Earnings Call: Q2 2014

Jul 25, 2014

Good morning and thank you for standing by. Welcome to the AbbVie Second Quarter 2014 Earnings Conference Call. All participants will be able to listen only. This conference is being recorded by AbbVie. I would now like to introduce Mr. Larry Pippel, Vice President of Investor Relations. You may begin, sir. Thank you. Good morning and thanks for joining us. On the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer and Bill Chase, Executive Vice President of Finance and Chief Financial Officer. Rick will begin by discussing AbbVie's results from the Q2 and then provide an update on our pipeline and some of the key milestones we expect this year. Bill will give a more detailed review of our quarterly performance then provide an overview of our 2014 outlook. As a reminder, we are currently operating under the U. K. Takeover code and will be until the Shire transaction is completed. The U. K. Takeover code governs what we are able to disclose regarding the specifics of the transaction as well as the various aspects of AbbVie's underlying business, including operating performance, product details and pipeline milestones. To help investors, we have added a Q and A section to our earnings news release today, which addresses a number of typical questions we receive. Due to the U. K. Takeover code, we will only be providing prepared remarks during our conference call today. There will not be a question and answer portion of today's call. Before I turn the call over to Rick, I remind you that some statements we make today may be considered forward looking statements for purposes of the Private Securities Litigation Reform Act of 1995. AbbVie cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results is included in our 2013 Annual Report on Form 10 ks and in our other SEC filings. AbbVie undertakes no obligation to release publicly Any revisions to forward looking statements as a result of subsequent events or developments except as required by law. On today's conference call, as in the past, non GAAP financial measures will be used to help investors understand AbbVie's ongoing business performance. These non GAAP financial measures are reconciled with comparable GAAP financial measures in our regulatory filings, which can be found on our website. And with that, I'll now turn the call over to Rick. Thank you, Larry. Good morning, everyone, and thank you for joining us this morning. We're pleased to report a strong second quarter results with adjusted earnings per share of $0.82 exceeding our guidance range for the quarter. This included sales growth of nearly 5%, also ahead of our outlook for the quarter despite the negative impact from the loss of exclusivity in our lipid franchise. Sales growth was led by continued robust performance from HUMIRA and other key products including Synthroid, cevoflurane and duodopa. We've been pleased with our performance in the first half of the year. And as a reminder, Last month, we raised our full year 2014 earnings per share guidance range to $3.06 to $3.16 on an adjusted basis, reflecting strong underlying business performance. Beyond our strong financial performance, we had a very productive second With a number of important pipeline advancements, clinical trial results and other strategic activities. We submitted our U. S. And EU regulatory applications for interferon free HCV combination. Both applications are currently under active priority review. We continue to anticipate U. S. Approval later this year and EMA authorization in early 2015. We're also working to advance our next generation HCV assets, which are currently in Phase 2 development. We expect data from the Phase 2b program in 2015 And plan to start Phase 3 development next year as well. We've also made progress with several assets in our oncology pipeline. At the recent ASCO and EHA meetings, we presented interim results from a Phase 1 clinical trial of ABT199, our BCL-two inhibitor in combination with the Rituxan in relapsed refractory CLL patients. The data showed an overall response rate of 84% And a complete response rate of 36%, which compares favorably to trial results from other therapies in this patient population. This combination is being investigated in an ongoing Phase 3 clinical trial for the treatment of relapsed refractory CLL. We're also evaluating ABT199 in a variety of other cancer types including AML. We expect to present data from the AML study at an upcoming medical meeting. Also at ASCO, AbbVie released preliminary results from an Going Phase 1 study of ABT-four fourteen, an anti EGFR monoclonal antibody drug conjugate used in combination with chemotherapy. The study showed a level of response not typically seen in patients With recurrent or unresectable GBM, GBM is the most common and most aggressive type of malignant primary brain tumor. Patients currently have few treatment options and the 5 year survival rate for this type of cancer is less than 3%. We're working quickly to advance ABT-four fourteen. We recently announced the initiation of a Phase III study of our PARP inhibitor, ABT-eight eighty eight, in patients with HER2 negative breast cancer containing BRCA gene mutations. The start of this trial follows initiation of Phase 3 clinical work in 2 other settings, non small cell lung cancer and neoadjuvant treatment of triple negative breast cancer. This fall, we'll present data from the mid stage trial in lung cancer that supported our decision to advance to Phase 3 development. We have a number of other mid stage trials that we expect to read out in the coming months. In June, we announced positive top line results from our Phase 3 declizumab study. It demonstrated that patients treated with duclizumab had a statistically significant 45% reduction in annualized relapse rates versus an active We're excited about these results and we're in the process of working with our partner to complete our global regulatory application. In our immunology pipeline, we recently advanced 2 bispecific DVDs into Phase 2 development, ABT-one hundred and twenty two for RA and ABT-nine eighty one for OA. Additionally, we continue to make progress on our selective JAK1 inhibitor programs. We recently initiated a second Phase 2 trial in RA with our internal JAK1 1 compound ABT-four ninety four and we look forward to seeing data from the Phase 2b Galapagos collaboration early next year. Since becoming an independent company 18 months ago, AbbVie has built a strong and sustainable strategy for the business. Last week, we announced an important step in taking that strategy to the next level, the proposed merger with Shire. The combination of AbbVie and Shire represents a compelling opportunity to create a new world class biopharmaceutical company. The combined company would have leadership positions within multiple important areas of medicine, a deeper and broader pipeline and greater access to its global cash flows. This transaction offers significant strategic and financial benefits for our respective shareholders and As well as the patients that we serve. The combined company would be a larger more diversified company with significant financial capacity for future strategic investment. Additionally, the proposed combination offers an opportunity for enhanced shareholder return of capital and shareholder value creation. We're currently seeking the relevant approvals for the transaction and are working towards our stated goal of closing in the Q4 of 2014. In summary, we're very pleased with the strong performance we've had in 1st half of twenty fourteen. In the second quarter, we saw a strong performance across our portfolio, including double digit growth from HUMIRA. We've made significant progress advancing our pipeline and expect a number of additional milestones over the next 6 to 9 months. And with the recent agreement to merge with Shire, I believe we've taken an important strategic action to enhance our position as a world class biopharmaceutical With that, I'll turn the call over to Bill. Bill? Thank you, Rick. This morning, I'll review our Q2 performance and provide an update on our outlook for the remainder of 2014. As Rick said, we are very pleased with our results this quarter. We exceeded our guidance on both the top Bottom line, total sales increased 4.8% on an operational basis, excluding a 0.2% favorable impact from foreign exchange. Excluding sales from our lipid franchise due to loss of exclusivity, total sales increased 12.3% on an operational basis. HUMIRA delivered global sales of nearly $3,300,000,000 up 25.4 percent on an operational basis and 26.2 percent on a reported basis. In the United States, HUMIRA sales increased 35.6% driven by continued market expansion, share gains and particularly strong growth in the gastro segment. Growth in the second quarter also benefited from retail And a favorable comparison to the prior year. 2nd quarter wholesaler inventory levels remain at roughly 2 weeks consistent with the Q1. We expect 3rd quarter HUMIRA sales growth in the U. S. To be reflective of underlying product demand and pricing trends, partially offset by a reduction in retail buying patterns. As a result, we are forecasting high teens growth in the U. S. For HUMIRA in the 3rd quarter. Internationally, HUMIRA sales grew 16.2% on an operational basis and 17.8% on a reported basis. International growth continues to be driven by the uptake of new indications, share gains and double digit market growth in most markets. Performance in The quarter also benefited modestly from the timing of international shipments. We are forecasting low double digit growth for HUMIRA internationally in the 3rd quarter, driven by strong underlying trends, partially offset by the timing of shipments in international markets. On a global basis, we continue to double digit sales growth for HUMIRA in 2014. Androgel sales were $218,000,000 down 15.6 percent from the prior year quarter. We continue to see a notable slowdown in the market with overall leadership despite the entry of generics into the market many years ago. The overall market has experienced low single digit growth With Synthroid Growth outpacing the market including product pricing trends. U. S. Creon sales were $110,000,000 In the quarter, up 4.1 percent. Creon maintains its leadership position in the pancreatic enzyme market, where we where the product continues to capture the vast operational basis. Blue Pride continues to hold a leadership position and maintain significant share of the market. Performance this quarter is roughly in line with our full year expectations and is also consistent with recent market trends. Sales of Synagis were $74,000,000 in the 2nd quarter, up 16.3% on an operational basis. Synagis, which protects at risk infants from severe respiratory disease is a seasonal product with the majority of sales in the 1st and 4th quarters of the year. Growth in the quarter was driven by continued product uptake and strong commercial execution. Sales of duodopa, our therapy Performance in the quarter is in line with recent trends as well as our full year outlook for the product. And sales of Niaspan and TRICORE Trilympics were both down significantly due to generic competition. We expect these trends I'll now turn to the P and L profile for the 2nd quarter. The adjusted gross margin ratio was 79.6% in line with our expectations. This reflects loss of exclusivity in our Lipid franchise offset by favorable mix impacts across the portfolio enhancing initiatives we've implemented. Adjusted R and D was 16.1% of sales in the 2nd quarter. R and D spending was up sequentially over the Q1 as we increased funding of our mid and late stage pipeline assets and additional HUMIRA indications. Adjusted SG and A was 27.1 percent of sales in the 2nd quarter. As expected, SG and A was $69,000,000 and the adjusted tax rate was 22.2% in the quarter. 2nd quarter adjusted earnings per share excluding non cash amortization expense and specified items were $0.82 Exceeding our previous guidance range of $0.75 to $0.77 on a GAAP basis earnings per share were $0.68 Moving on to our outlook for the remainder of 2014. For the full year, we are confirming our recently increased adjusted earnings per share guidance of 3 We are forecasting lowtomidsingledigitoperational sales growth in both the 3rd and 4th quarters of 2014. As a reminder, our 2014 outlook excludes any potential revenue from the expected 2014 U. S. Launch of our HCV CV Therapy. We expect the 3rd quarter gross margin ratio to be approximately 79%. For the Q4, the ratio is expected to be somewhat lower than the Q3 driven by product mix, particularly an increase in lower margin Synagis sales. As noted on our 4th quarter earnings call in January, we are forecasting a higher level of SG and A For the Q3, we expect a modest sequential increase in absolute SG and A expense from the Q2. For the Q4, given the proximity to the U. S. HCV launch, we'd expect a more meaningful sequential increase in absolute SG and A expense from the 3rd quarter level. This has been reflected in our recently increased adjusted earnings per share guidance. We currently have a significant number of Phase 3 programs in active development including exciting opportunities in oncology, HCV, immunology and other areas that warrant investment. As a result, we expect R and D expense to be above 16% of sales This has been reflected in our recently increased adjusted earnings per share guidance. So overall, we're pleased with our strong quarter performance in the second quarter as well as our outlook for the remainder of 2014. And with that, I'll turn it back over to Larry. Thanks, Bill. And that concludes today's conference call. As a reminder, we will not We'll be opening the line for questions, but there is a comprehensive Q and A in this morning's earnings news release, which can be found on our website abbvieinvestor.com. Thanks again for joining us today. Thank you. And this does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.