Good morning, and thank you for standing by. Welcome to the AbbVie First Quarter 2016 Earnings Conference Call. All participants will be able to listen only until the question and answer portion of this call. You may ask a question by pressing star one on your phone. I would now like to introduce Mr. Larry Peepo, Vice President of Investor Relations.
Good morning, and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer, Michael Severino, Executive Vice President of Research and Development and Chief Scientific Officer, and Bill Chase, Executive Vice President of Finance and Chief Financial Officer. Henry Gosebruch, our Chief Strategy Officer, will be joining us for the Q&A portion of the call. In addition to our earnings release this morning, we have also issued a press release announcing our acquisition of Stemcentrx. You can find a set of slides on our website that provide an overview of the transaction. Before we get started, I remind you that some statements we make today may be considered forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995.
AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Additional information about the factors that may affect AbbVie's operations is included in our 2015 annual report on Form 10-K and in our other SEC filings. AbbVie undertakes no obligation to release publicly any revisions to the forward-looking statements as a result of subsequent events or developments, except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand AbbVie's ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions. With that, I'll now turn the call over to Rick.
Thank you, Larry. Good morning, everyone, and thank you for joining us today. This morning, I'll discuss our first quarter performance and provide an overview of the Stemcentrx acquisition, which we announced earlier today. Mike will provide updates on recent advancements across our R&D programs, and Bill will discuss the quarter and our 2016 guidance in more detail, including the financial aspects of Stemcentrx transaction. As always, following our remarks, we'll take your questions. We delivered another strong quarterly performance, including adjusted earnings per share of $1.15, representing growth of more than 22% versus the first quarter of 2015. Our results included strong operational sales growth of 22.4%, driven by a number of products across our portfolio.
This includes HUMIRA global operational growth of more than 19%, strong growth from IMBRUVICA, continued global uptake of VIEKIRA, and strong performance from several other products in our portfolio, including CREON and DUODOPA. We also continued to deliver improvements in our operating margin profile. In addition to our strong financial results, we also advanced several of our key strategic priorities. Late in the quarter, we secured FDA approval for IMBRUVICA as a first-line treatment for patients with CLL. We're roughly one month into our first-line launch, and we're pleased with our progress to date. The National Comprehensive Cancer Network, or NCCN, recently published an updated view of its guidelines, granting IMBRUVICA a Category 1 recommendation for certain CLL patients, the highest recommendation assigned by the organization. We are also approaching the one-year mark for Pharmacyclics, and we continue to be very pleased with the progress we've made to date.
The Pharmacyclics team continues to rapidly advance trial activity, exploring IMBRUVICA across a broad range of tumor types. IMBRUVICA offers significant growth potential through its expanding list of indications and lines of therapy, we remain excited about the vast potential for this unique asset. Earlier this month, we received FDA approval for another transformative therapy for the treatment of CLL. VENCLEXTA, our novel BCL-2 inhibitor, was approved for patients with relapsed/refractory CLL who harbor the 17p deletion, a difficult-to-treat form of the disease, typically associated with poor prognosis. Based on the level of efficacy in this patient population, the FDA granted the approval under its breakthrough therapy and priority review designations. Since the beginning of the year, we've also reported compelling data from several development programs, including positive top-line results from our second pivotal elagolix trial in endometriosis and strong data from our next-generation HCV program.
Mike will provide updates on both programs during his remarks in just a few moments. We also augmented our pipeline with a late-stage asset with a global collaboration with Boehringer Ingelheim to develop and commercialize an anti-IL-23, currently in phase III development for psoriasis and mid-stage development for several additional indications. The agreement provides AbbVie with another potential best-in-class late-stage asset, adding to our immunology pipeline, which includes our selective JAK1 inhibitor, ABT-494, currently in phase III development for RA, as well as several other biologics that are in mid-stage trials. Based on its potential for best-in-class efficacy, we believe the BI asset could generate $multibillion in peak year revenues across several immune-mediated diseases. Clearly, the most notable and exciting news today is our planned acquisition of Stemcentrx. We could not be more pleased to have this talented group of individuals join our organization.
We have been tremendously impressed with their accomplishments to date, their innovation and expertise will drive strong benefits for AbbVie going forward. The addition of Stemcentrx is a strategically compelling opportunity for our company, our shareholders, the patients which we serve. Over the past several years, we've taken a number of steps to build and strengthen our position in oncology research and development with the objective of becoming a leading oncology company. We've advanced numerous promising pipeline assets, including our BCL-2 inhibitor for blood cancers, our PARP inhibitor and anti-EGFR antibody drug conjugate in development for solid tumors. We've strengthened our discovery efforts through collaborations with leading academic and other institutions around the world. We've added top talent to our R&D organization.
Last year, through the acquisition of Pharmacyclics, we obtained IMBRUVICA, a first-in-class BTK inhibitor, which has already achieved blockbuster status and is on a trajectory to achieve multibillion-dollar peak year sales. As I mentioned earlier, we just launched our internally developed VENCLEXTA, which adds another transformational therapy to our hematological oncology franchise. We view oncology as a significant pillar of growth for AbbVie going forward. As we evaluate all opportunities, we do so with the desire to balance near-term performance while continuing to build a portfolio of assets that will generate strong growth in 2020 and beyond, supporting our commitment to drive top-tier performance over the long term. That brings me to our announcement today, the acquisition of Stemcentrx, which gives AbbVie a highly attractive platform for solid tumors and an an extremely exciting late-stage asset in Rova-T.
The transaction enables AbbVie to further expand and accelerate our presence in oncology, building upon our growing position in hematological oncology. Stemcentrx proprietary solid tumor platform leverages cancer stem cell biology to identify and validate novel therapeutic targets. The company has demonstrated a track record of successfully engineering and manufacturing antibodies and antibody drug conjugates for those targets. Stemcentrx lead asset is Rova-T, a DLL3-targeted antibody drug conjugate. DLL3 is a novel target expressed in several tumor types, including small cell lung cancer, an aggressive and difficult-to-treat disease. Small cell lung cancer accounts for roughly 15% of all lung cancers, and more than 60,000 patients are diagnosed annually in the major developed markets. DLL3 is the first predictive biomarker associated with drug efficacy in small cell lung cancer.
It is highly expressed in a majority of small cell lung cancer tumors, as well as cancer stem cells, and is not expressed in normal tissue. Predictive biomarkers help identify which patients have the potential to benefit from a therapy. Rova-T is currently in registrational trials for third-line small cell lung cancer. There is a significant unmet need for this patient population, as the treatment landscape has not changed for several decades. In fact, there is currently only one approved treatment for second-line small cell lung cancer and no approved agents for third-line use. The five-year survival rate for patients diagnosed with this type of cancer is unfortunately very low, at approximately 6%. Last year, at the European Society for Medical Oncology meeting, Stemcentrx presented exciting phase II results in small cell lung cancer, including data that illustrated an overall response rate of 44% in a DLL3 biomarker-defined population.
Rova-T also demonstrated a clinical benefit rate of 78% in this refractory and difficult-to-treat set of patients. Response rates were similar in third-line and second-line patients with a manageable safety profile. These landmark data represent the first time a biomarker-targeted therapy has shown significant efficacy in small cell lung cancer. Additional data from a broader set of patients and longer-term follow-up, including compelling overall survival results, will be disclosed during an oral session at the upcoming ASCO meeting in June, where the abstract has been selected as a Best of ASCO presentation, a distinction only 1% of abstracts receive. Given the very promising efficacy in third-line small cell lung cancer, Stemcentrx recently filed for FDA breakthrough designation for this setting.
Based on the compelling data and the significant unmet need in this patient population, we're certainly hopeful that we will be successful in obtaining this status. Stemcentrx has moved rapidly through clinical development in third-line small cell lung cancer, from the initiation of the first in-human trials to the recent start of the registration enabling study. Based on the expected completion of the ongoing registrational trial, commercialization of this indication is expected in 2018. Stemcentrx is also moving to rapidly advance into first-line small cell lung cancer. Mike will provide more detail on the planned first-line program in just a few moments. Like HUMIRA and IMBRUVICA, we believe Rova-T has the potential applicability across a broad range of indications and tumors.
In addition to small cell lung cancer, expression of DLL3 indicates Rova-T may be useful across multiple solid tumor types, including metastatic melanoma, glioblastoma multiforme, as well as some prostate, pancreatic, and colorectal cancers, among others. There is a significant subset of patients whose tumors are positive for DLL3 expression within this broader set of tumors, representing more than 65,000 patients treated annually. We plan to evaluate Rova-T across numerous indications, leveraging our R&D infrastructure and global clinical trial organization to move rapidly and efficiently. The acquisition of Stemcentrx also broadens AbbVie's oncology pipeline with a portfolio of earlier-stage candidates focused on novel oncology targets. In addition to Rova-T, the Stemcentrx pipeline includes four clinical candidates being evaluated in trials across a range of solid tumors, as well as two additional INDs for new targets planned for 2016 and a broad portfolio of validated pre-clinical targets.
Stemcentrx also enhances AbbVie's oncology discovery capabilities. The technology platform that identified Rova-T and the other assets in the Stemcentrx pipeline has strong potential for continued asset generation and will strengthen AbbVie's discovery and development efforts in solid tumors going forward. As we summarize the transaction, the addition of Stemcentrx is strategically compelling. The acquisition is highly complementary with our growing hematological oncology franchise and existing portfolio of solid tumor assets. The lead asset, Rova-T, represents a multi-billion dollar peak revenue opportunity with revenue potentially approaching $5 billion as we advance in the first-line small cell lung cancer and other indications. Rova-T has the potential to have a dramatic impact on our growth over the long term. Additionally, Stemcentrx's existing pipeline of additional assets in their R&D engine will augment our future development efforts in solid tumors.
Stemcentrx adds to AbbVie's long-term growth prospects, providing another compelling growth platform that will further diversify our revenue base beginning in 2018, and will enhance our EPS growth starting in 2020 and beyond. Stemcentrx fits well within our overall strategy. We have now assembled a significant number of late-stage assets, which have been significantly de-risked, have multi-billion dollar potential, and the potential to drive sustainable growth in 2020 and beyond. Assets including IMBRUVICA, VENCLEXTA, ABT-494, ZINBRYTA, elagolix, the next generation HCV combination, our recently in-licensed anti-IL-23, and now Rova-T. All of these assets have a high probability of regulatory and commercial success. In closing, we continue to be pleased with our strong execution and strategic advancement. We continue to demonstrate an exceptional track record of success with positive clinical data and regulatory outcomes, and we look forward to additional important pipeline milestones in the year ahead.
We're off to a strong start this year. We intend to build upon our momentum to drive a high level of performance across our operations and deliver strong growth in 2016. We remain committed to delivering on the long-term objectives that we outlined last year. With that, I'll turn the call over to Mike for additional comments on our R&D programs. Mike?
Thank you, Rick. We had a very productive first quarter from an R&D perspective with a number of important data readouts, phase transitions, and regulatory approvals, as well as licensing activity. This morning, I'll provide color on some of the key highlights. I'll start by saying that I certainly share Rick's enthusiasm for Stemcentrx, which brings us a promising late-stage program with Rova-T, a pipeline of earlier-stage candidates, and a platform technology that will enhance our future solid tumor discovery and development efforts. We very much enjoyed our dialogue with the Stemcentrx team as we've gotten to know them over the past several months. We've been impressed with the individuals and the innovative platform they've built. Stemcentrx has established an impressive track record.
The company's first three clinical stage drugs each represent novel targets with single agent activity demonstrated in early phase trials in small cell lung cancer, triple negative breast cancer, and ovarian cancer, all difficult to treat solid tumor indications. Stemcentrx's highly productive discovery effort is driven by the company's core technology, which utilizes a library of more than 700 patient-derived tumor xenograft models and leverages cancer stem cell biology to identify and validate therapeutic targets that would be overlooked by other methods. This platform has yielded impressive results to date. We are excited about the potential for continued asset generation, which will aid AbbVie in our R&D efforts going forward.
The company's lead asset, Rova-T, represents a significant opportunity, not only through its lead indication, third-line small cell lung cancer, but also through the potential for expansion into the front-line setting, as well as other types of cancer where DLL3 plays an important role. Stemcentrx has a broad development program for Rova-T currently underway. We've been impressed with the speed with which Stemcentrx has moved through the clinic. It's been roughly four and a half years since target identification and less than three years between filing the Rova-T IND to the initiation of the registration study in third-line small cell lung cancer. The confirmatory third-line trial, which is called TRINITY, began in January and is expected to complete enrollment by the end of 2016, with commercialization expected in 2018. We view the Rova-T small cell lung cancer program as significantly de-risked, with a high probability of success.
In addition to the overall response data presented at ESMO last year, which showed an overall response rate of 44% in DLL3-positive patients, the profile of Rova-T is supported by longer-term data, some of which will be presented at the upcoming ASCO meetings. These updated data include promising overall survival findings that compare favorably to historical controls. We believe the full body of data generated to date are highly compelling and strongly support the value proposition of Rova-T. Stemcentrx is also moving rapidly into front-line small cell lung cancer with Rova-T. The company is on the cusp of initiating a study designed to select the optimal regimen for the front-line registrational program. This 4-arm trial will evaluate several permutations of Rova-T and standard of care chemotherapy, including both monotherapy and combination arms.
Given the compelling data we've seen in small cell lung cancer to date, we believe there is a high likelihood of successfully moving into earlier lines of therapy. Stemcentrx is also evaluating an 8-arm, 400-patient basket study, which will look at Rova-T as monotherapy in patients with a range of tumor types that share neuroendocrine features, including malignant melanoma, medullary thyroid cancer, glioblastoma, large cell neuroendocrine carcinoma, and forms of prostate cancer and other solid tumors. This study is on track to start enrolling patients this quarter. Additional first-line studies are planned, including a phase I study to assess the safety of Rova-T in combination with antibody therapy targeting the PD-1/PD-L1 axis, which is on track to be initiated during the second half of 2016. Clearly, prior to the Stemcentrx acquisition, AbbVie was already focused on establishing a strong position in oncology.
Since the company was established in 2013, we've added 10 new oncology assets through internal advancement or partnership efforts. The Stemcentrx acquisition accelerates our objective of becoming a leading oncology company. We look forward to spending more time discussing Stemcentrx, including their pipeline, at our upcoming R&D Day in June. In addition to the Stemcentrx acquisition, last week, we also announced two early-stage oncology collaborations, including an agreement with argenx for a novel immuno-oncology target, GARP, and an agreement with CytomX to develop ProBody drug conjugates, a platform which provides another differentiated opportunity to combine with our strength in antibody drug conjugates. Beyond oncology, as Rick noted, we also recently entered into a global agreement with BI to develop and commercialize risankizumab, an anti-IL-23 monoclonal antibody in phase III development for psoriasis and mid-stage development for several additional indications.
The collaboration positions this promising asset as AbbVie's lead investigational compound in psoriasis and complements our robust immunology pipeline. Recent phase II study results for risankizumab in patients with moderate to severe plaque psoriasis showed improved efficacy over STELARA, a commonly used treatment for this life-impacting skin condition that was included in the study as an active comparator. Specifically, the strong head-to-head results show that at 12 weeks, 81% of patients treated with 180 milligrams of the BI compound achieved PASI 90, more than double the rate achieved by patients treated with STELARA. 50% of the patients treated with the BI compound achieved complete skin clearance or PASI 100, versus just 17.5% of the STELARA-treated patients.
We're pleased with this level of efficacy, as our immunology development strategy is centered upon identifying treatments that offer differentiated profiles relative to currently available therapies, with a goal of continuing to raise the standard of care. Beyond the impressive efficacy, this asset also has the potential to offer a favorable dosing profile with subcutaneous quarterly administration. The BI compound is also currently in phase II development for psoriatic arthritis and Crohn's disease, with plans to initiate a phase IIb study in psoriatic arthritis in mid-2016, and the potential to transition into phase III development in Crohn's disease next year. We will present mid-stage Crohn's disease induction data at the upcoming Digestive Disease Week, or DDW, meeting next month. We've also disclosed positive results for several late-stage programs, including most recently, additional data on our next generation HCV regimen.
Earlier this month at the International Liver Congress in Barcelona, we presented data on our pan-genotypic once daily ribavirin-free combination of ABT-493 and ABT-530 in patients with genotypes 1 through 6, including data on treatment durations as short as eight weeks. The data illustrate that with eight weeks of treatment, 97%-98% of genotype 1 through 3 patients without cirrhosis achieved sustained virologic response at 12 weeks post-treatment. Additionally, 100% of genotype 4 through 6 patients without cirrhosis achieved SVR12 with 12 weeks of treatment. We also presented late-breaking data showing our next generation combination drove 100% SVR12 with 12 weeks of treatment without ribavirin in treatment-naive genotype 3 patients with compensated cirrhosis. While recent advancements in HCV treatment have resulted in high cure rates for many patients, there remain distinct areas of unmet need, including patients with genotype 3.
These new data illustrate the potential of our next generation combination to address this need. Another area of unmet need is patients who have failed previous therapy with direct acting antivirals, or DAAs, as retreatment options for these patients are limited. We presented data showing that 95% of genotype 1 patients who failed previous therapy with DAAs achieved SVR12 with 12 weeks of therapy without the need for ribavirin. The mid-stage data we've disclosed to date indicate that our new HCV combination can deliver cure rates approaching 100%, and we believe the majority of patients will be well-served with an eight-week treatment option. We expect to see results from the pivotal studies in the second half of this year, and we remain on track for commercialization next year.
We also announced positive top-line results from the second of two replicate pivotal phase III clinical trials evaluating the efficacy and safety of elagolix in premenopausal women who suffer pain from endometriosis. Trial results showed that after six months of continuous treatment, both doses of elagolix met the study's co-primary endpoints, with elagolix reducing scores of menstrual pain and non-menstrual pelvic pain at month 3 and month 6. We intend to present detailed results from both phase III trials at a medical conference later this year, and we will complete the clinical database in anticipation of a new drug application submission for endometriosis in 2017. We also continue to advance the elagolix development program in uterine fibroids. During the quarter, we initiated a phase III program investigating the effect of elagolix on heavy bleeding related to this highly prevalent condition.
As Rick noted, we received two important approvals within our hematologic oncology portfolio as well. The expansion of the IMBRUVICA label into first-line use for CLL, and the initial approval of our novel BCL-2 inhibitor, VENCLEXTA. With IMBRUVICA and VENCLEXTA, we now have two therapies on the market for the treatment of CLL, addressing a range of patient types. We continue to advance our development efforts for IMBRUVICA, VENCLEXTA, and several other assets in our oncology pipeline. We'll present data across a wide range of studies at the upcoming ASCO meeting. We've built a strategic portfolio of oncology assets, including multiple mechanisms of action that have significant potential alone and in combination. In summary, we continue to make significant progress with our pipeline and are on track for further advancements in 2016.
We have a broad pipeline that includes more than 50 active clinical assets, including more than 20 new products or indications in late-stage development or under regulatory review. We look forward to covering our full pipeline in more detail at our R&D pipeline review to be held in Chicago on June 3rd. We hope you will join us. With that, I'll turn the call over to Bill for additional comments on our first quarter performance. Bill?
Thanks, Mike. As Rick said, we are very pleased with the strong quarter we delivered. Net revenues were up 22.4% operationally, and we expanded our adjusted operating margin profile by 300 basis points to 43.1% of sales. We reported adjusted earnings per share results of $1.15, up 22.3% over the first quarter of 2015. Strong operational revenue growth in the quarter was in line with our guidance for growth of just above 20%. Foreign exchange had a negative 4.2% impact on revenue in the quarter, also in line with our guidance of roughly 4% negative exchange. We continue to see strong momentum from HUMIRA, which delivered global sales of more than $3.5 billion, up 19.2% operationally, excluding the impact of foreign exchange. In the U.S., HUMIRA sales were nearly $2.2 billion, reflecting exceptional growth across all three major categories: rheumatology, gastro, and derm.
Internationally, HUMIRA sales were nearly $1.4 billion in the quarter, up 4.6% on an operational basis, excluding an unfavorable impact from exchange. This exceeded our previous forecast of 3% operational growth. Currency reduced reported international HUMIRA sales by 9.2%. While early in the launch, the Enbrel biosimilar is tracking in line or favorable to what we had modeled. Global IMBRUVICA net revenues were $381 million in the quarter. U.S. sales were $325 million, and our international profit sharing was $56 million. Global VIEKIRA sales in the quarter were $414 million. The launch of VIEKIRAX, our two-drug, once daily ribavirin-free combination for patients with HCV genotype 1b, is underway in Japan, leading to a continued higher mix of international sales in the quarter. Global sales of DUODOPA, our therapy for advanced Parkinson's disease, grew 36.7% on an operational basis in the quarter.
We saw continued double-digit growth internationally for DUODOPA, with a modest level of U.S. sales as expected. Global CREON sales were $150 million, up 18.2% operationally. CREON continues to maintain its leadership position in the pancreatic enzyme market with the majority of the market share. The adjusted gross margin ratio was 81.3% of sales in the first quarter, which was impacted by the Pharmacyclics transaction and year-over-year impacts of foreign exchange. Excluding these impacts, the ratio is up over 200 basis points. As I mentioned earlier, we continue to show improvement in our adjusted operating margin profile, which increased to 43.1% of sales, up 300 basis points. Excluding the impacts of Pharmacyclics and foreign exchange, operating margin improved over 600 basis points versus the prior year quarter. The majority of this improvement was driven by efficiencies and our rapidly growing top line.
Adjusted R&D was 15.6% of sales, reflecting funding actions in support of our pipeline assets. Adjusted SG&A was 22.6% of sales in the first quarter, down significantly from the prior year on a profile basis, contributing to continued improvement in operating margin leverage. Adjusted net interest expense was $200 million, and the adjusted tax rate was 20.7% in the quarter. First quarter adjusted earnings per share, excluding non-cash intangible amortization expense and specified items, were $1.15, up 22.3% year-over-year. During the quarter, as a result of the economic conditions in Venezuela and the lack of availability of U.S. dollars at the government's official exchange rate, we changed the exchange rate we use in Venezuela to the floating DICOM rate. This resulted in a charge of $298 million related to a devaluation of our net monetary assets in Venezuela. This will also impact revenue booked for products sold in Venezuela.
I would like to now walk you through the financial aspects of the Stemcentrx transaction. We are acquiring Stemcentrx for $5.8 billion, with the consideration to be paid out as $3.8 billion in equity and $2 billion in cash. The use of equity in this transaction reflects Stemcentrx management and board of directors' desire to retain a stake in the asset, as well as achieve a tax-deferred structure. Upon closing, we plan to execute an accelerated share repurchase program to reacquire all of the newly issued equity. We anticipate the transaction to close late in the second quarter. We are forecasting $0.20 of dilution in 2016 as a result of the transaction, which represents a half year of R&D, operating, and interest expense. We plan to provide specifics on Stemcentrx's impact on our P&L profile during the second quarter earnings call in July.
We expect the transaction to generate positive operating margin beginning in 2019 and EPS accretion starting in 2020. Given these facts, we are updating our 2016 adjusted earnings per share guidance range to $4.62-$4.82 to reflect the Stemcentrx transaction. This range reflects EPS growth of 10% at the midpoint and includes the previously communicated $0.08 dilutive impact of the BI collaboration announced last month. It excludes $0.75 of intangible amortization and specified costs. Specified items related to the Stemcentrx acquisition will be quantified and included on our second quarter call. Regarding the second quarter, we expect adjusted earnings per share of $1.19-$1.21. This excludes roughly $0.18 of specified items and non-cash amortization and includes the BI and Stemcentrx dilution impacts. We are expecting mid-teens operational sales growth, excluding a roughly 2% negative foreign exchange impact on the quarter.
As a result, we are expecting low teen sales growth on a reported basis. We are forecasting 3% operational growth for international HUMIRA in the second quarter. Excluding Venezuela, this growth would have exceeded 5%. We currently expect a negative 4% currency impact on international HUMIRA in the second quarter, resulting in a modest decline year-over-year on a reported basis. However, we remain on track with our previously communicated full-year guidance for HUMIRA outside the U.S., including the mid-single-digit operational growth expected internationally. In conclusion, we are very pleased with our performance in the quarter as we've driven strong top and bottom line growth and delivered operating margin expansion while also advancing on our strategic priorities. This puts us in a strong position to continue delivering industry-leading growth this year. With that, I'll turn it back over to Larry.
Thanks, Bill, we'll open the call for questions now. Jay, we'll take our first question, please.
Thank you. We'll now begin the question and answer session. If you would like to ask a question, please press star followed by the number 1, unmute your phone and record your first and your last name when prompted. Your name is required to introduce your question. To cancel your question, please press star followed by number 2. Our first question comes from Jeffrey Holford from Jefferies. Your line is now open.
Good morning, everybody, thanks so much for taking my questions. Just first, Stemcentrx, just because it's a company we all don't know so well, can you just help us a little bit more on the valuation? Was it primarily driven by the last financing round that you cite or other things in terms of peak sales expectations or visible assets that's driving that? Secondly, also just on that transaction, how much data beyond what's been publicly disclosed, i.e., what some of the data perhaps that's coming from ASCO was management able to see before agreeing to this deal? My last question is just around the upcoming IPR decisions. Can you just confirm timing and expectations there, 18th of May, and the expectation of these decisions to be consolidated?
Just secondly to that, there is a patent term adjustment out there that potentially takes the 135 patent out to 2028. If and when that's granted, which seems to be procedural, will you extend your HUMIRA exclusivity guidance on the back of that? Thank you very much.
Okay. Hi, Jeff, it's Rick. I'll take, I guess, all of those questions. As it relates to the valuation, I would say it had nothing to do with what their prior round valuation was. That's not how we do acquisitions. Essentially how we do acquisitions, you can probably recall this from the Pharmacyclics discussion that we had, and I think it's typical within our industry how it's done, is you build a model that ultimately projects out what you think the company and assets can do. Off of that model, you determine what the return would look like at various price points, what the NPV would look like, and ultimately, the way we do it is we have a threshold at which we say we won't go above.
We get into the process and ultimately try to validate those assumptions and make a decision as to whether or not we want to go forward, and if we want to go forward, we'll obviously negotiate as hard as we can to try to get it at the lowest possible price. Most of these are a competitive kind of situation. What I would tell you about this transaction is that I believe it is at a very good valuation for us. It has a good NPV based on the base case, which was essentially on 2nd and 3rd line, small cell lung cancer and a couple of other indications. It has significant upside if we move to 1st line or more broadly across those cancers that are DLL3 positive.
Those trials are ongoing, we don't have that data, we didn't necessarily build all of those in. If that were to occur, you probably saw there's a CVR for 1st line that the investors would receive. I would tell you 1st line will have a very strong NPV above and beyond what we factored in here. With the base case, this has a very good NPV and a very good IRR. I can just tell you, I feel good about the valuation. As far as the data is concerned, we have seen a significant amount of data above and beyond what is public now. We obviously need to be careful about what we talk about because some of that data will be presented at the ASCO meeting.
I think we've given you a pretty good idea of what you're likely to see at the ASCO meeting. I can tell you that we have seen all the data that was available to the management team, and we're impressed with that data. I can tell you, I'm very excited. We've looked for quite some time now for a solid tumor platform play, and they're hard to find in this market. I think if you look at the productivity of this group and the novel therapeutic targets that they have been able to come up with, and their hit rate on those targets is significantly above industry average. The way they approach it is pretty impressive.
The fact that this is focusing to a great extent on cancer stem cells, and I think there's a strong belief that if you can knock out certain cancer stem cells, you can dramatically impact the course of that disease for those patients. I think the data will speak for itself when it's available, and you can take a look at it. We're impressed with this. We think Rova-T is a very good asset and gives us a good, strong position in solid tumors going forward. On the IPRs, as we've said before, we're not going to talk a lot about the process now that we're in litigation. I can answer maybe one or two of these questions. We don't have the ability to predict the timing. You have the date correct that you described. It should occur sometime no later than that date.
We don't know whether it'll be consolidated or not. We're not going to comment on the issuance of the patent and what we would do in that scenario. Okay?
Thanks very much, and congratulations on the deal.
Great. Yeah, thanks, Jeff. Next question, please.
Thank you. Next question comes from Chris Schott from JPMorgan. Your line is now open.
Great. Thanks very much. Just a couple on the deal today. Maybe first, can you talk about the competitive landscape for the DLL3 target or just other companies working on cancer stem cells as an ADC target? Second question was on the $0.20 of dilution this year. I'm just trying to get a sense of what that's going to look like out in 2017. Should we be thinking about something larger than $0.40 as we get the full year impact and as you ramp R&D associated with these assets? Then the final one was just post this deal, could you just give us some sense of the position the company is to pursue larger transactions if the right opportunity were out there?
Should we think about Stemcentrx as the type of size and profile you're looking for, or could you look to get more aggressive as regards to 2017, if the right deal is out there? Thanks so much.
This is Mike. I'll take the first question with respect to the competitive environment for Rova-T and some of the other programs that Stemcentrx has been working on. What I'll say is that one of the things that really impressed us with Stemcentrx is the novelty of their platform. They've invested early in this technology. They have developed great expertise, and they are out in the lead in all of the areas that they're pursuing. DLL3 is out in the lead. It's demonstrated very compelling results. We think it's an asset that has tremendous promise and will really change the standard of care. I think if you look at all of the programs that Stemcentrx is advancing, there's a high degree of novelty and very strong signs of activity from the first three clinical programs.
We feel very good about their position in the competitive environment.
On the dilution, as we've said, the $0.20 this year represents roughly a half a year of the current burn rate that Stemcentrx is showing, as well as the additional financing costs. I think 2017, we need to get in and look at the clinical programs, but obviously, we are going to invest appropriately on Rova-T and the other assets in order to maximize the value of the asset. What's nice about this transaction, though, is in 2018, we're going to be bringing a product to market. We think given the clinical data that has been shown so far, we're going to have a fairly impressive uptake on Rova-T, and that will offset that dilution pretty quickly. In 2020, we see the deal being accretive. Okay. Chris, this is Rick. I know what you're trying to do.
You're obviously trying to model or incorporate into your model what the R&D impact will be on 2017. I think that's what you're trying to do based on your question. I'd say as we factored in this number and as we look at 2017, it certainly incorporates the assumptions that we've made around the expansion into other tumors that are DLL3 positive. It incorporates what Mike described as the first-line trials that ultimately they're pursuing with Rova-T. The one part that it probably does not include at this point, and we just need to work on it some more, would be, we also believe that this could be a synergistic strategy in first-line with immunotherapy.
They have walked us through a plan where potentially, as an example, Rova-T could be a highly specific debulking agent on the front end for DLL3-positive patients in small-cell and knocking out the stem cells in the process, which traditional chemotherapy does not do today. You would get the disease under control and debulked, and you would follow it with immunotherapy for longer term maintenance. They've laid out some plans around that, and that has not been incorporated to this point. That would be the only thing. Now, we obviously have a significant R&D budget, and we would look at how we normally do R&D is, we add everything up, and then we make a decision where we draw the line, and we're gonna be conscious of that.
I'm not telling you that would be incremental, but what I'm telling you is that's the one thing that's outside the scope of what's in the current R&D planning assumptions. Hopefully, that gives you some clarity around that. On the M&A front, similar to the comments that I made earlier, we have been looking for a solid tumor platform. I think we've made that somewhat clear that that was something we were interested in doing. I would say this came in at a valuation that was significantly below the numbers that we had flagged before. We are looking to balance near-term performance against making sure that we build a significant portfolio of assets out in that 2020 and beyond period that can contribute to delivering strong EPS growth and strong revenue growth.
I'd say where we are right now is we have a lot of things going right now, and we've filled a lot of the needs that we have. I would not expect that we will go out and do another significant transaction. Obviously, Pharmacyclics was a significant transaction, but I'm talking about even a transaction of this size. I think for the next certainly 18 months or so, if we were to do anything, it would probably be more of a BI kind of transaction, more of a single asset, might be an in-licensing kind of a transaction. I think, based on the fact that we have delivered some level of dilution here, we would have to be in a position where we would absorb the dilution going forward. Hopefully, that answers your question.
That's great. Thanks so much for the call.
All right. Thanks. Next question please, operator.
Thank you. Next question comes from Jami Rubin, Goldman Sachs. Your line is now open.
Thank you. I just want to follow up on some of the Stemcentrx questions and congratulations. Clearly the whole sort of stem cell based focus has been fraught with challenges, I'm just wondering maybe if you could reply to the specific questions. What gives you confidence that findings from mouse models translate to human cancers? What gives you confidence that small-cell lung cancer data will translate to other tumor types? Was also curious to know how Stemcentrx's ADC technology differs from other ADC players.
A follow-up question, and sorry about this, but just to follow up on an earlier question, if you could kind of play out the scenario of the upcoming IPR, which investors are obviously highly focused on, what is the right analytical framework, Rick, that we should think about this in the event that, A, the IPR is heard or it is dismissed, just in relation to the overall IP picture and duration of HUMIRA? Thanks very much.
This is Michael Severino. I will take the first of those, then Rick Gonzalez may want to add some follow-up. With respect to cancer stem cells, what I would say is we've had a fair amount of time to get very comfortable with the platform that Stemcentrx has developed. We believe that they are doing something really novel here. In terms of understanding how mouse models might translate into human clinical trials or ultimately clinical benefit, we certainly recognize that translational leap is often fraught with peril. In this case, we don't have to wonder. We've seen the first three assets move into the clinic showing strong activity. They have demonstrated with their first three clinical assets activity in small cell lung cancer, triple negative breast cancer, and ovarian cancer.
There are human data to back up their hypothesis, not only one time, but 3 times in a row. Obviously, being right 3 times in a row in this business doesn't happen by chance very often. With respect to our confidence that small cell lung cancer will transfer to other cancers, the set of cancers that we're talking about all share neuroendocrine features, as does small cell. Stemcentrx has done a large amount of work to understand the role that DLL3 plays biologically in these tumors. We know based on the work that they have done that DLL3 is playing the same role across these tumors. That's why we have much greater than average confidence, that what we're seeing in those preclinical studies in other tumors will translate into the basket study that they're running.
As Rick Gonzalez said, we've seen a lot of data here, we feel very good about this opportunity. With respect to the ADC landscape, Stemcentrx has shown that they are very good at generating highly selective monoclonal antibodies that make good reagents for ADCs, they also have the linker technology and the toxin technology all fully integrated within their company, to rapidly produce these ADCs. Again, I would say that their clinical track record speaks for itself. With that, I'll turn it over to Rick Gonzalez for the other questions.
Yeah. I guess the only thing I'd add on that first set of questions, Jami Rubin, is the reality is human data trumps everything else in our business, right? I think you can interpret from that, we had to get comfortable with the human data that we saw and the impact that it had to make the decisions that we made. As that comes out, I think you will draw your own conclusions, obviously. I think that will be informative as it comes out for you. Okay? I want to make sure I understand your IPR question, I'm going to ask you to ask it one more time. All right?
Okay. I just want you to kind of frame the landscape for us, because investors are hyper-focused on this upcoming Coherus IPR. If the IPR is thrown out, I think that's pretty clear, but if it is heard, help us to understand the significance of that in the context of your overall IP surrounding HUMIRA.
Yeah. Okay. Thank you. If you think about this process, the process we will go through is that the patent office makes a decision whether or not there is enough evidence to even review the patent. That's the process that's going to occur here in the May-June timeframe with the IPRs. All it is there enough in the claim of the company challenging the IP to even make a decision to review it. If the patent office decides that is the case, then they will review it, and there will be a process that we go through that's well documented of how we defend the patent and the process that the challenger would go through as well. That takes about 12 months, so at the end of 12 months, there would be a decision on the patent.
Depending upon which way that decision went, if it went for us, then obviously the patent would be upheld and would be obviously strengthened dramatically. If not, then we have the right to appeal. That's the process. I think that essentially defines sort of the implications of the process. If it gets turned down on the front end, similar to what the formulation patent with Amgen did, then obviously that creates a very significant hurdle for the company that's challenging it. Those are the implications of it.
Okay. Thank you. I appreciate it.
Thanks, Jami. Operator, next question, please.
Thank you. Next question comes from David Risinger, Morgan Stanley. Your line is now open.
Thanks very much. Congrats on the news this morning. I have three questions. First, with respect to Stemcentrx, could you just talk about how you plan to integrate and retain the employees now that they're going to be part of a much larger pharmaceutical company? Then, as an aside, AbbVie doesn't talk much about your 50/50 funding along with Google of Calico, but obviously, you have made a significant investment there, and Calico is quite an interesting company given its leadership. Could you just update us on the pipeline at Calico as well, please? Thank you.
Okay. David, this is Rick. I'll take probably the first of those and maybe some part of the second. I may ask Ken Reed to chime in on the second part. I'll take the Calico one for you. Obviously, an important part of these kinds of companies is retaining the people. Particularly when you think about this kind of a company where a lot of the intellectual property of the company is that, right? It's the intellectual horsepower of the people. I would say, we have been interacting with Stemcentrx now for a number of months, well before this process started. We've had a chance to get to know the team and get to know the leadership within the team. They had a decision to make, right? They could have gone down the IPO route.
They could have collaborated with somebody and gone down the IPO route if they wanted to. I think based on the kind of asset they have in Rova-T, they certainly would have had, even in a tough IPO market as it is today, I think they would have had the ability to be able to do that. They could do a transaction like the transaction we ended up doing with them. I think one of the deciding factors for them was what they're really good at and what they love doing is essentially going in and discovering novel markers and creating drugs. Going through the discovery and early development process, and they demonstrated they can do that in a highly efficient and effective way, and they can do that very rapidly.
If they went down the IPO route, they had to basically build all the other infrastructure that a fully integrated business would need to have, including all the commercial and medical affairs and global clinical development groups in order to be able to execute a fully integrated strategy. I think as they looked at that, I think they had confidence that they could do it, but it would be a tremendous amount of effort on their part and their leadership team to be able to do that.
When they looked at coming together with us, they ultimately said, "Look, we can do the part that we think we're great at, and we can plug into what you already have for all those other things." The global clinical development group that we have, the medical affairs group that we have all around the world, the commercial organization that we have all around the world. I think they perceived it to be a win-win. I think that's the first thing. Winning their hearts and their minds through that process, I think was an important aspect of it. Second aspect of it was that obviously, the CVRs, all of the leadership team and many of the employees have either ownership in the company or they have stock options, right? These CVRs are pretty important to them.
They can extract a tremendous amount of value through that process if they deliver against those CVRs. I can tell you that's a pretty healthy financial incentive for them to stay and execute against those. I can tell you in the interactions that I had with them, we had with them, I should say, I can tell you that's an important point to them. Third thing is they wanted this stock transaction. They wanted it somewhat for tax purposes, but they also wanted it because they wanted to believe that they could share in the upside, and some of what they agreed to do with their options only reinforced that. Meaning their Stemcentrx options and what they will become and how that value will be derived.
I think there's a very high likelihood that we will retain the key people in this, I think they like our culture and they like the environment that we're operating in. I tell you, I have a fairly high level of confidence. I think Pharmacyclics demonstrates. We have retained all of the key clinical development people. I've spent time, Mike has spent time with that team I think they're very happy being part of AbbVie. They get to execute their strategy that they wanted as an independent company, as well or better than they could have as an independent company. I feel pretty good about that, but it's an important point. On the Pfizer transaction, it's something we want to be careful with because I'm not sure what their confidentiality agreement is. Henry, you want to comment anything on it?
Yeah, just to be clear, Pfizer does not have any rights to Rova-T at all. We did put out some slides this morning, you see that there's four additional assets in phase I, obviously there's a number of late preclinical assets behind there. Two of these assets, Pfizer has some rights to, but we really can't go into further details on how those deals are structured. Again, to be clear, that is the extent of the Pfizer relationship.
Of the two assets they can opt in.
Correct. They can opt in back in one of them.
Therefore, we can opt in back on one of those if we choose to. I think that probably gives you as much as we can give you around the Pfizer compounds. On Calico, I am going to have Mike talk a little bit about the pipeline. Yeah, that is a transaction that we did about a year or so ago now. When you look at the individuals that Calico first started up with, Art and Hal and others, they have assembled a very talented team, and that was the big reason that we ultimately decided to do something with them. Essentially what we have is we co-fund a discovery effort to find new innovative targets in a number of different areas. Oncology is one of them. Diseases of the aging is another. Neurodegenerative diseases is another area that ultimately we have a lot of interest in.
The way it works is essentially we can opt in on anything that is discovered there, and there is a point at which we take it over, we have commercial rights to it, and then there is basically a 50/50 profit-sharing arrangement between us and Calico. Essentially, we have rights to anything over a certain period of time that is discovered within Calico. Mike works closely with the team, so I am going to ask him to talk a little bit more about progress that they are making.
Sure. One of the things that I think is very important to note in the Calico collaboration is that there is a very strong scientific and cultural fit between our teams. That was one of the real drivers behind doing that deal. The Calico team is obviously very talented. They have a long and very successful track record. Our teams are working together very well. We are advancing a number of programs. Of course, we do need to keep in mind that these are early discovery programs that have been initiated in the last 12-18 months. We intend to move very quickly. It takes a bit of time before programs are ready for clinical introduction, and the sort of news flow that you would expect to hear in this sort of setting. What I would say is the cultural fit is great.
We have made great progress building up a set of programs in the areas that Rick mentioned, that I think are a very good fit for our overall strategy. We remain very optimistic about the Calico partnership.
Great. Thank you very much.
All right. Thanks, David. Operator, next question, please.
Thank you. Next question comes from Marc Goodman, UBS. Your line is now open.
Yes. Morning. Maybe we can talk a little bit about just the business for a sec. Viekira was a little bit weak. Maybe you can talk about the U.S. versus international, how Japan is doing. U.S. seems to be falling off quite a bit. I mean, we're just losing share. Give us a sense of what's going on there. Second, HUMIRA in the U.S. I was just curious, obviously, we've seen quite a few price increases if you look at over the past 12 months, and I was curious whether you were still being able to get the same amount of price dropping to the bottom line as you have been in the past, if there was more pressure on that. Third, can you give us an update on what we're going to see at ASCO for the broader portfolio? Thanks.
Thanks, Marc. Okay, this is Rick. I'll take VIEKIRA, and Bill can take the HUMIRA question, and we'll have Mike cover the ASCO question. VIEKIRA, let me start with Japan. Japan is continuing to track consistent with our expectations. I think there's nothing all that remarkable in Japan. It's a good market. Our profile within that market is a good profile. The U.S. has certainly been more challenging. I would say that it's a combination of several factors, some volume loss as well as some price loss. As Merck has entered the market, we know that they set the list price lower than the other products in the marketplace. That strategy initially, I think we interpreted as a strategy that would go after medical exceptions because medical exceptions historically are in at more of a list price point.
They have the lowest price, essentially on a medical exception basis, and they have been somewhat successful in gaining some of those medical exceptions. That's part of the issue. The second part of the issue, though, is they have been more aggressive than we anticipated from a pricing standpoint, particularly in the public segments, the VA in particular. As we looked at that, we ultimately made the decision that we were not going to compete with the lowest overall price in the VA. We did adjust our price down, but we didn't adjust it down to the very lowest price, and that has caused us to obviously lose price, but also lose volume. We had a fairly significant share of VA.
I think it is those factors playing out, and I would say that based on where the U.S. is going, it is unlikely that we will achieve the $2 billion number that we described earlier. I think a number that you should be thinking about now is more in the one six range. Globally, I'm talking about. You can look at this quarter as an example. Even though VIEKIRA was weaker than we expected, we obviously beat our EPS number and achieved our revenue number. It talks to the strength of the rest of the business. That's the nice thing about our business, is we have good balanced performance across a number of different assets. When one thing doesn't go as well as we had hoped, others can pick up the slack. We will not be changing our guidance based on this.
We factored that into our going forward guidance in 2016, and we're comfortable with the guidance that we've provided you. Those are the facts around VIEKIRA.
Mark, on HUMIRA pricing in the U.S., look, obviously, we continue to put up pretty impressive numbers in the U.S. If you look at script trends, it was up over 16%. The majority of the increase in Q1 is related to volume, but price is a component. The category has taken some price, in the last four or five months. We did as well. We don't see any major shift relative to what we've been experiencing over the last few years, but obviously we're keeping our eye on it.
With respect to ASCO, we'll obviously be seeing the Rova-T data that we've talked about in small-cell lung cancer, which is a Best of ASCO presentation. VENCLEXTA also has a Best of ASCO presentation, which comes from the program in AML in combination with hypomethylating agents. There are nine additional abstracts for VENCLEXTA that'll be presented, updating across the range of studies that are being conducted with that molecule, in non-Hodgkin lymphoma and other settings as well. You'll start to see additional data from ADCs that we're introducing into the clinic. There'll be updated data on ABT-414. You'll start to see data on some of our newer ADCs, and we continue to have a number of programs that will be moving into clinical development and oncology. Overall, we're going to be very active at ASCO.
Of course, we're also having our R&D day to coincide with the timing of ASCO. You'll see a broad update on our pipeline there.
Thanks, Mark. Appreciate it. Operator, next question, please.
Thank you. Next question comes from Andrew Baum, Citigroup. Your line is now open.
Hi. Two questions please. First, on the Stemcentrx transaction, could you provide a little bit more detail on the earn-out, the press release, references, milestones, and you mentioned in passing the first-line indication, but if you could provide some more granularity, that would be great. Second, I would imagine this was a competitive auction given, well, especially as Stemcentrx has got a finance professional as a CEO and several high-profile tech investors involved. Perhaps you could just give us some sense of the competitive dynamics as we think about valuation. Second, in reference to your comments on your IL-23, you had highlighted it as your priority compound in psoriatic arthritis. What's the future for ABT-122? Do you intend to proceed in either psoriatic arthritis or in psoriasis or in RA for that compound?
Finally, more broadly, now that you've got a lung candidate in your oncology pipeline, how you think about augmenting that compound going forward?
Andrew, Henry, why don't you cover the milestones and then we can talk a little bit about first line.
Yeah. Hey, Andrew. There are, in total, $4 billion of milestones. $2 billion relate to the first-line approval that Rick talked about. That approval is $2 billion and is qualified by a favorable position in the guidelines at the time. As Rick talked about, we believe that would create significantly more value than that $2 billion. In addition, there's a second $2 billion, and that relates to four individual $500 million milestones, so totaling $4 billion. Those are for the commencement of registration trials for additional assets, in indications that would be at least a billion dollars in revenue potential. That is $500 million each for a total of $2 billion. With the first line, $4 billion in total.
On those second set of milestones, just to be clear, they're individually earned, right? If they take one asset, and they move it through, and we take it to a registration study, and we determine that asset in that indication would generate a commercial asset that had greater than a billion dollars' worth of revenue, then we would pay them $500 million. If they do a second one or a third one and a fourth one, they can get up to four $500 million milestones. That's how the contingent payments are laid out. On the competitive dynamics, it was a competitive process. It was relatively blind to us, so we don't know who the other competitors were.
We do know there were other players that were involved, and I'd say it ended up being us and one other player at the very end, who were competing for the asset through that process. Ultimately, as I told you on the valuation, it's consistent with what I described to you before. If you look at what we are paying in the base case for this asset, and you look at the base case forecast without first-line in it has a significantly positive NPV and well above the threshold at which we look at the cutoff for IRRs. This is a transaction that we feel very comfortable with from a financial standpoint. We've obviously built in the upside for first-line because we don't have data on first-line right now.
We didn't want to be in a position where we were paying for something that we didn't know what it was going to look like. We were very comfortable with second and third line because we saw data that supported that, human data that supported that. I do believe, based on everything I've seen, and I think Mike and others believe that there is a high probability this asset will move into first line. We're going to pursue it aggressively, and if they do, they will get the incremental reward, and we will obviously get the incremental award of being able to move into that. We have specified how the guidelines have to characterize the asset, that it would be a broad-based, first-line agent in order for that milestone to be paid. On the BI and 122, Mike, why don't you cover that?
Certainly. The Boehringer Ingelheim compound, which is now called risankizumab, the IL-23 antibody, is our lead asset in psoriasis, and I think the data clearly bear that out. I think based on what we know about the pathway, it makes sense to make that same statement about psoriatic arthritis. We're very pleased with the data we've seen to date, and we think there's really tremendous potential for that asset. With respect to ABT-122, which is our IL-17 TNF DVD-Ig, we are going to be seeing mid-stage data internally in the middle of this year, so shortly. We'll probably be in a position to present that externally around the ACR timeframe. We'll make a decision when we have those data. What I can say is to move forward with those molecules, it would have to fit our strategy with that molecule, with ABT-122.
It would have to fit our strategy to raise the bar on the standard of care. We would be looking for differentiated efficacy compared to not only what we have in our own portfolio, but what's available externally. We'll be making that decision later on this year. With respect to your question about our presence in lung cancer, we've said for quite some time that we want to build our presence in solid tumors. I think the Stemcentrx acquisition clearly does that. It gives us a broad platform, as well as a very promising lead asset and other clinical assets behind that. We're going to continue to build on that presence, not only with the development engine that comes from Stemcentrx, but with our internal pipeline.
I think you'll see that we have a number of programs that could be applicable to lung cancer and other solid tumors that will be moving through the clinic shortly.
Okay. On the M&A, it's consistent with what I described earlier. We'd be looking for those kinds of assets. We continue to evaluate things that are in the marketplace. We built a fairly extensive pipeline internally, obviously, we continue to look on the outside for those assets that look interesting, it will be of an investment profile of what I described to you a moment ago.
Thanks, Andrew.
Thank you.
Jay, we'll take our next question, please.
Thank you. Our next question comes from Mark Schoenebaum, Evercore ISI. Your line is now open.
Good morning. This is John Scott in for Mark. I just have a few questions, if I may.
Hey, John.
Hey, Larry. The first on Stemcentrx. I recall last year when you purchased Pharmacyclics with IMBRUVICA, you gave a lot of helpful color on how you built up in your model to the peak sales, your end user peak sales estimate for IMBRUVICA. You sort of broke it out by indication, line of therapy, and gave some color on risk adjustment. Do you think you could do the same thing here for Rova-T and the $5 billion number you've put out there, in terms of what year do you model peak? Are you talking small-cell alone, other indications, and sort of give some more granular color on how you built up to that number?
The second question, now that you have purchased Stemcentrx, that you've in-licensed the IL-23 from BI, can you give a little bit more color on how you see the R&D line evolving over the next few years? Specifically with regard to the 2020 guidance, are you going to be able to keep hold essentially the greater than 50% non-GAAP operating margin guidance that you've given previously, or should we expect that to have to come down a bit below what you've given? Thank you so much.
Thanks, John. As far as the model, obviously we went through the model in some level of detail around Pharmacyclics, one, because of the magnitude of the investment that we were making, and we described what supported that investment and how we built up the model. What I've characterized for you already basically tells you how we built this model, right? It's built primarily around second and third line, small cell, which we believe has a very high probability of success. You can imagine we've risk adjusted it accordingly at a high probability of success. It does have a couple of other smaller indications where we believe there's a very high probability of being able to extend it into some of these other cancers that we described. I wouldn't say that has a significant impact on it, and those are risk adjusted accordingly.
It doesn't have first line in it. The milestone or the CVR is basically driven off of what we think the value would be and the return would be appropriate for first line, and it doesn't have any other of these other milestone driven POCs that would come forward. I think that's roughly the same kind of guidance we gave share and some other kinds of things, and we've obviously built the model around those same kinds of assumptions. I think in this case, we'll wait to provide that at a later date once we get closer to a launch of the asset in 2018. On the R&D line, or I think really what you're asking is, are we still committed to delivering 50% or greater in 2020? The short answer to that is yes. We've looked at it.
We've carefully looked at the commitments we've made around the compounded growth rate, and the revenue projections, as well as the operating margin profile that we communicated last year. We're still absolutely committed to delivering against that.
Thanks a lot, John. Operator, we have time for one final question, please.
Yes. Our last question comes from Alex Arfaei, BMO Capital Markets. Your line is now open.
Good morning, folks, and thank you for taking the questions. Rick, just following up on some of the earlier questions. The Street has obviously taken a significantly more cautious view relative to your long-term guidance, particularly for HUMIRA. Do you see anything changing in the near future that would allow investors to have more confidence in your long-term guidance? I guess what I'm asking is basically, are we going to go through this long, drawn-out process where we're going from one HUMIRA hearing to another, or do you see a point where it becomes clear that you can hold off HUMIRA biosimilars in the U.S. for as long as you believe you can? Thank you.
I think there's two ways to look at it. First of all, if you look at the guidance that we provided back in, I think it was October 29th of last year, you look at what happened to the consensus numbers, what you'll see is they shifted out roughly a year. I think the mean now is probably, if you look at where people are assuming biosimilar impact in the United States, it's probably in that 2019, Larry, correct me if I'm wrong here, that 2019 timeframe-
moved out from about 2017 to 2019. I'd say, one of the things we track to try to understand how the market is perceiving that guidance is we track what our stock performance has been versus our peers over that period of time. I saw it just the other day, it may have changed in the last couple of days a little bit, but we're the number one performing stock since that point in time. I think it was around 14% appreciation or something like that, 15% appreciation. I think it did have a positive impact. Having said that, I would agree with your point that there's still this overhang, and this overhang is built around different catalysts.
As we've said before, we've given a lot of clarity in that review of what our IP strategy is and the confidence that we have in our IP strategy. How the market will relate to that's a little harder for me to describe or predict, I'd say. Certainly I think as it plays out, I think the market will basically start to better understand what our position is. Certainly as you have more confidence around that, I think you will see the sentiment change. I think the bigger issue, I think Rova-T and the IL-23 are two good examples. Look, we obviously have a point of view of what we think is going to happen. We've communicated what that point of view looks like, I think in very clear terms. That doesn't mean that everybody believes that point of view.
What I'd say is, if you look at even the bear case on HUMIRA, which we certainly don't agree with, and you look at this pipeline that we've now assembled of assets that have a very high probability of success, I think even in the most bear case possible, most people would look at that pipeline and say they should be able to grow through whatever happens.
Obviously, we have a different view of what we think is going to happen, but even if you look at least the models I've looked at that have the worst case built into them, when I look at our pipeline and the probability of success of those assets I described in my formal remarks, and you add them up and risk adjust them based on the data you've seen, and the commercial success you would expect from those assets, I think a reasonable person would draw the conclusion that you can grow through that. I think that ultimately will be the calculus that investors are going to have to make.
Thank you.
Thanks, Alex, and that concludes today's conference call. If you'd like to listen to a replay of the call, please visit our website at abbvieinvestor.com. Thanks again for joining us.
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