Earnings Call: Q4 2012

Jan 30, 2013

Good morning and thank you for standing by. Welcome to the AbbVie Conference Call. All participants will be able to listen only Should you become disconnected throughout this conference call, please dial 1-eight seventy seven-nine eighteen under 6,630 and reference the AbbVie call. This call is being recorded by AbbVie. With the exception of any participants' questions asked during the question and answer session. The entire call, including the question and answer session is material copyrighted by AbbVie. It cannot be recorded or re and broadcast without AbbVie's expressed written permission. I would now like to introduce Mr. Larry Pippo, Vice President of Investor Relations. Good morning and thanks for joining us. Also on the call with me today is Rick Gonzalez, Chairman of the Board and Chief Executive and answer session. Thank you, and answer portion of the call. Today, Rick will discuss AbbVie's strategic vision and investment identity, as well as highlights from our commercial portfolio and rapidly advancing pipeline. Following Rick's comments, Bill will give a brief overview of 4th quarter and full year 2012 performance for our key pharmaceutical products and then provide further details of our outlook for 20 at the same time. Before we get started, some statements may be forward looking statements for purposes of the Private at the 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. Economic, competitive, under the circumstances. Governmental, technological and other factors that may affect AbbVie's operations are discussed in the Risk Factors section of the information statement attached to our Form on the registration statement, which has been filed with the SEC and are incorporated by reference. AbbVie undertakes no obligation to release publicly any revisions to So with that, I'll now turn the call over to Rick. Thank you, Larry. Good morning, everyone, and welcome to AbbVie's quarterly conference call. It certainly has been a historic time for our company. The major transformation that began more than a year ago is now a reality. We're pleased with the performance that AbbVie delivered in 2012 as AbbVie's proprietary pharmaceutical business. And provide a brief update on our outlook for the Amphi Conference Call. Despite continued challenges in the healthcare industry and the global economy, our differentiated portfolio delivered another exceptional year on the same quarter. The same quarter with the Q3 on the call last October and at a healthcare conference earlier this month. Over the past several months through our roadshows, at meetings and other communications, we've been very active in discussing our strategic vision, our outlook and our unique identity with the investment community. And provide a sustainable revenue line. A compelling new product pipeline including several promising late stage programs with significant peak year revenue potential, a continued focus on driving efficient on operations and a financial policy that balances both the short and long term to ensure we are a compelling investment now and well into the future. This includes strong operating cash flow to support an attractive dividend, providing investors with a strong return on investment. We have met with a significant number of investors and there has been a great deal of enthusiasm on our prospects as an independent entity and we certainly share in that enthusiasm. While Bill will cover the details of our recent performance, I will say that I'm very and I'm pleased with the strong growth delivered both in the Q4 and the full year 2012. Worldwide proprietary pharmaceutical operational sales in at the end of the Q4 increased 8.5% and for the full year 2012 worldwide operational sales Grew 8.2 percent despite the entry of generic TRICORE in the 4th quarter. In addition to our strong sales growth, we on the full new HUMIRA indications and advancing key development programs including the start of our HCV registrational trials. Not many brands are able to achieve and sustain the level of performance we've demonstrated with HUMIRA. HUMIRA has a strong clinical profile that drives meaningful patient benefit in a broad spectrum of indications and our commercial, development and regulatory execution and have been outstanding. A number of factors will drive continued growth, including the addition of new indications, on the call with 9 approved indications in Europe and 7 approved indications in the U. S. We secured several regulatory approvals in 2012, including UC in the U. S. And Europe, Axial SpA and pediatric Crohn's disease in Europe. We continue our development efforts for Chimera from our competitors. They will also add to the sustainability and future growth of HUMIRA. All told, we expect new indications, including those approved in 2012 to add roughly $1,500,000,000 in incremental global peak sales. Another a significant driver of growth going forward will be increasing global biologic penetration rates, which are still relatively modest across all segments. In dermatology and GI, while holding steady share in rheumatology. Finally, HUMIRA growth will also be driven by further geographic and demonstrate the penetration in underserved markets around the world. And while much has been said about the potential changes in the competitive landscape in on a positive clinical track record and strong product profile. As we track new product entrants, performance is in line with our expectations. So as we think about HUMIRA's performance this year, we expect to deliver low double digit reported growth in 2013, and and we're confident HUMIRA will continue to drive durable growth and cash flow generation for many years to come. In addition to HUMIRA, we have a rich portfolio of medicines, including a mix of differentiated growth brands and sustainable performers. We hold strong leadership positions across a number of therapeutic categories with products such as Androgel, Lupron, Synagis, Creon, on Synthroid and our antiviral medicines, Kalitra and Norovir. We're focused on maximizing the performance and we will leverage our competitive advantages and capitalize on market dynamics. This includes continued geographic expansion where we expect to add As an independent biopharmaceutical company advancing our pipeline underpins the long term success of our business. We are focused on delivering transformational medicines. The compounds currently in late stage development offer significant patient benefits and clinical value propositions and have the potential to drive significant peak year revenue. We're focused on delivering truly innovative medicines to address as some of the most pressing unmet clinical needs and we're extremely encouraged with our progress on this front. We're actively working to obtain 15 major on the regulatory approvals between 2013 2017. Our late stage pipeline includes 11 compounds or indications in Phase on Phase 3 development focused on therapeutic areas including hepatitis C, immunology, multiple sclerosis, on endometriosis and Parkinson's disease. The flagship of our late stage pipeline is our interferon free HCV on the patient. We have made significant progress with our program and we continue to have a high level of confidence that AbbVie has the potential to and achieve a strong leadership position in this therapeutic area. It is our goal to be first to market with an interferon free treatment at the end of the call for HCV Genotype 1 patients. Today, only a fraction of patients diagnosed with HCV are being treated and cure rates remain unacceptably low. With the introduction of new interferon free treatments, we expect that the market will grow significantly. And because patients will be cured with a much shorter course of therapy, physicians will have the capacity to treat more patients, beginning with those and provide a number of key stakeholders to prior interferon based therapy and patients with evidence of advancing liver disease. We recently initiated our comprehensive genotype 1 registrational program, which includes the study of naive and interferon experienced patients, and provide high cure rates in several HCV infected population, including patients with genotype 1b, and the most common genotype in Europe and Japan. As we look ahead to 2013, we expect to present additional subpopulation analysis and expect our Phase 3 studies to begin to readout later this year, supporting a mid-twenty 14 registration submission and market entry in early 2015. Also moving into Phase 3 following the successful completion of our Phase 2b program is atrasentan, an internally an early discovered compound in development for diabetic kidney disease. Phase 2 data have demonstrated efficacy in reducing protein in the urine, a symptom that is often predictive of renal function. We expect to present results of our Phase 2b study at a medical Congress as we move forward. Also in our late stage pipeline is dicluzumab, a next generation biologic in development with Biogen for multiple sclerosis. As results from the 2nd pivotal trial, which is fully enrolled and progressing well are expected in 2014. Elagololix is a compound in Phase 3 development for endometriosis, a prevalent condition with few treatment on the next few weeks. It has a unique profile with the potential to provide symptom reduction, while avoiding significant bone loss or other adverse effects as they can sometimes be associated with current treatments. Elagolix is also in mid stage development for uterine afterwards and we expect to initiate a Phase 2b study this year. Elotuzumab is in development for multiple myeloma, the 2nd most common blood cancer, and answer session. Lead by our partner Bristol Myers Squibb, data presented at the American Society of Hematology Meeting showed promising disease progression results as Phase 3 data showed a decrease in periods of poor mobility, slowness and stiffness. DUOPEN, known on the outside the U. S. Is approved in Europe and we are pursuing regulatory approval in the U. S. We also continue to make significant progress on advancing compounds in our mid stage pipeline. Several of these promising assets have already established strong proof of concept and are poised to move into Phase 3 over the next 12 to 18 months. For example, ABT199, our next generation BCL-two inhibitor and we're planning to present additional Phase 1 data at the American Association For Cancer Research Meeting in April and at ASCO in June. And we anticipate to initiate a Phase 3 trial at this time. ABT-eight eighty eight, our PARP inhibitor has shown promise in enhancing the effectiveness of common cancer therapies. And is currently in a Phase 2b trial for BRCA deficient breast cancer and other cancers. ABT-one hundred and twenty six, our Alpha 7 agonist and we are currently in Phase 2b trials for Alzheimer's disease and cognitive impairment associated with schizophrenia. We expect to present Phase 2 data in at the Alzheimer's Association International Conference. And we also have an active mid stage immunology and discuss the next generation highly selective JAK1 inhibitor. Data from a multicenter Phase 2a study will be presented at EULAAR. As you can see, our pipeline includes a number of exciting programs that have the potential to address significant medical needs. For a company of our size, the and potential sales projections from our late stage pipeline represent a significant opportunity for meaningful revenue growth beginning in the 2015 timeframe. So in summary, we've set an excellent foundation for AbbVie. We have a strong base of sustainable leadership positions across our specialty focused commercial portfolio, including HUMIRA, which will continue to drive on sustainable growth. We have a solid financial foundation including strong profitability and robust cash flow. On the call, including several programs with $1,000,000,000 plus peak potential. We are looking forward to the next 12 months to 18 months as we expect a good deal of activity, including new regulatory filings and approvals, clinical trial advancement and data presentations and we look forward to the ongoing dialogue with the investment community. With that, I'll turn the call over to Bill for additional As reported in Abbott's earnings release last week, we delivered very strong 4th quarter and full year sales results. Because From Abbott occurred on January 1, 2013, our 2012 results were reported as part of Abbott's overall performance. And answer session. I'd like to take some time this morning, however, to comment on the business' strong performance in the Q4 and 2012. And answer session. I'll then turn to our outlook for 2013. Worldwide proprietary pharmaceutical sales in the 4th quarter increased 8.5% on an operational basis, excluding the negative impact of foreign exchange. On a reported basis, global sales increased 7.4 and answer session. For the full year 2012, worldwide operational sales increased 8.2% and worldwide reported sales increased 5.5%. Despite the impact of generics on our lipid franchise in the Q4. In 2012, HUMIRA delivered another outstanding year driven by and continue performance above market growth rates. The global HUMIRA franchise achieved sales of nearly $2,700,000,000 in at 4th quarter, an increase of 24.5 percent on an operational basis and approximately 23% on a reported basis. Global Humira sales for the full year 2012 were up more than 20% on an operational basis and up nearly 17% on a reported basis. And as Rick mentioned, in 2013, we expect HUMIRA to continue its strong and grow at a low double digit pace on a reported basis. AndroGel also exhibited impressive growth in the Q4 consistent with strong underlying prescription trends. Androgel holds the leadership position in the testosterone replacement market Full year 2012 sales of Androgel were nearly $1,200,000,000 in the U. S. And in 2013, We expect Androgel to grow at a double digit pace, driven by continued favorable market trends. Global sales of HUMIRA were 2.11 and take a look at the Q4, driven by double digit growth in the U. S. For the full year 2012, global Lupron sales were at $800,000,000 roughly flat on a year over year basis. In 2013, we expect Lupron sales to be in line with 2012 performance. U. S. Sales of Synthroid were nearly $170,000,000 in the quarter at approximately $550,000,000 for the full year, up at roughly 6% versus 2011. Synthroid maintains strong royalty and retains more than 20% market share despite the entry of generics into the market many years ago. In 2013, we expect to see Synthroid sales growth in the mid single digits. And 12 sales were more than $350,000,000 an increase of 6.5% versus 2011. Creon maintains market leadership in the pancreatic enzyme market, where we continue to capture the vast majority on new prescription starts. This year, we expect to launch a new formulation of Creon, which will reduce pill burden and further strengthen our leadership position. In 2013, we expect U. S. Korean sales to grow at a low double digit pace. And answer session. Moving on to our lipid franchise, TRICORE Trilipic sales were approximately $200,000,000 in the quarter, down roughly 50% due to the entry of at generic fenofibrate products in early November. This performance was in line with the guidance we provided on our Q3 call last year. As well. U. S. Sales of Niaspan were $277,000,000 in the quarter, up about 7% on the quarter and down roughly 7% on a full year basis. It's clear that our 2012 performance has put us in a strong position to deliver on our financial goals. We have a strong sustainable base business that generates roughly $6,000,000,000 of annual operating cash flow and we have a strong balance sheet with over $7,000,000,000 of cash on hand. These resources will allow us to invest in our business for the future, while at the same time on the call. We are now in the call to the Amphi conference call. All participants will be able to listen only on the call to and increasingly exciting pipeline of medicines targeted in addressing therapeutic areas with high unmet need. However, as we've mentioned previously, 20132014 will be a time of transition for AbbVie as our lipid franchise experiences the entry of generics. We expect generic entry events to play out during the year as for TRICORE, TRILIPEX and Niaspan and we plan for this appropriately. As a result, we're forecasting 20 on the Q1 of 2019 sales of less than $1,000,000,000 for our combined lipid franchise, reflecting a decline of roughly $1,200,000,000 We plan to cover our lipid franchise decline through growth of key marketed products including HUMIRA. So as we see it today, we expect AbbVie's total sales to remain somewhat above $18,000,000,000 in 20.13 despite the generic events that are playing out in our lipid franchise. 2013 2014 will also be a time of transition as we establish our independent operations and install operating structures that will allow us to fully stand on our own from Avid, including an efficient back office infrastructure. We're still in the process of quantifying certain one time costs related to the implementation of these programs and we'll update you throughout the year as we refine our estimates. I'd like to now provide more color on how we expect the business to perform in 2013. As Rick stated earlier, we and expect full year adjusted earnings per share of $3.03 to $3.13 in 20.13. This guidance contemplates sales somewhat above $18,000,000,000 with growth from key brands offsetting the expected decline in lipids. Included in our sales guidance is an estimated negative impact from exchange of approximately 1%. This forecast reflects both the impact of loss of exclusivity events and the effect of unfavorable foreign exchange. On the call in support of our emerging mid and late stage pipeline assets and the continued pursuit of additional HUMIRA indications. This figure is above the 14% range communicated on our Q3 call and reflects the progress of our assets in the later stages of development. We expect SG and A expense to be around 26% of sales, including the incremental ongoing costs as we move forward. As outlined in our Form 10 filing, we expect net interest expense of approximately $300,000,000 in 20 and we expect an adjusted tax rate of approximately 22% in 2013, including the impact of the 20 at 13 R and D tax credit. Our adjusted earnings per share guidance of 3 point as we move forward. This concludes $0.37 per share of non cash intangible amortization expense and certain specified items, primarily associated with separation and previously announced restructuring activities. As stated earlier, and we will look to further refine our forecast of specified items related to the separation as the year progresses. On a GAAP basis, our earnings per share guidance range would be $2.66 to 2 $0.76 And as I mentioned, we expect at approximately $6,000,000,000 of operating cash flow in 20.13. Regarding at $0.10 of specified items and non cash amortization, resulting in a first quarter EPS in the range at 0 $0.54 to 0 $0.56 on a GAAP basis. Our first quarter outlook reflects sales growth in the low single digits on a reported basis on the call, despite the negative impact of generic competition in our lipid franchise. We expect the gross margin ratio somewhat below our full year guidance due to product and the impact of foreign exchange in the quarter. And we expect R and D and SG and A as a percentage of sales to be slightly higher than our full year outlook. This is reflective of the business' typical quarterly pattern where 1st quarter EPS is typically lower than the remaining 3 quarters of the year. I'd like to now take a few final moments and discuss how we plan to report our performance during our 1st year of operations. As well. In 2013, our quarterly results will be compared against a 2012 GAAP benchmark, which reflects the business as it existed when it was as part of AbbVie's 2013 performance against the prior year will be impacted by significant differences and answer session. For this reason, we plan to focus our upcoming quarterly discussions on performance versus our communicated 2013 guidance of both on adjusted EPS and our targeted P and L profile. We feel that this will be most useful to investors when trying to assess the underlying business performance of AbbVie. So in conclusion, we are quite pleased with our 2012 performance and we believe that we are well positioned for continued success as we move into 2013 as an independent company. Our financial footing is sound with continued strong sales momentum across as we move forward. We expect to continue to be opportunistic and our other specialty products, robust cash flow generation and an attractive dividend. And our pipeline is well funded to ensure continued progress across our promising assets. And with that, I'll turn it back over to Larry. Thanks, Bill. We'll now open the call for questions. Operator, we'll take our first question. Thank you. And our first question today is from Jamie Rubin from Goldman Sachs. Thank you and congratulations everyone your first quarterly conference call. Rick, just in terms of sort of high level, HUMIRA obviously performed exceptionally well in 2012 and is positioned to continue to outperform in 2013. But in the eyes of many investors, HUMIRA is both a blessing, but also a curse as it accounts for a disproportionate share of your profits. So the question is this, how high a priority is and answer your question. Deal activity. You've got $6,000,000,000 in operating cash flow. You're going to continue to generate that kind of cash flow going forward. How high a priority is this to reduce at HUMIRA's importance to the bottom line or do you think that The Street is missing the value of your pipeline assets to drive growth beyond 2015? And then if I could follow-up with a specific question for John on ABT199. Just according to clintrials.gov, it It seems that you and your partner have suspended several of the CLL trials. And just wondering why those trials have been suspended. I noted that you and highlighted this as a asset moving into Phase 3 later this year. Thanks. Okay. Thank you, Jamie. This is Rick. I think Look, your point of it's a blessing and a curse is clearly something that we hear from investors. I can tell you there's not a better asset and answer session. And so I think we look at our business a couple of different ways. We believe Humira As the strength and the profile to continue to grow, particularly based on the penetration rates we see in this market and the profile of this product, and provide a significant contributor to our success and a significant contributor as we have indicated before, we believe we have a very robust a pipeline that can drive meaningful growth for us starting in 2015. We have a number of assets over the course of 2015 through about 2017 We anticipate, we'll enter the market. HCV obviously is one of those that we believe has a significant opportunity. At tacluzumab, elagolix, atrasintin to name a few. And if we look at our late stage pipeline, we believe that pipeline has the ability to generate on a a conservative basis between $4,000,000,000 $6,000,000,000 worth of growth for us. And so we do believe that we will see fundamental strength from our pipeline being able to drive substantial growth for the business starting in the second half of twenty fifteen as the loss of exclusivity that Bill mentioned on the assets and bringing them in. We certainly look for assets that fit our strategic profile of the kinds of areas that we want to participate in and have the financial returns that we expect from those assets. And we will continue and as you mentioned, we obviously have the financial wherewithal to do this. We will continue to go out and look for those assets in license and acquire those assets along the way. Having said that, we believe we have the scale, the global footprint. We have the pipeline. We certainly have the people and the experience in running this business that we don't need to go out and do any kind of a large acquisition. So you can expect us to do things that are very similar to what we've done historically out looking for individual assets or smaller tuck in kinds of acquisitions that fits certain strategic needs that we have. And that's really the strategy that we plan on operating and answer your questions. So with that, I'll turn it over to John to give you an update on on the BT-one hundred and ninety nine, as you may know, Jamie, is our BCL-two inhibitor. This is an agent that's active in patients with chronic lymphocytic on in a variety of lymphomas and it's a product that we're developing collaboratively with Genentech. You may recall that we presented Data at the ASH conference at the end of last year, where we showed what I think was regarded as very exciting single agent Activity that showed just how potent the drug is. The early clinical programs have been focused on dose ranging in a variety of malignancies. And answer your questions. And as you know, agents with extreme potency, it's very important to find the right dosing scheme as Some patients can have a very rapid tumor response as we've seen in some patients. At this point, our work is focused later this year. We remain very excited about the molecule and its prospects. Thank you. Thank you. Our next question is from Gregg Gilbert from Merrill Lynch. Thanks. Good morning. I have a modelphilosophical question and then a pipeline question for John. On the first one, are there any caveats you would offer relative To the 23% HUMIRA growth in the 4th quarter, not that I'm complaining, but it was much higher than the other quarters of the year. And if you're able to grow HUMIRA at high teens or 20 plus this year, if that were to be the case, do you have a reinvestment wish list at the ready Or would most of that flow through? My second question for John is John, could you walk us through sort of your lay in the company's lay of the land in hep C this year and on what we will learn and when on your programs and other competitive developments that you're keenly looking forward to learning about. Thank you. Okay, Greg. This is Rick Gonzalez. I'll answer the first part and then we'll have John jump in. Certainly, we saw very strong growth on the outlook for the Q4. And in the Q4, we obviously saw a very strong growth as well. And we anticipate that we will continue to and see good growth out of HUMIRA. As it relates to whether or not we would reinvest that money or we would allow it to flow through if We exceeded the low double digit growth that we have projected for 2013. And clearly, we have indicated during our road Joe's and I'll indicate now that as our pipeline continues to advance, it is our expectation and desire that we will fund our pipeline for on maximum speed and maximum breadth. And so we will invest this year at a rate of about 14.5% of Internally, we would obviously one of our priorities would be to invest back in R and D to maximize our pipeline for the longer And then obviously we would have to make a decision based above and beyond that what we were allowed to flow through. But those would be our expectations and answer the business going forward. John? Okay. Okay. Thank you. I'll give you my view of what we're doing at HCV and what we think our prospects are. On past efficacy and safety, which puts us in a good position to carry out the Phase 3 program that we're now embarked upon completing. That trial is underway. As Rick said in his comments, it's rapidly enrolling. We're very excited about it. And just to highlight some of the aspects of it. We're pursuing our regimen in naive and experienced patients. We're studying patients with compensated at cirrhosis. We're looking at regimen with and without ribavirin in genotypes 1a and 1b. 1b naives and Experienced patients and are also pursuing individual sub patient populations for additional activity. We think it's an outstanding regimen that's well suited for the 1b patient population that's highly prevalent there. And we expect to be moving into a pivotal program later this year or early next year as the program proceeds. On the program later this year or early next year as the program proceeds. From a data point of view, I'd say at this point, we're focused on accumulating data because this is the registrational program. And I think we'll be in a position at the end of this year to From the prior 2B work at the liver meetings and we'll be sharing that information here in the next coming months. With respect to the competitive lay of the land, it's a lot of people are in the space. We think we have Very, very competitive offering. We believe that we will be first to the marketplace with the P and G and Type 1 regimen, which has been our focus. And We're absolutely committed to achieving that. Thank you. Thank you. Our next question is from Jeff Holford from Jefferies. Hi, there. Just a question on AndroGel. The The consensus in the midterm would be looking for revenues of that product to decline substantially, whereas it seems you're actually doing a great Sustainable growth asset into the mid term. I'd just like your view on how you think that's going to play out post 2015. Yes. Jeff, this is Rick Gonzalez. We clearly anticipate that we will continue to be able to drive growth in the AndroGel franchise over the midterm. Having said that, in our planning assumptions, we have assumed that we will see generic competition on 1% in 2015 and we've obviously planned conservatively for the entire franchise and that's what we expect. We may overachieve that, but we thought the most prudent thing to do was to plan conservatively and make sure that we're operating in a way that we can offset that going forward. Does that help Jeff? Yes. That's great. Thank you. Thank you. Our next question is from Alex Efei from BMO Capital Markets. Good morning and thank you for taking my questions. Good morning. Question on DUOpa. I believe you filed that in the U. S. In 4Q. And we've seen reports that it can be remarkably effective in certain patients, but uptake has and rather modest in Europe. I'm just wondering if you could comment on your outlook for that device. As you can make incremental improvements to address some of the issues associated with it. And also are we going to see updated data from your JAK1 on inhibitor this year. Thank you. Yeah. Alex, this is Rick Gonzalez. This particular a year, year and a half ago. It is a therapy that requires a fair amount of clinical attention To be able to get patients titrated and up and running. And so it is the kind of product that will have a relatively gradual ramp, but it's doing Something less than $200,000,000 in Europe now. We do have high expectations for it going forward as we launch it both Broader in Europe and more broadly in the United States. And so we do think it can be a significant asset for us going forward. Clearly, one of the things that we are working on is a more streamlined delivery system with the product and it would be a and we do have active work that's in place now to work on that. We believe that will make it easier to be able to bring patients on that particular drug, but that will be an enhancement that comes in later in the process. And so we do believe this could be a significant asset and answer your questions. And then on the JAK, I'll have John cover that. Sure. Thanks, Rick. So when you say our JAK, there's really 2 JAKs that we're working with. One is the Galapagos molecule, Where we expect that they will be presenting their 2A data at the Euler meeting this coming June. And we anticipate that they'll be moving into 2B as a molecule that's in Phase I clinical trials. So it's primarily pharmacokinetic information that we have at this point and not patient response data. So I think for 2013, it's unlikely that we'll have patient data to provide. Thank you. Thanks, Alex. Thank you. Our next question is from David Risinger from Morgan Stanley. Thanks very much. I have a HUMIRA question and then some cost questions please. First with respect to Mira in the Q4, was there any forward buying in the U. S? Or were there any tenders That boosted the performance in the Q4 ex U. S. And then with respect to the gross margin, Could you just talk about how we should think about the gross margin trend over the next couple of years? Obviously, HUMIRA is Growing and it's high margin, but you're also losing some revenue of high margin products. So it'd be helpful to understand the outlook over the next couple of years for the gross margin. And then finally with respect to SG and A, Opportunities that were underappreciated inside a much larger company and some expect SG and A as a result of the decline. Others point to new product launches ahead and required investment. And So just wanted to understand if over the next couple of years we should look for SG and A to be rising or falling or flat. Thank you. Thanks, David. Okay. David, this is Rick Gonzalez. On the HUMIRA question, the 4th quarter, Lucy, we had good performance in HUMIRA. The underlying script growth was very, very strong. There was some positive and Q3 of most years. I'd say pipeline had reduced in the 3rd quarter slightly below at what historical levels were and obviously pipeline then came back up to more normal historical levels in the Q4. Having said that, it is at our normalized rate of about a month, which is what we typically have with HUMIRA. And so if you look at those three combined factors, if you look at price And volume or script volume, it was the predominant part of the overall growth. So the fundamental growth in the business was what was driving the HUMIRA at the end of the quarter. If you look at gross margin, I think if you look at the dynamics going forward for the next couple of years, As you point out, we have a couple of different dynamics that are playing out in our financials. One is, As we lose dyslipidemia to generic competition, it is a very high margin product. So it's pressuring gross margin down. And as we grow HUMIRA, it obviously will help increase gross margin profile. I'd say as you look at 2014, That ratio will be slightly negative. So we'll have some pressure on gross margin in 2014 going forward. And But we expect to be able to offset that through other kinds of mechanisms and cost improvements and other things That we can do as an independent company. On the SG and A front, I think one of the things that's important to point out is we're probably one of the most efficient companies in the industry from an SG on a G and A standpoint. And certainly as HUMIRA grows, we will see even more efficiency. I think we are scaled in a way that's appropriate for the brand. And as we can continue to grow, there's not a proportional increase in SG and A. So that will help improve SG on the SG and A profile. But as you point out, we'll also be in a position where ahead of the launches of products, we'll obviously want to invest in SG and A to ensure that we get We had significant launch activity early enough and prepared the market for those products. So net net, I don't think we'll see a significant reduction in SG and A profile going forward. Having said that, there are a number of areas that we are continuing to work on as an independent company where we believe we can drive at the end of the quarter. And so the goal is to improve gross margin and SG and A over time through those efficiencies. I don't know Bill is there anything you want to add? No, I think that's about it. Okay. Thank you. Thank you. Our next question is from Michael Tong from Wells Fargo. Hi, good morning. Couple of quick questions. Number 1, maybe this is too early to ask you since you've been an independent company for less than a month. But investors look at LargeCap and also have share repurchases. So the first question is Rick, your current thinking or the Board's current thinking about where share and purchases would rank in terms of cash deployment. And then secondly, you mentioned about growing emerging markets revenue over the next several years. What would you consider to be the key markets be it existing markets that you're in already or new markets? Thanks. Okay. As far as capital deployment, obviously, as we look to invest in the business, We're going to invest in the business appropriately as our first priority. We're paying what we believe is a very on a competitive dividend and we're committed to grow that dividend going forward. We believe that that's the best way to deliver value back to the shareholder and listen only. In a consistent and reliable way. As far as share repurchase, I think you can expect us to operate from a share repurchase standpoint Similar to the way Abbott has operated historically and that is that we will do share repurchase in an effort to be able to offset any dilutions from options, as we move forward. But not a major share repurchase program will be anticipated over the short To medium term. And then as it relates to your second question, on the emerging markets, I think one of the things that's at important to understand about our particular company is that we operate in virtually every market around the world today. And so we operate in all the emerging markets. And we have very significant businesses in some parts of those emerging markets and we have businesses that are smaller in some parts of that market. It really for the kinds of products That we represent, it requires that you do the development work from a market access and a reimbursement standpoint because these are more specialty focused products. And you have to have reimbursement in place in those countries in order to be successful in driving significant levels of penetration. And so that is a lot of the work that we do ahead of time. But we believe there are significant long term opportunities in countries like China and Russia. And those are examples of areas where and that will be the effort that we focus on over the next couple of years. Thank you. Thanks, Michael. Thank you. Our next question It's from Chris Schott from JPMC. Great. Thanks very much. Just had three quick questions here. First, when we think about the R and D ramp at the Company, is there a ceiling on R and D as a percent of sales we should think of over the next few years as your pipeline continues to advance? The second question was on HUMIRA relative to Xeljanz. One of the selling points that Pfizer has been highlighting seems to be the ability of its product to be used without Can you talk about Japan specifically the timing of your program and its differentiation relative to Bristol? Thanks very much. Okay, Chris. This is Rick Gonzales. I think on the ceiling question, as we model out our long range plan and As we've communicated to investors, based on the kinds of products that we tend to invest in and develop, They're more specialty focused products. And so the clinical programs tend to be smaller in a lot of cases compared to a primary care And so as we model out and forecast what we think our R and D needs are, and update that we would go above about 16%. We think that probably is the ceiling that we'll be operating between this 14%, 14.5% 16% in that at the range. As it relates to TOFA and its ability to be used without methotrexate, I think one of the key parameters in the and answer your question. Treatment of rheumatoid arthritis is that physicians are very focused on making sure that you stop disease progression. Methotrexate is something that they're very used to using. They're very familiar with it. And we don't anticipate that that will be a significant differentiator Going forward and I'd say the it's very early in the launch right now. The script data is very low, so it's a little hard to judge exactly where we are. But I'd say we're tracking very consistent with what we would have expected. We're looking carefully at those patients that and physicians that are prescribing the product now and why they're prescribing it and what areas they're prescribing it. And I'd say we don't see any Trends there that are troublesome. And there are other products on the market today that have the ability to be used without methotrexate. And as you know, you You don't see significant uptake of those products either. So I think that's where we are. Last What was the last one? Hepatitis Japan. Yes. Let me take the HCV. So in Japan, and what I understand the BMS filing approval date. We believe that we're on track data Dependent obviously for a Q4 2015 submission. And the program that we're pursuing there, I think is differentiated from We understand the BMS program that B, as you know, they're focusing on a 24 week regimen with The products they have and their respective profiles, we're focusing on a 12 week regimen and We think is the differentiated safety and efficacy that we've seen thus far with Our ABT-four fifty and the NS5a. So it will be a very simple 2 pill one stay regimen we anticipate at this point. Does that help Scott Great. Thank you. Thanks, Chris. Thank you. Our next question is from Tony Butler from Barclays Capital. Thanks very much. Two brief questions. If I go back to some discussion Around ABT199 and CLL, I just wanted to ask, it strikes me as an increasingly crowded Mark it with a lot of potential new entrants there. So I'd like to understand more, would you actually consider In a Phase 3 design using RITUXAN, even though I know that was suspended in an earlier study, but maybe it's RITUXAN with a lower dose Or is this really against Rituxan? And I'm trying to understand how you position it and could potentially position it in the market. And the second more financial question and forgive me for being dense. I did hear the commentary about as you and support out your financials for 2013. You would use the GAAP numbers for 2012. But would those GAAP numbers actually and carve out somewhere in the release depreciation and amortization. Thank you very much. So let me start with 199 question, Tony. Thank you. First of all, let me clarify. I think suspend may lead to the wrong impression. That doesn't mean stopped or abandoned. Probably a better adjective here would be and answer your questions. Those trials continue. What we're not doing currently is dose escalating further beyond where we are. So all patients in those as trials continue to receive 199 either alone or in combination with the regimens that are being studied. With respect to CLL, As you know, it's a very long duration illness. There's a variety of different types of patients. In particular, The malignancy afflicts typically the elderly and elderly come in different shapes and sizes, some of them a little more frail than others. And so regimens will be tailored for those different patient types. We're going to study on all of them, which would include a single agent, it would include in combination with rituxan, with our Our collaborator Genentech and also with chemotherapy. The goal would be to have the product used in all lines of at treatment with our ultimate goal to achieve first line therapy. Thank you, John. And Tony, it's Bill Chase on your question on on financials. You're right. I did say that our 2013 will be compared against a 2012 GAAP financials. And that's largely because of the fact that it's very difficult to model a 2012 that's equivalent to our 2/13 business. For example, tax rate is significantly different. Interest That didn't exist in the entity in 2012. It does obviously exist with AbbVie in 2013. We will depending on the operating income line, which is probably going to be the best apples to apples comparison as we proceed through the year. Thank you, Bill. Thank you, Anthony. Thanks, Tony. And our next question is from Mark Goodman from UBS. Yes. On hep C, you had mentioned you still believe you're going 1st to market, I've also thought I heard the comment that you're going to have the best data in the Knowles and that's going to be kind of Your edge when you come to market first and that's what's going to be the key and I guess overall drive that 40 share that you all were talking I was kind of curious if that is still the case because obviously this market just is evolving so fast and we're getting data continuously. Well, that's what we All we have to go on is the data that's currently out there. As I said in my comments, we have a very large data set from our on the 2b program. So we think we know what we're dealing with in all of the different patient types for Gena on the type 1, naive and nulls. I just emphasize that we believe the nulls are particularly important set of patients for all and answer the questions. Obviously, they failed prior therapy. These are the patients that tend to be further along on the progression of their illness. On the 3% SVR12 rate essentially cures. So far, I think that sets It's a standard in the field and that's the basis for our optimism. And then on 719, I'm not sure if I I missed it earlier, but is that product I mean, when are we going to see data on that? Is that moving to Phase 3 this year? Did you mention that? I don't remember. We did not mention it, I don't think, today. ABT-seven nineteen, and answer session. For those who may not be familiar with it, it's a compound that's being studied for the prophylaxis of acute kidney injury. It is a product that was acquired from Action Pharma, a Danish pharmaceutical company. Our first order of business is to repeat and extend the 2b data that was available when the product came to us and that at the end of the year. The trial is underway in patients with major cardiac surgeries. When we look at that data that will determine the course of development, which we a question today is from Damian Conover from Morningstar. Hey, good morning. Thanks for squeezing me in. Good morning, Damian. Good morning. Just two quick questions. One was, I was wondering if you could talk about the dividend profile over the longer term. I think you About increases to the dividend maybe in the interim, but as we look further out to the HUMIRA patent loss, just was wondering Sure, you might be comfortable with the dividend payout ratio as you kind of get into those years. And then secondly, I was just wondering if you wouldn't mind fleshing out some more of on the bolt on strategy that you might have going forward. It looks like a lot of the areas where you might find complementary Acquisitions are areas that are highly competitive with other large pharmaceutical firms. I'm wondering if there's anything that you might bring to the table that might allow you to get some of these assets for A better price than maybe some of the other competitors out there. Damian, it's Bill Chase. I'll take the dividend question. As you've stated, you recognize that we play up the importance of the dividend and not only the dividend, but a growing on the dividend. If you look at our guidance range, our payout ratio depending on which end of the range you're at is somewhere between 51 53%. We think that's a pretty competitive payout range. And certainly, as we look to grow that over the next couple of years, Despite a flattish top line, you'd expect to see that payout ratio creep up. Then when the pipeline kicks in, we would expect and then payout ratio. But what I can tell you is growing this dividend is very, very important to this company and we think we've got the cash flow and the growth potential to deliver that for many, many years. Okay. Damian, this is Rick Gonzalez. So I'll talk about the bolt on strategy that you referred to. Yes. I think at the end of the day, if you look, we have been tremendously successful with our business development, our licensing and acquisition on the strategy. The organization that has come with us from Abbott to AbbVie has been recognized nationally a number of times for Its ability to go out and complete transactions. And if we look at the numbers, we will get it for a at a significantly better price. We certainly are pretty disciplined from a financial standpoint to make sure that we get an appropriate and we structure our transactions in a way to minimize risk and maximize the opportunity for us. And that's the discipline that we will continue to operate with. But I think some of the differentiators for us is we clearly have a global footprint and that's attractive to many partners going forward. We can and We launch a product everywhere around the world with our current infrastructure in place and we have full assets in all those countries And that's different than some of our competitors who we compete against for assets, certainly not all of them, but for some of them. And then I think they look at our performance in areas that are Clinically driven. You think about HUMIRA as an example, 3rd to market in the anti TNF market And you know the success that we've had there. You look at what we've been able to do with something like AndroGel, take this product and I think value and certainly in the areas of specialized medicines, your ability to be able to and provide the clinical profile of a product successfully at a commercial level is an important aspect of that and those are the areas that we're most and participate in it. And so I think in many cases we stack up very nicely compared to all the competitive set that's out there. Okay. Thanks, Damian. Great. Thank you. Well, that ends our conference call For today, thanks to all of you for joining us. We look forward to our 1st year as an independent company and expect to maintain an active dialogue with the investment community throughout after the year. That concludes today's conference call. And if you'd like to listen to a replay of the call after 11 am Central Time today, Go to AbbVie's Investor Relations website at abbvieinvestor.com or you can call 88856 at 60,019 passcode 4,347. The audio replay will be available until midnight on Wednesday, February 13. Thanks again for joining us. Thank you. And this concludes today's conference. You may disconnect at this time.