Earnings Call: Q2 2015

Jul 24, 2015

Quarterly report

Good morning and thank you for standing by. Welcome to the AbbVie Second Quarter 2015 Earnings Conference I would now like to introduce Mr. Larry Pippo, Vice President of Investor Relations. Good morning and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer Laura Schumacher, Executive Vice President, Business Development, External Affairs and General Counsel 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. 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 2014 Annual Report on Form 10 ks and in our other SEC filings. AbbVie undertakes no obligation to release publicly any revisions to forward looking statements as a result of subsequent events or developments except as required by law. On today's conference call, as in the past, non GAAP financial measures will be used to help investors understand AbbVie's ongoing business performance. These non GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions. So with that, I'll now turn the call over to Rick. Thank you, Larry. Good morning, everyone, and thank you for joining us for our Q2 20 fifteen's earnings conference call. We delivered another strong performance with 2nd quarter results ahead of our expectations, including adjusted earnings per share of $1.08 representing growth of more than 31% versus the Q2 of 2014. Our results included strong operational sales growth of nearly 20%, driven by a number of products across our portfolio, including strong performance from our newly acquired oncology therapy IMBRUVICA, continued global uptake of VEQUERA and continued strong growth from HUMIRA as well as other products in our portfolio including Creon, Synthroid and Duodopa. We're particularly pleased with the high quality of our results in the quarter. We saw significant margin expansion, continued R and D investment and SG and A leverage and we delivered these results despite a significant foreign exchange headwind. We're also pleased with our outperformance and progress year to date. We've driven strong commercial, operational and R and D execution, resulting in industry leading top and bottom line performance. During the quarter, we advanced several important strategic priorities, continued to enhance operational efficiency and achieved a number of regulatory and clinical objectives. Importantly, we completed the acquisition of Pharmacyclics, augmenting AbbVie's already strong position and growth prospects. I'll discuss our progress with Pharmacyclics in more detail in just a moment. We're also driving strong performance from our current portfolio, including HUMIRA, which is off to a very good start in the first half of the year with robust underlying global demand and exceptional performance in the U. S. We made significant progress with our mid and our late stage R and D programs. During today's call, our Chief Scientific Officer, Mike Severino will provide an update on our pipeline. And we've also continued to improve efficiency across our operations, delivering roughly 800 basis points in operating margin expansion this quarter versus the prior year, achieving an operating margin profile of 44.2% and we remain committed to improving this metric across our long range plan. This quarter and our first half results demonstrate the significant progress that we've made towards our objective of delivering industry leading growth. As I mentioned, during the quarter, we successfully completed the acquisition of Pharmacyclics, a strategic addition to our business that adds another compelling growth platform to AbbVie's strong prospects in immunology and virology and accelerates AbbVie's clinical and commercial presence in oncology. While strategically important, the acquisition of Pharmacyclics will also drive strong financial benefits, further diversifying our revenue base, significantly enhancing our revenue growth across our long range plan and delivering EPS accretion beginning in 2017. And as we have outlined, we expect accretion related to the acquisition in excess of $0.60 per share in 2019, ramping to more than $1 per share in 2021. Pharmacyclics will operate from its Sunnyvale, California headquarters under the leadership of Eric Von Borca. Eric has held a number of leadership positions within AbbVie since joining the company in 2,001, including his most recent role as Vice President of Global Marketing. The transition has been seamless and we've been impressed by the caliber of talent we welcome from Pharmacyclics into AbbVie. We saw strong momentum with IMBRUVICA in the quarter. Full second quarter U. S. IMBRUVICA sales were $234,000,000 We continue to expect IMBRUVICA to drive U. S. Sales of approximately $1,000,000,000 for the full calendar year 2015. Since we completed the Pharmacycluse transaction, we have seen additional positive data and progress on our regulatory objectives, including positive readouts from 2 Phase 3 studies, Gileos and RESIDENT to the positive RESIDENT II data, a significant portion of our valuation for Pharmacyclics was attributed to advancing in the first line treatment. And while we had assumed a very high probability of success, these data provide strong evidence of IMBRUVICA's dramatic efficacy in a frontline setting and further derisks this component of our model. Our virology franchise will be a significant growth driver for us in 2015 and in the years to come. With the launch of VICARA, we have established a meaningful position in the HCV market. We continue to see progress, particularly internationally, which is tracking ahead of our planning assumptions. We received approval in 47 markets and we expect a number of additional countries to come online as the year progresses and into 2016. This includes Japan, where we continue to expect a regulatory decision during the second half of this year. As a reminder, in Japan, we will commercialize a 12 week 2 pill once a day ribovirine free combination. Overall, continue to see excellent progress across our total pipeline. We've advanced several assets into the regulatory approval cycle. We've moved assets into pivotal trials, reported positive data from several assets and we expect additional regulatory approvals as the year progresses. We are also encouraged with elagolix pivotal trials in endometriosis. Our partner Galapagos recently reported positive interim top line findings from 2 Phase 2b studies of our partnered selective JAK1 inhibitor in RA. We have also recently seen data from the 6 month extension trial of the first elagolix endometriosis pivotal study and the results were consistent with the previously reported efficacy findings. Several other assets such as venetoclax and relapsed refractory CLL patients with 17p deletion are demonstrating strong results. We're very encouraged with each of these data readouts. In summary, we delivered another quarter of strong results, exceeding our guidance range for the quarter. When we launched AbbVie back in January of 13, we set an objective for ourselves to build an innovation driven patient focused biopharmaceutical company capable of delivering and sustaining top tier financial performance. We have made significant progress in building the key strategic elements necessary to deliver on that objective. We're driving exceptional performance out of our existing portfolio, including HUMIRA. We have a robust several assets with multibillion dollar potential. We're achieving significant operational efficiencies, which are apparent in our first half twenty fifteen results. And we've added another major growth platform with Pharmacyclics and IMBRUVICA. We've also delivered on our commitments to shareholders with a total shareholder return since launching the company in January of 2013 of more than 125%. We are well positioned to deliver industry leading EPS growth in 2015 and we continue to make significant progress advancing our pipeline and other strategic actions that will position AbbVie for top tier growth through the rest of the decade and beyond. With that, I'll turn the call over to Mike. Mike? Thank you, Rick. It's an exciting time to be leading research and development at AbbVie. We have a broad and robust pipeline that includes more than 40 active clinical development programs, including 10 programs in late stage development or under regulatory review. Our core areas of focus include immunology, where we're leveraging our deep expertise to develop next generation biologics and small molecules that elevate the standard of care. Oncology, including assets to address both hematologic malignancies and solid tumors. Neuroscience with a particular focus on developing disease modifying therapies for Alzheimer's and other neurodegenerative conditions and virology with an emphasis on continuing to evolve the HCV treatment landscape. We are also placing focused investment in our late stage programs in women's health with oligolix and renal disease with atrasentan. Today, I'll cover each of these areas and highlight some of our most promising programs. In immunology, we've established clear leadership positions across therapeutic categories including rheumatology, dermatology and gastroenterology and we're leveraging our expertise to build upon these strong physicians. Our 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. We have several promising assets in development including 2 oral selective JAK1 inhibitors, several biologics and a bispecific biologic currently in mid stage trials. Most advanced are our 2 selective JAK1 inhibitors on the cusp of completing mid stage development in RA. As Rick mentioned, earlier this year, our partner Galapagos announced positive top line interim data from 2 Phase 2b studies in RA. Over the next few months, we'll evaluate data from our internal ABT-four ninety four and make decisions about next steps. We also believe our DVD Ig antibody platform holds tremendous promise in the treatment of immune mediated conditions. ABT-one hundred and twenty two is our combination anti TNF, anti IL-seventeen, 2 validated mechanisms in Phase 2 trials for RA and psoriatic arthritis. Our early development work with the DVD platform has established that our DVDs have favorable drug like properties similar to monoclonal antibodies and can be manufactured reliably. We'll see data from our mid stage trial in RA in early 2016. And we have other promising mechanisms in development, including an IL-six nanobody as well as several early stage programs. Finally, in immunology, we continue to innovate with HUMIRA. We have new indications and formulations in late stage development. We recently received a positive opinion from the EMA for hidradenitis suppurativa and we expect a U. S. Regulatory decision in the second half of this year. We also received EMA approval for a new HUMIRA formulation specifically designed to reduce injection pain and reduce injection volume compared to the current formulation. This new formulation is currently under review by the FDA. And we're on track to submit our U. S. And European regulatory applications for uveitis in the second half following the recent completion and positive results from our 2nd pivotal trial. The acquisition of Pharmacyclics significantly accelerated AbbVie's clinical and commercial presence in oncology. With IMBRUVICA, we've established a leadership position in the treatment of blood cancers and we're well positioned to build upon that strength with other promising assets in development. Within the hematologic oncology space, we have 3 novel mechanisms that are either on market or enabling trials BTK, PI3 kinase and BCL2 inhibition. We're well positioned to continue to evolve the treatment landscape with innovative combinations of these and other mechanisms. Our goal is to markedly improve efficacy by achieving deep durable disease control and or remission. As I mentioned, IMBRUVICA represents our first foray into this therapeutic category and we're pleased with the continued progress we've seen with IMBRUVICA since the close of combination of from the Phase 3 HELIOS trial, which studied the combination of bendamustine and rituxan or BR with or without IMBRUVICA in relapsed refractory CRM. The study demonstrated that IMBRUVICA improves outcomes when combined with BR, illustrating that IMBRUVICA is not only effective as a single agent, but it's also potent and safe when used in combination. We also announced top line results from the Phase 3 RESONATE II trial comparing IMBRUVICA monotherapy to chlorambucil in patients aged 65 or older with previously untreated CLL. The results illustrate that treatment with IMBRUVICA improved progression free survival and multiple secondary endpoints including overall survival in the first line setting. We plan to present and publish the full results and we'll submit the data to regulatory authorities in the second half, building upon our existing set of indications and expanding into the frontline CLL setting. We've also continued to make progress with our 1st in class BCL-two inhibitor, venetoclax. At the recent meeting, we presented updated study results showing patients with relapsed refractory CLL taking venetoclax in combination with rituximab had an overall response rate of 84%, with 41% of patients achieving a complete response. While early, these encouraging results speak to the valuable role venetoclax may play in novel combinations with the potential to restate standard of care in a variety of B cell malignancies. We recently received the FDA's breakthrough therapy designation for venetoclax in relapsed refractory patients with a 17p deletion genetic mutation. We plan to present the data that supported this designation at the upcoming ASH meeting and we remain on track to submit our regulatory applications for the 17p deletion indication by the end of 2015. Our hematologic oncology pipeline also includes develosib, a dual PI3 kinase gamma delta inhibitor being investigated for the targeting CS1, a protein primarily expressed on the surface of myeloma cells in late stage development for frontline and relapsedrefractory multiple myeloma. Data from the Phase 3 study in relapsedrefractory patients recently published in the New England Journal of Medicine of Medicine showed that adding aelotuzumab to standard treatment significantly reduced the risk of disease progression. We expect our partner to submit regulatory ABBV838, an anti CS1 ADC, an Our pipeline also includes late stage assets and development for the treatment of the Our pipeline also includes late stage assets and developments for the treatment of solid tumors. Oliparid is our PARP inhibitor being investigated as a treatment for several solid tumor types. In contrast to other PARP inhibitors in development, which are being evaluated as monotherapy, specifically in cancers with inherited genetic deficiencies in DNA repair and in later lines of therapy. We've taken a different approach with voliparib. We have numerous ongoing Phase 3 trials evaluating voliparib in combination with common DNA damaging chemo therapies in a wide range of clinical settings. Voliparib has demonstrated promising signals of efficacy and is currently in late stage development for breast cancer and non small cell lung cancer. Additionally, we plan to evaluate checkpoint inhibitors with clinical trials planned for 2016. We're leveraging our strong capabilities in protein engineering with ABT-four fourteen, our antibody drug conjugate for glioblastoma multiforme or GBM. GBM is the most common and most aggressive type of malignant primary brain tumor. The early data for ABT-four fourteen are promising and we recently initiated additional single arm studies and a randomized controlled trial in second line GBM, which could provide a pathway to registration if the data are consistent with earlier phase studies. Certainly, the area of immuno oncology has recently garnered significant attention. We have an active discovery program with an objective to drive the next of immuno oncology development beyond checkpoint inhibitors. We are particularly focused on the use of our bispecific platform to support conditional activation of the immune system in the vicinity of tumor cells. And we are leveraging the emerging science of soluble T cell receptor technology as well. We anticipate multiple immuno oncology assets moving into the clinic in the 2016 timeframe. Our virology franchise will be a significant growth driver for us in 2015 and in the years to come. With the launch of Akira, we have established a meaningful position in the HCV market and our current position will serve as a base from which we will launch further innovation. We are on track with our next generation HCV program to bring to market ariboviran free once daily pan genotypic combination with high rates of efficacy and a competitive duration of therapy. Earlier this year, we disclosed preliminary results from the Phase 2b study of our next generation protease inhibitor ABT493 and our next generation NS5a inhibitor ABT530. The interim data showed that treatment with our next generation combination in non cirrhotic genotype 1a and 1b treatment naive and experienced patients receiving the ribavirin free therapy for 12 weeks resulted in an SVR4 rate of 99%. Today, I'm pleased to report that the SVR12 rate of 100 percent. Evaluation in other genotypes continues to progress with encouraging results and we are also evaluating year and we remain on track to advance into Phase 3 development this year. Year and we remain on track to advance into Phase 3 development this year with commercialization expected in 2017. In neuroscience, we're focused on pursuing transformational therapies for the treatment of conditions like Alzheimer's disease, Parkinson's, MS and other neurodegenerative conditions. ZYMBRITA, our investigational biologic for relapsing remitting multiple sclerosis is currently under regulatory review in the U. S. And Europe, with regulatory decisions expected in the first half of twenty sixteen. The filings are upon strong pivotal trial results, which demonstrated patients treated with Zimbrieta had a statistically significant 45% reduction in annualized relapse rate versus Avanax AVANCE and established standard of care. Given the product profile, novel mechanism of action and its once subcutaneous administration, we believe Zimbrieta has the potential to be an important therapeutic option. We're also in the early stages of our U. S. Launch of DUOPA for advanced Parkinson's disease, which was approved earlier this year. We are continuing to innovate with DUOPA, working on drug delivery improvements and moving toward less invasive approaches and continued improvements in the DUOPA pump. We also have numerous early stage neuroscience programs underway that have the potential to come to fruition in the later years of our long term plan. For example, earlier this year, we entered into a collaboration with C2N Diagnostics to develop and commercialize a portfolio of anti tau antibodies for the treatment of serious brain disorders. Tau is a key protein associated with the pathologic progression of Alzheimer's disease. And like amyloid, tau also has the ability to be imaged and tracked in the central nervous system. We recently received an orphan drug designation and initiated a Phase I program in patients with progressive supranuclear palsy, a rare and debilitating neurologic disease. We're on track to start clinical development with C2N programs in renal disease and women's health. Atrasentan is our internally discovered selective endothelin antagonist in late stage development for the prevention of progression of diabetic kidney disease. A large global Phase 3 program is currently underway evaluating the impact of atrasentan on renal outcomes such as the onset of end stage renal disease, transplantation or death due to renal failure. Elagolix is our compound in Phase 3 development for endometriosis and Phase 2b for uterine fibroids. Given the high prevalence of these conditions and the current lack of treatment options, we view elagolix as a significant opportunity. Our goal with elagolix in endometriosis is to bring to market an oral therapy that provides a high level of efficacy with minimal menopausal side effects such as hot flash while preserving bone health. Earlier this year, we announced positive top line results from the first of 2 ongoing Phase 3 clinical trials. Initial results from the study showed that after 6 months of treatment, both doses of elagolix met the study's co primary endpoints with a safety profile consistent with prior studies. We've also now seen data from the 6 month extension of the first elagolix endometriosis pivotal study. And the results were consistent with previously reported efficacy and safety findings. We'll see top line results from the 2nd pivotal study in endometriosis in the Q1 of 2016. And we plan to disclose top line data from our Phase 2b trial in uterine fibroids in the fall. So in summary, since the start of the year, we've made significant progress and are on track to advance several programs in the coming months. We built a promising late stage pipeline comprised of potentially transformational medicines, which will fuel our future growth. With that, I'll turn the call over to Bill for additional comments on the quarter and 2015. Bill? Thank you, Mike. This morning, I'll review our 2nd quarter performance and provide an update on our outlook for 2015. As Rick said, we are very pleased with the strong quarter we delivered. Operational growth on the top line was a very strong 19.4 percent excluding an 8.3% negative impact from foreign Reported sales were up more than 11%. HUMIRA delivered global sales of more than $3,500,000,000 up 16.4 percent on an operational basis. We continue to see strong momentum for HUMIRA as the market leader around the world. On a reported basis, currency had a negative 8.8% impact on global HUMIRA sales and reduced international HUMIRA sales by nearly 18%. U. S. HUMIRA sales increased nearly 20 9% driven by prescription volume and favorable pricing impacts. We've seen acceleration in market growth this year in the U. S. With HUMIRA driving double digit growth in the gastro room and derm segments. Wholesale inventory remained constant at less than half a month. Internationally, HUMIRA sales have grown nearly 9% on an operational basis in the first half of the year consistent with our planning expectations. As we noted last quarter, the Q1 international growth rate of nearly 15% was favorably impacted by the timing of shipments in select markets. Consequently, international sales growth in the second quarter was negatively impacted by the shipment timing. Market growth internationally remained strong with most major markets experiencing double digit growth. And HUMIRA's international market share has remained stable despite new competitors and the launch of a biosimilar infliximab. HUMIRA's momentum has not been adversely impacted by the biosimilar. For the full year 15, we continue to expect global HUMIRA sales growth in the mid teens on an operational basis. This reflects a forecast for the U. S. Growth approaching 30% and 9% to 10% operational growth internationally. Global VICIRA sales in the quarter were $385,000,000 In the U. S, we are ramping share in our exclusive accounts and have now achieved our target level of penetration in our largest contract. As we've said previously, the contribution of the international launch has exceeded our planning expectations, which will lead to a higher mix of international sales this year. Sales of VAKIRA in the second half will also benefit from an expected approval in Japan where we will commercialize a 2 drug once daily ribofiran free combination. As Rick noted, total U. S. Sales of IMBRUVICA in the quarter were strong at $234,000,000 Given the May 26 closing date for the Pharmacyclics transaction, we recorded a partial quarter of IMBRUVICA sales including $97,000,000 of U. S. Sales $10,000,000 of international profit sharing. For 2015, we anticipate Pharmacyclics adding more than $750,000,000 to our top line for revenue occurring after the May 26 closing date. Global Lupron sales were $198,000,000 in the quarter, up nearly 10% on an operational basis. For the full year 2015, we expect Lupron sales to be roughly in line with 2014. U. S. Sales of Synthroid were 1 $187,000,000 up nearly 12% versus the prior year quarter. For the full year 2015, we expect growth for Synthroid. Androgel sales were $170,000,000 down significantly due to continued market $500,000,000 for the full year 2015. U. S. Creon sales were $159,000,000 in the quarter, up significantly from the prior year. We continue to capture the vast majority of new prescription starts in the pancreatic enzyme market. We expect double digit sales growth for Creon in 2015. Sales of Duodopa, our therapy for Duodopa, our therapy for advanced Parkinson's disease grew more than 20% on an operational basis in the quarter. We expect continued double digit growth for Duodopa with a modest level of U. S. Sales in 2015. Our U. S. Launch will be getting underway this quarter. And as we've said previously, we anticipate a gradual ramp for product sales in the U. S. This year as physicians grow familiar with the product. Turning to the P and L profile for the Q2. Since becoming an independent company, we placed a high priority on becoming more efficient and driving operating margin improvement. We're pleased with our progress in the quarter as we delivered an adjusted operating margin of 44.2% of sales. Excluding a modest negative impact from Pharmacyclics, our operating margin improved 820 basis points versus the prior year quarter. More than 500 basis points of this improvement was driven by efficiencies and P and L leverage. We showed continued improvement in gross margin as a percentage of sales in the quarter. The adjusted gross margin ratio was 85.3%, up 5 70 basis points from the prior year quarter driven by exchange, operational efficiencies and product mix. Adjusted R and D was 15.9 percent of sales, reflecting funding actions in support of our pipeline assets. Adjusted SG and A was 25.1 percent of sales in the quarter, down from the prior year, contributing to overall continued improvement in operating margin leverage. Adjusted net interest expense was $137,000,000 reflecting the impact of debt issued in conjunction with the Pharmacyclics acquisition. The adjusted tax rate was 21.9% in the quarter. 2nd quarter adjusted earnings per share excluding non cash intangible amortization expense and specified items were $1.08 up 31.7% year over year and exceeding our previous guidance range. On a GAAP basis, earnings per share were $0.83 Moving on to our outlook for the remainder of the year, we are confirming our 2015 adjusted EPS guidance range of $4.10 to 4.30 dollars This range reflects EPS growth of 23% to nearly 30%. Our 2015 adjusted guidance range includes the previously communicated $0.20 dilutive impact of the Pharmacyclics acquisition. It excludes $0.84 of intangible amortization and specified costs, including Pharmacyclics transaction costs. Regarding the P and L profile for 2015, the following estimates have been updated to include the impact of significant foreign exchange and the Pharmacyclics acquisition. On the top line, we expect revenue growth on an operational basis of roughly 20%. We are forecasting approximately 7% negative top line impact from currency this year, resulting in a reported sales growth of around 13 approximately 42% of sales in 2015. Excluding the negative impact from the Pharmacyclics acquisition, we expected to deliver roughly 6.50 basis points of improvement over the prior year. About 500 basis points of this improvement results from efficiency initiatives and leverage across the income statement. We are forecasting an adjusted gross margin ratio approaching 83%. This is an increase from our original guidance reflecting We will continue to invest in our pipeline supporting our exciting opportunities in oncology, HCV, immunology and other areas. We are forecasting R and D expense of approximately 16% of sales. And we expect to continue investing in our growth brands with SG and A levels at approximately 25% of sales. We are now forecasting net interest expense of about $625,000,000 for the full year, including the incremental debt from Pharmacyclics acquisition. And we continue to expect an adjusted tax rate in the 22% range in 20 15. Regarding the Q3, we expect adjusted earnings per share of $1.05 to $1.07 This excludes roughly $0.14 of specified items and non cash amortization and includes the impact of Pharmacyclics dilution. We expect 3rd quarter revenue growth on an operational basis in the low 20 percentage range, excluding approximately 7% negative impact from exchange. So in conclusion, we're very pleased with the level of quality in the quarter and our performance in the first half of twenty strategic priorities. This puts us in a strong position to deliver top tier industry growth this year and in the years to come. And with that, I'll turn it back over to Larry. Thanks, Bill. We'll now open the call up for questions. Operator, we'll take our first question please. Okay, sir. Thank you. We will now begin the question and answer Our first question comes from Ms. Jamie Rubin from Goldman Sachs. Thank you very much. Hope you guys can hear me okay. With respect to HUMIRA International wouldn't Renegade Biosimilars be the real culprit here? Wouldn't REMICADE biosimilars be the real culprit here? What evidence specifically can you share with us that suggests that this quarter that this quarter performance was more of a one timer versus a new trend? I mean, maybe you could share what you're seeing in terms of market share changes, etcetera. And then a question for you, Rick, on potential for U. S. Biosimilars. As you know, Amgen filed an IPR on 2 long data patents. Maybe you can talk to those patents that are being challenged and put that into the context of your broader patent defense strategy? Thanks very much. Thanks. All right, Jamie. This is Rick. Good morning. I'll take the first question. I'm going to have Laura Schumacher answer the second question for you. So it's a good question. And I'm going to answer your question, I'd say very directly and very clearly because I want to make sure that there's no misunderstanding or confusion around this issue. But the bottom line when we're all done is I will tell you that we have seen no impact from REMICADE Biosimilar on HUMIRA in the international market, but I'll give you some color to be able to support that. So I'm going to go back to 1st quarter. When we announced Q1 results, if you look at Bill's formal remarks, in his remarks, we identified the fact that they benefited from shipment timing. That is exactly what we're seeing here and I'd tell you that the impact we're seeing here is consistent with what we expected in that. The second thing I'd tell you is that when we put out the original guidance on HUMIRA both at the beginning of the year and then when we raise guidance within that guidance range we had assumed international performance growth of HUMIRA at 9% to 10%. If you look at the performance in the Q1, we delivered 14.9% growth in the Q1. 2nd quarter was 3.6 percent. The average for the 2 quarters or the first half of the year is 8.8%. We are confirming now explicitly that the second half is forecasted internationally to be 9% to 10%, which is exactly what it was in the original guidance. We're also confirming the original guidance. So obviously, if we thought we were sitting here with our toes hanging over the edge of the cliff, that would be an awfully foolish thing to do. So I can tell you we absolutely have no concerns around that. So let's talk specifically around what we're seeing with biosimilars. Approved now in 46 countries. It's actually launched in about 36 of those countries. They participated in 5 national tenders and they participated in about 11 regional or hospital tenders. If you look at markets that they've been in for more than a tenders. If you look at markets that they've been in for more than a year to be able to measure what their market share is, their total market share is 2.8%. So they haven't had any meaningful impact. We measure every one of those markets that they're in. We've been doing it from the very beginning. In all of those markets, HUMIRA continues to grow as we would have expected it. We don't see any impact from nor did we expect any impact from biosimilars within those markets. We obviously continue to watch that. If we look at the pricing within those markets, the median discount versus the innovator is about 25% off. For the ones that were tendered, it's a little over 50% off, which again is in the range of what we would have expected. The reaction that we're seeing in the market is consistent with what we expected. And so I would just tell you that it's playing out as we anticipated. Now we need to continue to monitor, but I can tell you that we don't have any concerns in that area as we would have expected. So the reality is this is nothing more than movement of shipments between a handful of countries. I can I'll give you a couple of examples maybe to make you feel a little bit better. So if you take France, which I know there's been a lot of public concern about France. If you look at our growth rate in the Q1 and our growth rate in the Q2, they're almost identical. If you look at Canada, our growth rate accelerated between 1st and second quarter. If you look at the Netherlands, our growth rate accelerated between 1st and second quarter. Now there are countries where clearly we saw tenders move around. There weren't any countries that were impacted by biosimilars. They were due to other events. So reality is this is nothing more than shipment timing. Did I answer your question? I think we might have muted her line. Go ahead on the IPR. With respect to your question about Amgen's IPR, as we said before, we have a broad portfolio of IP covering manufacturing, process, formulation and methods of use. Amgen's IPR does not impact our patent defense strategy. We don't know why Amgen selected the 2 formulation patents that it did to in IPR, but it does give some perspective on the breadth of our IP, including over 40 additional patents that are not the subject of the IPR. Thanks, Jamie. Operator, we'll take our next question please. Okay, sir. Our next question comes from Mr. Geoff Hallberg of Jefferies. Sir, your line is open. Hi. There still seem to be a lot of noise on the line. It's not coming from me. But first question is on Nu Humira, the one you just had approved in Europe. Can you just give us a bit more color around numerical data, whatever you have around the clinical differentiators you seem to have there on pain and injection volume? Just give us a bit more of a view whether the label that you're there is going to help you potentially do hard switches in some of the markets you were thinking about and how this product could help you in the future potentially as a biosimilar defense mechanism because that's not entirely clear from this. And then just on VIKIRA contracts in the U. S, could you just give us any updates on how these are actually playing out versus how you thought they were going to just some of the metrics that you're looking at? And then just last question around VIKYRA. Does your run rate for the last quarter of the year the $3,000,000,000 run rate that you're looking at does that assume a full quarter of Japan? How important is that in your mind at achieving that run rate? Thanks very much. Okay. Very good. So Jeff, this is Rick. So I'll answer most of the first question. Let me see if Mike may be able to add a little bit of specificity. So there were 2 benefits that the new formulation was designed to do. We know that there are patients who ultimately stop therapy with important driver of adherence of the So, we know that's an important driver of adherence of the product. And so, we designed this product as a differentiation. The clinical data, Mike, I don't recall the specific numbers. Do you recall the actual percent? This is Mike. So there are data in the studies that were submitted to regulatory agencies. We're still waiting on final labeling in the U. S. And in Europe. So I think it's probably a bit of a knock out for numbers that might be in labeling. But we assess this in the course of the clinical development program. But what I would say is it's a significant reduction in pain, a very significant reduction in pain. The second part is that this will also allow us to ultimately reduce the volume of injection volume and therefore potentially over time reduce the number of injections particularly on the loading dose. So as we said before, this is an incremental improvement to the product. We think it's a meaningful improvement. We've obviously studied the different kinds of things that we could do to HUMIRA. We have other things that we're continuing to work on. But we think these are a meaningful opportunity to be able to launch the product. We haven't formally decided exactly how the product will launch or at least formally announced how the product will launch. So I'm not going to talk through any details around whether or not it will be a full conversion or ultimately a phased in kind of an approach based on certain countries. And so that's essentially how we see the product and we do think it will be differentiated in a significant enough way that it will have both a material impact on HUMIRA itself, HUMIRA's performance itself as well as a differentiator versus competitors. So on Viquero PAC as far as contracting is concerned, I'd say the contracting hasn't changed a lot in the U. S. From the last time we talked on the call. As we indicated, we had a number of exclusive contracts that were coming online. They are now up and running. We are ramping within those particular contracts. I'd say we're ramping within the expectations that we expected. If you look at our single largest customer in the U. S. That's an exclusive, We've now reached peak share there. And so ultimately we've reached the level of share that we had anticipated and it's a very high level of share. And so now the rest of the growth will be around driving these incremental contracts and then also driving additional share gains within the parity accounts and the non exclusive accounts. And that's the work that goes on day by day by day. As far as the $3,000,000,000 running rate that we've talked about before, I'd say we're still tracking against that. U. S. Specifically is Japan important? It does assume that we have a full quarter of Japan. And I would say Japan is an important market for us. Now based on everything that we know today and the competitiveness of that product and where we are in the regulatory cycle, I think we should get a full quarter's worth of Japan potentially even maybe a little bit better than that. As we look at Vicaro, the other thing I'd say is when we originally launched Vicaro, our expectation was that we would build this into a meaningful product for us and then position ourselves so that as we launched a next generation asset, which as you know we've described as a pan genome typic, riboviran free QD product and the profile of next generation is maintaining consistent with what we would have expected. Then with the launch of that we will continue to gain further share with that product as we introduce that product in the marketplace. If we look at our performance so far, I think we're up, I don't know, 67% quarter over quarter. If you look at just the 2nd quarter running rate, it says the product is tracking at about a $1,500,000,000 product and continuing to grow nicely. The international side of the business obviously has performed better than the U. S. I think the U. S. Has not met our expectations. Certainly the international market is performing incrementally better than what we expected. And so I think everything that we're looking at right now would suggest that that should be a solid number. I'd say there are 3 factors that are have seen patient volumes in the U. S, overall volumes in the market decline. The latest data would suggest Genotype 1 patients are down around 175,000 180 1,000 now on an annualized basis. We're assuming that's the level that it will stabilize at. And I think the data would suggest that that is a reasonable assumption. 2nd assumption is that the VA has run into funding difficulties. So the level of patients that they're treating is down. And we are assuming starting October 1 that they will get additional funds and they will come back up to the level that we saw in the earlier part of the year. And then the 3rd assumption obviously is Japan that we just talked about. So those are the three things that I think will drive the ultimate performance. I guess the last thing I'd say is, if you look at our overall performance in the first half and both in the second quarter, I think it demonstrates the strength of the business that we have here. If you look at consensus, we were slightly off the consensus number for Viquera this quarter, but yet we over performed. And we over performed because we delivered better operational efficiency. We delivered over performance in other areas. And the balance of our business and our ability to be able to still deliver strong performance even when there are changes I think is should be 1 reassuring to investors and 2 it demonstrates the strength of the overall business. Thanks. That's very helpful color and congratulations on a great IMBRUVICA number. Thanks. Thanks, Jeff. Next question, operator? Our next question comes from Mr. Mark Goodman of UBS. Sir, your line is open. Yes, morning. First of all, you have a guidance range that's pretty wide. I was just wondering why you didn't tighten it this quarter. 2nd, you talked about immuno oncology. You would have multiple assets in the clinic by next year. Can you talk about are these going to be similar types of assets to PD-one, PDL things like that? Or are they kind of the next wave of products? Okay. This is Rick. I'll cover the first one. I mean, we haven't narrowed the guidance range yet. We probably will here as we get closer to Q3 narrow the guidance range. And I'd say the primary reason for that is foreign exchange has certainly been more challenging than we anticipated. And we want to see how that plays out. We told investors that we were going to cover foreign exchange that we weren't going to do we weren't going to pass that on. And so we just want to see another quarter's worth of performance here and what foreign exchange does over that period of time to feel more comfortable that when we narrow the range, we're within a range that we're comfortable with. It's just that simple. And then Mike why don't you talk about immuno oncology? Certainly. With respect to immuno oncology, we're really referring to the next wave of programs. These would be things beyond PD-one, PD L1 or perhaps things that might combine well with those mechanisms. But we're looking at driving for treatment results that can't be achieved today. So we would be referring to novel mechanisms. Thanks, Mark. Operator, we'll take our next question please. Our next question comes from Mr. Alex Arfaei from BMO Capital Markets. Sir, your line is open. Good morning, folks. And thank you for taking my questions. Regarding Humira, you mentioned you're seeing accelerated market growth in the U. S, very impressive U. S. Performance by the way. Are you seeing increased penetration of biologics in these markets? Or is it overall volume growth or both? And can you provide more color on some of the efficiencies we're seeing some of the operating efficiencies we're seeing? Where are you cutting and why? Thank you. So Alex on HUMIRA, if you look at the U. S, it's really been a remarkable story. If you look at market growth last year, it was in the 6% range. That has now moved to about a 13%. We've held that pretty steady across the quarter. So what that's a sign of is that the SG and A that we put behind the brand continues to work and it continues to give a positive return. And the way that that growth is delivered is in fact by penetration as well as improved patient compliance and a number of other things. But there's definitely a penetration element that is the big growth driver in this market. And as you know, all of the autoimmune segments are relatively under penetrated versus what you would expect given the power of a biologic. So that is a big part of the story. In terms of efficiencies, look we've been focused on efficiencies from the very beginning. They shake out in a number of different places. In manufacturing, they are the traditional efficiencies you would expect whether it be purchasing, better utilization of plants or in some cases even taking offline non productive capacity. We've done all of those sorts of things. Across the P and L though leverage itself presents a different type of efficiency, right? We're obviously no longer in a situation where we need to grow expense in at the same rate as the top line. In fact, if you look at our expense growth particularly on SG and A, it is far, far, far below what the top line is growing. And that's pretty much the new model for this business now that we've made the investments we needed to make back in 2013 2014 and we're on track to start delivering growth through the introduction of new products in 2015 and beyond. So there's really 2 different types of efficiencies in the numbers. Thank you. Thanks, Alex. Next question please, operator. Our next question comes from Mr. Mark Schonlein from Evercore ISI. Sir, your line is open. Okay. Hey, guys. Thanks a lot for the transparency. Always the most detailed prepared remarks of any company, any big company. So thanks for that. I just want to go back to the central point that others have asked about, because the stock is off right now and the consistent feedback I'm getting is that people are just very concerned about the rest of the world's HUMIRA number. So my question is really simple. One, what was the sequential volume growth for rest of world HUMIRA? 2, what was the average change in price quarter on quarter in the 2Q please? And then my second question if I may is, you guys I think had mentioned that you might contemplate an analyst meeting where you might provide some long term financial targets or vision and go over the pipeline and that you would contemplate this once the PCYC deal is closed. So I'd just like to know what your current thinking is on that. Thank you and congratulations on a great stock move this quarter. Thanks Mark. So Mark on HUMIRA, the volume growth quarter over quarter was slightly above 10% overall. Price was 6% on a global basis. Do you have just rest of world? Rest of world had negative price of 4.1% and volume was up over 7%. So volume was up over 7% rest of world. Okay. Yes. Got it. People are very confused out there. Thank you. Thank you. And then Mark this is Rick. On the Analyst Meeting it is something we are still considering. I think as you indicated maybe in one of your remarks, I think timing wise if we decide to do it, it probably will be at the beginning of the year, maybe time for the major meeting where it would be convenient for investors to be able to participate. We haven't made a final decision yet, but we will communicate something around that at some point here 3rd probably Q3. And just to confirm the HUMIRA numbers those are sequential correct? Quarter over quarter, 2015 versus 2014. Do you have the sequential numbers 1Q this year versus 2Q? And then I'll stop. I don't have them handy, because we don't typically look at it that way. I would say price would be relatively flat quarter to quarter. Price would be probably down about maybe 2% quarter over quarter, but I don't have a firm volume number for you. Can you follow-up on that? What is it though? Was it positive? Yes. It was positive. Okay. Thank you. It was price positive. Yes. Price was negative. Okay. The volume was positive. Thank you. Thanks, Mark. Next question please operator. Our next question comes from Mr. Chris Schott from JPMorgan. Sir, your line is open. Great. Thanks very much for the questions. Just a couple of quick ones here. First, can you just quantify the impact to gross margins from FX in the quarter and in the annual guidance? I'm just trying to get a better sense of what type of underlying growth we're seeing on that gross margin line as we're going through the year here. The second question was on the IL-seventeen. Just to be interested in your perspective on what those products are going to kind of mean for the psoriasis market and as you think about HUMIRA over time? And the final one, sorry, just come back just to clarify some of the earlier comments on the new HUMIRA formulation and launch dynamics. I just want to make sure I understood the comments. We think about when this product launches, it's going to basically fully replace the prior version of HUMIRA in whatever countries it goes out in? Or is this going to be a conversion type process where you have to go to physicians, get them to select a new version to more of a gradual process? I just want to try to make sure I understood your earlier comments. Thanks very much. So Chris on gross margin, I'm just going to give you some numbers. So our gross margin was up about 5.70 basis points. Pharmacyclics diluted that by about 50 basis points. So if you exclude Pharmacyclics, we were up 6.20 basis points. Just over half of that was exchange. And then for the year, very similar story, different numbers, but similar story, gross margin we're forecasting up around 300 basis points. Pharmacyclics will have about a 90 basis point to a point 90 basis point to a full point impact. So net net excluding Pharmacyclics, you'd expect to see about a 400 basis point improvement of which again just slightly over half is exchange. Okay. So this is Mike. I'll take the second component of your question. With respect to the IL-17s, I think clearly the IL-17s in plaque psoriasis demonstrate very strong efficacy. There are areas where their profile is not quite compelling in psoriatic arthritis for example. The initial uptake of the 17s has been relatively slow. We would expect the dermatologists would take some time to become comfortable with the new mechanism before they would adopt it. So we feel comfortable about the And on And on the new formulation, I mean, we really can't talk specifically about what the strategy would be because it's somewhat conditioned on the regulatory approval and we don't have the regulatory approvals yet all around the world. But there probably will be situations where it will be a replacement product, meaning it will replace not over a very short period of time, but over a relatively short period of time. As inventory runs out of the old product, the new product will replace the old product and we'll only maintain the new product predominant model that's out there, but it might not be the exclusive model that's out there depending upon the depending upon the regulatory approvals. Thanks very much. Thanks, Chris. Next question, please. Our next question comes from Mr. Robin Karnauskas of Deutsche Bank. Sir, your line is open. Hello. It's Mr. Robin Karnauskas. Thanks for taking my question. All right. So two quick questions. One, you didn't mention anything about celiac disease. I'm wondering if you could comment on did the program fail? Are you still interested in that program? Second question on HUMIRA 2, the new HUMIRA, do you think we'll be able to track that in any way? Will it be given a different name? Just wondering like how the Street will be able to monitor that as it has an uptake? And then the last question, big picture for your RA franchise, given that it looks like you don't have to go through the patent dance and Amgen's filing an IPR, which could speed up sort of the clarity around when they're actually going to launch. How do you view the timelines for some of your emerging RA drugs and whether it's important to get them on the market sooner or whether or not you'll still be okay if Amgen's biosimilar hits ahead of their launch? Thanks. So this is Mike. With respect to celiac disease, we're still evaluating formulation. Again formulation. Again, it's consistent with what I described to you before. It will depend upon the regulatory approval. So we don't know the answer to that yet. It could be that it has the exact same name as the current product and therefore you wouldn't necessarily have any direct visibility to it. It could be HUMIRA plus some designation after HUMIRA. And therefore we would be able to track it, you would be able to track it in some separate fashion. So we're going to have to see how that plays out before I can give you an accurate answer. And then I'd just say on the big picture piece, I'd say the IPR doesn't necessarily change anything that we thought about before from a timing standpoint as we've said. And as Laura mentioned a moment ago, we have a broad group of or portfolio of IP. We have some very important patents in this area and we intend to enforce those patents. And this IPR process won't affect those timelines as we've assumed it. Okay, great. Thank you. Thanks, Robin. Operator, we have time for one more question please. Okay. Sir, our last question comes from Mr. Steve Scala from Cowen. Sir, your line is open. Thank you. And thanks for the R and D overview. AbbVie really does have an impressive pipeline. On the new Humira formulation, what portion of the current patients on Humira have issues with pain and or volume? What additional IP protection does it offer? And then 3rd, it sounds like there's a bit of hedging on the prior Vicira guidance of annualizing at $3,000,000,000 exiting 2015. Am I wrong? Thank you. Thanks, Steve. This is Rick. I guess I'll do the last one first. I was trying to describe to you the elements that will drive our overall performance in VICARA. If I sounded like I was hedging, I apologize for that. It is our goal to still hit the number that we described to you. So I was trying to describe to you the elements associated with it. As far as the details around percentage of patients, I mean, I don't recall it offhand. I'd say there's a fairly substantial percentage of patients that when they first go on the drug do experience or express concern about pain upon injection. The vast majority of those patients obviously work through it and stay on the drug. But it's not an insignificant percentage of patients that see that we see that experience at the beginning of their use of the product. And as far as volume, it's more of practical thing. At the end of the day, if you inject less volume, obviously that helps with the pain as well, assuming it's not more viscous or has some other reason why it would have pain. But if you as you get less volume in the indications where you have loading doses, there would be a substantial benefit there where you could go from multiple loading doses to one loading dose as an example in certain conditions. And I think that will be a significant benefit for patients. And the IP? I mean essentially it has IP associated with it. I'd say this is really a strategy to differentiate the product. Obviously we have IP around this particular formulation. I think that IP will protect this particular formulation. As we've described, I think couple of times before, we don't view this as an absolute block. When you think about our biosimilar strategy, it's a number of things that have all been put together, a very large portfolio of IP. Some of that IP is very broad and very when and if biosimilar is launched, and then our pipeline, when and if biosimilar is launched and then our pipeline of new assets to be able to move into this market. And I'd say, although we tend not to probably ever get there in any meaningful way, I think one of the exciting things that we see internally is if you look at data that we've seen around the JAK1 hypothesis that we have, it's playing out and it's playing out in a very positive way. And I think it's a profile of a drug that we believe could have a meaningful impact in the marketplace. And I think that will be an important product for us to advance and get into the marketplace. And then also ABT-one hundred and twenty two. Think as we talk about in IL-seventeen combined with the TNF, as we see that data, I think that product could have a very meaningful place in the market as well. And so I think we're gaining a lot of encouragement about derisking that mid stage pipeline to ensure that we have some products that will follow on with HUMIRA. Thank you. Thanks, Steve. That concludes today's conference call. If you'd like to listen to a replay of the call, please visit our website at abbeyinvestor.com. Thanks again to everyone for joining us. That concludes today's conference. Thank you for participating. You may now disconnect.