AbbVie - Q1 2023

Transcript

Operator (participant)

Good morning, thank you for standing by. Welcome to the AbbVie First Quarter 2023 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 Ms. Liz Shea, Senior Vice President, Investor Relations.

Liz Shea (SVP, Investor Relations)

Good morning, thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer, Rob Michael, Vice Chairman and President, Jeff Stewart, Executive Vice President and Chief Commercial Officer, Scott Reents, Executive Vice President and Chief Financial Officer, Carrie Strom, Senior Vice President and President, Allergan Aesthetics, and Tom Hudson, Senior Vice President, R&D, and Chief Scientific Officer. Joining us for the Q&A portion of the call is Roopal Thakkar, Senior Vice President, Development and Regulatory Affairs and Chief Medical Officer. Before we get started, I'll note that some statements we make today may be considered forward-looking statements based on our current expectations. 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 our forward-looking statements.

Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements except as required by law. On today's conference call, non-GAAP financial measures will be used to help investors understand AbbVie's 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 turn the call over to Rick.

Rick Gonzalez (Chairman of the Board and CEO)

Thank you, Liz. Good morning, everyone, and thank you for joining us today. I'm extremely pleased with our start to 2023, with first quarter total revenues and adjusted earnings per share both exceeding our expectations. This performance was driven by double-digit sales growth from several key products, including SKYRIZI, RINVOQ, VENCLEXTA, and VRAYLAR, positive momentum from our aesthetics business with strong results internationally and stabilizing consumer trends in the U.S., an in-line performance from U.S. HUMIRA, where biosimilar erosion is tracking as expected, with much of the impact driven by price. Since our inception, we have successfully created a well-diversified portfolio with multiple growth platforms in highly attractive markets, including immunology, Hematological oncology, neuroscience, and aesthetics. Our commercial execution, including the launch of new products and expanded indications, has been outstanding, especially across SKYRIZI and RINVOQ and recently with VRAYLAR and MDD.

Each of these assets are expected to contribute significant revenue growth over the decade. The breadth and the depth of our R&D pipeline also supports our long-term growth outlook, and we anticipate numerous important pipeline milestones over the next two years. In summary, we are one quarter into the U.S. biosimilar event for HUMIRA and are managing the erosion well. Most importantly, our growth platform is demonstrating strong performance, exceeding our expectations. We are executing well across all aspects of our business and see numerous opportunities for our diverse portfolio to drive long-term growth. With that, I'll turn the call over to Rob for additional comments on our business performance. Rob?

Rob Michael (Vice Chairman and President)

Thank you, Rick. We're off to an excellent start in 2023, with each of our five key therapeutic areas meeting or exceeding our first quarter expectations, a testament to the strength of our broad portfolio. We delivered adjusted earnings per share of $2.46, which is $0.10 above our guidance midpoint. Total net revenues were $12.2 billion, approximately $400 million ahead of our expectations. First quarter results include continued robust performance from SKYRIZI and RINVOQ, which remain on track to contribute more than $11 billion in combined sales this year. Growth rates in the first quarter for both products are consistent with our full year expectations. SKYRIZI and RINVOQ are demonstrating momentum across all approved indications, we expect to round out their opportunities in IBD later this year.

This includes RINVOQ's anticipated U.S. approval in Crohn's disease, as well as SKYRIZI's European launch in Crohn's and its global regulatory submission in UC. We are also performing exceptionally well in Neuroscience. Total net revenues this quarter were nearly $200 million above our guidance, with VRAYLAR sales accelerating following MDD approval and migraine delivering strong growth. We will be increasing our full year outlook for Neuroscience. Aesthetics is also performing better than expected. We are seeing positive recovery trends in China and some stability in the U.S. market, where we are closely monitoring several economic indicators that correlate with aesthetics procedures, including consumer confidence, personal consumption, and Google searches. It's still early in the year, these positive trends, especially across our international markets, give us the confidence to increase our full year outlook for Aesthetics as well.

This continues to be an under-penetrated market with significant growth potential. Based on our robust performance this quarter and the continued strong outlook for our business, we are raising our full year adjusted earnings per share guidance by $0.10. Now expect adjusted earnings per share between $10.72 and $11.12. In closing, I'm extremely pleased with the performance of our diverse portfolio. We're off to a strong start to the year, which further reinforces our confidence in the long-term outlook of the business. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff?

Jeff Stewart (Executive VP and Chief Commercial Officer)

Thank you, Rob. I'm very pleased with the strong commercial execution across our therapeutic portfolio. Immunology delivered total revenues of approximately $5.6 billion, with continued robust double-digit growth from SKYRIZI and RINVOQ. SKYRIZI global sales were nearly $1.4 billion, reflecting operational growth of more than 46%, despite retail inventory destocking in the quarter. SKYRIZI is the clear market leader in the U.S. biologic psoriasis market, with a total prescription share now at 30%. In psoriasis, SKYRIZI has set a very high bar relative to other therapies on the market or in development, with differentiated attributes across the categories that physicians and patients deem most important.

This includes the rapid onset of action after the first dose, nearly complete skin clearance with multi-fold higher rates on PASI 90 and PASI 100, high durability of response, which we have demonstrated can increase over time, as well as quarterly dosing for maintenance therapy, a convenient alternative to daily oral or more frequently administered injectables. With a nearly 50% U.S. in-play share of new and switching patients, there is substantial room for SKYRIZI's continued growth in psoriasis. This best-in-class profile is supporting strong momentum now in psoriatic arthritis, with SKYRIZI achieving an in-play biologic share of roughly 20% in the U.S. dermatology segment. SKYRIZI is also being co-positioned with RINVOQ in the U.S. rheum segment in PSA, where we are seeing increasing utilization among rheumatologists as well.

Globally, SKYRIZI has achieved in-place psoriatic disease leadership in more than 25 countries and total market share leadership in nearly 20 of those key markets. In Crohn's disease, we are seeing very fast adoption of SKYRIZI in the U.S., with a total in-play patient share at approximately 20%, second only to STELARA. Feedback from gastroenterologists is very positive, especially as it relates to SKYRIZI's novel dosing and overall clinical profile. We see strong uptake in Japan and Canada as well, with the European launch forthcoming. We also recently reported strong induction data for SKYRIZI in ulcerative colitis, which Tom will discuss momentarily. Based on the results of that trial, it is increasingly clear that SKYRIZI represents a differentiated asset across inflammatory bowel disease, and we look forward to bringing this potential new indication to physicians and patients next year.

Turning now to RINVOQ, which delivered global sales of $686 million, reflecting operational growth of more than 50%, despite similar retail inventory destocking in the quarter. I'm very pleased with the performance in rheumatology, with total prescriptions increasing across each of the four approved indications. atopic dermatitis is also tracking in line with our expectations. We continue to see market share momentum globally, including in-play patient share increasing to approximately 17% in the U.S. We are very excited about the growth potential in gastroenterology. RINVOQ has set a high bar for efficacy in both ulcerative colitis and Crohn's disease, demonstrating strong rates of remission and endoscopic improvement. We're seeing very strong momentum in UC, where adoption has been robust.

RINVOQ is now achieving a 23% in-play share in the U.S. second-line plus setting, reflecting an impressive ramp since our launch in UC less than one year ago. This accelerated adoption among gastroenterologists is very encouraging for RINVOQ's pending outlook in Crohn's. We are currently launching this indication in the EU, a geography where RINVOQ is the only JAK approved to treat both IBD conditions, and we remain on track for CD approval and commercialization in the U.S. later this quarter, with broad formulary access anticipated to ramp quickly over the back half of this year. We see inflammatory bowel disease continues to be an area of high unmet need. Having two novel therapies in IBD with SKYRIZI and RINVOQ that each deliver differentiated levels of efficacy is an important step forward for patients.

With these two complementary assets, we are very well positioned to compete against other oral or biological agents. Global HUMIRA sales were approximately $3.5 billion, down 24.3% on an operational basis due to biosimilar competition. Erosion in the U.S. remains in line with our expectations, with most of the impact driven by price. Turning now to hematologic oncology, where total revenues were $1.4 billion, with continued pressure on IMBRUVICA, partially offset by robust double-digit growth with VENCLEXTA. IMBRUVICA global revenues were $878 million, down 25.2% due to increasing competition and the cumulative impact of a suppressed market. VENCLEXTA global sales were $538 million, up 17.5% on an operational basis, with strong momentum across both AML and CLL. In neuroscience, revenues were approximately $1.7 billion, up 15% on an operational basis.

VRAYLAR is performing exceptionally well. Sales of $561 million were up 31.3% on an operational basis above our expectations. We are very pleased with the AMDD label and the launch, which has resulted in a significant uplift in total new prescriptions for VRAYLAR. With a dedicated sales force that calls on both psychiatrists and primary care, as well as ramping DTC promotion, we see an opportunity for accelerated growth across all approved indications, we will be raising our full year guidance for VRAYLAR accordingly. Within migraine, we remain uniquely positioned with a portfolio to support complete migraine freedom. Our leading oral CGRP therapies contributed $218 million in combined sales this quarter, reflecting growth of more than 45% as we continue to see strong prescription demand for both UBRELVY and QULIPTA.

We recently expanded the label for QULIPTA, which is now uniquely positioned as the only oral CGRP available as a preventative treatment for patients with both chronic and episodic migraine, further strengthening our competitive profile. Total BOTOX therapeutic sales were $719 million, reflecting strong performance in chronic migraine as well as other approved indications. Overall, I'm extremely pleased with the performance across the therapeutic portfolio, and with that, I'll turn the call over to Carrie for additional comments on aesthetics. Carrie?

Carrie Strom (SVP and President, Global Allergan Aesthetics)

Thank you, Jeff Stewart. First quarter global aesthetic sales were approximately $1.3 billion, which came in ahead of our guidance primarily due to a faster reopening in China as well as a slightly stronger economy in the U.S. versus our planning assumptions. In the U.S., aesthetic sales were $777 million, down 8.1% as we continue to see softness in aesthetic procedures related to inflationary dynamics. As a reminder, we saw very robust performance for our U.S. performance in the first quarter of 2022, which created a difficult comparison for growth in the first quarter of this year. U.S. BOTOX Cosmetic sales were $409 million, down slightly on a year-over-year basis.

We continue to see a lesser impact from inflationary dynamics on BOTOX Cosmetic compared to other areas of our aesthetic portfolio due to its relatively lower price point and large installed base of loyal repeat consumers. The U.S. cosmetic toxin market was down low single digits in the first quarter on a year-over-year basis. BOTOX Cosmetic continues to be the clear market leader and its share of the U.S. toxin market remains stable. Sales for our U.S. JUVÉDERM collection were down 18% as our dermal filler portfolio continues to be impacted by inflationary pressure on consumer spending. The U.S. filler market was down nearly 20% in the quarter on a year-over-year basis due to the persistent inflationary environment. Our JUVÉDERM collection remains the clear market leader and share was stable in the quarter.

The economic pressure on our U.S. dermal filler business is partially offset in the quarter by strong initial uptake for our recently launched Volux filler, which is approved for the improvement of jawline definition. We expect Volux, combined with the upcoming launch of our skin quality injectable SKINVIVE, to support long-term growth for our filler portfolio in the U.S. While the aesthetics category in the U.S. continues to be challenged due to the soft economy, the key external economic metrics that we track have remained relatively consistent with year-end 2022 levels. Our international aesthetics portfolio continues to demonstrate robust growth with strong performance in Japan, which is rapidly growing, and China, which is recovering faster than expected. Sales from our international aesthetics portfolio were $523 million, up 7.8% on an operational basis.

International BOTOX Cosmetic sales grew approximately 17.5% operationally, and international JUVÉDERM sales were down approximately 1.4% on an operational basis. China, which is our second-largest market, was negatively impacted by Covid in January and February, but experienced a sharp recovery in March. We expect this level of activity to be sustained throughout the remainder of the year. Recall, our original guidance assumed we would not reach a full recovery until the second half of this year. In Japan, which is an underdeveloped market and proving to be very responsive to promotion, we continue to make significant investment in injector training, our field force, and consumer education. Overall, we are pleased with how our team has been executing through this dynamic environment and remain encouraged by improving trends internationally and stabilization across our U.S. portfolio.

These positive trends and continued strong momentum give us the confidence to increase the full year outlook for our Aesthetics business. Longer term, we remain extremely confident in our ability to grow the Aesthetics business and continue to expect to achieve total sales of more than $9 billion by the end of this decade. Aesthetics continues to be an extremely attractive, under-penetrated market, our proven ability to drive consumer demand and develop a strong base of loyal customers, as well as bring innovative new products to the market, will support robust growth over the long term. With that, I'll turn the call over to Tom.

Tom Hudson (SVP, R&D, and Chief Scientific Officer)

Thank you, Carrie. We've continued to make very good progress with our pipeline to start this year.

In immunology, we recently received European approval for RINVOQ in Crohn's disease, making it the first JAK inhibitor approved for this indication. We continue to anticipate FDA approval for RINVOQ in Crohn's disease next month. We also recently announced positive top-line results from our Phase III induction study for SKYRIZI in ulcerative colitis, which is a disease with unpredictable symptoms and frequent flares, making it challenging to manage. In our study, SKYRIZI met the primary and all secondary endpoints, demonstrating a very strong impact on the disease as measured by clinical remission, clinical response, and endoscopic improvement. We're particularly pleased with SKYRIZI's impressive performance on the more stringent measures in this trial, with approximately 37% of SKYRIZI-treated patients achieving endoscopic improvement, compared to 12% of patients on placebo.

This level of efficacy has the potential to position SKYRIZI as a highly effective therapy, and we believe it will be a welcome new treatment option for physicians and patients once approved. Detailed data from this induction study will be presented at a forthcoming medical meeting. We expect to see data from the Phase III maintenance study in the second quarter, with our regulatory submissions planned for the second half of the year. In oncology, we continue to make good progress across all stages of our hematology and solid tumor pipelines. We remain on track for several important regulatory and clinical milestones this year, including regulatory approval for epcoritamab in relapsed/refractory large B-cell lymphoma. Phase III data from VENCLEXTA's CANOVA trial in relapsed/refractory multiple myeloma patients with a t(11;14) mutation and navitoclax's TRANSFORM-1 trial in front-line myelofibrosis.

Phase II data for Teliso-V in second-line-plus advanced non-squamous non-small cell lung cancer, which has the potential to support a regulatory submission for accelerated approval. We're also beginning to see very encouraging data for our next-generation c-Met ADC, which uses a more potent topo payload than our Teliso-V ADC. Based on the data we've seen to date for ABBV-400 in our Phase I solid tumor basket study, we plan to expand the program to earlier lines in colorectal cancer as well as evaluate in other tumors where c-Met is expressed, including pancreatic and liver cancer. Moving to our neuroscience pipeline, where we've recently received FDA approval for QULIPTA as a preventive treatment for patients with chronic migraine, making it the only oral CGRP antagonist approved for prevention of both episodic and chronic migraine.

In our Phase III study, QULIPTA provided a significant reduction in migraine days as well as significant improvements in function and quality of life in patients with chronic migraine, a common and debilitating disease. As a highly effective oral treatment option, we believe QULIPTA will be well-positioned in the chronic migraine prevention market. In Europe, we continue to anticipate an approval decision in the third quarter for atogepant as a preventive treatment for patients with both chronic and episodic migraine. Turning now to ABBV-951, we announce that we received a complete response letter for our regulatory application in the U.S. The FDA has not asked for additional efficacy or safety studies related to our drug device delivery system, but rather they have requested additional information regarding the pump as well as updates to instruction for use.

We are working to generate the necessary information. We expect to respond to the CRL later this year with an FDA action anticipated in the first half of 2024. In international markets, we recently received approval for 951 in Japan. We continue to expect approval in Europe in the fourth quarter of this year. In our early-stage neuroscience pipeline, we recently began Phase I studies of our selective D3 dopamine receptor agonist, ABBV-932. Our experience with VRAYLAR has highlighted the potential clinical benefit of achieving D3 selectivity. We believe that a compound that more selectively engages the D3 dopamine receptor has the potential to provide enhanced efficacy. Our program will initially focus on generalized anxiety disorder with the potential to expand to other neuropsychiatric disorders. The programs under our collaboration with Calico are also progressing well.

We now have four assets in clinical trials, including 2 PTPN2 inhibitors in Phase I in oncology, our eIF2B activator for neurodegenerative diseases, and an IGF-1 signaling pathway modulator that will be explored in aging-related diseases. Our most advanced program is the eIF2B activator 7262. The first patient was recently enrolled in a HEALEY ALS Platform Trial, a Phase II /III study conducted by the Healey Center for ALS at Mass General. This trial is designed to evaluate multiple therapies simultaneously with a goal to accelerate the development of potential breakthrough treatments for ALS. I'd like to provide a brief update on two earlier stage programs in our therapeutic pipeline. In cystic fibrosis, we recently analyzed data from an ongoing proof of concept study evaluating our triple combination therapy.

The results from this interim analysis did not meet our criteria for advancing, we are discontinuing our cystic fibrosis program. We also recently reviewed interim data from our exploratory studies for ABBV-154 in PMR and Crohn's disease. Similar to results from the RA study, while we observed efficacy with 154, we also observed some changes in biomarkers that are consistent with systemic steroid exposure at the higher doses. The benefit risk profile does not sufficiently differentiate 154 from other available treatments. Based on the totality of the data across RA, PMR, and Crohn's disease studies, we will not be pursuing further development of this asset. Now moving to our aesthetics pipeline, we recently saw data from our Phase III studies for BOTOX in platysma prominence and masseter muscle prominence.

In our study for prominent neck muscles, BOTOX met all primary and secondary endpoints, demonstrating a significant reduction in the unwanted appearance of platysma prominence on the neck and jawline. This was the first of three Phase III studies in platysma prominence, with data from the two remaining trials expected in the second half of the year, followed by regulatory submission in the U.S. near the end of 2023. BOTOX also performed very well in our study for prominent masseter muscles, meeting the primary and all secondary endpoints in the trial. Our program is initially focused on China and other Asian markets, as masseter prominence is common in Asian populations, and there's significant unmet need for minimally invasive treatment options. Based on the results from this trial, we expect to submit our regulatory application in China in the second half of the year.

Once approved, we anticipate high demand for BOTOX in this novel indication, which will help to further build our portfolio in the lower face segments. In summary, we continue to demonstrate significant progress across all stages of our pipeline and anticipate numerous important regulatory and clinical milestones throughout the remainder of 2023. With that, I'll turn the call over to Scott.

Scott Reents (Executive VP and CFO)

Thank you, Tom. I will discuss our most recent financial results and guidance. Starting with our first quarter results, we delivered strong top and bottom line performance. We reported adjusted earnings per share of $2.46, which is $0.10 above our guidance midpoint. These results include an $0.08 unfavorable impact from acquired IP R&D expense. Total net revenues were $12.2 billion, $400 million ahead of our guidance, and down 8.3% on an operational basis, excluding a 1.4% unfavorable impact from foreign exchange. The adjusted operating margin ratio was 45% of sales.

This includes adjusted gross margin of 84.2% of sales, adjusted R&D investment of 13.6% of sales, acquired IP R&D expense of 1.2% of sales. Adjusted SG&A expense of 24.4% of sales. Net interest expense was $454 million. The adjusted tax rate was 13.7%. Turning to our financial outlook, we are raising our full year adjusted earnings per share guidance to between $10.72 and $11.12. This earning per share guidance does not include an estimate for acquired IP R&D expense that may be incurred beyond the first quarter. We now expect net revenues of approximately $52.4 billion, an increase of $400 million.

At current rates, we expect foreign exchange to have a modest unfavorable impact on full year sales growth. This guidance includes the following updated assumptions. We now expect VRAYLAR sales of approximately $2.7 billion, an increase of $200 million, reflecting strong prescription growth following the MDD approval. For aesthetics, we now expect global revenue of approximately $5.3 billion, reflecting the better than expected recovery in China and stable economic trends in the U.S. Turning to the second quarter, we anticipate net revenues of approximately $13.5 billion, which includes U.S. HUMIRA erosion of 27%. At current rates, we expect foreign exchange to have a 0.6% unfavorable impact on sales growth. We are forecasting an adjusted operating margin ratio of 48.5% of sales.

We are modeling a non-GAAP tax rate of 15.4%. We expect adjusted earnings per share between $2.90 and $3.00. This guidance does not include acquired IP R&D expense that may be incurred in the quarter. In closing, we are off to an excellent start to the year, with strong performance across the portfolio and financial results ahead of our expectations.

Rob Michael (Vice Chairman and President)

With that, I'll turn the call back over to Liz.

Liz Shea (SVP, Investor Relations)

Thanks, Scott. We will now open the call for questions. In the interest of hearing from as many analysts as possible over the remainder of the call, we ask that you please limit your questions to one or two. Operator, first question, please.

Operator (participant)

Thank you. Our first question comes from Terence Flynn with Morgan Stanley. Your line is open.

Terence Flynn (U.S. Biopharma and Equity Research Analyst)

Great. Thanks so much for taking the question. Maybe two for me. Just on immunology, can you quantify the amount of destocking for both SKYRIZI and RINVOQ in the quarter? I think Biogen on their call spoke to some tighter working capital requirements at wholesalers due to rising interest rates. Just wondering if you're seeing something similar here and just to wanna be sure that's not a pricing dynamic. Then can you elaborate at all about your ALS program when we might see some data there? Thank you.

Rob Michael (Vice Chairman and President)

Hi, Terence. It's Rob. On the retail inventory destocking, we do typically see this in the first quarter, so it wasn't a complete surprise. In fact, it was factored into our guidance. We did beat our guidance in immunology for the quarter. The impact was high single digits, both for SKYRIZI and RINVOQ. In terms of absolute value, you're talking about around $70 million for SKYRIZI and $30 million for RINVOQ.

Jeff Stewart (Executive VP and Chief Commercial Officer)

It's Jeff. Just to clarify on your wholesale comment, I think as Rob highlighted, it's in the retail, so it's in the specialty pharmacy channel. You'll recall, as you know, there's about 18 specialty pharmacies that basically, you know, distribute the I&I products, and there's some big ones there. It was not a wholesaler dynamic. It was a retail inventory dynamic, which again, as these products get bigger, we do see and contemplate in our projections.

Rob Michael (Vice Chairman and President)

Terence, this is Rob. Just to more broadly answer the question that I'm sure many investors have. If you look at the growth in the quarter, overall, U.S. demand was up just north of 60% for RINVOQ and SKYRIZI. We saw very strong performance across all approved indications, as Jeff highlighted. We did have the 2 partial offsets, one being the retail inventory destock, which I've already quantified. Price was down high single digits, and that's really driven by rebate increases, which is typical when you see the type of volume increase. We saw, you know, SKYRIZI sales up 80% last year, RINVOQ in the U.S. up 40% last year.

When you see that kind of volume growth and couple that with the number of indications we had approved, we had five new indications for RINVOQ, and two for Skyrizi. It was something we were contemplating. It was factored into our guidance, but I don't know that the street fully appreciated that in terms of the first quarter estimates that were put out there.

Tom Hudson (SVP, R&D, and Chief Scientific Officer)

This is Tom. For the ALS question, I'd say about two years, we have to recruit the patients, and there's about a year of follow-up that is needed. I'd say late 2024, early 2025, all depends on the enrollment, which I understand is, starting off on a good pace.

Liz Shea (SVP, Investor Relations)

Thanks, Terence. Operator, next question, please.

Operator (participant)

Thank you. Our next question comes from Steve Scala with Cowen. Your line is open.

Steve Scala (Managing Director and Senior Research Analyst)

Thank you. A couple questions. Some of your peers have called out co-pay resets early in the year that have led to more modest performances in products such as DUPIXENT and COSENTYX. AbbVie has been less vocal on this point. How much was that a factor, or are SKYRIZI and RINVOQ different in some way? Secondly, despite the solid performance in Q1, the EPS guidance range continues to be very wide. What factors would have to play out for you to hit the high end of that and the low end of that? Thank you.

Jeff Stewart (Executive VP and Chief Commercial Officer)

Hi, Steve. It's Jeff, and thanks for the question. I'll take the co-pay one. Look, I mean, some of the peers are seeing the effects of the so-called maximizer programs or even some of the lingering accumulator programs, which do sometimes as benefit designs are reset in the first quarter, can apply some pressure. We don't see that. We've been managing that very tightly, and we're not seeing any significant sort of surge or creep in terms of that dynamic. The dynamic is exactly what Rob had highlighted, which is the modest price based on the number of indications and how fast the volume's moving and this destocking event that we talked through. Co-pay is very stable for AbbVie.

Rob Michael (Vice Chairman and President)

Steve, this is Rob on your EPS range question. We've typically given a $0.20 range. This year, we gave a $0.40 range, and the key driver of that is obviously the U.S. HUMIRA dynamics. As we see that play out, particularly in the second half, we would typically tighten that range. Now keep in mind, you know, that $0.20 wider range represents about 1% of U.S. HUMIRA growth. It's not as wide as you might think, but we did widen it given the dynamics with U.S. HUMIRA, and I think we'll be able to give you more color as we see those, you know, 7, 9 biosimilars coming in the market in the middle of the year. We'll have more clarity for you on the second quarter call.

Steve Scala (Managing Director and Senior Research Analyst)

Thank you.

Liz Shea (SVP, Investor Relations)

Thanks, Steve. Operator, next question, please.

Operator (participant)

Our next question comes from Chris Schott with JPMorgan. Your line is open.

Chris Schott (Managing Director)

Great. Thanks so much. Just coming back to SKYRIZI and RINVOQ, I think you mentioned high single-digit price erosion beyond just inventory changes. Is that a reasonable assumption to think about price as we progress through the rest of this year? Maybe longer term, should we think about that level of price erosion as more like a one-time kind of issue this year, given all the new indications and a more stable trend going forward? I'm just trying to kinda get my hands around the pricing a little bit more. My second question was on the aesthetics business. You obviously saw a very strong 1Q. Can you just elaborate a little bit more on your confidence in the sustainability of these trends?

I know the market's been a little bit bumpy. It seems like the tone is that you're encouraged with the trends you're seeing. Just how much, I guess, visibility you have in terms of sustainability of those favorable international trends we're seeing right now? Thank you.

Rob Michael (Vice Chairman and President)

Look, Chris, this is Rob. On your question on price, yeah, the way to think about 2023 price for the year for SKYRIZI and RINVOQ would be down high single digits. Now, we wouldn't expect high single digits to be, you know, the rate going forward given a big driver were the number of new indications that we launched. I would expect that to moderate over time.

Carrie Strom (SVP and President, Global Allergan Aesthetics)

Hi, this is Carrie. In terms of your questions around the aesthetics market, there are two key assumptions for the 2023 planning. One was around the U.S. economy and the other was around the recovery in China. When you think about the U.S. economy, we look at Q1 and we see some favorability to our planning assumptions with the metrics that we track, which Rob mentioned include real personal consumption expenditure and Google. In January and February, we saw favorability there. In March there are some potential signs of softening. We continue to have a cautious outlook for our U.S. business for the rest of the year.

The way to think about market growth for the full year would be low for toxins, the market would be down low to mid-single digits until we lap the 2022 downturn, which happened around May. After that, we would expect flat market growth for the rest of the year. That's how we think about the U.S. Our other, our second biggest market is China. Recall we had assumed that the aesthetics market in China would not fully recover until the second half of the year. In actuality, what we saw was, although January was significantly impacted, in February, we started to see improvement, and in March, there was a really steep recovery that we do expect will sustain through the rest of the year.

In other markets around the world, I guess in Canada and U.K., we are seeing some high inflation impacting consumer demand, but the rest of Europe seems stable right now.

Liz Shea (SVP, Investor Relations)

Thank you, Chris. Operator, next question, please.

Operator (participant)

Our next question comes from Mohit Bansal with Wells Fargo. Your line is open.

Mohit Bansal (Managing Director and Co-Head of Therapeutics Research)

Great. Thanks for taking my question. I have one clarification and one question. Clarification is regarding the price decline for I&I, you said that, high single-digit, but should we assume, like going forward, year-over-year, we should, versus volumes, should we assume high single-digit decline still going forward for at least for rest of the quarters, and then more stable pricing quarter-over-quarter term? Just that clarification. The question is regarding your I&I pipeline, you have a leadership position with SKYRIZI and RINVOQ, and they are growing, but some of the pipeline products like ABBV-154 and ABBV-157 did not pan out as you were hoping them to. What is, how should we think about the pipeline strategy beyond these two products?

Can you even do M&A given this increased FTC scrutiny nowadays? Thank you.

Rick Gonzalez (Chairman of the Board and CEO)

This is Rick. I'll cover number two, and maybe just touch on number one. If you think about our pipeline, obviously as we look at SKYRIZI and RINVOQ, you know, they clearly have restated the immunology market across most of the segments that we operate in. We view those assets at being, as being able to drive strong growth, through the early part of the next decade. Having said that, we're continuing to look for assets in areas where we believe there's still a significant opportunity to restate a standard of care. We obviously explore as everyone in this industry does many different assets and different mechanisms to try to find those kinds of mechanisms that will deliver that kind of performance.

It's interesting, when you look at the ABBV-154 platform, it did exactly what we thought it would do from the standpoint of efficacy. It did it in a way only at the highest dose. At that highest dose, we did see some effects of steroids on some of the biomarkers. Based on the way we think regulators would look at a label for those kinds of products, we didn't believe that would be a competitive profile. The hypothesis certainly worked around the mechanism. We continue to look for opportunities. We have lots of runway here to be able to get to those.

We do desire to find some additional mechanisms that will be the follow-on products that should be introduced hopefully near the end of this decade or early into the next decade as the next generation immunology assets for AbbVie. I feel good about the progress that we're making there. We're continuing to explore a number of other areas, and we're continuing to look both internally and externally at different assets that we can bring into the company to be able to do that. To your question of being able to bring assets into this market, we don't believe that we would be encumbered because immunology is a very crowded space from a competitive standpoint, and that's one of the most important criterias that you look at from an FTC standpoint.

We believe we have freedom to operate across most of those segments from an FTC standpoint as well. On price, maybe Rob and I will tag team this one to make sure it's clear. It is common that when you go out and you add indications in this industry that when you negotiate those contracts to be able to get access, it does require some level of price concession. I would say we're on the lower end of what you typically would have seen with the speed at which we got access for SKYRIZI and RINVOQ for those indications and the breadth of that access. You certainly would expect this year and last year to be the areas where you saw the most significant amount of price because those are the years that we added the majority of the indication.

You would expect that to moderate. Going forward, the way to think about it is then it's only really driven by volume at that point, and volume.

Typically requires much more modest kinds of price as you go forward. It's not zero price. You shouldn't have that expectation. I would not have an expectation of high single digits going forward. Anything you'd add, Rob?

Rob Michael (Vice Chairman and President)

Just to answer the question, Mohit, on the gating. Yeah, I think it's safe to assume that you'll see high single digit, price in each of the quarters this year.

Mohit Bansal (Managing Director and Co-Head of Therapeutics Research)

Helpful. Thank you.

Liz Shea (SVP, Investor Relations)

Thank you, Mohit. Operator, next question, please.

Operator (participant)

Our next question comes from Tim Anderson with Wolfe Research. Your line is open.

Alice Nettleton (Research Analyst)

Hi. Thank you for taking our questions. This is Alice Nettleton over Tim Anderson. A question on PBMs, which are under renewed scrutiny. If there were material changes to the rebating structure currently in place, would that put big incumbent products at risk because it might remove the so-called rebate wall? More generally, do you think there is any chance of some of the proposed legislative changes actually becoming law? Secondly, any collateral impact you're seeing on SKYRIZI or RINVOQ since HUMIRA biosimilars have launched, given the overlapping indications, do you think that you'll start to see some picking off of patients from those two brands to biosimilars in the second half of the year? Thank you.

Jeff Stewart (Executive VP and Chief Commercial Officer)

Yeah. Hi, it's Jeff. I'll give some comment on that. I think the way that we think about our brands is the first place that we look at is how distinctive they are. I mean, we've got 4 head-to-head trials with SKYRIZI and another one on the way where we can clearly differentiate the product, and we have many as well on RINVOQ. We've really thought about it from a development standpoint. I would say, you know, the perspective, if somehow there was a restructuring of the PBMs, which I don't think is imminent, and the rebate sort of approach disappeared, it disappears for everybody. I mean, all of these I&I products have a fairly reasonable rebate load, and there'd be a different basis of competition, which we would do very, very well.

We're not concerned about, you know, sort of a fundamental structural change relative to these two products, which are very distinctive. If we look at your second part of your question, which is it's really the same answer, which is we don't see that there are going to be significant impacts of HUMIRA biosimilars on the performance of SKYRIZI and RINVOQ. One perspective, let's take RINVOQ, is sort of a very simple way of thinking about it. It's already in the United States, step behind TNF, and it's performing at that level because you see such expansion of second and third lines in that space. SKYRIZI is very, very distinctive.

No, in the second half, we do not anticipate sort of a knock-on effect, of the emergent biosimilars to our 2 core brands.

Liz Shea (SVP, Investor Relations)

Thanks, Alice. Operator, next question, please.

Operator (participant)

Thank you. Our next question comes from Carter Gould with Barclays. Your line is open.

Carter Gould (Biopharma Equity Research)

Great. Good morning. Thanks for taking the question. Maybe a different spin on sort of the BE question there. Just given sort of the volatility in the marketplace as you kind of, you know, have those conversations or engage with potential, you know, targets, if you've seen a shift in sort of that bid-ask spread and the willingness of boards and management to consider deals. Any updates on that front would be helpful.

Rick Gonzalez (Chairman of the Board and CEO)

This is Rick. Yeah, I'd say the environment hasn't changed materially in the last 24 months from my perspective. I still think it's certainly more difficult to raise money for biotech companies, it probably makes them a bit more willing to engage with players like us or engage in a process if they're at a point where they've generated data that makes them attractive. I'd say the interest level in that engagement is similar to what it has been for the last 12-24 months. There's a lot of opportunity to be able to find assets that are in the biotech area.

Jeff Stewart (Executive VP and Chief Commercial Officer)

The question is, you have to find the right kind of asset, and you have to find one that's attractive and it meets your needs. I'd say being able to negotiate a transaction, I think is a reasonable probability. I'd say prices are still relatively high. You know, valuations for good assets tend to go at a pretty high level. Again, it's got to be an asset that can demonstrate that it's gonna provide significant value to justify that kind of a valuation and a return. You know, we continue to look for opportunities, and I think, you know, as we find those kinds of opportunities, as I said in the past, we're certainly gonna pursue them.

Liz Shea (SVP, Investor Relations)

Thanks, Carter. Operator, next question, please.

Operator (participant)

Our next question comes from Vamil Divan with Guggenheim Securities. Your line is open.

Vamil Divan (Managing Director and Senior Equity Research Analyst)

Great. Thanks for taking the questions. Maybe a couple from me as well. One, just a couple of data points you have coming up this year that I think may be a little bit less focused on is on navitoclax and Teliso-V. Maybe you can just sort of frame what we should be looking for, what your expectations are, what you're hoping to see from those assets, especially Teliso-V, given your comments on the sort of next gen ABBV-400. The other question, I guess, would be for Rick, and you've more around succession planning. I know you've mentioned before that your plans to stick around through the HUMIRA event.

I'm just wondering if you have any sort of updated sort of thoughts around timing on that now that we're sort of in the middle of this?

Process. We've been getting some questions there, too. Is this something we should expect some sort of announcement this year or is it more, you know, are you looking toward 2024 or later? Thank you.

Roopal Thakkar (SVP, Development and Regulatory Affairs and Chief Medical Officer)

Hi, it's Roopal. I'll take the ones on navitoclax and Teliso-V. For navitoclax, that's the combination with the JAK2 and myelofibrosis. There, we're looking to be better than monotherapy with a JAK2 in that space and improving spleen size and symptoms, like abdominal pain, fullness, fever, fatigue. Also, perhaps uniquely what we've observed is also an improvement in bone marrow fibrosis and a decrease in variant allelic frequency. That's what we would be looking for, and we should get a readout by midyear or so. For Teliso-V in lung cancer, EGFR wild type with high c-Met, and that's the indication where we have breakthrough therapy designation. Around the end of this year, I would say that's where we would see a readout.

What we've seen in earlier data cuts is an ORR above 50%, which is quite a bit higher than what would be expected in standard of care in that second, third line setting. If the data looks strong, there's a potential that we could submit next year for an accelerated approval.

Vamil Divan (Managing Director and Senior Equity Research Analyst)

Thanks, Ru-.

Rick Gonzalez (Chairman of the Board and CEO)

No, I'll take the second question, maybe I'll make a little bit of a comment on Teliso-V because I think you mentioned 400. I think the early data that we're seeing in 400 is impressive to us. There's no question about it. I think we're going to have some data presented at this ASCO, right? Where you'll have an opportunity to see that in CRC. Now, having said that, Teliso-V, as Roopal said, does get very good responses in c-Met highs. To get a broader set of c-Met population, we do believe you need to move to the topo warhead. It seems to give deeper responses and more durable responses. That data has to play out over time, but it appears to be a very good platform for c-Met.

We need the data to mature, and we need to develop more data in that area. I'd say the early data is pretty encouraging, and you'll have a chance to see a snippet of that at this ASCO. As far as leadership changes, I'd say it's similar to what we said in, it was either first quarter or fourth quarter, I can't recall, last year around succession. We obviously have a process in place. We have a very experienced board. I've had many discussions with the board about succession. The board knows I'm committed to be here to ensure a successful and smooth transition. The criteria that we're operating against is we need to completely get through the transition for HUMIRA biosimilars here in the U.S.

I'd say so far, I'm pretty pleased with how the transition is going, and I'm even more pleased with the way the growth platform is operating right now. In fact, if you look at it this year, the growth platform's gonna deliver mid-single digits, and it's gonna do it despite the headwinds that we see on IMBRUVICA and the headwinds that we're seeing from the economy on aesthetics. Once the aesthetics business returns to its normal growth rates and much of the pressure on IMBRUVICA starts to subside, we should see that growth rate increase significantly as we move into 2024 for the growth platform. Obviously, returning to robust growth in 2025 and deliver high single digits from that point forward. That's the expectation that we're working against.

We wanna make sure that the business is operating the way we want it to. We wanna make sure that we're through the biosimilar erosion to the point that we believe it is predictable. Obviously, the second part of the criteria is ensuring that the candidate that will succeed me is ready to do that, we can make a successful transition. I've also told the board that I'm willing to stay in any capacity that they would desire for whatever length of time they would. I think the expectation right now is that I would assume the executive chairman role for a period of time to finish the transition to the new CEO. You should not be expecting that that transition is going to occur in 2023.

Liz Shea (SVP, Investor Relations)

Thanks, Vamil. Operator, next question, please.

Operator (participant)

Our next question comes from Evan Seigerman with BMO Capital Markets. Your line is open.

Evan Seigerman (Managing Director and Head of Healthcare Research)

Hi, guys. Thank you so much for taking my question. Just on kind of SKYRIZI and some of the dynamics you're seeing there, can you characterize about kind of how you're thinking about further penetration in the psoriasis indication, kind of some puts and takes in the dermatology market? Just a follow-up on the CF program, is it safe to assume that you're totally done investing in this area, or do you have other assets kind of in earlier development that could emerge? Thank you.

Jeff Stewart (Executive VP and Chief Commercial Officer)

Yeah. Hi, it's Jeff. I'll take your comment on psoriasis. I think that, as I mentioned, you know, the share is very, very impressive. We have a 30% total market share now, which is really putting significant headroom against any other drug in that category by a lot. One way to think about it is, I think what you're asking is how much further can it run? It can run

Quite a bit further. To some degree, if you think about it, we're capturing on the dynamic share roughly 50%, so one out of every two patients, and our market share is about 30%. Theoretically over time, right, unless there's some disruption, which we don't see significant disruption in the market, your total market share is gonna move towards that in-play share. That takes, you know, many, many years, but as we look at the fundamental momentum that we can achieve, it's still very, very significant. Add on to that basically we're still in the rest of the world, starting to really see the PSA ramp. Remember, PSA has a very significant impact 'cause it's treated by derms, and it was sort of the last remaining gap that we had.

You're gonna see continued momentum in the international markets, in the U.S. market, and we have a long way to run. I'd be remiss if I didn't say how fast, again, that we're growing in both Crohn's right now and very exciting data in UC, and that market is very, very dynamic. We feel very secure in our ability to continue to create a lot of value with SKYRIZI.

Tom Hudson (SVP, R&D, and Chief Scientific Officer)

Hi, this is Tom. Regarding the question on, our triplet program. Yeah, we are C2 corrector that we just tested did not work. This was not our first attempt at producing one, and we do not have another backup, so we don't have another other options than to discontinue the CF program.

Liz Shea (SVP, Investor Relations)

Thanks, Evan.

Evan Seigerman (Managing Director and Head of Healthcare Research)

Great. Thank you.

Liz Shea (SVP, Investor Relations)

Thanks, Evan. Operator, next question, please.

Operator (participant)

Thank you. Our next question comes from Trung Huynh with Credit Suisse. Your line is open.

Carson Wong (Equity Research Associate)

Hi. Good morning. This is Carson on for Trung. Thanks for question. Just on IMBRUVICA, how confident are you for the 5.7 key monk guide given the significant competitive pressures there? I mean, I understand BRUKINSA did particularly have legs in the U.S. until late January. What level of pricing pressures can we expect through the year? Is there the potential for further step down in your guide for later in the year? If you do that, could the trough be pushed out given the delay with 951 as well? Thanks.

Jeff Stewart (Executive VP and Chief Commercial Officer)

Yeah. Hi, it's Jeff. You know, I think we think that's a very good call. And just as a reminder, we're not seeing significant pricing pressure in the market. This is really two effects, which is one, the cumulative effect as we've highlighted over the suppressed market over time, which looks to be normalizing. Actually, for the first time in three years, we actually saw a positive growth in the market. That's encouraging. The big driver is the new patient share, which has been under pressure. Initially under pressure by CALQUENCE, certainly from our own VENCLEXTA, and then the recent BRUKINSA launch.

When we put all of that into the into the calculus, we think we've got it right, and it's probably unlikely that we're gonna see, you know, any significant step down that would put that in jeopardy.

Rob Michael (Vice Chairman and President)

Carson, this is Rob. I'll answer your second question. I wouldn't consider IMBRUVICA 951 to be variables that would push the trough out. It's really more about how the overall year plays out, particularly the second half with US HUMIRA. If US HUMIRA, you know, does better and we outperform in 2023, then we could see the trough in 2024. I think the important thing to keep in mind is regardless of when the trough occurs, we wouldn't expect earnings to fall below the $10.74 ex IPRD. That's really what I would focus on, and we don't consider IMBRUVICA and the 951 delay to be variables that would push that trough.

Liz Shea (SVP, Investor Relations)

Thanks, Carson. we're cognizant of a number of peers reporting today. in the interest of time, we have time for one last question.

Operator (participant)

Our last question comes from Geoff Meacham with Bank of America. Your line is open.

Susan Chor (VP and Equity Research)

Hi. This is Susan on for Geoff Meacham. We had a follow-up on IMBRUVICA. Do you guys expect any changes to outlook following MCL, MZL withdrawal? Do you expect any read-through to follicular lymphoma from that withdrawal?

Jeff Stewart (Executive VP and Chief Commercial Officer)

Hi, it's Jeff. Thank you for the question. First, these are very small indications. To give you some sense of the relative size for IMBRUVICA, MCL is about 4% of the value. MZL is really less than 1%, about 1%. We don't anticipate that those withdrawals, due to the fact that we didn't get the confirmatory studies to clear, will have a material impact. I think it's also important to note that many physicians will continue these patients on the medication. They won't be all switched, for example, or taken off and put on another product. That's the market intelligence. There's no requirement that they need to do that for the physicians.

Net-net, this is not a really material issue given the size of those indications. I think Roopal will address your point on follicular.

Roopal Thakkar (SVP, Development and Regulatory Affairs and Chief Medical Officer)

I can talk about FL here for a minute. A Phase III readout is expected later this year. It's not clear if the MCL outcomes would be reflected in what we see there. But what I would say about FL is, you know, our focus would be with epcoritamab, our dual engager, which we expect DLBCL actions here soon. We have programs and we're seeing very high levels of response in FL with epco, either as monotherapy or in combinations, which we'll see some data in those combos in DLBCL and FL at ASCO as well.

Liz Shea (SVP, Investor Relations)

Thanks, Susan. That concludes today's conference call. If you'd like to listen to a replay of the call, please visit our website at investors.AbbVie.com. Thanks again for joining us.

Operator (participant)

Thank you for your participation. Participants, you may disconnect at this time.