ASM 2020

May 8, 2020

Good morning, everyone. I'm Richard Gonzales, AbbVie's Chairman and CEO. I'd like to welcome you to AbbVie's Annual Meeting of Shareholders. We appreciate you joining us today. We are holding this meeting for the first time virtually to adhere to social distancing policy. It is clear to us that an in person meeting would not be appropriate, but we hope you'll find this virtual version of our shareholder meeting to be informative. There will be an opportunity for shareholders to submit questions once we have completed discussion of the voting items. Now I'll call our meeting to order. Proxies in the form solicited by the Board of Directors have been received representing 87.5% of the shares entitled to vote. More than a majority of outstanding shares are present in person or by proxy, we have a quorum. Today, we have 7 business items on the agenda. They include the election of the Class II directors, the ratification of our auditors, an advisory vote on the approval of executive compensation, a management proposal regarding the elimination of super majority voting and finally 3 shareholder proposals. 1 related to a lobbying report, another to require an independent share and a third related to a compensation committee report on drug pricing. These items are now before the meeting. If you haven't voted and you joined the meeting using your control number, you may click the Vote Here button on the virtual meeting website and follow the instructions provided. And please remember, if you have voted by proxy either by mail, phone or over the Internet, your shares have already been voted as you have directed. Before I proceed further, I'd like to thank our Board of Directors for joining us today. Our directors are Doctor. Robert J. Alpern, Roxanne S. Austin, William H. L. Burnside, Brent J. Hart, Edward M. Liddy Melody B. Meyer Edward J. Rapp Rebecca B. Roberts Glenn F. Tilton and Frederick H. Waddell. Again, thank you for joining us. And now, I'd also like to introduce the members of the executive management team here with me today. Laura Schumacher, Vice Chairman, External Affairs, Chief Legal Officer and Corporate Secretary Doctor. Michael Severino, Vice Chairman and President Carlos Albon, Vice Chairman and Chief Commercial Officer and Rob Michael, Executive Vice President and Chief Financial Officer. We will now turn to the meeting's business items. Following these business items, we'll close the polls, announce the preliminary voting results and open the meeting for questions. The first order of business is the election of the Class 2 directors. The Board of Directors has recommended you vote in favor of these directors. Next item on the agenda is the ratification of the selection of Ernst and Young as our auditor. The Audit Committee and the Board of Directors have reviewed the qualifications of Ernst and Young and recommended ratification of the firm's appointment. The next item on the agenda is the advisory vote on executive compensation. Shareholders are asked to approve the compensation of the AbbVie executives named in the proxy on an advisory basis. The Board of Directors has recommended a vote in favor of these executives' compensation. Next item on the agenda is the management proposal to eliminate super majority voting. The Board of Directors has recommended a vote in favor of eliminating super majority voting. We will now move to the shareholder proposals. The 1st shareholder proposal is the lobbying report proposal detailed in the proxy statement. This proposal is submitted by Zevon Asset Management on behalf of William Creighton and the co filers noted in the proxy statement. Ms. Nikki Villavincenzo is on the line representing the proponent. Operator, could you please open Ms. Villavincenzo's line? Ms. Villavicencio, would you like to move the proposal forward? Yes. Sorry about that. Hi, my name is Nikki Villavicencio and I am a SEIU Healthcare Union member and a disability rights activist. On behalf of Zevon Asset Management and co filers Dana Investment Advisors, Friends Fiduciary Corporation, Freshbond Capital and Echo Foundation. I move Item 5, the shareholder proposal asking our company to provide a report on its federal and state lobbying, including indirect funding of lobbying through trade associations like the Chamber of Commerce and Pharma. Lobbying transparency is in the best interest of AbbVie and its shareholders. Since 2013, AbbVie spent more than $38,000,000 on federal lobbying and there is incomplete disclosure about state lobbying, where AbbVie lobbies in at least 22 states. AbbVie is required to report all of its lobbying and already has this information, so it could easily be provided to shareholders in a report. Corporations contribute 1,000,000 to trade associations that lobby indirectly on their behalf without specific disclosure or accountability. AbbVie is a member of the Chamber of Commerce and serves on the Board of Pharma, which combined have spent over $2,000,000,000 on lobbying since 1998. Shareholders have no way to know how much of AbbVie's trade association payments are being used to lobby on its behalf. As AbbVie fails to disclose its trade association payments and the amount used for lobbying, AbbVie lags the majority of its peers, which disclosed their trade association lobbying payments. Corporate reputation is an important component of shareholder value. The concern for investors is when a company says it supports something, but its trade association lobbies directly against that position, creating a values misaligned and reputational risk. AbbVie's membership in the Chamber of Commerce and our government's ongoing failure to fully utilize Defense Production Act to save lives provide an immediate example of this misalignment. This issue is personal to me. I receive home care services every day of my life, so I can be a mother and an active member of my community. And my home care workers have no access to PPE. AbbVie has publicly stated that it is doing everything possible to ensure employee safety, get patients their medicines and make assistance available to help those most impacted by COVID-nineteen pandemic. And in response to this crisis that has killed 1,000 and continues endangering frontline workers like my own home care workers, multiple organizations representing these essential workers are calling on the administration to invoke the full power of the Defense Production Act. But the Chamber of Commerce has directly lobbied the Trump administration against using the act. There are many articles noting chamber member companies like AbbVie that employ frontline workers who need protective equipment or produce critical medical supplies, while the chamber lobbies to block the use of the act. If Abbey is committed to do all it can to respond to COVID-nineteen, does our company support full utilization of the Defense Production Act when and when so many lives are at stake and frontline workers need PPE? And if so, will AbbVie use the position as a chamber member to speak out against the chamber lobbying against fully utilizing the Defense Production Act? How does our company address these values misalignments? Will our company do the right thing on the Defense Production Act? Shareholders would like to know. The request to disclose is a call of transparency and accountability in the spending of shareholders' resources, And I urge shareholders to vote for this proposal. Thank you. Thank you, Ms. Villavincenzo. The Board of Directors opposes this proposal for the reasons we've stated in the proxy statement. The next item on the agenda is the independent share shareholder proposal detailed in the proxy statement. This proposal is submitted by the Employees Retirement System of Rhode Island and the co filer noted in the proxy statement. Mr. Randy Rice is on the line representing the proponent. Operator, could you please open Mr. Rice's line? Mr. Rice, would you like to move the proposal forward? Thank you, Mr. Gonzales. Thanks for the opportunity to introduce item number 6 on the proxy statement on behalf of the Rhode Island State Treasurer Seth Magaziner, the 60,000 members of the Rhode Island Pension System and we are joined by the office of the Vermont State Treasurer, Beth Pierce. We filed this proposal because we believe that the role of the CEO and management is to run the company. The role of the Board is to provide independent oversight of the management and the CEO. And we believe that there is a potential conflict of interest for a CEO to have the role as Chair as well. We believe that a structure where the CEO runs the business and is accountable to a Board, led by an independent chair, is in the best interest of shareholders, including our members. An independent Board Chair eliminates conflicts caused by the CEO essentially being his or her own boss and clarifies where the authority of the CEO ends and the responsibility of the independent Board Chair begins. With the controversies and legal challenges facing our company, we're concerned that the board is not providing necessary oversight of the company's culture, strategy and risk management. And we believe that adopting best governance practices, including an independent Board Chair would help promote that necessary oversight. We are concerned by the number and types of patent litigation in which AbbVie and its wholly owned subsidiaries are and have been involved. AbbVie's 10 ks describes multiple legal challenges to patent litigation settlement agreements, alleging that these agreements violate state and federal antitrust laws. Additional lawsuit charge that AbbVie should be held accountable for the thicket of patents and recent deals that have prevented HUMIRA from biosimilars from being sold in the U. S. And of course, legislators continue to scrutinize our company's aggressive drug pricing practices. At the pension fund, we are the definition of a long term reputational and financial harm to the company and its shareholder, particularly regarding the practices that reflect very aggressive patent practices and price increases. We believe an independent lead director is not an adequate substitution for an independent Board Chair, a role that we believe is vital to ensure that tough questions of strategy, governance, culture, compliance and risk are being adequately discussed and independently overseen at the Board level. We have encouraged our fellow shareholders to vote for proposal number 6 because we believe that notwithstanding the governance practices noted in the Board's statement of opposition, AbbVie continues to deny critical rights to its shareholder, including the right to annually elect all directors. Thank you for your time. Thank you, Mr. Rice. The Board of Directors opposes this proposal for the reasons that we stated in the proxy statement. The final item on the agenda is the stockholder proposal on a Compensation Committee report on drug pricing detailed in the proxy statement. This proposal is submitted by United Church Funds and the co filers noted in the proxy statement. Ms. Katie McClowsky is on the line representing the proponent. Operator, could you please open Ms. McCluskey's line? Ms. McCluskey, would you like to move the proposal forward? I would. Thank you. Good morning, Mr. Gonzalez, members of the Board and fellow shareholders. My name is Katie McCluskey, and on behalf of United Church Funds and other AbbVie shareholders who are members of the Interface Center on Corporate Responsibility, I present shareholder proposal number 7, requesting AbbVie to report on the feasibility of incorporating public concern over high drug price into the senior executive compensation arrangement. The proposal is asking our company to assess the extent to which incentive compensation arrangements encourage the public's trust in AbbVie's innovation and concern for healthy outcomes. The leadership of our company must demonstrate that there are no occurrences of misaligned incentive pay, which discourage executives from focusing on long term sustainability rather than the get rich quick strategies of drug price increases. For the 2nd year in a row, a Gallup poll demonstrated that the pharmaceutical industry's favorability rating is worst among the sectors included in the poll. We believe this is partially due to drug price management missteps. Legislation has been passed in several states addressing pricing related issues and many more measures have been introduced at the federal and state level, further demonstrating that public concern has not yet been ameliorated by the industry's response and by year by year pricing commitments. Lastly, we believe that the coronavirus provides a particularly sensitive time for AbbVie to make sure that the economic and health hardships that the world is experiencing are not compounded by drug price increases. Now is not the time to exploit the public health's fragility by raising drug prices or preventing competition. With this proposal, we are asking how these concerns are being incorporated into corporate governance policies on executive compensation. The information sought by the proposal would give shareholders valuable insight about how AbbVie's leadership views public concern when setting executive incentives to balance financial goals with the goals of the positive impact on patients' lives. We therefore urge shareholders to vote for proposal number 7. Thank you, Ms. McCloskey. The Board of Directors opposes this proposal for the reasons stated in the proxy statement. The polls are now closed. We have a preliminary report from the Inspector of Elections, which shows that the nominees for the Board of Directors have been elected with an average of 98.7% of the vote in support. The appointment of Ernst and Young has been ratified with 99.2% of the vote in support. The advisory vote on executive compensation resulted in 93.9% of the vote in support. The management proposal regarding the elimination of super majority voting resulted in 69.5% of the outstanding shares in support, which is below the necessary vote needed to approve the amendment. The shareholder proposal on a lobbying report has not been approved with 29 0.3% of the vote in support. The shareholder proposal to require an independent share has not been approved with 27.4 percent of the vote in support. And finally, the shareholder proposal on a compensation committee report on drug pricing has not been approved with 23.9 percent of the vote in support. The final voting results will be available on our upcoming report on Form 8 ks. Now that we have completed the voting portion of the meeting, we have time for a few questions. The virtual meeting website allows shareholders who join the meeting using their control numbers to submit questions by filling out the ask question box. We will try to answer as many questions as possible before the meeting is scheduled to end and we move to our Board meeting. Jennifer, can I please have the first question? Our first question is, what is AbbVie's response to the COVID-nineteen crisis? Thank you, Jennifer. I mean, obviously, this pandemic was clearly unprecedented in its impact and its scope and the implications of it have been truly tragic. As a global company with employees in 120 countries around the world, we took rapid and comprehensive action to operate in this new environment. We operated around 3 basic principles. How do we ensure the safety of our employees? How do we ensure that we can continue to supply the critical medicines to the patients that we serve? And the 3rd priority was what can we do to be able to help and support the healthcare systems around the world to deal with this crisis in the most effective way and what can we do to help protect the most fragile among us. So let me start with protecting our employees. We quickly implemented remote working for the vast majority of our employees. There were employees that are critical and essential, particularly to be able to continue to supply our medicines to our patients. We equipped those employees with appropriate personal protective equipment. We implemented temperature checks, social distancing and aggressive cleaning and disinfectant procedures. From a supply side, I'm pleased to report that we have no AbbVie patients who had any shortage of supply or back orders of the medicines and this included several medicines that volumes increased dramatically because of the treatment of COVID-nineteen patients. In assisting the healthcare system, I think we were extremely aggressive in our approach in trying to be proactive and productive in being able to help the healthcare system deal with this crisis. We donated our medicines like Kalitra and others to be used in clinical trials as possible treatments with COVID. We donated a significant portion of AbbVie's own PPE supplies to local hospitals around the U. S. As well as around the world where we supply both N95 and surgical masks to those hospitals. We converted one of our pilot plants to make COVID-nineteen testing transport media, which was in short supply to public health departments and hospitals who needed it. We converted several of our research laboratories to provide COVID patient testing to supplement several public health departments. And we donated $35,000,000 to non for profits that were on the frontline to increase hospital capacity, provide PPE and provide food for the elderly and the needy. So I can tell you that I'm extremely proud of the efforts that we put forth. I'm proud of all of our employees, how they stepped up and tried to take a positive position under these very, very difficult circumstances. Our next question is what is the expected financial impact of the current COVID-nineteen pandemic? Thank you for the question. We detailed in some level of detail during our earnings call a few days ago, the impact. But at a summary level, we've evaluated what the impact is and what we're projecting the impact to be going forward. Fortunately, our business was performing very robustly going into the crisis And that certainly helped mitigate some of the impact that we've seen from COVID-nineteen. If you look at what we projected going forward, we projected that our sales will be reduced by about $200,000,000 to $300,000,000 due to the COVID crisis. And we were able to confirm that our earnings per share, we will be able to maintain our earnings per share based on the robustness of our business and the other actions that we've taken to be able to mitigate this impact. Next question, Jennifer? The next question is, are all employees working and can you speak more to the safety precautions taken for them? Yes. A relatively small proportion of our total employee base is working right now. The vast majority of people are still working remotely. The operations area has a fairly significant portion of its employees working in order to make sure that we can maintain the manufacturing of our medicines to continue to supply those to patients. We've actively enhanced all safety procedures. As I mentioned before, we implemented temperature checking for all employees that are coming in. We have aggressive PPE equipping of those patients. We've implemented social distancing where appropriate to make sure the employees are separated. We've made changes to our cafeterias for those employees that utilize those cafeterias in a way that we can ensure social distancing. But the vast majority of our employees are still working remotely. Next question? The next question is, is the dividend expected in future quarters? Dividend is expected. We are very committed to our dividend and to a growing dividend. So I think all shareholders can feel comfortable with that. Next question? Next, would the Board of Directors consider continuing virtual shareholder meeting in the future after the end of the pandemic threat? This is the first time we've done this meeting virtually. We'll obviously solicit feedback from our shareholders to see what the receptivity to it is. And we'll certainly evaluate the circumstances as it relates to COVID-nineteen when it's appropriate to evaluate the timing of this meeting next year. Okay. We can take one more question, Jaffra. What is the strategic rationale around the Allergan deal? Well, we're very excited that we're getting close to the Allergan transaction. It's an important strategic and financial transaction for our company. It really provides a number of benefits for the company. First, it diversifies our revenue base. It creates a leadership position in several additional therapeutic categories that we're not in today. It helps support our long term sustainability and growth. It increases capacity to invest in R and D. It strengthens our cash flow. The combined company will generate approximately $19,000,000,000 in free cash flow. And financially, it's a very attractive transaction. It's accretive in year 1. It grows to about 20% accretion several years out. It's got an attractive ROIC above AbbVie's cost of capital in year 1 that is unusual. So we're excited about finishing the transaction and integrating our 2 businesses together. All right. Well, thank you very much. We appreciate the trust and confidence that you put in us as a management team. This concludes our meeting.