Good morning, thank you for standing by. Welcome to the AbbVie conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star one keys on your touch-tone phone. Should you become disconnected throughout this conference call, please dial 1-877-918-6633 and reference the AbbVie call. This call is being recorded by AbbVie. With the exception of any participant's 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 rebroadcast without AbbVie's expressed written permission. I would now like to introduce Mr. Larry Peepo, Vice President of Investor Relations.
Good morning, thanks for joining us. Also on the call with me today is Rick Gonzalez, Chairman of the Board and Chief Executive Officer, and Bill Chase, Executive Vice President of Finance and Chief Financial Officer. We also have Laura Schumacher, Executive Vice President of Business Development, External Affairs, and General Counsel, and John Leonard, Senior Vice President and Chief Scientific Officer, with us for the question 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 fourth quarter and full year 2012 performance for our key pharmaceutical products, then provide further details of our outlook for 2013. Following our comments, we'll take your questions.
Before we get started, some statements may be forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, 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 10 registration statement, which has been filed with the SEC and are incorporated by reference. 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. With that, I'll now turn the call over to Rick.
Thank you, Larry. Good morning, everyone, 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 Abbott's proprietary pharmaceutical business. Despite continued challenges in the healthcare industry and the global economy, our differentiated portfolio delivered another exceptional year with strong performance from several products, including HUMIRA. As we announced this morning, we expect adjusted 2013 EPS of $3.03-$3.13, in line with the profile we outlined on the third quarter call last October and at a healthcare conference earlier this month. Over the past several months, through our roadshows, meetings, and other communications, we've been very active in discussing our strategic vision, our outlook, and our unique identity with the investment community.
That identity includes several key attributes, a diverse portfolio of assets, including many products that hold leadership positions within their categories and support 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 operations, 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, 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 pleased with the strong growth delivered both in the fourth quarter and the full year 2012. Worldwide proprietary pharmaceutical operational sales in the fourth quarter increased 8.5%. For the full year 2012, worldwide operational sales grew 8.2%, despite the entry of generic TriCor in the fourth quarter. In addition to our strong sales growth, we achieved our other key priorities for the year, executing on our regulatory and clinical objectives. This includes securing approvals for several new HUMIRA indications and advancing key development programs, including the start of our HCV registrational trials. Our strong performance was led by HUMIRA, where we added more than $1 billion in sales growth in 2012. 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, our commercial development and regulatory execution has been outstanding. A number of factors will drive continued growth, including the addition of new indications, increasing penetration, geographic expansion, and share gains. HUMIRA currently offers the broadest label in the category, with nine approved indications in Europe seven 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 HUMIRA, with a number of new indications currently in late-stage trials. Several new uses will be unique to our label and will help further differentiate us 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 $1.5 billion in incremental global peak sales. Another significant driver of growth going forward will be increasing global biologic penetration rates, which are still relatively modest across all segments. In particular, there is room for further penetration in the dermatology category, where penetration rates are still in the mid-single digits worldwide. A third source of growth will be continued share gains. Over the past year, we have captured significant market share globally in dermatology and GI, while holding steady share in rheumatology. Finally, HUMIRA growth will also be driven by further geographic penetration in underserved markets around the world.
While much has been said about the potential changes in the competitive landscape in the coming years, we have planned for these factors, we continue to have a high level of confidence in HUMIRA, given its extensive clinical track record and strong product profile. As we track new product entrants, performance is in line with our expectations. As we think about HUMIRA's performance this year, we expect to deliver low double-digit reported growth in 2013, 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, SYNTHROID, and our antiviral medicines, KALETRA and NORVIR.
We're focused on maximizing the performance of our entire portfolio. We've structured our specialty commercial teams for efficiency and agility, we will leverage our competitive advantages and capitalize on market dynamics. This includes continued geographic expansion, where we expect to add approximately $1 billion in incremental sales over the next five years from the emerging markets. 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 some of the most pressing unmet clinical needs, we're extremely encouraged with our progress on this front. We're actively working to obtain 15 major regulatory approvals between 2013 and 2017.
Our late-stage pipeline includes 11 compounds or indications in phase III development, focused on therapeutic areas including hepatitis C, immunology, multiple sclerosis, endometriosis, and Parkinson's disease. The flagship of our late-stage pipeline is our interferon-free HCV combination. We have made significant progress with our program, we continue to have a high level of confidence that AbbVie has the potential to achieve a strong leadership position in this therapeutic area. It is our goal to be first to market with an interferon-free treatment for HCV genotype 1 patients. Today, only a fraction of patients diagnosed with HCV are being treated, cure rates remain unacceptably low. With the introduction of new interferon-free treatments, we expect that the market will grow significantly.
Because patients will be cured with a much shorter course of therapy, physicians will have the capacity to treat more patients, beginning with those that need it the most, such as null responders 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, as well as certain special populations. We're also conducting additional exploratory clinical trials to determine if a once-daily ribavirin-free treatment can provide high cure rates in several HCV-infected population, including patients with genotype 1b, the most common genotype in Europe and Japan. As we look ahead to 2013, we expect to present additional subpopulation analysis from our phase IIb AVIATOR trial. Our phase III program is well underway and enrolling rapidly.
We expect our phase III studies to begin to read out later this year, supporting a mid-2014 registration submission and market entry in early 2015. Also moving into phase III following the successful completion of our phase IIb program is atrasentan, an internally discovered compound in development for diabetic kidney disease. Phase II 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 IIb study at a medical congress this year. Also in our late-stage pipeline is daclizumab, a next-generation biologic in development with Biogen for multiple sclerosis. Results from the first of two pivotal trials demonstrated strong efficacy in reducing relapse rates and disability performance. Results from the second pivotal trial, which is fully enrolled and progressing well, are expected in 2014.
Elagolix is a compound in phase III development for endometriosis, a prevalent condition with few treatment options. It has a unique profile with the potential to provide symptom reduction while avoiding significant bone loss or other adverse effects that can sometimes be associated with current treatments. Elagolix is also in mid-stage development for uterine fibroids, we expect to initiate a phase IIb study this year. Elotuzumab is in development for multiple myeloma, the second most common blood cancer, led by our partner, Bristol Myers Squibb. Data presented at the American Society of Hematology meeting showed promising disease progression results in patients treated with elotuzumab and standard of care. Duopa is a therapy for advanced Parkinson's disease. Phase III data showed a decrease in periods of poor mobility, slowness, and stiffness.
Duopa, known as DUODOPA outside the U.S., is approved in Europe. We are pursuing regulatory approval in the U.S. We also continue to make significant progress 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 III over the next 12 to 18 months. For example, ABT-199, our next-generation BCL-2 inhibitor, has shown strong activity in hematological malignancies. We're planning to present additional phase I data at the American Association for Cancer Research meeting in April and at ASCO in June. We anticipate to initiate a phase III trial in CLL this year. ABT-888, our PARP inhibitor, has shown promise in enhancing the effectiveness of common cancer therapies. It is currently in a phase IIb trial for BRCA-deficient breast cancer and other cancers.
ABT-126, our alpha-7 agonist, currently in phase IIb trials for Alzheimer's disease and cognitive impairment associated with schizophrenia. We expect to present phase II data in Alzheimer's this year at the Alzheimer's Association International Conference. We also have an active mid-stage immunology program with the goal to deliver differentiated efficacy and safety relative to current available options for conditions such as RA. We have partnered with Galapagos to develop a next-generation, highly selective JAK1 inhibitor. Data from a multi-center phase IIa study will be presented at EULAR. As you can see, our pipeline includes a number of exciting programs that have the potential to address significant medical need. For a company of our size, the potential sales projections from our late-stage pipeline represent a significant opportunity for meaningful revenue growth beginning in the 2015 timeframe. 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 sustainable growth. We have a solid financial foundation, including strong profitability and robust cash flow. We have a commitment to return cash to shareholders, including a strong and growing dividend. We have a late-stage pipeline that is compelling, including several programs with billion-dollar-plus peak potential. We are looking forward to the next 12 to 18 months as we expect a good deal of activity, including new regulatory filings and approvals, clinical trial advancement, and data presentations. We look forward to the ongoing dialogue with the investment community. With that, I'll turn the call over to Bill for additional comments on our 2012 performance and expected financial profile in 2013. Bill?
Thank you, Rick. As reported in Abbott's earnings release last week, we delivered very strong fourth quarter and full-year sales results. Because our separation from Abbott occurred on January 1st, 2013, our 2012 results were reported as part of Abbott's overall performance. I'd like to take some time this morning, however, to comment on the business' strong performance in the fourth quarter and 2012. I'll turn to our outlook for 2013. Worldwide proprietary pharmaceutical sales in the fourth quarter increased 8.5% on an operational basis, excluding the negative impact of foreign exchange. On a reported basis, global sales increased 7.4%. For the full year 2012, worldwide operational sales increased 8.2%, and worldwide reported sales increased 5.5%. These results are indicative of the strong execution and performance of the business in 2012, despite the impact of generics on our lipid franchise in the fourth quarter.
In 2012, HUMIRA delivered another outstanding year, driven by continued performance above market growth rates. The global HUMIRA franchise achieved sales of nearly $2.7 billion in the fourth quarter, an increase of 24.5% 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. As Rick mentioned, in 2013, we expect HUMIRA to continue its strong momentum and grow at a low double-digit pace on a reported basis. AndroGel also exhibited impressive growth in the fourth quarter, consistent with strong underlying prescription trends. AndroGel holds the leadership position in the testosterone replacement market, where growth is being driven by the increasing diagnosis and treatment of low testosterone levels in men.
AndroGel 1.62, our low volume formulation, has quickly become the leading therapy in the market, now accounting for more than 60% of total AndroGel franchise sales. Full year 2012 sales of AndroGel were nearly $1.2 billion in the U.S. In 2013, we expect AndroGel to grow at a double-digit pace, driven by continued favorable market trends. Global sales of HUMIRA were $211 million in the fourth quarter, driven by double-digit growth in the U.S. For the full year 2012, global LUPRON sales were $800 million, 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 million in the quarter at approximately $550 million for the full year, up roughly 6% versus 2011.
SYNTHROID maintains strong brand loyalty 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. U.S. sales of CREON were $105 million in the fourth quarter, an increase of nearly 4%. Full year 2012 sales were more than $350 million, an increase of 6.5% versus 2011. CREON maintains market leadership in the pancreatic enzyme market, where we continue to capture the vast majority of 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. CREON sales to grow at a low double-digit pace.
Moving on to our lipid franchise, TriCor, Trilipix sales were approximately $200 million in the quarter, down roughly 50% due to the entry of generic fenofibrate products in early November. This performance was in line with the guidance we provided on our third quarter call last year. U.S. sales of Niaspan were $277 million 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 billion of annual operating cash flow. We have a strong balance sheet with over $7 billion of cash on hand.
These resources will allow us to invest in our business for the future, while at the same time funding a strong $1.60 annualized dividend, which we intend to grow. We have ample means to fund an increasingly exciting pipeline of medicines targeted at addressing therapeutic areas with high unmet need. However, as we've mentioned previously, 2013 and 2014 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 for TriCor, Trilipix, and Niaspan, and we've planned for this appropriately. As a result, we're forecasting 2013 sales of less than $1 billion for our combined lipid franchise, reflecting a decline of roughly $1.2 billion. We plan to cover our lipid franchise decline through growth of key marketed products, including HUMIRA.
As we see it today, we expect AbbVie's total sales to remain somewhat above $18 billion in 2013, despite the generic events that are playing out in our lipid franchise. 2013 and 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 Abbott, 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 expect full year adjusted earnings per share of $3.03 to $3.13 in 2013.
This guidance contemplates sales somewhat above $18 billion, 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%. We're forecasting a gross margin ratio of around 76.5% for the full year, excluding non-cash amortization. This forecast reflects both the impact of loss of exclusivity events and the effect of unfavorable foreign exchange. We anticipate R&D expense to be approximately 14.5% of sales, reflecting funding actions 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 third quarter call and reflects the progress of our assets in the later stages of development. We expect SG&A expense to be around 26% of sales, including the incremental ongoing costs of becoming an independent company.
As outlined in our Form 10 filing, we expect net interest expense of approximately $300 million in 2013, and we expect an adjusted tax rate of approximately 22% in 2013, including the impact of the 2013 R&D tax credit. Our adjusted EPS guidance of $3.03-$3.13 excludes $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, we will look to further refine our forecast of specified items related to the separation as the year progresses. On a GAAP basis, our EPS guidance range would be $2.66-$2.76. As I mentioned, we expect approximately $6 billion of operating cash flow in 2013. Regarding our first quarter outlook, we expect adjusted EPS in the first quarter of $0.64-$0.66.
This excludes roughly $0.10 of specified items and non-cash amortization, resulting in a first quarter EPS in the range of $0.54-$0.56 on a GAAP basis. Our first quarter outlook reflects sales growth in the low single digits on a reported basis, despite the negative impact of generic competition in our lipid franchise. We expect a gross margin ratio somewhat below our full-year guidance due to product mix and the impact of foreign exchange in the quarter. We expect R&D and SG&A as a percentage of sales to be slightly higher than our full-year outlook. This is reflective of the business's typical quarterly pattern, where first quarter EPS is typically lower than the remaining three 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 first year of operations.
In 2013, our quarterly results will be compared against a 2012 GAAP benchmark, which reflects the business as it existed when it was part of Abbott. As a result, the comparison of AbbVie's 2013 performance against the prior year will be impacted by significant differences in the tax rate, interest expense, and the infrastructure costs associated with becoming a separate company. For this reason, we plan to focus our upcoming quarterly discussions on performance versus our communicated 2013 guidance of both adjusted EPS and our targeted P&L profile. We feel that this will be most useful to investors when trying to assess the underlying business performance of AbbVie. 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 HUMIRA and our other specialty products, robust cash flow generation, and an attractive dividend. Our pipeline is well-funded to ensure continued progress across our promising assets. 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. At this time, if you would like to ask a question, please press *1 on your touch-tone phone. You will be prompted to record your name. Our first question today is from Jami Rubin from Goldman Sachs.
Thank you. Congratulations, everyone, your first quarterly conference call.
Thank you.
Rick, just in terms of a high level, HUMIRA obviously performed exceptionally well in 2012 and is positioned to continue to outperform in 2013. 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. The question is this: how high a priority is deal activity? You've got $6 billion 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 HUMIRA's importance to the bottom line? Do you think that The Street is missing the value of your pipeline assets to drive growth beyond 2015? Then if I could follow up with a specific question for John on ABT-199.
Just according to clinicaltrials.gov, it seems that you and your partner have suspended several of the CLL trials. Just wondering why those trials have been suspended. I noted that you had highlighted this as a asset moving into phase III later this year. Thanks.
Okay. Thank you, Jami. This is Rick. 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, in my opinion, in the pharmaceutical industry than HUMIRA. I think we look at our business a couple of different ways. We believe HUMIRA has 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 we expect continued robust growth out of HUMIRA going forward for the foreseeable future. That will clearly be a priority for us to continue to drive. HUMIRA will be a significant contributor to our success and a significant contributor to our overall business going forward.
Having said that, as we have indicated before, we believe we have a very robust 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 that we anticipate will enter the market. HCV obviously is one of those that we believe is a significant opportunity. daclizumab, elagolix, atrasentan, to name a few. If we look at our late-stage pipeline, we believe that pipeline has the ability to generate, on a conservative basis, between $4 billion and $6 billion worth of growth for us. 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 2015, as the loss of exclusivity that Bill mentioned earlier plays through our financials and stops pressuring the top line. In addition, though, we have been very successful at going outside and looking for 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. 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. 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. That's really the strategy that we plan on operating with going forward. With that, I'll turn it over to John to give you an update on 199.
Thank you.
Thanks, Rick.
ABT-199, as you may know, Jami, is our BCL-2 inhibitor. This is an agent that's active in patients with chronic lymphocytic leukemia 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 program's been focused on dose ranging in a variety of malignancies. 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 on establishing that proper dosing escalation so we can move forward into what we hope will be registrational trials 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 model/philosophical question, 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 fourth quarter? Not that I'm complaining, but it was much higher than the other quarters of the year. 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 the company's lay of the land in hep C this year and 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, Gregg. This is Rick Gonzalez. I'll answer the first part, then we'll have John jump in. Certainly, we saw very strong growth with HUMIRA in 2012. In the fourth quarter, we obviously saw a very strong growth as well. We anticipate that we will continue to 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 roadshows, 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 maximum speed and maximum breadth. We will invest this year at a rate of about 14.5% of sales.
If we were to find assets that we wanted to move more rapidly on or we could advance assets on our own more rapidly internally, obviously, one of our priorities would be to invest back in R&D to maximize our pipeline for the longer term. Obviously, we would have to make a decision based above and beyond that, what we would allow to flow through. Those would be our expectations for the business going forward. John?
Okay. Thank you. I'll give you my view of what we're doing in HCV and what we think our prospects are. As I'm sure you know, we've presented a fair amount of data on our regimen, which we are extremely excited about. At this point, we believe we have the largest data set in genotype 1 and have demonstrated what we think is unsurpassed efficacy and safety, which puts us in a good position to carry out the phase III program that we're now embarked upon completing. That trial's underway, as Rick said in his comments. It's rapidly enrolling. We're very excited about it. Just to highlight some of the aspects of it, we're pursuing a regimen in naive and experienced patients. We're studying patients with compensated cirrhosis.
We're looking at regimen with and without ribavirin in genotypes 1a and 1b naives and experienced patients. Are also pursuing individual sub-patient populations for additional activity. We're also in good position, we think, with our program in Japan. Here we have what we think is an outstanding regimen that's well-suited for the 1b patient population that's highly prevalent there. We expect to be moving into a pivotal 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. I think we'll be in a position at the end of this year to see what we have. We would present that at the appropriate scientific meetings. There will be some data cuts from the prior phase IIb work at the liver meetings. We'll be sharing that information here in the next coming months. With respect to the competitive lay of the land, a lot of people are in the space. We think we have a very competitive offering. We believe that we will be first to the marketplace with pan genotype 1 regimen, which has been our focus. We're absolutely committed to achieving that.
Thank you.
Thank you. Our next question is from Jeffrey Holford from Jefferies.
Hi there. Just a question on AndroGel. 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 job of converting that onto the low volume formulation. Do you think that this is a sustainable growth asset into the midterm? Just like your view on how you think that's going to play out at post 2015.
Yeah. 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. Did that help, Jeff?
Yeah, that's great. Thank you.
Thank you. Our next question is from Alex Arfaei from BMO Capital Markets.
Good morning. Thank you for taking questions.
Sure. Good morning.
Question on DUOPA. I believe you filed that in the U.S. in 4Q. We've seen reports that it can be remarkably effective in certain patients, but uptake has been rather modest in Europe. I'm just wondering if you could comment on your outlook for that device, and whether or not you can make incremental improvements to address some of the issues associated with it. Also, are we going to see updated data from your JAK1 inhibitor this year? Thank you.
Alex, this is Rick Gonzalez. This particular drug has an amazing level of efficacy, I agree with your point there. We have launched it in Europe probably a 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. It is the kind of product that will have a relatively gradual ramp, but it's doing something less than $200 million 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 U.S., 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 new pump.
We do have active work that's in place now to work on that, and we believe that will make it easier to be able to bring patients up on that particular drug. That will be an enhancement that comes in later in the process. We do believe this could be a significant asset for us. On the JAK, I'll have John cover that.
Sure. Thanks, Rick. When you say our JAK, there's really two JAKs that we're working with. One is the Galapagos molecule, where we expect that they will be presenting their 2A data at the EULAR meeting this coming June. We anticipate that they'll be moving into 2B trials in the first half of this year. With respect to our own internal program, this is a molecule that's in phase I clinical trials. It's primarily pharmacokinetic information that we have at this point and not patient response data. 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. Then some cost questions, please. First, with respect to HUMIRA in the fourth quarter, was there any forward buying in the U.S., or were there any tenders that boosted the performance in the fourth quarter ex-U.S.? 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's growing and is 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. Finally, with respect to SG&A, some investors believe that as a split-off company, AbbVie will have cost reduction opportunities that were underappreciated inside a much larger company. Some expect SG&A to decline.
Others point to new product launches ahead and required investment. Just wanted to understand if over the next couple of years, we should look for SG&A to be rising or falling or flat. Thank you.
Thanks, David. Okay, David, this is Rick Gonzalez. On the HUMIRA question, the fourth quarter, obviously, we had good performance in HUMIRA. The underlying script growth was very strong. There was some positive price in the quarter as well, and there was some pipeline adjustment, which we normally see occur in the fourth quarter of most years. I'd say pipeline had reduced in the third quarter, slightly below what historical levels were, and obviously pipeline then came back up to more normal historical levels in the fourth quarter. Having said that, it is at our normalized rate of about a month, which is what we typically have with HUMIRA. 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.
The fundamental growth in the business was what was driving the HUMIRA performance. 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. 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. We'll have some pressure on gross margin in 2014 going forward. 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&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&A standpoint. Certainly as HUMIRA grows, we will see even more efficiency because I think we are scaled in a way that's appropriate for the brand. As we can continue to grow it, there's not a proportional increase in SG&A. That will help improve SG&A profile. 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&A to ensure that we get significant launch activity early enough and prepare the market for those products. Net-net, I don't think we'll see significant reduction in SG&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 cost improvements. Our financial back office is an example of that. Certain parts of our distribution and manufacturing system. The goal is to improve gross margin and SG&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 one, maybe this is too early to ask you since you've been an independent company for less than a month. Investors look at large cap pharma as a capital allocation sector. A lot of your competitors, in addition to having a dividend, also have share repurchases. The first question is, Rick, your current thinking or the board's current thinking about where share repurchases would rank in terms of cash deployment. 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 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 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 effort to be able to offset any dilutions from options. Not a major share repurchase program will be anticipated over the short to medium term.
As it relates to your second question, on the emerging markets, I think one of the things that's important to understand about our particular company is that we operate in virtually every market around the world today. We operate in all the emerging markets. 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. 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. You have to have reimbursement in place in those countries in order to be successful in driving significant levels of penetration. That is a lot of the work that we do ahead of time.
We believe there are significant long-term opportunities in countries like China and Russia. Those are examples of areas where we have a current strong footprint in those countries, but we're continuing to work to get better reimbursement and access in those markets, and that will be the effort that we focus on over the next couple of years. Thanks, Michael.
Thank you. Our next question is from Chris Schott from JPMC.
Great. Thanks very much. Just had three quick questions here. When we think about the R&D ramp at the company, is there a ceiling on R&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 methotrexate. Can you just comment on that point of differentiation and how you plan to counter that message? Finally, on the hepatitis C opportunity, 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 Gonzalez. On the ceiling question, as we model out our long-range plan, 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, the clinical programs tend to be smaller in a lot of cases compared to a primary care kind of product. As we model out and forecast what we think our R&D needs are, we wouldn't anticipate that we would go above about 16%. We think that probably is the ceiling, that we'll be operating between this 14.5, and 16% in that range.
As it relates to Tofa and its ability to be used without methotrexate, one of the key parameters in the 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. We don't anticipate that that will be a significant differentiator going forward. I'd say that 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. I'd say we're tracking very consistent with what we would've expected. We're looking carefully at those patients and physicians that are prescribing the product now, and why they're prescribing it, and what areas they're prescribing it. I'd say we don't see any trends there that are troublesome.
There are other products on the market today that have the ability to be used without methotrexate, as you know, you don't see any significant uptake of those products either. That's where we are.
Last one. What was the last point?
Hepatitis, Japan.
Yeah. You talked about Japan.
Yeah. Let me take the HCV. In Japan as I said, we're doing our phase II program. I would estimate that we're about a year behind what I understand a BMS approval date. We believe that we're on track, data dependent, obviously, for a fourth quarter 2015 submission. The program that we're pursuing there, I think, is differentiated from what we understand the BMS program to be. 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-450 and the NS5A. It'll be a very simple two-pill once-a-day regimen we anticipate at this point. Does that help, Scott or Chris?
That's 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 ABT-199 and CLL, I just wanted to ask, it strikes me as an increasingly crowded market with a lot of potential new entrants there. I'd like to understand more. Would you actually consider, in a phase III design, using 199 with RITUXAN, even though I know that was suspended in an earlier study, but maybe the 199 with a lower dose? Is this really against RITUXAN? I'm trying to understand how you could potentially position it in the market. The second, more financial question, and forgive me for being dense. I did hear the commentary about as you report out your financials for 2013, you would use the GAAP numbers for 2012. Would those GAAP numbers actually carve out somewhere in the release depreciation and amortization? Thank you very much.
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 paused. Those trials continue. What we're not doing currently is dose escalating further beyond where we are. All patients in those 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. Regimens will be tailored for those different patient types.
We're going to study 199 in all of them, which would include as single agent, it would include in combination with
RITUXAN with our collaborator, Genentech, and also with chemotherapy. The goal would be to have the product used in all lines of treatment, with our ultimate goal to achieve first-line therapy.
Thank you, John.
Tony, it's Bill Chase on your question on financials. You're right, I did say that our 2013 will be compared against a 2012 GAAP financials. That's largely because of the fact that it's very difficult to model a 2012 that's equivalent to our 2013 business. For example, tax rate is significantly different. Interest expense didn't exist in the entity in 2012. It does obviously exist with AbbVie in 2013. We will, in our GAAP filings, make it very clear what the non-cash amortization is. Certainly, in our discussions, we can give you color on what's happening 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.
Thanks, Tony.
Thank you. Our next question is from Marc Goodman from UBS.
Yes, on hep C, you had mentioned you still believe you're going to be first to market. I've also thought I heard the comment that you're going to have the best data in the nulls, 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 y'all were talking about. 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.
That's what we currently believe. I'm sure that we'll learn more about the other regimens as data appears. At this point, 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 phase II-B program. We think we know what we're dealing with in all of the different patient types for genotype 1, naives and nulls. I'd just emphasize that we believe the nulls are a particularly important set of patients for all kinds of reasons. Obviously, they failed prior therapy. These are the patients that tend to be further along on the progression of their illness. Those are the ones that we believe payers are going to emphasize. With the regimen that we're studying in phase III, we achieved about a 93% SVR12 rate, essentially cures.
So far, I think that sets the standard in the field. That's the basis for our optimism.
On 719, I'm not sure if I missed it earlier. Is that product when are we going to see data on that? Is that moving to phase III this year? Did you mention that? I don't remember.
We did not mention it, I don't think today. ABT-719, for those who may not be familiar with it, is 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 phase II-B data that was available when the product came to us, and that trial is underway in patients with major cardiac surgeries. When we look at that data, that will determine the course of development which we hope to be able to do before the very end of this year.
Thanks.
Thanks, Marc. Operator, we have time for one final question.
Thank you. Our final question today is from Damien Conover from Morningstar.
Hey, good morning. Thanks for squeezing me in.
Good morning, Damien.
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 mentioned about increases to the dividend maybe in the interim, but as we look further out to the HUMIRA patent loss, just was wondering where you might be comfortable with the dividend payout ratio as you kind of get into those years. Secondly, I was just wondering if you wouldn't mind fleshing out some more of 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.
Damien, 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 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. 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. When the pipeline kicks in, we would expect to see accelerated growth in the dividend. When you start getting out into the time frame of post-2017, 2018, it's a little difficult to predict a specific dividend payout ratio.
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 potential and the growth potential to deliver that for many, many years.
Okay, Damien, this is Rick Gonzalez. I'll talk about the bolt-on strategy that you referred to. I think at the end of the day, if you look, we have been tremendously successful with our business development or licensing and acquisition 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.
We will get it for a significantly better price. We certainly are pretty disciplined from a financial standpoint to make sure that we get an appropriate return, and we structure our transactions in a way to minimize risk and maximize the opportunity for us. That's the discipline that we will continue to operate with. 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 ultimately launch a product everywhere around the world with our current infrastructure in place, and we have full assets in all those countries. That's different than some of our competitors who we compete against for assets. Certainly not all of them, but for some of them. Then I think they look at our performance in areas that are clinically driven.
You think about HUMIRA as an example, third 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 grow it significantly over time. There are many examples where we have been able to maximize those assets, and those are things that partners recognize and I think value. Certainly in the areas of specialized medicines, your ability to be able to drive 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 interested in participating in. I think in many cases, we stack up very nicely compared to all the competitive set that's out there. Okay. Thanks, Damien.
Great. Thank you.
Well, that ends our conference call for today. Thanks to all of you for joining us. We look forward to our first year as an independent company and expect to maintain an active dialogue with the investment community throughout the year. That concludes today's conference call, and if you'd like to listen to a replay of the call after 11:00 A.M. Central Time today, go to AbbVie's investor relations website at investor.abbvie.com, or you can call 888-566-0019, passcode 4347. The audio replay will be available until midnight on Wednesday, February 13th. Thanks again for joining us.
Thank you, and this concludes today's conference. You may disconnect at this time.