultiplemyelomafollowingreceiptofBreakthroughDesignation.Wedisclosedtop-linedatafromourselectiveJAK1inhibitor,ABT-494,illustratingitspotentialforbest-in-classefficacyinRA,eveninthemostdifficulttotreatTNF-inadequateresponderpatients.

WehavesuccessfullycompletedtheHumirauveitispivotaltrial,withfilingscurrentlyunderregulatoryreview.Andweannouncedtop-linedatafromournext-generationHCVprogram,illustratingitspotentialtoofferahighlycompetitiveprofile.

Turningnowtoslide25.We'vemadesignificantprogresswithourpipeline,andweanticipatecontinuedadvancementsbetweennowandtheendof2016.Asyoucanseenotedonthisslide,wehavenumerousproductapprovals,datareadouts,registrationsubmissions,andphasetransitionsanticipatedoverthenextyearorso.

Now,turningtoslide26.Thecontinuedgrowthfromourexistingportfoliocombinedwiththerisk-adjustedsalescontributionfromourpipelinewilldrivetop-tierrevenueperformanceoverourlong-rangeplan.ThislevelofrevenuegrowthputsAbbVieneartheverytopofourexpandedpeergroupbasedoncurrentconsensusestimates.

Turningnowtoslide27.Inadditiontothestrongtop-linegrowth,wealsoexpecttodeliversignificantmarginexpansionintheyearstocome.Ourfocusondrivingoperatingefficienciestodatehasresultedinstrongimprovementinbothgrossandoperatingmarginprofiles.Onthisslideyoucanseethesignificantlevelofmarginimprovementthatwe'vedeliveredsinceourfirstquarterasanindependentCompany.

Turningtoslide28.Ourcontinuedfocusonoperatingmarginwilldrivefurtherexpansion,withaprojectedoperatingmarginofgreaterthan50%by2020andanaverageof100to200basispointsofimprovementperyear.Expansionwillbedrivenprimarilybyongoingefficiencyprogramstooptimizemanufacturing,commercialinfrastructure,administrativecosts,andgeneralcorporateexpenses;productivityinitiativesinsupplychain;andthereductionofHumiraroyaltyexpensein2017and2018.




Additionally,we'llseecontinuedsalesleveragefromourrapidlygrowingtopline.

Ourguidancefor2020operatingmarginincorporatesapproximately200basispointsofdilutiveimpactfrompartneredassetsincludingImbruvica,venetoclax,Z inbryta,andSynagis.Asyoucanseeonslide29,thispowerfulcombinationofrevenuegrowthandmarginexpansionpositionsAbbVieasoneofthetopEPSgrowthcompaniesamongourexpandedpeergroup.

Turningnowtoslide30.AbbViegeneratesignificantcashflowwhichweexpectwillgrowin2016andbeyond.Sofarin2015,wehaverepurchased$6.25billionofshares,includingtheASRassociatedwiththePharmacyclicsacquisition;andwehave$3.45billionremainingonourcurrentbuybackprogram.

AsImentionedearlier,todayweannouncedthatourBoardhasauthorizeda12%increaseinourquarterlydividend.Since2013,wehaveincreasedourdividendbymorethan42%,andweintendtomaintainastrongcommitmenttoagrowingdividendgoingforward.

We'llalsouseourstrongcashflowtocontinuetoaugmentourpipelinethroughstrategiclicensing,acquisitions,andpartneringactivity.Overthepastseveralyears,we'veaddednumerouspromisingassetstoourportfolio,andwecontinuetofocusonidentifyingcompellingprogramsthatfitourstrategiccriteria.

Turningtoslide31.SincewebecameanindependentCompanyin2013we'veconsistentlydeliveredonourcommitments,andwearepositionedtodelivermorethan28%bottom-linegrowthin2015,alevelofperformancethatputsusatthetopofourpeergroup.Aswelookat2016,we'reonceagainpoisedtodelivertop-tierfinancialperformancewithEPSgrowthof17%,themidpointofourstrongguidancerange.

Basedonour2016midpoint,AbbViewillhavegrownitsEPSbyroughly60%injustthreeyears.Acrossourlong-rangeplan,we'reprojectingourEPSgrowthtoaveragenearly15%,againputtingAbbVieintheverytopofourpeergroup.

Insummary,wearewellpositionedtodeliverstrongtop-andbottom-lineperformancethrough2020andbeyond.Wehaveestablishedgrowthplatformsinsomeofthelargestandmostattractivemarketsegments,includingimmunology,oncology,virology,andneurology.Andwe'vebuiltacompellingpipelineintheseareaswhichwillcontributesignificantlytoourperformanceintheyearstocome.

Ourcommitmenttotop-linegrowthandexpandingouroperatingmargintogreaterthan50%willgeneratedouble-digitEPSgrowthonaveragethrough2020.We'vebuiltastrongfoundationandwearecommittedtodeliveringtop-tierfinancialperformance.

Withthat,I'llturnthecallbackovertoLarry.Larry?


Thanks,Rick.We'llnowopenthecallforquestions.Operator,wewilltakeourfirstquestion,please.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)JamiRubin,GoldmanSachs.

JamiRubin (Analyst-GoldmanSachs):

Thankyou,andwow,thatwasalotofdetail,Rick.It'sgoingtotaketime,Ithink,todigestitall,butIknowthatwecertainlyreallyappreciateit.




Firstquestionisthis,waswonderingifmanagement'scompistiedtothelong-termtargets.Secondly,itseemsthatthebiggestdeltabetweentheStreetandyourguidanceonHumiraistimingofabiosimilarlaunch.Wonderingifyoucancommentonthat,andalsoifyoucouldcommentonAmgen'sCEO'scommentsonhisearningscall,wherehesaidthatHumirahasIPandAmgenhastorespectthat.

IsitthecasethattheStreet'sjustcomingaroundtoyourviewonthestrengthofyourIPandthetimelineofthe351(k)pathwayregulations?OrhassomethingreallychangedintermsofyourconfidencewithIP?

Andthirdly,andI'msorryforthis,butwithyouroperatingmarginguidancegrowingtoover50%bytheendofthedecade,itlookslikethat'sreallycomingordrivenbystrongrevenuegrowth,notbyoperatingcostcuts.Canyouconfirmthat?

Andobviouslyinabearcasescenario,howmuchflexibilitydoyouhavetoreduceyourSG&A?Weallknowyou'respendingalotonHumira;it'shavingareallygoodreturnoninvestment.Butifthatchanges,howmuchflexibilityyouhave.Thanksverymuch.


Thankyou,Jami,forallthosequestions.


I'msorry.


No,we'rewritingthemdown,sowe'llcovereachandeveryoneofthem.Letmestartwiththemanagementcomp.Ithinksimilartoprobablytheothercompaniesinourindustry,thevastmajorityoftheexecutiveteam'scompisinlong-termincentive.It'sassociatedwiththeappreciationofthestock;soI'dsaywe'redirectlylinkedtothat.

Inadditiontothat,forthetoppeoplewithinourCompany,wehavetwolevelsofincentiveplans.Oneisbasicallyfocusedontheshort-termplanyear.Andthenwehaveonewhichisalonger-termplanthatbasicallyisdesignedtohitathree-year-outtarget,whereyouwouldsetthingslikethisoperatingmargintarget.

Sothebottomlineis,yes,there'sperfectalignmentbetweenallofthesemetricsandhowpeoplewillberewardedagainstthose.

Toyoursecondquestion,whichwasisthegapprimarilythetimingofbiosimilars?I'dsaythat'saccurate,forthemostpart.There'sprobablymorepenetrationandmoregrowthintheindicationsingeneralthatarebuiltinversustheStreet.Butthemostsignificantpartistheassumptionthatwe'remakingaroundthetimingofUSbiosimilarentry.

AsfarastheAmgenCEO,IreadthecommentandIfindthecommentencouraging,butI'mnotgoingtocommentspecificallyonwhattheysaid.

Ithink,toyourpointaboutistheStreetjustnowcomingaroundtoourpointofview,infairness,muchofthisIPhasonlyreallycomeoutinthelasttwoyears.Ithinkbothcompetitively,thatisnowsomethingthatpeoplewhowereinterestedincomingupwithabiosimilararehavingtoevaluate.Soit'snotliketheyhadalotoftime,andtheStreetcertainlydidn'thavealotoftime,tobeabletoevaluatethataswell.

I'dsaysecondarily,look,therewasnoadvantagetousgoingoutearlyandtoutingthateither.Wewantedtomakesurethatourstrategywasinapositionthatwassolidandwherewewantedtobe,andwe'veworkedhardoverthelastthreeorfouryearstogetourstrategyinplace.




We'reatapointnowwherewe'reconfidenttobeabletotalkaboutit.Andyouheardmywords,soyouprobablycan'tbemuchcleareraboutwhatourintentis.Soattheendoftheday,IthinkinfairnesstotheStreetyounowhavealltheinformationandyoucandetermineyourpointofviewaroundthat.

I'dsayontheconfidenceintheIP,wehaveahighlevelofconfidenceintheIP.SoIthinkwefeelverygoodaboutourposition.

Ifanything,ourtendencywhenwedoourlong-rangeplanistobealittlebitontheconservativeside.I'dsaytheEuropeassumptionsthatwe'remaking,asanexample,Ithinkareclearlyconservative;there'sfarmoreopportunityforupsidethanthereisdownside,andthat'snormallyhowwetrytobuildourforecastbecausewewantanopportunitytobeabletomakesurethatweachievethose.

Ontheoperatingmargin,Ithinkwhatyourquestionwasisitalmostalldrivenbysalesleverage?No.

Ithinkthewaytothinkaboutitisthis.InBill'scommentsweguidedtotheendofthisyearbeing42.5%,becauserememberthefourthquarterwillhavehighSynagissalesandwe'llalsohaveafullquarterofImbruvica,sowehavemorepartneredrevenuesinthefourthquarter,andsothattendstobedilutive,asIdescribed.Sowe'llexitthisyearsomewherearound42.5%.

ButthenIthinkthewaytothinkaboutthetargetthatwe'vesethereisyouhavetobackoutthedilutiveimpactoverthefive-yearLRP,whichisabout200basispoints.Soyou'rebackdowntoabout40%asyourstartingpoint.

Soyou'regoingtogoto40%tosomethingnorthof50%,soabouta10-pointimprovement.Ifyoulookatthat10-pointimprovement,andIhaveBillherewithme,roughly25%ofitcomesfromtheroyaltyreductiononHumirathatwilloccurbetween2017and2018;about30%ofitcomesfromcostreductions,costmanagementkindsofprograms;andtheremaindercomesfromtheleveragethatweseeofafast-growingtoplinewithexpensesbeingmanagedatasignificantlylowergrowthrate.That'showyououghttothinkaboutit.


Okay.Superhelpful.Thankyouverymuch.

Operator :

JeffreyHolford,Jefferies.

Jef f reyHolf ord (Analyst-JefferiesLLC):

Thanksverymuchandthankstotheteamfortheverycomprehensivemidtermoutlooktoday,whichIthinkreallysetsoutyourpositioningonHumiraandtherestofthebusinessveryclearly.

NowobviouslythedebateonHumirawillcontinue,anditseemsthatthelinchpinforyouneartermistheachievementofaninjunctionagainstanywould-beat-risklaunches.We'verecentlyheardfromAmgenregardingat-risklaunch,andwecertainlyheardthatalsofromotherlargebiosimilarplayers.

Butcouldyoubemorespecificonthetriggerforstartingeitherthepatentinfringementprocessandtheinjunctionprocesses,sowecanthinkbetteraboutthetimingofthose?Aretheymorelikelytobetiedtofilings,orFDAapprovals?Sothat'sthefirstpiecethere.

Thensecond,on2016guidanceitwouldjustseemtousthatyou'repotentiallyimplyingyoudonotexpecttoincreasethe$3billionexitrateforthehepCfranchisein2016.Ifyoucouldspeaktothattoo.

Thenjustlast,you'vetalkedaboutbeingreadyforlargerdealsagainby2017.Tobeclear,thecurrent




guidancedoesnotincludeanythingforadditionalM&A,justbeclearonthat?

Thencanyoutellusabitmoreaboutsubstantialsharerepurchaseisthatmightbepartofyourmidtermplan,too,atleastasabackstopifyoucan'tfindsubstantialM&Atargets?Thankyou.


Okay.I'mactuallygoingtohaveLauraaddressyourfirstquestion,Jeff,andthenI'llcovertherest.

LauraSchumacher (GeneralCounsel):

Withrespecttothetriggerforthefilingoflitigation,thereisaprocessthat'slaidoutspecificallyinthestatute,whichtherehasbeenlitigationoverwhetherornotthatprocessismandatoryornot.Fromourstandpoint,weareanticipatingthatintheeventthatthereisabiosimilarapplicanttheywillorwon'tchoosetofollowthatprocess;it'sbeenfoundtobenotmandatory.Shouldtheychoosenottofollowthatprocess,uponnoticeofthefilingoftheapplicationofcoursewewouldinitiatethelitigation.

Withrespectspecificallytoaninjunctionagainstanat-risklaunch,thatinjunctionagainstanat-risklaunchwouldbetriggeredupontheapprovalofabiosimilar.AndofcoursewewouldthenrequestthatthecourtenforceourIP.

AsRicklaidoutearlier,weintendtovigorouslyenforcetheIP,andwebelievewehaveaverystrongcaseforaninjunction,givenfirstofallthatwebelieveanybiosimilarapplicantwillinfringeatleastcertainofourpatents.Becauseinordertofollow--tobeclassifiedasabiosimilar,theywillneedtohavethesamedosingregimenastheinnovatorproduct.

Astovalidity,wethinkwehaveaverystrongcaseonvaliditygiventheuniquenessofHumiraandthefactthatHumirawasthefirstfullyhumanantibodyapprovedbytheFDA.Andtherewasnothingknownaboutitseffectivenessoritsoptimaldosingregimenatthetimethatwedidextensiveclinicalwork,trial,investment,etc.Sowebelieveintheeventthattherewasanattemptatanat-risklaunch,wewouldhaveaverystrongcaseforapreliminaryinjunction.

Also,asyouknow,intheeventabiosimilarwouldchoosetolaunchat-risk,thedamagesforsuchalaunch,shoulditbefoundtobeviolativeofourpatents,wouldbeverysignificant.


Thankyou.


Okay.Thanks,Laura.SoletmetaketheM&Aquestion.Yes,theguidancethat'slaidouttodaydoesn'tcoveranysignificantacquisitionactivityorlicensingandacquisitionactivity.Obviously,asthatplayedoutwewouldlookat--basedonthesignificanceofit,wewouldmakeadecisionhowwewoulddealwiththat,eithersomethingwecouldmanageorsomethingthatwecouldnot;andthenwewouldobviouslypassthatintoourguidanceandcommunicateitappropriately.

Aswetalkedaboutbefore,I'dsaythatourfocusforthenextcoupleofyearsismoretryingtofilloutourportfolioofassetswithinthetherapeuticareasthatwe'rein.Wedon'tanticipatealargetransactioninthattimeframe;andnothinghaschangedaroundthatfront.

Thatkindofgetstothewholesharerepurchase,althoughI'llhaveBilltalkaboutthatjustforamomentaswell.ButultimatelyhowwelookatsharerepurchaseversusM&Aiswe'retryingtomanagebetweenthosetwotomakesurethatwehavetheappropriatecapacitytobeabletodothethingsthatweneedtodoforthebusinesslongerterm.Andsharerepurchaseismoreofanopportunistickindofan




approach.BillIdon'tknowisthereanythingyouwanttoaddtoit?

BillChase (CFO):

No,Imeanobviouslyifyoulookatthislong-rangeplan,there'sgoingtobeprettyrobustcashgeneration.Aswegetoutacoupleyears,thatcanclearlyfundlargerM&Aifwedeemthat'snecessary.

Totheextentthatanopportunityisn'treadilyapparent,well,thenwewouldcertainlyhavetolookatotherthingstodowiththatcash.Andsharerepurchasescouldverywellbepartofthat.


Yes.Onthe2016guidance,Imeanobviouslywe'vejustgonethroughourplanningprocessfor2016.Thewaywedoplanningiswebuildeverythingupfromthebottomup,productbyproduct.Wemakedeterminationsastowhatwe'regoingtoassumeforeachproductbasedonasetofassumptionsthatwethinkareabsolutelyrealistic.

SowehaveanHCVnumberthat'sinour2016;wetendtobealittlebitontheconservativesidewhenwebuildtheseupsothatwehavetheflexibilitytomakesurethatforanyunforeseeneventswehavetheabilitytobeabletomanageourwaythroughthose.AndI'dsaythisplanisnodifferentthanpreviousonesthatwe'vebuilt.

ButspecificallyforHCV,I'dsayHCVwillhavesomegrowthbuiltintoityear-over-year,becausejustofthegatingofhowthecountrieshaverolledoutovertimeinternationally,you'regoingtogetyear-over-year.We'rejustlaunchinginJapannow--well,we'renotlaunching,wewillbelaunchingshortlyinJapannow.

AndJapan'sasignificantopportunityforussoitwillcreateayear-over-yeargrowthdriverforusaswell.So,I'dsaythereisgrowthbuiltintotheHCVfranchise.

Butletmespecificallytalkmaybeaboutthis$3billionrunningrate,becauseIknowImadethatpredictionintheearlypartoftheyear.Ifyoulookatwherewearerightnow,whatIwouldtellyouiswe'regoingtobeclose,butwe'reslightlybelowthatrightnowinthefourthquarter,atleastaswhatwehavebuiltintoourcurrentguidancefortheyear.It'safunctionprimarilyofthefactthatinthebeginningoftheyearthenumberofpatientsbeingtreatedwassignificantlyhigher.We'veseenthattrenddown;we'veseensomechangesinVAintheUnitedStates.

SoI'dsaywe'regoingtobeclose.Wecouldmakeit,butwemightmissit.AndasIsaid,wetendtobuildconservatively.Whatwehaveinthefourthquarterrightnowisslightlybelowthat.


That'sgreat.Thanksverymuch.

Operator :

Mr.MarcGoodman,UBS.

MarcGoodman (Analyst-UBS):

Yes,morning.494,$4billionin2024isaprettybignumber.Canyouhelpframehowyou'rethinkingaboutthat?

Thensecondly,justAndroGelcontinuestobealittlestrongerthanwethink.Whyisthat?What'sgoingonbehindthescenes?Thanks.





Well,I'dsay494,basedontheprofilethatwe'vesetup,Iwouldsay$4billionofrisk-adjustedrevenueforanassetthathasthatprofileinthattimeframeisn'tastretchnumberfromourperspectiveatall.WhenyoulookatthelevelofresponsethatyouhaveintheTMF-inadequateresponderpatientpopulation--whichasIsaidinmyremarks,representsabout35%oftheUSpatients.We'dassumeit'ssomethingsimilartothatinEurope;it'salittlemoredifficulttogettothedatainEurope.It'sasizablepopulationandit'sapopulationthathasrelativelylimitednumberofoptionsavailabletoit.

Inadditiontothat,whenyouthinkabouthowbiosimilarswillultimatelyrollout,Ithinkit'sagoodassumptiontoassumethatbiosimilarsaregoingtocapturesomeportion,maybeasignificantportion,butatleastsomeportionofthenewpatients.Sothey'regoingtobegeneratingmoreTNF-inadequateresponders.

NowtheymightrotatethroughanotherTNFafterthat.Butaproprietaryproductwillhaveanopportunityinabiosimilarworldtogoafterthosenonresponders.Sothat'saverysignificantopportunity.

Inadditiontothat,obviouslytomycommentsaboutourorganizationrepresentingthisproduct,therewillbeagoaltobeabletotaketheappropriatepatientsandtrytomovethemtotheappropriatekindsoftherapies.Sopatientsthataren'trespondingaswellonHumira,obviouslywewouldwanttomovethemto494asanalternative.

Sowhenyoulookatallofthat,I'dactuallysaythata$4billionnumberisnotanumberthatwe'reuncomfortablewith.

BillChase (CFO):

Marc,onAndroGel,clearlyithasperformedbetterthantheStreetwasthinking;andfrankly,it'sperformedalittlebitbetterthanwewerethinking.Themarketstillisindecline.However,whatyou'rereallysayingislessuptakeorlessimpactonthebrandfromthegeneric1%formulation.It'ssomethingwe'rejustgoingtohavetokeepoureyeon,butsofarsogood.

Operator :

ChrisSchott,JPMorgan.

ChrisSchott (Analyst-JPMorgan):

Great.Thanksverymuchandthanksforallthedetailstoday.Ijusthadthreequickoneshere.

First,followinguponJami'squestion,ifforwhateverreasontheHumiraIPfallsandsalesendupclosertolet'ssayconsensusthanyour$18billiontarget,isa50%marginrealisticinthatscenario?I'mjusttryingtogetasenseoflikewheremarginscouldgointhatdownsidecase.Iknowthat'snotthescenarioyoulaidout,butjusttryingtounderstandthat.

Second,justthoughtsonwhathappenedearlierthisyearwithAmgenandSandozwithNeupogen,arethereanylearnings,similarities,ordifferencesthatweshouldapplywhenwethinkabouttheHumirasituation?

Thenfinally,onthelonger-terminternationalHumiratargets,couldyoujustgiveusalittlebitmorecoloronthetypeoferosionyou'reassuminggivenbiosimilarsforEnbrelandpotentiallyHumiraoverthatwindow?Justhowmuchpriceandvolumeimpactareyoureflectinghere?Thanksverymuch.





Okay.Idon'tknowthatthe50%margintargetwouldberealisticinamorecatastrophickindofsituation.WhatIwouldtellyouiswe'veobviouslylaidoutcontingencyplansbycountry.Becausethiswillberolledoutbycountry,obviously--right?--asbiosimilarsenterthosecountries.Andwehaveanerosioncurvethatwe'vebuiltbycountry.

Ifthecountrystartstofallbelowthaterosioncurve,thenwe'lldowhatwealwaysdo.Thatis,wewillmanagetheexpensebaseaccordingly.sowehavetheabilitytobeabletomanageandoffsettheprofitabilitylikewewoulddowithanytypeofLOE.

SoattheendofthedayIthinkwhetherornotithada50%margintargetornot,wewouldputacontingencyplaninplacethatwouldallowustotrytomaximizeprofitabilityorpreserveprofitabilityunderthatscenario.

Havingsaidthat,whatIwilltellyouiswehaveahighlevelofconfidenceinwhatwe'vebuilthere.Wedon'tbuildLRPsthatwedon'tbelievewecanachieve.

Again,we'renotshowingyouanythingdifferentthanwhatourinternalLRPsaysthatwepresenttoourBoardeveryyear.SoattheendofthedayIcantellyouwehaveahighlevelofconfidencethatwecandeliveragainstwhatwe'veputhere.

ThelearningsfromAmgen,I'massumingyou'retalkingaboutthewholeIPandlitigationprocessforAmgen,soI'mgoingtohavethatLauraaddressthatforyou.

LauraSchumacher (GeneralCounsel):

Yes,withrespecttotheAmgenNeupogenlitigation,alotofthedebateinthatlitigationsurroundedwhetherornottheprelitigationexchangeprocesswherebypatentsandinformationwereexchangedbetweentheinnovatorandbiosimilar,whetherthatwasamandatoryprocessoravoluntaryprocess.Andultimately,asIsaidpreviously,we'renotanticipatingfromatimingstandpointthattherewillbealitigationexchange.Itwillbesomethingthatthebiosimilarapplicantwillchoosetoparticipateinornot.

WithrespecttotheunderlyingpatentinfringementlitigationwithAmgenandNeupogen,ourlitigation--ourpatentestateisverydifferentthanthat.Inthatcase,there'sveryfewclaimsandpatentsinours.

Aswe'vesaidbeforewehaveover70patents,manyofwhich,certainofwhichwillbeinfringedandsomewhichmaybeinfringed.Sowe'llhavetoseewhenweknowmorespecificallyaboutwhatformulationand/orprocessaparticularbiosimilarapplicantuses.


Okay.Thanks,Laura.ThenontheEuropeanerosioncurve,obviouslyaspartofthisplanningprocess,wehavebuiltaveryspecificerosioncurveforbothEuropeaswellastheUnitedStateswhenwegetbeyond2022.ButwhatIwouldsaytoyouis--andI'llwalkthroughtheEuropeanone--orI'llwalkthroughtheinternationalone,Iguess,moregenerally.

ButwhatI'dsayisit'sfairlycomplexbecausetherearelotsofdifferentvariablesifyouthinkaboutit,right?You'regoingtohavecountriesrollingoutatdifferenttimesastheyenterthosecountriesandtheygetpricingapprovalwithinthosecountries.Noteverycountryisexactlythesamehowyougetpricingapproval.Sothereisthisgatedperiodwhereyougoacrosscountrybycountryasbiosimilarswouldenterit.

Thesecondthingisyouhavetolayerinwhatourstrategywillbe.Webuildastrategybycountry.

Therewillbecountrieswherewechoosetotakepriceerosiontomaintainallofthepatients--new




patientandwell-maintainedpatients.Theremaybecountrieswherewechoosetoonlykeepwell-maintainedpatientsanddosomethingdifferentfromapricingstandpoint.Sotherearesomecomplexitiesaroundthat.

ThenthethirdpointthatI'dsaytoyouthat'sveryimportantasyouthinkaboutthis--becauseI'mgoingtowalkyouthroughwhattheerosionlookslikehereinjustamoment--iswhenabiosimilarenterstheinternationalmarkets,thesemarketsarestillgrowing.AsIsaid,theregrowinglikemid-singledigits.SoasIdescribedtoyouwhattheerosionlookslike,thenumberI'mgoingtogiveyouislowerthanwhattheycouldactuallycaptureorthepriceerosionmightultimatelytranslateto,becausetheywilltakeacertainportionofthatmarketgrowthwithinthosemarkets.

Sohavingsaidallofthat,Ithinkthesimplestwaytothinkabouttheerosioncurveisthis.IfyouthinkaboutinternationalHumirasales,theywillpeakintheforecastwe'velaidoutforyouhere,allthefinancialswe'velaidout,theypeakin2018;andfrom2018thentheystarttodecline.Ifyoumoveouttwoyearsto2020,whichistheyearwe'recharacterizingforyou,theerosionoftheinternationalHumirabusinessisabout15%to18%.

Now,havingsaidthat,theimpact--ortheopportunitylostprobablyisthebestwaytothinkaboutit--wouldbegreaterthanthat.Becausewithoutbiosimilarcompetition,Humirawouldhavecontinuedtogrowinthoseinternationalmarketsbeyondthatperiodoftime.

Soitprobablysoundsalittlelowerthanyouwouldexpected,butit'sbecauseyouhavetothinkaboutitinthosetwocomponents.Partofthecomponentisitwilltakesomepriceoutofthemarket,whichwillreducemarketgrowth.Theothercomponentistheymaytakesomenewpatients,sotheyaretakingsomeofthemarketgrowthoutthatway.

ButyoujustsaywhatistheimpactonAbbVie,itisthebrandpeaksatthatpointanditdeclinesabout15%overthatperiodoftime.

ChrisSchott (Analyst-JPMorgan):

Veryhelpful.Thankyou.

Operator :

MarkSchoenebaum,EvercoreISI.

MarkSchoenebaum(Analyst-EvercoreISI):

Hey,guys;thanksforallthedetail.I'minagreementwiththeotheranalystsonthat.Acouplequestions.

Numberone,whatwasoperationalHumiragrowthratesquarter-on-quarteraswellasyear-on-yearininternationalmarkets?

Thesecondquestionis,youdidn'tcommentonyourtaxrateoverthelongterm.Idon'tthinkIsawthatinyourslides.IwouldassumethatastheCompanydiversifiesawayfromHumirayou'regoingtodiversifyintomoretax-optimizeddrugs,tax-optimizedassets.SoIwouldpersonallybecomfortablemodelingadeclineinyourtaxrate,andIwantedtohearyourthoughtsonthat.

WhenIdothat,andwhenIuseanoperatingmarginofonly51%--eventhoughyourguidancesaysgreaterthan50%,anditcouldbe55%or60%,whoknows?--I'mgettingtoanEPSnumberin2020ofaround$10ashare.I'mjust--Iknowyou'renotgivinganEPSnumber,butamIthinkingaboutthisallwrong?BecausemostpeoplesayI'mnotverygoodwithmath.





Whydon'tyoucoverthetaxratefirstandI'llcover--?

BillChase (CFO):

Yes.Ifyoulookatthisbusinesssincewe'veseparatedfromAbbott,thetaxratehasbeenprettyconsistentlyinthe21%to22%range.That'slargelydrivenbyourneedforUScashforcertainitems.

SoaswedoourLRP,again,whatwedoiswebuilditonafairlyconservativebasis.WhatIwouldtellyouisourassumptionsarethatthattaxrateinthe21%to22%istherightassumptionforthisbusinessoverthenext10years.


That'sbecauseofyourrepatriationneeds?BecauseIwouldimaginethetaxrateonsingleassetsthatarelarge,likeyournewJAKandImbruvica,onaP&Lbasis,single-productP&Lbasis,wouldbemuchlower.

BillChase (CFO):

Yes,butyou'vegotImbruvica,whichislargelyaUSproductforusfromataxrate.Sothatactuallyliftsthetaxratetheotherway.


Okay.

BillChase (CFO):

Soyou'vegotalotofdifferentthingsinthemix,Mark.


Okay,thanks.


Look,ontheEPStarget,Iwouldjusttellyouthatattheendofthedaywebuilditupfromthebottomup,andwedon'tcomeupwithyournumber.Attheendofthedayyoucanassume50%,60%,70%operatingmarginprofileandgetprettybignumbers;butifyou'regoingtodrivethislevelofgrowthyouhavetoinvestinthebusinessinawaythatallowsyoutobeabletodothat.

SoIthinkthenumberswehaveforecastedcertainlyrepresentthetoptierinthisindustry,andthey'rethenumbersthatwe'rewillingtostandbehind.

OnoperationalgrowthinternationallyforHumiraquarterversusquarter,whatI'dtellyouisthis.WesellHumirainalmost100countriesaroundtheworld,right?Andmanyofthosecountrieshavetenders,andtendersdon'talwaysfallconsistentlyinthesamequarter.So,quarter-over-quarterdoesn'tnecessarilygiveyouaveryaccuratepictureofhowthebrandisgrowing,althoughIwilladdressithereinamomenttoanswerspecificallyyourquestion.

IthinkthebestwaytothinkaboutHumirainternationally--andlet'sjustusethisyearastheexample--istolookatwhatthegrowthrateisforthefirstthreequarters'worthofgrowthandcompareittowhattheprioryearwas.Ithinkthat'sthemostreflectivewaytolookatit.

Thatwouldsaythatrevenuesareupabout8.3%year-to-date,year-over-year.Volumeisupabout10%,okay?Soit'sslightlydowninprice,whichisconsistentwithwhatwe'veseeninpreviousyears;nothing




unusualthere.

Andmarketshareisstableatjustunder34%versustheprioryear.Iwouldtellyouthat'swellwithintherangeofwhatweexpectedwhenwedidourplan,andit'strackingconsistentlywithwhatweexpectedasitrelatestoourplan.SointernationalHumiraisperformingthewaywewouldhavehopedandexpectedittobeabletoperform.

Nowifyoulookatquarterversusquarter--andI'massumingyou'respecificallytalkingaboutthirdquarterversussecondquarter.Ifyoulookatthirdquarterversussecondquarter,it'sdownabout1.3%or1.4%--1.4%.Whatyouhavetorecognize,andI'msureyou'reawareofthis,themonthofAugustinEuropeistheholidaymonth,right?Somostphysicianofficesdon'thavethesamenumberofofficedays;infacttheyhaveverylimitednumberofofficedays.

SoyougetasignificantlylowerlevelofnewpatientstartsinthemonthofAugustversusothermonthsintheyear.Thereforeeveryyearthethirdquarterislower.Infact,ifyoulookatlastyear,Ithinklastyearitwasdownabout4%--4.4%,andsothat'sacommontrendthatwesee.

I'dalsotellyou,asImentionedattheverybeginning,ifyoulookatitquartertoquarterandyoudon'tmakealloftheadjustmentsforanykindofananomalyoftendersbetweenthoseperiodsoftime,it'snotverymeaningfulinformationforyou.SoIthinkthebestwaytolookatitisyear-to-datehowwereweperforming?AndI'dsaywhenyoulookatthislevelofperformance,we'reprettycomfortablewithit.


Rick.Igotabunchofemailsinfromclientstotheanswertomypreviousquestionaboutthe$10number,whereyousaidyoudidn'tcomeupwithit.Wereyoutryingtosuggestthatyoucameupwithnumbershigherthanthatornumberslowerthanthat?Thanks.


No,Iwastryingtosuggestthenumberthatwecommunicatedisthenumberthatwecameupwith.


Okay,okay.Thanksalot.

Operator :

VamilDivan,CreditSuisse.

VamilDivan (Analyst-CreditSuisse):

Great.Thanksfortakingthequestions;andagainthanksforallthedetailsyouprovided.SoonemoreifIcouldonHumiraandthenoneonadifferenttopic.

ButjusttoHumira,Ithinkobviouslyalotoffocusonthebiosimilars,andyouaddressedthatprettywellIthought.JustwhatabouttheotherinnovativeproductsthatarecomingintotargetsomeoftheindicationsofHumirathatI'mthinkingabouttheIL-17s,competingoralJAKs,oralproductsforCrohn's.

Iknowyouguyshighlightedwhatyouhaveinyourpipeline,butcanyougivesomesenseofhowyouthinkthemarketshareerosionmightbeforHumiraassomeofthesenewinnovativeproductscomeintotheseotherindications?

Andasecondjustonneurology.ThisisanareaI'vealwaysstruggledalittlebitforyouguys.Soifyoucanjusttouchonthatalittlebitmore.




YoumentionedDuopacouldbeabigproduct,butmaybealittlebitmorearoundthenumberpatientsyouthinkwouldbewillingtousetheproductlikethat.Z inbryta,wheredoesthatfitin?Mostneurologistswe'vespokentokindofstruggletoseewherethatfitsintoaverycrowdedMSspace.

EvenAlzheimer's,youhighlightthatinthetotalmarketopportunity,butyourproductsareprettyearly.Sojustmaybealittlemorecoloronhowyouseeyourneurologyfranchisegrowingwouldbeveryhelpful.Thanks.


LetmestartwithHumiracompetition.Ithinkasyouknow,thisis--particularlytakeRA,asanexample,it'saprettyfieldalreadyandtheresomeprettygoodmechanismsinthere.AndyetstilltheTNFsstillcontrolthevastmajorityofthismarket.It'satoughmarkettobreakinto,evenwithfairlygoodprofilesofdrugs.

Now,havingsaidthat,I'dsaytherearesomegoodprofilesthatarestartingtoemerge.TheIL-17sareagoodexample;IthinkIL-17shaveaprettystrongprofile.

Butwhattypicallyhappensinthisareaisthosemechanismsforquiteaperiodoftimearerelegatedtothefailurepatientpopulation,becausephysiciansarecomfortable.Therearemanyotherfactorsthatarebuiltintoit,andtheytendtotakeupthatfailurepopulationforatleastanumberofyears,andthattendstobetheareasthattheygrowin.

Now,overalongerperiodtimetheymighthaveamorematerialimpact.ButasImentioned,ourassumptionis--andIthinkthisisavalidassumptionbasedonourexperienceinthepast--isthatHumirawillhavesomeerosionintheUnitedStates,butrelativelymodesterosionoverthisfive-yearperiodoftime.

Andthat,becausewe'reassumingbiosimilarsdon'tcomeintothemarketplace,thatisdrivenbytheseotherinnovativeproductsthatenterthemarket.Sothatisourassumptionaroundthat.

Asitrelatestoneuro,maybeI'llhaveMiketalkalittlebitaboutsomeoftheearlierstuff.ButI'dsayourworkinAlzheimer'sasanexample,therereallyisn'tanythingthat'sbuiltintothisplanningperiod.But--

MichaelSeverino (ChiefScientificOfficer):

Certainly.PerhapstoaddressyourquestiononZ inbrytafirst,whatweseewithMS,unfortunately,isthatitafflictspatientsoftenrelativelyearlyintheirlifespanandtheydealwithmany,manyyearsofongoingrelapsesandultimatelyinmanypatientsadownwardclinicaltrajectory.Sowhatthatdoesisitcreatesaneedfordifferentmechanisms,mechanismsthatattacktheproblemfromdifferentdirectionsmechanistically,andmechanismswithconsiderableefficacy.

SowefeelthatthereisarealplaceforZ inbrytainthetreatmentarmamentarium,particularlywhenfolksarelookingforagentsthathavesubstantialefficacyashasbeendemonstratedinthatprogram.

WhenyoulookattherestofourneuroscienceeffortsapartfromDuopa,obviously,andZ inbryta,theyareveryearlyandtheyarenotcontributing,asRicksaid,tothefinancialnumbersyetinalargeway.Butwedofeelthatwehaveanumberofverypromisingapproachestogoafterinthelongerterm.TheneurodegenerativeaspectsofMS,forexample,whichisstillalargeunmetmedicalneed,anddiseasessuchasAlzheimer's,sothat'safocusinourlabsontheearlyend.


Yes,andIwouldjustaddacoupleofpointsonZ inbryta.We'reobviouslydoingalotoftheworktoprepareasweanticipateapprovalofthisproduct.Sowe'vebeendoingmarketresearchandafair




amountofworkinpreparation.

I'dsaytheprofileofZ inbrytaisaprettycompellingprofile.AsMikementioned,theunfortunatethingaboutthisdiseaseisthatpatientsrelapse,andtheyrelapseonaverageprobablyabouteverytwotothreeyearsonthecurrentagents.Thisiscertainlyahigh-efficacyagentfromanannualizedrelapseratereduction;andwhenyoulookatitversustheactivecomparatorithasgoodperformance.

Ithinktheotherthingthatisappealingtophysiciansisthecomplianceaspectofit,thatfromadosingstandpointtheyknowthey'llhavedrugonboardforanextendedperiodoftime.SoIthinkZ inbrytawillhaveaveryimportantroleinthetreatmentofMS.

Oneofthethingsthatphysiciansareabletogotoamore,I'dsayahigherefficacykindofagent--wedon'tviewitcominginasthefirstlinebutcertainlyaspatientsrotatethroughthat,wethinkitwillcompetequiteeffectivelyinthatsecondline.

Operator :

AlexArfaei,BMOCapitalMarkets.

AlexArf aei(Analyst-BMOCapitalMarkets):

Goodmorning.ThankyoufortakingthequestionsandI'llalsosaythanksforallthedetails;itcertainlyhelps.IhaveafewquestionsonHumira,ifImay.

In3Q,howmuchofyour30%growthintheUSwasvolumeandprice?Becauseourauditsuggestsitwas11%to14%volume.Socouldyoucommentonthepricecomponent?Andwhatareyourlong-termpricingassumptionsintheUSforHumira?

Andafollow-upforRick.IjustwantedtomakesureIunderstoodyourcommentsearlier.AreyouassumingnobiosimilarproductsthatcompetewithHumiraintheUS?Ijustwanttomakesurethat--whatyourtimelineforbiosimilarcompetitionforotherproductsisintheUS.

Andfinallyifyoucouldprovideyourthoughtsaboutthebaricitinibhead-to-headversusHumira,thankyouverymuch.


Whydon'tyougowiththeprice?

BillChase (CFO):

Sure.OurnumbersforQ3,ourvolumewashigherthanwhatyou'reseeinginthescript.Ithinkthewayyou'vegottothinkaboutpriceintheUSonthequarter,itwasaroundathirdoftheoverallgrowthwasrelatedtoprice.

IntermsofovertheLRP,look,againwe'vesaidmultipletimesthataswebuildoutourLRPwetrytoputinconservativeandrealisticassumptions.Alongthoselines,wedon'ttakewhatiscurrentlyhappeninginpriceandextrapolatethatoutacrosstheLRP.

IntheUS,itisanenvironmentwherewedothinkwe'llbeabletomaintainsomedegreeofpositiveprice.ButwhatIwouldtellyouiswe'remodelingalittlelowerthanmid-singledigitsonthatasyougooutoverthelong-rangeplanperiod.Ex-US,it'sactuallyanegativepricingenvironment.

SowhenyouactuallylookattheadditiveofthetwoacrosstheLRP,we'vegotvery,very,verylowlevelsofpricebuiltintoourforecast.





Okay.Thenasitrelatestobiosimilars,Ijustwantedtoclarify.You'retalkingaboutaHumirabiosimilar,oryou'retalkingaboutabiosimilartosomethingelse?


No,biosimilarofcompetingproductssuchasRemicade,Enbrel,etc.,intheUS?


Oh,okay;I'msorry.Obviouslywe'renotassumingany--becauseoftheIPandthelitigationstrategywetalkedabout,we'renotassuminganyHumirabiosimilar.Ithinkasyouclickthroughtherestofthem,aswelookattheEnbrelIPwethinktheyhaveprettygoodIP,sowe'renotassumingthatwe'llseeEnbrelbiosimilarsintheUnitedStates.

ThenasitrelatestoanykindofRemicade,IthinkitwouldbeasimilarscenariotowhatweseeoutsidetheUS.Becauseit'saninfusionproductitdoesn'tnecessarilycompetedirectlyagainstus.

Thenonbari,Mike,whydon'tyoucoverthehead-to-headonbari?

MichaelSeverino (ChiefScientificOfficer):

Sure.Whenwelookatthebaricitinibhead-to-headdata,clearlybothagentsareveryactive.Whenwefocusonhigherlevelsofresponse,whichwethinkarethemostclinicallysignificant--forexample,DASload,diseaseactivity,orDASremission--wereallyseeverysimilarresponseratesatweek24.

Ofcourse,alsoconsidertheverylongtrackrecordwithHumira,thewell-understoodsafetyandefficacyprofile.SowefeelgoodabouttheoverallperformanceofHumiraoverthecourseofitslifespanandthinkitwillcontinuetoplayaveryimportantroleinthetreatmentarmamentarium,asRickhasalreadyoutlined.


Thankyou,folks.


Allright.Thanks,Alex.Operator,wehavetimeforonemorequestion,please.

Operator :

ColinBristow,BankofAmericaMerrillLynch.

ColinBristow(Analyst-BankofAmericaMerrillLynch):

Morning.Thanksforsqueezingmein;andasothershavesaid,greatpresentationtoday.Mostofthishasbeencovered,butonhepCwhatproportionofyourcontractsareexposedtocompetitionin2016versusbeingmultiyear?Andjusthowhaveyourexpectationschangedforyourperformancein2016,ifatall,basedontherecentlabelupdate?

Then,two,justfromahigh-level,nottoget--giventhefocusondrugpricingexclusivityperiodsrecently,couldyougiveusyourthoughtsontheseongoingdebatesandwhetheryouanticipateanyimpacttoyourbusiness?Thanks.





Okay.I'mnotsureIcouldgiveyoutheexactpercentageofthecontracts.Iwouldsaythevastmajorityofthemareprotectedthrough--thevastmajorityofthevolumeisprotected,I'dsay,through2016.Butletusgetbacktoyouwithsomethingthat'smaybealittlebitmorespecific.

Asitrelatestothelabel,asIoutlinedinmycomments,thiswasobviouslymovingfromnotrecommendedtocontraindicated.IfyoulookatthepatientpopulationinBsandCsit'sarelativelysmallpatientpopulation;it'sprobablysomethinginthe3%or4%rangeofUSpatients.Soifyoulookatitpurelyfromtheperspectiveofthat,itwouldn'tbeabigimpact.

Frankly,thefactthatweweren'trecommendedandcontraindicatedinCs,youwouldn'tassumethattherewasalotofvolumeoftesting--orI'msorry,oftreatingthosepatientsanyway.

Havingsaidthat,Iwilltellyouwe'vegoneoutandcontactedprobablynowaround80%ofthephysiciansthatprescribethedrugtomakesurethattheyunderstandthechangesinthelabel.Ithinkthat'sgonewell.ThefeedbackI'mgettingdirectlybackfromthecommercialorganizationsaidthathasgonewell.

We'vegonebacktoallofourcontracted--ourmanagedcarecontractsandothercontracts,andthathasgonewell.TheyunderstanditandIthinkagreethatinthepreviouslabelitwasoutlinedinawaythatprobablytherewasn'tatremendousamountofusethereanyway.

Havingsaidthat,Ithinkwehavetowaittoseehowthisplaysoutforthenextmaybe30daysorsotobeabsolutelysure.Butrightnowweareassuming,basedoneverythingthatweknow,thatitwon'thaveamaterialimpactonthebrand.Oh,drugpricing?


Right.


Well,certainlyIthinkifyoulookatthedebatearounddrugpricing,it'snotlikelytogoaway.InfactIthinkwiththepoliticaldebatethat'sgoingon,we'llprobablycontinuetohearmoreaboutit.

Ithinkthere--everythingisn'tconsistentacrossourindustry.Certainlyalotofthedebatecamearoundtakingolddrugsandraisingthepricesaverysignificantamount.That'snotamodelthatwehaveorweparticipatein.

Ithinktheimportantthingforourindustry,theinnovativeindustry,isthatwecontinuetobringoutdrugsthathaveasignificantimpactandwepricethosedrugsinawaythatgetstherightvalueproposition,therightreturnforthevaluethatthosedrugshave--boththeclinicalvaluebutalsotheeconomicvalue.Andwedemonstratethateconomicvalue.

IwilltellyouintheinternationalmarketslikeEurope,whereHumirahascompetedforalongtime,thosearemarketsthatlookverycarefullyattheeconomicvaluethattheirhealthcaresystempays.AndobviouslyHumirahasdoneextremelywellinthosemarkets,andit'sbecauseitisagoodvalueproposition.

Ithinkalotoftheareasthatwe'rein,inspecialtypharmaceuticals,itallowsyoutobeabletodothat.Itallowsyoutobeabletocreateamedicinethathasatrulyoutstandingimpactforpatientsandalsohasgreateconomicvaluepropositionandthenpricingthemaccordingly.

SoIdon'tfundamentallybelievewe'llseeasignificantchange.ButIthinkthedebatewillcontinueon,andIthinkourindustryneedstorespondinawaythat'sappropriatetothat.





Thanks,Colin.

ColinBristow(Analyst-BankofAmericaMerrillLynch):

Thanks.


Thatconcludestoday'sconferencecall.Ifyou'dliketolistentothereplayofthecall,pleasevisitourWebsiteatAbbVieinvestor.com.Thanksagainforjoiningustoday.

Operator :

Thatconcludestoday'sconference.Thankyourforparticipating.Youmaynowdisconnect.

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