Earning Digest
Feb. 2, 2024 1:00 PM
AbbVie Inc. (ABBV)

AbbVie Inc. (ABBV) 2023 Q4 Earnings Call Transcript

✨ Digest the Transcript
Operator: Good morning, and thank you for standing by. Welcome to the AbbVie Fourth Quarter 2023 Earnings Conference Call. All participants will be able to listen-only until the question-and-answer portion of this call. [Operator Instructions] Today's call is also being recorded. If you have any objection, you may disconnect at this time. I would now like to introduce Ms. Liz Shea, Senior Vice President, Investor Relations. Thank you. You may begin.

Liz Shea: 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; Rob Michael, President and Chief Operating Officer; Jeff Stewart, Executive Vice President, Chief Commercial Officer; Scott Reents, Executive Vice President, Chief Financial Officer; Carrie Strom, Senior Vice President, AbbVie and President, Global Allergan Aesthetics; and Roopal Thakkar, Senior Vice President, Chief Medical Officer, Global Therapeutics. Joining us for the Q&A portion of the call is Tom Hudson, Senior Vice President, Chief Scientific Officer, Global Research. 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. In addition to the news release issued this morning, we have also posted slides on our website at investors.abbvie.com that supplement some of the content we'll be covering this morning. Following our prepared remarks, we'll take your questions. So with that, I'll turn the call over to Rick.

Rick Gonzalez: Thank you, Liz. Good morning, everyone, and thank you for joining us today. Our performance this quarter tops off another excellent year for AbbVie, with results well above our initial expectations. I'm particularly pleased with the performance of our growth platform, the base business excluding Humira, which delivered full year sales growth of more than 8%, with revenue growth accelerating to more than 15% in the fourth quarter. The strength of our diversified growth platform has not only enabled us to successfully absorb the largest loss of exclusivity event to date across our industry, but it's also supported continued investment in our business for long term growth. These investments include: higher adjusted R&D expense, which was increased by nearly $600 million in 2023 and will be ranged substantially again in 2024 to support several promising pipeline programs like 383 in multiple myeloma. 400, our next-generation ADC for several solid tumor types and [Moodi] for HS, as well as inflammatory bowel disease. The proposed acquisition of ImmunoGen and their portfolio of ADCs accelerating our entry into the solid tumor space and strengthening our oncology pipeline, as well as the proposed acquisition of Cerevel, a unique opportunity to augment our presence in neuroscience with the pipeline of differentiated assets. We also increased our quarterly dividend which we announced in October. Since our inception, we have grown our dividend by more than 285%. In summary, our operational execution has been outstanding and we have considerable momentum heading into 2024, including an expected return to operational sales growth just one year following the US Humira loss of exclusivity, driven by our growth platform. We remain confident in our long-term outlook, including a return to robust growth in 2025 with a high single-digit CAGR through the end of the decade. With that, I'll turn the call over to Rob for additional comments on our business performance. Rob?

Rob Michael: Thank you, Rick. Today we reported another strong quarter and highly productive year for AbbVie. We delivered full year adjusted earnings per share of $11.11, which is $0.63 above our initial guidance midpoint, excluding the impact of IPR&D expense. Total net revenues were $54.3 billion, roughly $2.3 billion ahead of our initial guidance. Most importantly, each of our five key growth areas outperformed our initial expectations. As it pertains to AbbVie's near-term outlook, we are focused on three key priorities. First, driving strong performance of our ex- Humira Growth Platform. This platform is the critical driver of our return to robust growth in 2025 and beyond. In our therapeutic portfolio, we have several key brands including Skyrizi, Rinvoq, Vraylar, Ubrelvy, and Qulipta, which are each expected to contribute double-digit sales growth in 2024. We also expect meaningful growth for aesthetics this year, driven by improving market trends in the US and continued execution across our international business. We are well positioned to drive strong long-term growth in this highly under-penetrated market. Second, we are focused on prioritizing investment in our pipeline, which encompasses numerous opportunities to elevate the standard of care for patients. We anticipate updates this year from several important R&D programs including approvals for Skyrizi in UC, 951 in the U.S., and potentially accelerated approval for Epkinly in third line plus follicular lymphoma. We also anticipate regulatory submissions for BoNT/E, our novel short-acting toxin, and potentially Teliso-V, an advanced non-squamous non-small cell lung cancer. And third, we are focused on closing and integrating ImmunoGen and Cerevel. These two exciting opportunities represent substantial sources of revenue growth well into the next decade. We remain on track with the anticipated closing of both deals in the middle of the year. Today, we are also reaffirming our long-term sales outlook, which includes a return to robust revenue growth in 2025 with a high single digit CAGR through the end of the decade. Included in this outlook is an updated forecast for Skyrizi and Rinvoq. Based on the impressive growth of both therapies, which we expect will collectively generate approximately $16 billion of revenue in 2024, we now anticipate Skyrizi and Rinvoq will collectively exceed more than $27 billion in sales by 2027 with robust growth continuing into the next decade. This updated forecast reflects an increase of more than $6 billion in revenue compared to our prior 2027 guidance. We expect global sales for Skyrizi to reach more than $17 billion in 2027, reflecting continued share capture in psoriasis where we are the clear market leader, as well as strong uptake in IBD. And we expect Rinvoq to achieve more than $10 billion of global sales in 2027, reflecting continued market growth and share momentum across each of Rinvoq's approved indications, including four in rheumatology, two in IBD, and atopic dermatitis. This forecast comprehends modest contributions from several new disease areas for Rinvoq, which we anticipate will be launching in the second half of the decade. These new indications have a collective peak sales potential of several billion dollars. Our updated forecast also includes higher estimates for Ubrelvy and Qulipta. We now expect total oral CGRP peak revenue of more than $3 billion, reflecting an increase of more than $1 billion. Our previously issued long-term forecasts for aesthetics, Vraylar, and 951 remain unchanged. In summary, this is an exciting time for AbbVie. We are demonstrating outstanding execution across our portfolio and our long-term outlook remains very strong. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff?

Jeff Stewart: Thank you, Rob. I'll start with the quarterly results for immunology, which delivered total revenues of more than $6.9 billion, exceeding our expectations. Skyrizi total sales were approximately $2.4 billion, reflecting operational growth of 51.6%. Rinvoq total sales were more than $1.2 billion, reflecting operational growth of 62.8%. On a full-year basis, Skyrizi and Rinvoq delivered more than $11.7 billion in total combined revenue, an impressive increase of $4 billion year-over-year. And as Rob just described, we see substantial room for continued growth across each of their currently approved indications. You can get a good sense for this momentum by looking at the relationship between the current in-place share, which includes new and switching patients, and the total prescription share just today. For example, our performance in IBD has been very strong for both Skyrizi and Rinvoq. In Crohn’s disease, these two treatments together are already capturing roughly one out of every three in-play patients across all lines of therapy in the United States, while their combined total prescription share is only in the mid-single digits. You see a similar trend happening in ulcerative colitis for Rinvoq, and we anticipate launching Skyrizi for this indication later this year. So significant opportunity remains for revenue inflection in IBD, especially given their respective efficacy, safety, and dosing profiles. Across some of the other notable indications, Skyrizi is capturing roughly half of the in-place psoriasis patients in the U.S. biologic market relative to a total prescription share, which is in the mid-30s percent. Rinvoq is capturing high teens in-play share in the atopic dermatitis market, while total share is in the high single digits. Similarly, in rheumatoid arthritis, Rinvoq is capturing mid-teens in-play share, while total share is roughly 7%. So, again, we see substantial headroom for share gains in addition to the typical robust market growth across rheum, derm, and gastro. Plus, we are planning to have up to five additional indications for Rinvoq across several sizable markets that will potentially provide another significant revenue inflection in the second half of this decade and into the 2030s. Turning now to Humira, which delivered global sales of $3.3 billion, down 40.8% due to biosimilar competition. The erosion impact in the U.S. played out largely in line with our expectations this quarter, while performance across our international markets continues to trend better than expected. In the U.S., we have once again secured broad formulary access for Humira in 2024. While there will be some step down in coverage year-over-year, we will still have parity access to biosimilars for the vast majority of U.S. patient lives. Turning now to oncology, where total revenues were $1.5 billion. Imbruvica global revenues were $903 million, down 19% reflecting continued pressure in new patient starts. Venclexta global sales were $589 million, up 13.7% on an operational basis, with strong demand for both CLL and AML across our key countries. The early prescription trends for Epkinly in third line plus DLBCL have been encouraging with commercialization now underway in the US, Europe and Japan. We also anticipate the potential label expansion for follicular lymphoma later this year. Lastly, we have two new and exciting opportunities in oncology. Pending completion of the transaction, we will add Elahere to our portfolio. Elahere is a first-in-class ADC therapy approved for ovarian cancer, which is already demonstrating impressive uptake in the U.S. market. I look forward to welcoming the ImmunoGen commercial team to AbbVie. And Teliso-V, another novel ADC which has demonstrated very promising data in lung cancer. Teliso-V would further expand our scale and growth potential in solid tumors. In neuroscience, our second largest therapeutic area, total full year revenues were more than $7.7 billion, reflecting impressive absolute sales growth of nearly $1.2 billion. In the quarter, total revenues were approximately $2.1 billion, up 22.4% on an operational basis. Vraylar continues to demonstrate robust growth. Global sales of $789 million were up nearly 40%. We continue to see significant momentum in new prescriptions across all indications following the approval as an adjunctive treatment for major depressive disorder just over a year ago. And our leading oral CGRP portfolio for migraine contributed $348 million in combined sales this quarter, reflecting growth of approximately 40%. We anticipate continued robust demand for both Ubrelvy and Qulipta this year, including the expansion of Qulipta, the only once daily oral CGRP for prevention of both episodic and chronic migraine into the international markets. Based on the strong momentum, we have raised the outlook for our CGRP portfolio and now expect total peak sales from Ubrelvy and Qulipta combined to exceed $3 billion. Total Botox therapeutic global sales were $776 million, up 6.7% on an operational basis, reflecting momentum in chronic migraine, as well as other approved indications. And lastly, we recently launched 951 in both Japan and Europe, and we are pursuing commercial approval in the U.S. later this year. This treatment represents a potentially transformative next generation therapy for advanced Parkinson's disease and $1 billion plus peak sales opportunity. So overall, I'm extremely pleased with the commercial execution across our diversified portfolio, especially the growth platform, which is demonstrating very strong momentum as we head into 2024. And with that, I'll turn the call over to Carrie for additional comments on aesthetics. Carrie?

Carrie Strom: Thank you, Jeff. Fourth quarter global aesthetic sales were approximately $1.4 billion, an operational increase of 6.9%. In the U.S., aesthetic sales of $884 million increased 5.7%, marked by accelerating market growth and strong key product performance. Fourth quarter U.S. Botox Cosmetic sales were $453 million, an increase of 7.3%. We continue to see sustained momentum in the recovery of the U.S. facial toxin market, which was a primary driver of growth in the fourth quarter. Botox Cosmetic remains the clear market leader with strong and stable share, despite new competitive entrants. U.S. Juvederm sales were $156 million in the fourth quarter, an increase of more than 20% versus the prior year. This robust growth was driven by the strong launches of Volux and SkinVive, which continue to drive new consumers and greater penetration in the dermal filler category. Consistent with our expectations, the U.S. filler market recovery trails out of toxins, but it's continuing to show improvement as year-over-year growth was roughly flat in the fourth quarter. As we look at 2024, we are pleased with the momentum of our U.S. aesthetics portfolio. We expect full year sales growth as our market leadership positions us very well from a competitive perspective, and we anticipate continued recovery in both toxin and filler markets. Internationally, fourth quarter aesthetic sales were $487 million, representing an operational increase of 9%. We experienced strong performance in most regions and growth benefited from the impact of China's COVID lockdowns in late 2022. Within China, the softening economic conditions that emerged in the third quarter continued to impact results. Consistent with what we experienced in the US, the economic slowdown has impacted fillers more than toxins, based upon their relatively higher price. We anticipate economic headwinds will continue in China over the near term, balanced against our expectations for continued strong performance in other international regions. Looking to the long-term, Aesthetics remains an area with very low market penetration. And we have demonstrated our ability to drive growth through investments in our customers, consumers, and innovation. As such, we anticipate Aesthetics will be a strong growth portfolio for years to come and remain confident in our ability to deliver more than $9 billion of sales by the end of the decade. With that, I'll turn the call over to Roopal.

Roopal Thakkar: Thank you, Carrie. In 2023, we saw significant evolution of our pipeline with multiple data readouts, regulatory submissions and approvals, as well as expansion of our R&D efforts with the announced ImmunoGen and Cerevel transactions. We expect to continue this progress with numerous important clinical and regulatory milestones anticipated this year. In immunology, we recently announced positive topline results for lutikizumab our anti-IL-1 alpha beta bispecific being evaluated in hidradenitis suppurativa. In the Phase 2 study, lutikizumab demonstrated higher, high score of 50 and high score of 75 measures, as well as improvement in skin pain compared to placebo. These are very impressive results considering all patients who were inadequate responders to anti-TNF therapy. And 70% of the patients were early stage three, which is the most advanced stage of the disease. Based on these results, we plan to begin a Phase 3 program in HF later this year. We also plan to evaluate lutikizumab in ulcerative colitis and Crohn's, given the role that IL-1 likely plays in these diseases. Patients with UC who have an IL-1 beta signature have shown resistance to anti-TNF and other biologics, providing strong rationale for a potential biomarker approach. Additionally, we believe lutikizumab has the potential to be used in combinations to provide transformational levels of efficacy in IBD. We plan to evaluate combo approaches with lutikizumab and Skyrizi, as well as with other pipeline assets in Crohn's. Our Phase 2 studies in IBD are expected to begin later this year. Our regulatory applications are under review for Skyrizi in ulcerative colitis. With approval decisions expected in the US and Europe later this year. Once Skyrizi is approved in UC, along with Rinvoq, we will have two assets with different mechanisms of action in IBD, both offering very high levels of efficacy. AbbVie will be very well-positioned with an industry-leading suite of treatment options for patients suffering from moderate to severe ulcerative colitis and Crohn's disease. We continued to make very good progress with the second wave of development programs for Rinvoq. With Phase 3 studies underway in five new indications, giant cell arteritis, lupus, HF, alopecia areata and vitiligo. We anticipate data readouts for these programs over the next three years, beginning with data from our GCA study this year. Moving to oncology, where we continue to make very good progress across our heme and solid tumor programs. In the area of hematologic oncology, we'll see data in the second half of this year from the Venclexta Phase 3 VERONA trial in treatment-naive higher-risk MDS patients, with regulatory submissions and approvals, anticipated in 2025. For Epkinly, we anticipate regulatory approvals in third-line or greater follicular lymphoma later this year in both the US and Europe. We also expect to begin several new Phase 3 studies in 2024, including studies in second-line DLBCL and frontline follicular lymphoma. At the recent ASH Meeting, we presented new data for our BCMA CD3 bispecific ABBV-383 in multiple myeloma. 383 is engineered for high-affinity binding to BCMA on malignant cells, and low affinity binding to a unique CD3 epitope on T-Cells, which has the potential to mitigate some of the adverse events associated with other T-Cell engaging BCMA-based therapies, while preserving high levels of efficacy. We're very encouraged by the data emerging from our Phase 1b study, which show treatment with 383 is yielding deep and durable responses. With a lower incidence and severity of CRS. With this profile, we believe 383 can be a highly effective and tolerable treatment for multiple myeloma. While potentially allowing for outpatient administration, limited or no step-up dosing and monthly administration from the beginning of treatment. All attributes, which would make it very appealing to both patients and physicians. We remain on track to begin a Phase 3 monotherapy study in third-line multiple myeloma this year. And we plan to begin combination trials in earlier lines of therapy in 2025. In the area of solid tumors, we recently announced positive topline results from the Teliso-V Phase 2 LUMINOSITY study in previously treated non-small cell lung cancer. Teliso-V demonstrated strong clinical benefits across key endpoints, including, overall response rate, duration of response and overall survival, with a tolerable safety profile. We believe these results have the potential to support accelerated approval. And we plan to discuss the data with regulators in the coming months. Pending alignment with the FDA, our submission is planned for the second half of this year. We're also making good progress with our next-generation c-Met ADC ABBV-400, which utilizes the same c-Met blocking antibody as Teliso-V, but has a proprietary Topo-1 warhead to afford deeper and more durable responses with an improved therapeutic index. We remain on track to see data this year from the non-small cell lung cancer and gastroesophageal cohorts from our Phase 1 study. And based on the progress we're making in our colorectal program, we plan to begin a Phase 3 study later this year in third-line CRC. We also continue to make very good progress with our anti-GARP antibody ABBV-151. Our Phase 2 study in second-line hepatocellular carcinoma is underway, and we plan to begin several additional Phase 2 studies this year, including frontline HCC, frontline lung cancer and metastatic urothelial cancer. We look forward to providing updates on these programs as the data mature. Now moving to Neuroscience where we recently announced the European launch of ABBV-951 for patients with advanced Parkinson's disease. We also recently provided our complete response submission to the FDA for 951 with an approval decision anticipated in the second quarter. Our novel subcutaneous levodopa, carbidopa delivery system has the potential to offer meaningful benefits over current treatment options and others that are in development. 951 delivers significant improvements in off-time and on-time with a less invasive non-surgical system. It can deliver high levodopa doses similar to the amount provided by DUOPA. And it doesn't require combination with oral drugs to achieve high efficacy. 951 also provides a full 24-hour benefit, which should result in less morning akinesia. We're extremely excited to bring this transformative therapeutic option to patients in Europe and the US once approved. In our Aesthetics pipeline, we recently submitted our regulatory application in the US for Botox in platysma prominence. We anticipate an approval decision in the second half of this year. And we remain on track to complete the remaining CMC work this year for BoNT/E, our rapid onset short-acting novel toxin. Following completion of the remaining work, we plan to submit our regulatory application in the second half of the year, with approval anticipated near the end of 2025. So in summary, we continue to demonstrate significant progress across all stages of our pipeline and anticipate numerous regulatory and clinical milestones again in 2024. I also look forward to integrating the ImmunoGen and Cerevel teams and pipeline assets into our R&D organization once those transactions close this year. These two transactions significantly strengthened our oncology and neuroscience pipelines with the addition of several novel assets that have the potential to become innovative new therapies for many patients. With that, I'll turn the call over to Scott.

Scott Reents: Thank you, Roopal. I'm very pleased with AbbVie's strong performance in 2023. We have substantial momentum across the portfolio to support our long-term growth outlook. Starting with our fourth quarter results, we reported adjusted earnings per share of $2.79, which is $0.05 above our guidance midpoint. These results include a $0.15 unfavorable impact from acquired IPR&D expense. Total net revenues were $14.3 billion, $300 million ahead of our guidance, and down 5.4%. Most notably, these results reflect 15.3% sales growth from our ex-Humira growth platform. The adjusted operating margin ratio was 43.8% of sales. This includes adjusted gross margin of 83.9% of sales, adjusted R&D expense of 13.4% of sales, acquired IPR&D expense of 2% of sales, and adjusted SG&A expense of 24.7% of sales. Adjusted net interest expense was $363 million, the adjusted tax-rate was 17.2%. Turning to our financial outlook for 2024, our full year adjusted earnings per share guidance is between $11.05 and $11.25. This earnings per share guidance includes dilution related to the ImmunoGen and Cerevel acquisitions of $0.32, which assumes closing in the middle of the year. Please note this guidance does not include an estimate for required IPR&D expense that may be incurred throughout the year. We expect total net revenues of approximately $54.2 billion, reflecting a return to modest operational growth. At current rates, we expect foreign-exchange to have a 0.5% unfavorable impact on full year sales growth. This revenue forecast contemplates the following approximate assumptions for our key products in therapeutic areas. We expect global immunology sales of $25.6 billion, including Humira sales of $9.6 billion, including US erosion of roughly 36%. Skyrizi revenue of $10.5 billion, reflecting growth of more than $2.7 billion due to strong market-share performance in psoriasis, as well as robust uptake in IBD. And Rinvoq sales of $5.5 billion, reflecting growth of nearly 40% with continued market growth and share momentum across all approved indications. On a full-year basis, we anticipate that our strong volume growth for Skyrizi and Rinvoq will be modestly offset by low-single digit negative net price. In oncology, we expect sales of $5.7 billion, including Imbruvica revenue of $2.9 billion and Venclexta sales of $2.4 billion. As well as contributions from Epkinly, and partial year sales from Elahere. For Aesthetics, we expect sales of $5.7 billion. Including $2.9 billion from Botox Cosmetic and mid-single-digit revenue growth from Juvederm. For Neuroscience, we expect revenue of $8.9 billion, representing growth of more than 15%, including Vraylar sales of $3.4 billion, Botox Therapeutic sales of $3.2 billion and total oral CGRP revenue of $1.6 billion. For eye care, we expect sales of $2.2 billion. Moving to the P&L for 2024, we are forecasting full-year adjusted gross margin of 84% of sales. Adjusted R&D investment of 14% of sales, adjusted SG&A expense of 23.5% of sales, and adjusted operating margin ratio of roughly 46.5% of sales. We expect adjusted net interest expense of $2.1 billion, which includes the partial year cost in 2024 to finance the ImmunoGen and Cerevel transactions. We forecast our non-GAAP tax rate to be approximately 15.7%. Finally, we expect share count to be roughly flat to 2023. Turning to the first quarter, we anticipate net revenues of approximately $11.9 billion. At current rates, we expect foreign exchange to have a 0.5% unfavorable impact on sales growth. This revenue forecast comprehends the following approximate assumptions for our key therapeutic areas. Immunology sales of $5.1 billion, including Skyrizi sales of $1.9 billion, and Rinvoq revenue of $1 billion. These estimates reflect typical first quarter seasonality as well as low single digit unfavorable net price. We expect Humira global revenue of $2.2 billion, including US sales of $1.7 billion. We also anticipate oncology revenue just above $1.3 billion, Aesthetic sales of $1.3 billion, Neuroscience revenue of $1.9 billion, and eye care sales of $600 million. We are forecasting an adjusted gross margin of approximately 83.5% of sales and an adjusted operating margin ratio of roughly 44.5% of sales. We also model a non-GAAP tax rate of 14.8%. We expect adjusted earnings per share between $2.30 and $2.34. This guidance does not include acquired IPR&D expense that may be incurred in the quarter. Finally, AbbVie's strong business performance and outlook continues to support our capital allocation priorities. Our cash balance at the end of December was $12.8 billion. And we expect to generate free cash flow of approximately $18 billion in 2024, which includes roughly $1.9 billion in Skyrizi royalty payments. The strong free cash flow will fully support a strong growing dividend, which we have increased by more than 285% since inception, continued debt repayment, where we expect to pay down the approximately $7 billion of maturities this year, and also provides capacity for continued business development to further augment our portfolio. In closing, AbbVie has once again delivered outstanding results and our financial outlook remains very strong. We'll turn the call back over to Liz.

Liz Shea: 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: Yes, the first question comes from Chris Schott with JP Morgan. Your line is open.

Chris Schott: Hi, great. Thanks so much for the questions. Just I was looking for a little bit more color on the longer-term immunology outlook. You're targeting $27 billion plus by 2027 and highlighting growth from there. So, I guess my question was just can you elaborate on how mature the existing indications, these products are going to be by 2027? And what type of growth can we anticipate longer-term? And maybe as part of that, it seems like from the comments that the growth beyond 2027 is more skewed towards Rinvoq given the new indications, but [indiscernible] like is it balanced Rinvoq and Skyrizi, or has it become more of a Rinvoq driven franchise in terms of the growth drivers over time? Thanks so much.

Jeff Stewart: Yes. Hi, Chris. It's Jeff. Maybe I'll walk through a little bit of the process there and answer your questions. So we can see historically actuals and sort of fast forward in terms of the first thing we look at is the bio penetration of these big indications. And there still remain significant headroom in terms of the ability for moderate to severe patients with these diseases to continue to be exposed to these biologics and these advanced orals, absolutely. And we can see for sure that psoriasis still in -- even in the US is about 15%, it's relatively modest, atopic dermatitis, the penetration rate is only about 7%. And then you have higher penetrated markets like IBD and I'll talk about what's interesting about IBD, that’s somewhere in the 40% or 50% range across those. And then we can see clearly as these markets develop and I've highlighted this before that you see line of therapy expansion. So first-line becomes less and less important, as you move towards second and third-line over time. And right now, IBD is a big story about that, that we calculate into our long-term estimates, because it's still largely despite the severity a frontline oriented market, because physicians, just kind of hang on to their frontline agents, that's going to change quite dramatically believe over this mid-term and even in the long-term perspective. We have a good peg on the market growth rates. Many of these market growth rates are very significant, very stable. And we'll have good growth rates going into the next decade because of these dynamics around bio penetration and line of therapy expansion. I highlighted in my remarks around share, share we -- we have a very good competitive position, very high capture rates. And we're really in the sort of low end of the range in terms of the total prescription share, that will feed up and catch up to that. Pricing, I think we talked a little bit. We're not going to give detailed pricing. But certainly, you can see based on Scott's comments that, the idea of a high CAGR on high single-digit pricing is not something we've contemplated. So, we believe that there is significant room for growth even past 2027. Especially, as we'll have more Rinvoq indications coming that we've talked through. So we think that we're going to see robust growth based on our share capture and also how dynamic these markets are into the next decade.

Rob Michael: And Chris, this is Rob. I'll just add, you think about the markets, the rheum market is growing low-single digits, atopic dermatitis is growing mid-teens and IBD is growing high-single-digits. So they're very strong market, they will continue to be strong markets for us. And we're also seeing, as Jeff mentioned, there's a lot of headroom in terms of share capture. So we do expect that robust growth to continue beyond 2027 into early part of the next decade. I think your observation is correct. Given that we would expect up to five new indications for Rinvoq. If you look at the rate of growth, Rinvoq versus Skyrizi, I think it's reasonable to assume that Rinvoq would have a higher rate of growth given the new indications, but both will grow very nicely. So, I would certainly encourage you to look at more robust expectations for both therapies with Rinvoq a little bit higher because of the new indications.

Liz Shea: Thanks, Chris. Operator, next question, please.

Operator: Yes, the next question comes from Terence Flynn with Morgan Stanley. Your line is open.

Terence Flynn: Great. Thanks so much for taking the questions. Maybe two for me. Rick, I was just wondering if you could give us an update on succession planning and timing, we've been fielding that question from a number of investors recently, given you're now pass the Humira LOE. And positioned the company very well here given Skyrizi and Rinvoq commercial success and also some of the recent pipeline build-out. And then the second question I have was on our pipeline on lutikizumab. I know you guys have highlighted this, not a lot of focus from the investor side yet. Maybe if you could just talk about the size of the commercial opportunity in HS. And then why you're confident that, that Phase 2 HS data will translate into success in the IBD side. Thank you.

Rick Gonzalez: All right, Terence. This is Rick. So I'll cover the first one. I guess what I would say is, I have nothing new to report today, but what I'd indicate is, we've talked about the criteria that we're going to use to make the decision when we're going to make the transition. That criteria is the same, when we believe that we are comfortable, we've navigated the LOE, and the rest of the business is performing at high level. That's the point at which we want to make the transition, because we think that's the best time to be able to transition the CEO position. So I understand there's a lot of interest from investors here, that's logical and clear. Maybe what I can do is, give you a little better perspective on the process that we're going to use in order to make the decision with the Board. I would say, the Board has been actively involved for the last four or five years with a lot of emphasis around ensuring that our internal candidate would get the experiences that we thought were needed prior to making the transition. I can tell you from my perspective, that's gone extremely well. We have regularly scheduled Board meetings several times a year where we specifically talk about succession and the progress that we're making. At the point at which the business has achieved that criteria that I described before, at the next regularly scheduled Board meeting, then I would make a recommendation to the Board that this is the proper time to be able to make the transition. The Board would vote on that recommendation. At the end of that vote, we would send out an announcement to investors. And what you can expect when you get that announcement is that, we would make an announcement that we were going to make the transition out at some point in the future, in all likelihood four months to six months in the future. And the purpose of that is to make the final transition between myself and that person. And that'll take four months to five months in order to be able to do that. I would say it's also very likely at that time, based on the discussions I've been having with the Board, is that, I will be named the Executive Chair for a period of time, and the purpose of that will be to make the transition of the full position over a period of time. So I think it's a very well thought out, I think very well managed process. And I think that's what you can expect going forward.

Jeff Stewart: And Terence, this is Jeff, I'll start-off and have Roopal will address the second part of your second question. So we established many years ago now this HS market with the approval of Humira. And we thought it was a relatively small market, and it turned out to be quite a surprise. There is a significant amount of patients around the world that suffer from HS, it's already a multi-billion dollar category. And we think it's going to continue to expand. And I say that, because we can see that like IBD, there's just some new approvals just coming. So, everyone sort of holds on Humira as long as they can if they're exposed to a biologic. And so we see the same dynamic as you start to see IL-17s come into this space, and certainly, we're very excited about lutikizumab because of the profile that we're seeing emerge in the clinic. So it's a significant commercial opportunity. And I would say that when we look back over all the Humira indications, over the last decade or more, HS was one of the most rapid indications that moved to $1 billion plus business. So it's an exciting opportunity, both commercially and certainly for patients. And Roopal can address your comment on IBD.

Roopal Thakkar: Yes. Hi, Terence. Part of it starts, I would say, almost 15 years ago with our insights in Crohn's disease with Humira, as Jeff was discussing, where we started to see efficacy in patients that had HS. We saw a good amount of overlap between Crohn's and HS. So that's part of it. Now that doesn't really pan out for IL-17, but what we've observed with IL-1 beta in particular is that, our internal data and external data do show elevated expression signals with one beta. So we think we have that opportunity with luti, because it also covers 1 beta and we have two shots at this, right. One is, to go specifically and look at a biomarker-driven targeted profile where we would be able to distinguish which patients actually have that higher expression. And the other approach, which we maybe weren't talking about years ago because we didn't have a product like Skyrizi which have high efficacy and very strong safety profile in Crohn's. What we have now is the opportunity to also look at in combination. So a biomarker approach and a combo approach, our insights from Humira and preclinical or biopsy-based insights that we have externally and internally.

Liz Shea: Thanks, Terence. Operator, next question, please.

Operator: Yes, the next question comes from Andrew Baum with Citi. Your line is open.

Andrew Baum: Hi, many thanks. Couple of questions. One, given AbbVie's strength in market access in managed market, I'd be curious the extensive future contagion from RNA IRA-mediated price cuts on the Medicare book spending over onto the commercial book of business. How much of concern do you think this is, given that has basically the same. And then second question on lutikizumab, if I remember from the canakinumab trials secondary to neutropenia, there was an increase in fatal infections. If you lay on this on top of another immunosuppressive, how are you thinking about the safety concerns in these IBD patients?

Jeff Stewart: Yes. Hi, Andrew. Thanks for your question. It's Jeff. We think that the, particularly the negotiation aspects of the IRA will be very contained on the Medicare side. And as you can imagine with government programs over the years -- when we had discussion with payers, they'll often say things over, well we know what the FSS price is for the VA or demand mandated discounts and supplemental discounts in the Medicaid channel. But we think those are really government actions and government rules. And so, we see that the market we believe will play out largely like it has with the other government channels, that it's a unique dynamic in terms of essentially a forced negotiation that we think will be contained largely in the Medicare space. So that's how we view the world.

Roopal Thakkar: Hi it's Roopal, I'll talk about luti and your question around neutrophils. Yes, we do see impact on neutrophils, it's dose-driven. However, I think we think about inflammatory bowel disease, probably lupus, others to have a different tolerance for benefit-risk, because today in those disease states despite the success that we've seen with Skyrizi and Rinvoq, there's still substantial headroom to lead to more transformational efficacy, not every patient is getting into remission, though high levels, not every patient. So we still believe that a combo can get to that and break that efficacy threshold. The other opportunity there is what we'll do with the combination is obviously optimize the dose to assure safety. And thus far in the HS trial, even at the highest dose we saw very little infections.

Liz Shea: Thanks, Andrew. Operator, next question, please.

Operator: Yes, the next question comes from Mohit Bansal with Wells Fargo. Your line is open.

Mohit Bansal: Great. Thank you very much for taking my questions. Congrats on all the progress. I just want to go back to the ImmunoGen acquisition and the comments you made before. Can you talk a little bit about the plans to move the drug into earlier lines of ovarian cancer. You talked about maintenance setting, but more we are reading it, I mean, in first-line maintenance, the PFS and OS tends to be really long. So could you talk a little bit about the strategy there and how do you overcome the existing OS benefit that these drugs provide? Thank you.

Roopal Thakkar: Hi, Mohit. It's Roopal, I'll take that. So, I think as you've seen in resistance we've seen that overall survival benefit, a very substantial one, unprecedented thus far. And to your point, the plan is to move into earlier lines of therapy. Secondly, it's also part of the strategy to move into sensitive populations, which is around 55% of the population, resistance is around 45%. And then the third aspect is, we've seen encouraging data in medium expressers of FR alpha. And those are approximately 30% of the patients, high is around 35%. So those are the three strategies to go forward. Now how do we get into earlier lines of therapy? Well, a couple of things, insights that we've seen. One is, we've seen Elahere been able to combine at full dose with carbo-platinum. So that's encouraging, that gives you an opportunity to upfront combine. And then as you stated, maintain on Elahere or with Elahere plus BEV. So the other approaches that we would do getting to earlier line of maintenance is have that upfront therapy and then we see patients that go onto BEV, we can combine with BEV at that time point. And we'll be looking at combinations with PARP inhibitors, which is about the other half of the patient populations, which are HRD deficient. So, taken altogether, we see there is an opportunity. Now, the PFS is going to be a little bit longer, along with OS. So that is something that we're planning for, we'll start these studies as soon as possible, but they will read out in the later part of the decade and into 2030.

Liz Shea: Thanks, Mohit. Operator, next question, please.

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

Unidentified Analyst: This is (inaudible) on for Vamil. Thanks for taking my question. So my question is on Humira. I was curious, given the recent performance of company has had with the erosion since the introduction of biosimilars. I was wondering if you can now provide maybe a better sense around the company's expectations on Humira's longer-term tail revenues in both the US and ex-US markets. Thank you.

Rob Michael: Hi, it's Rob. I'll take that question. So we do expect that in the US tail will start to emerge in 2025 or 2026 timeframe. Keep in mind 2024 is the first full year for US biosimilars. We'll have to see what happens with volume uptake this year and also where interchangeability lands. And ultimately, what does contracting look like next year. So, I wouldn't expect us to quantify the tail this year. But it's certainly possible, something we would do either in 2025 or 2026. As it relates to international, you're seeing, I think this year, it's a step-down of about $400 million. Half of that is really the last wave of markets like Canada, Puerto Rico where we're seeing, I'd say, some incremental erosion we would expect this year. And then the other half would be your typical international price erosion you see across therapeutic areas. So not really specific to biosimilars. And then the other quarter of it would be what we're seeing is just the strength of Skyrizi and Rinvoq as these newer agents elevate standard-of-care, you see some share go to those newer agents. And so, probably the best way to think about international would be, if you want to adjust for half of the erosion this year as being more of the final waves, and then you get a sense of what could potentially be the ongoing beyond that. But we'll be more specific, I think we need to see really how the US plays out with this being the first full year for biosimilars, before we can really give you more color. But we're very, very pleased with the progress we've made so far.

Liz Shea: Thanks, Dan. Operator, next question, please.

Operator: The next question comes from Carter Gould with Barclays. Your line is open.

Carter Gould: Great. Good morning, thanks for taking the questions. Two on the neuroscience portfolio. I guess first on 951. How should we think about that? Is that more sort of on growing the overall pie of device data therapies versus taking share from apomorphine and gels. And then, maybe looking a little bit longer-term, AbbVie has sort of three Phase 2 Alzheimer's studies that are going to readout later this year or by early next year. Fully acknowledging the commercial challenges by the players in the market today and that's some of these targets are now validated. How should investors think about these assets either individually or collectively and your level of excitement? Thank you.

Jeff Stewart: Yes. Hi, it's Jeff. I'll take the first question. So what we look at when we see this market at a macro -- at a macro-level, you have a significant number of patients, 85% of patients are just on these oral medication. So, oral [indiscernible]. Okay. And they essentially need to consume more and more and more orals, and sometimes at the end of it they're taken 12 pills a day, it's very, very difficult to manage. But then they're faced with a very difficult decision, which we kind of call like a surgical barrier. And that surgical barrier is to get any sort of more advanced relief, you either have to think about deep brain stimulation, which is a brain surgery or our own DUOPA, which is a GI surgery. So the way we see this market developing is we see that 951 starts to establish a very nice transition zone, because you don't have -- it's a subcu. So a new market segment that starts to emerge before bigger interventions like DBS or DUOPA. And obviously, the ability to basically move quicker to more relief from these chronic oral basically over treatment. So that's how we see it. And as Roopal highlighted, we're seeing some very nice uptake in Japan, where we launched late last year, and also in Germany and some of the first European launches. So that's how the market is exactly playing out. We're establishing essentially a new high efficacy category here with 24 hours of ongoing relief. You can do super specific dosing titration and the pump is much smaller and again, it's a subcu injection that you move around every three days. So it's a nice -- it's a nice opportunity for the company.

Roopal Thakkar: And maybe I'll talk about the other assets that you mentioned in Alzheimers. First, 916, that's our A beta antibody. What we like about that one thus far, the profile we've seen is a long half-life, which would be good to space out dosing. Potentially higher potency if that holds, and we see robust reductions in beta amyloid that could allow for subcutaneous dosing that's spaced apart. And the other thing we are looking at is potentially lower ARIA. So if we see those three things over the course, I would say, end of this year, early next year, I think that, that would be quite exciting, because it would be a differentiated profile, again a better convenience and potentially better benefit-risk profile. So that's 916. 552 is our SV2A that's our oral medication in cognition that's currently in Phase 2. And we anticipate readout at the end of this year, early next year. Now, that one is being studied in a setting where patient can be on a therapy already like an [Aricept] (ph), or nothing. And we would use the typical ADAS-Cog assessments along with a variety of others including other neuropsychiatric symptoms, like depression. So that's another nice one that could combine with a variety of different assets in Alzheimers. The third one I'll mention is around Emraclidine, which comes from Cerevel. They are at early stages right now in elderly patients. And the goal there would be an Alzheimer's disease psychosis of the six million or so diagnoses, I would say around 40% of these patients present with symptoms of psychosis. So with all the therapies that are in the clinic, we think we have a very nice complementary suite of options that could address numerous symptoms of Alzheimers, because it won't be just one therapy that's going to solve this. But more to come end of this year and into next year.

Liz Shea: Thanks, Carter. Operator, next question, please.

Operator: The next question comes from [Technical Difficulty]. Your line is open.

Unidentified Analyst: Thanks for the question. Just on the reaffirmed long-term guide, can I clarify if the Cerevel and ImmunoGen deals are in this 2029 guide given you included them in the 2024 guide? And you up Skyrizi and Rinvoq by $6 billion, migraine by $1 billion. If these are the pushes, what are the pulls in reaffirming that long-term guidance?

Rob Michael: So, this is Rob. I'll take that question. Yes, we did include ImmunoGen and Cerevel in our long-term guide. The thing to keep in mind is, high-single-digits, when you think about the range that could represent, that's around $10 billion between the low-end of the high-single-digits and the high-end of the high-single-digits. And so, there aren't any pulls, what we've updated as we walk you through it is, we've increased the oral CGRP peak revenue, we've increased Skyrizi, Rinvoq and we've reaffirmed the others. So there's nothing that we took down. But just keep in mind that you've got a pretty, pretty wide range. If you look at Street consensus, we're encouraged that it continues to move up. It has moved up over the course of the last quarter, about $3 billion in 2029. It's nice to see that upward movement. But it's still below what we expect. If you think that, that growth rate for the Street is just under 5%, we expect high-single-digits. And so, even with this update, as well as ImmunoGen and Cerevel, we're still high-single-digits. But keep in mind, it's a pretty wide range. And it would be, regardless industry-leading growth and we're set up very well to continue delivering a very strong growth, and we're setting ourselves very well to grow very nicely in the next decade as well.

Liz Shea: Thanks, [indiscernible]. Operator, next question, please.

Operator: Thank you. And our next question comes from Gary Nachman with Raymond James. Your line is open.

Gary Nachman: Thanks and good morning. First on Aesthetics, could you talk a bit more why you're confident in what seems to be a pretty decent return to growth in 2024. So how much of a headwind could China be offsetting the US growth. And what are other regions will you be getting some somewhat of a lift this year. Just talk about the dynamics on that front. And then secondly, just -- as you return to more robust revenue growth in 2025, what are reasonable expectations for operating margins directionally in 2025. Can that expand at all or is it more likely to be depressed from the ImmunoGen and Cerevel deals? Just give us some directional way to think about that for next year. Thank you.

Carrie Strom: Hi, this is Carrie, I'll take your first question on Aesthetics and the Aesthetics market recovery. So I'll start with the US and we have started to see the US toxin market recover the end of 2023. We expect that recovery to continue. And for the market growth for toxins to continue to improve in 2024. For fillers, in the US, in Q4, after multiple quarters of decline, the filler market in the US was somewhat flat. And so, that dynamic of the filler market recovery lagging the toxin market recovery is playing out. And we do expect that recovery on fillers to also continue -- to a lesser degree than toxins, more of a modest growth, positive growth for 2024. And as we look at the beginning of the year here in 2024, we are seeing our patient demand metrics and Google metrics really supporting our expectations here. In terms of China, we do expect the economic headwinds that we saw beginning mid-year 2023 to continue in the near-term with China. And we expect the China Aesthetics market to be flat overall in 2024. That would look like negative market in the first half of the year until the China market starts to recover in the second half of 2024. And we expect that China performance to be balanced against expectations for strong performance in other international regions, including Japan, which has become an important market for Aesthetics and areas of Latin America, like Brazil, which is a highly aesthetically oriented market. It's also important to know in terms of Q1 of 2024, in terms of our guidance there that the growth in the US will be offset by that international decline, specifically in China. So not only the China economic headwinds, but also a difficult year-over-year comp in Q1, because recall, in Q1 of 2023, there was the post-pandemic reopening in China. So that's really how we see the market growth factors in US, China and other parts of the world playing out in 2024.

Rob Michael: And Gary, this is Rob. To build on the Aesthetics story, I said in the past to get to our guidance of greater than $9 billion, we need to deliver annual growth of high-single-digits on average. And as Carrie just walked you through, we haven't quite seen the recovery for the fillers market yet this year. And we will, but it's not going to be a normal year, we'll see a ramping. And we also had a slowdown in China. But despite that we're still delivering high single digit growth. And given how under penetrated these markets are, we can drive that market growth that's required to achieve the long-term guidance. And then on top of that, we have several innovations that will further support that growth. I've said this before, but the masseter and platysma indications for Botox will add a few $100 million each. Our novel short-acting toxin BoNT/E has the potential to activate new patients who have not started toxin due to fear of an unnatural look. So that could drive an inflection in market growth and market share. And then our region, our fillers pipeline is really aimed at providing both short and long-term treatment benefits for consumers. So we have several avenues to get to our greater than $9 billion guide. I have seen consensus estimates at $8 billion for 2029, but we're very confident in our guidance of greater than $9 billion by that period.

Scott Reents: Gary, this is Scott. I'll take your question regarding operating margin expansion. So for 2024, as I mentioned in my remarks, we've guided to 46.5%. When we do return to robust growth in 2025, we do see that operating margin will expand, and will continue to expand as we grow through the decade. I think that when we think about the pace of that expansion, it will be a relatively steady over several years. I would though, if you're modeling that, I would kind of peak it out at around 50%. I think that's where we'll hit a peak at the operating margin. But we do see expansion both in 2025 on that return to robust growth, including the impact of the two transactions ImmunoGen and Cerevel, which should presumably be a full-year at that point in time. But at the full year impact, we see that expansion. And I do think it's worth noting, even at our current levels, we have industry-leading operating margin. And certainly with the future expansion we will continue to have that and only grow that position.

Liz Shea: Thanks, Gary. Operator, next question, please.

Operator: Yes, our next question comes from Steve Scala with TD Cowen. Your line is open.

Steve Scala: Thank you very much. Two questions. Is the current tax rate fully reflecting likely tax changes in the US and outside the US? So, it represents a high watermark for the foreseeable future. Previously the company spoke to a 16% tax rate. And we're pretty much there. So I am wondering if the increases are kind of behind us? And then Rick, a slightly different kind of question, but there are clear, obvious reasons such as the success of Skyrizi and Rinvoq, but I'm curious if you would share with us a few of the externally less visible factors that are leading to AbbVie's success traversing the Humira patent expiration that your pharma peers missed when dealing with their own pressures. I would assume contracting formulary management, allocation of overhead are all part of it. But what would you be willing to share with us? Thank you.

Scott Reents: Steve, this is Scott. I'll start with your tax rate question. So with respect to the tax rate, we were essentially flat between this year and last year at 15.7%. We do see that tax rate over the three year period including this year increasing about 1% on average. Now that's not going to be a 1% per year. What you'll see is a step up in a couple of years when the US tax rates do increase the GILTI rate in particular, will increase. So we see that over a three year period about 1% per year on average. That does include all the impacts of a number of things going on globally with the OECD and some of these -- OECD minimum taxes and other things. I would say the one thing it does not include, you saw just this week, the House passed a tax bill that includes the provision regarding the R&D expensing. So if that bill were to pass, as it's written, we would see a slight step down in our tax rate, about 80 basis points from the impact of that on an ongoing basis.

Rick Gonzalez: Steve, this is Rick. I think if you step back and you look over the last, I'd say, 10 years, we were trying to develop a strategy that we fundamentally believed will allow us to be able to offset the Humira LOE and continue to deliver top-tier financial performance as we have for the past 10 years. That was the whole objective. And we knew we had to build a very diversified growth platform in order to be able to do that, to be able to absorb that impact and return to growth as rapidly as possible. And so, we as an executive team focused a lot of energy around how do we do that, how do we build it, how do we do it in the right markets. I think AbbVie, I'm obviously biased, I guess, but I would say our commercial execution has always been exceptional in my opinion. We understand the markets we're in extremely well. We understand the competitive environment that we compete in those markets extremely well. We understand the patient journey and how that patient journey is affected by access to medicines to ensure that patients can get their medicines routinely and be able to get the benefit of those medicines. It takes all of those things I think to end up with kind of success that we see with assets like Skyrizi and Rinvoq. But it also takes I think a company that is very good at what I describe as read and react. There are always challenges in businesses as big and as complex as this. And I think the difference between companies that can continue to perform at the top tier, year in and year out is they're good at seeing issues, and then quickly reacting to how they're going to either offset those, or deal with those. We had many of those examples. I'd say the label change on Rinvoq was a great example. But look at where Rinvoq is growing now. And despite that label change many would not have predicted that. Migraine, was a very challenging market for a period of time. We look at how we've operated with Ubrelvy and Qulipta. And the kind of success we've seen against the competitors in those markets. Neuroscience, very different kind of market with Vraylar. That's all about trying to grow market-share and expand your position there with a very good asset. And so, we're good at that, and I think that is the real differentiator. The other thing I'd say is, I think we have been very efficient at our R&D investment. We obviously don't have the largest R&D investment in the industry. But we produced a tremendous amount of return against that R&D investment. Now having said that, as we go forward, we know we need to increase R&D as I've said in my comments. We did a fairly significant increase last year despite dealing with the Humira LOE. And we're going to do another fairly significant increase this year because we had some assets that had very, very significant opportunities like 383 and like 400 and several others. They are going to require a large Phase 3 -- multiple large Phase 3 studies to be able to get the kind of label that we need, and that's another thing, I'd say, we're good at. Understanding how you have a competitive label and building your clinical programs to get that. So, I think it requires all of those things. I don't think there is one magic formula. I think those are the kinds of things that we have honed here at AbbVie an executive team. And we execute very well against those.

Liz Shea: Thanks, Steve. Operator, next question, please.

Operator: Yes, our next question comes from Evan Seigerman with BMO Capital Markets. Your line is open.

Unidentified Analyst: Hi, guys. It’s [Nachman] (ph) for Evan. I wanted to ask -- thinking about the upcoming approval for Skyrizi, and you see how is management thinking about how that may or may not impact Rinvoq sales, obviously combined AbbVie offers some immpresive suite of inflammatory assets. But what is the expectation of cannibalism across these assets potentially? Thanks.

Jeff Stewart: Yes. Hi, it's Jeff. I'll take that one. We've learned a lot from watching Skyrizi and Rinvoq in Crohn's. And to Rick's points, look, we're very careful about how we position these assets, you know how we basically represent them with our medical teams and our commercial teams. And so what we see certainly in our biggest markets, we see that they are actually complementary positioning. So, Rick highlighted the label change, right. So Rinvoq, in the US, is basically indicated for use after a TNF. So it's basically a later-line therapy. Skyrizi, if you look at the Skyrizi, you see results, it's very, very impressive. We've studied some very, very tough patients there. The bio-naive patients, the efficacy is just outstanding. I would say it's best-in-class. So we can see that based on the profile of the agents for many of our representatives, we're able to talk to physicians about the consideration for Skyrizi frontline. And then in later lines Rinvoq. So the cannibalization or the overlap is very manageable and minimal. And what happens is you start to see this, this very significant build for total AbbVie share because of that complementary positioning. So we're quite confident that we'll be able to navigate this very well just as we see in the larger Crohn's market.

Liz Shea: Thanks for the question. Operator next call -- next question, please.

Operator: Yes, our next question comes from Tim Anderson with Wolfe Research. Your line is open.

Tim Anderson: Hi, I have a question on obesity drug impact on AbbVie's Aesthetics business. So the uptake for obesity drugs could be a headwind or a tailwind. That's a potential headwind if patients only have so many dollars to spend on Aesthetics and they reallocate their out-of-pocket spending away from dermal fillers and toxins towards obesity drugs? Or it's a tailwind if patients using obesity drugs get things like the so-called Ozempic face and they end up using more toxins and fillers. So, what's been the experience thus far. And what do you expect going forward over the next handful of years? Thank you.

Carrie Strom: Hi, this is Carrie. So the short answer is, we have not seen an impact on our Aesthetics business positive or negative so far. That said, absolutely, our customers and our consumers are participating in this market. We are seeing it integrated into some of these Aesthetics practices. And to your point, there are instances where a patient will make a trade-off in terms of her share of wallet. But that said, we do see it as a long-term tailwind anytime people are getting more engaged in their appearance, that's a positive thing for Aesthetics. And as we ask our consumers and our customers about it, really that -- what we've learned is that it does reinforce its long-term tailwind because the majority of people who engage in these medical weight-loss products are more interested in Aesthetics afterwards than they never before. So, that's really how we see it in terms of the that dynamic impacting Aesthetics.

Liz Shea: Thanks, Tim. Operator, next question, please.

Operator: Yes. Our next question comes from Tim Lugo with William Blair. Your line is open.

Tim Lugo: Thanks for taking the question. After the two announced acquisitions in December, what are the team's thoughts on M&A in 2024. Some of your peers have given guidance on expected deal sizes. Is that something you can provide the Street or at least talk about your capacity at this point?

Rob Michael: Hi, Tim, it's Rob. I'll take that question. So our BD efforts continue to be focused on identifying assets, really that can drive growth in the next decade across immunology, oncology, neuroscience, aesthetics and eye care. But we have what we need in our current portfolio to deliver on growth expectations in this decade. So our external efforts are really aimed at early-stage opportunities, which are typically smaller-sized deals. As we look across the growth areas, if you think about immunology Skyrizi and Rinvoq will drive robust growth into the next decade. So our focus in immunology in terms of BD is really looking for new mechanisms of action that can elevate standard-of-care whether monotherapy or in combination. I'd say there's a lot of interest in combination. In oncology, ImmunoGen really nicely complements our efforts with ADCs, it gives us a head start, an entry in the solid tumor space, that we're not in today. But in addition to ADCs, we're focused on bispecific, multi- specifics immuno onc agents. We also recently announced a collaboration with Umoja studying insight to CAR-T therapy. So a lot of focus in oncology, but these again would be earlier-stage smaller-sized deals. In Neuroscience, Cerevel adds depth to our neuropsych pipeline, but we also have a focus on migraine and neurodegeneration. In eye care, we're extremely excited about the REGENXBIO program in wet-AMD and diabetic retinopathy. But we continue to look for innovation in glaucoma and retinal disease. So we certainly have an interest there. And then in Aesthetics, it's always about looking for innovation that can drive new consumers into our providers practices. So our BD group is still very active. We certainly have the financial wherewithal to pursue those opportunities to further bolster our pipeline. But those are the areas that we're most interested in.

Liz Shea: Thanks Tim. Operator, next question, please.

Operator: Yes, the next question comes from James Shin with Deutsche Bank. Your line is open.

James Shin: Hi. Good morning. I had a question on ovarian cancer and it's going to be more competitive with [indiscernible]. How do you feel about [indiscernible] interacting? And how do you feel that market landscape looks going forward?

Liz Shea: Unfortunately. Your line is not very clear. Can you maybe try to repeat the question one time.

James Shin: Sorry about that. [indiscernible] better now.

Liz Shea: It's still little echoey, it's a little bit better, but go ahead.

James Shin: Okay, I was asking about [indiscernible] and the competitive dynamics in ovarian cancer.

Liz Shea: Yes, unfortunately, it's just not coming clear -- coming through clearly. Happy to address the question following the call. Apologies for that. Operator, next question please.

Operator: Yes, the next question comes from David Risinger with Leerink Partners. Your line is open.

David Risinger: Yes, thanks very much, and congrats on the long term updates. So with respect to the Alzheimers commentary, a product was left out of the TREM2 AL002, which has an estimated primary completion in September. If you could comment on that as well. That would be helpful. And then with respect to the GILTI tax change that's coming, so can you please provide some more color on that, including the timing and the potential impact? Thanks very much.

Tom Hudson: Hi, this is Tom Hudson. I'll answer the question, the first question, yes, we do have a partnered program with Alector on the TREM2 target. TREM2 was identified in Alzheimers disease through genetic studies, several years ago, very strong link. We have a program which -- TREM2 modulates and no inflammatory response in AD. All patients are enrolled in the Phase 2, we will have data later this year. So again it's an early clinical development, but we will expect to see key data later.

Scott Reents: Sure, this is Scott. Regarding the GILTI tax. So this is the US tax, the foreign minimum tax on foreign earnings that the US supplies. That tax rate today is at 10.5%, it's going to move up to 13.1% a little bit more than that. That will occur -- the implementation date is a little bit mixed, because it depends on fiscal year-ends of legal entities, but let's call it 2026 is when we can look at that. And only part of our income is subject to that rate. So, I would say that's approximately a 1.5% impact to our tax rate that you would see. And that's baked into my 1% on average over the next three years.

Liz Shea: Thanks, David. Operator we have time for one final question.

Operator: Okay. And our final question is Luisa Hector with Berenberg. Your line is open.

Luisa Hector: Thank you for taking my question. I wanted to touch on the Part-D restructure an IRA. So you have a number of drugs that are likely to be impacted by this. And obviously, you talk about your strong rebound in 2025. So I'd just love to hear your thoughts on how that restructure will impact. And perhaps to what extent that is already baked into your expectations of the rebound? And maybe just to check, have you now received the initial offer from CMS owned Imbruvica? Thank you.

Jeff Stewart: Yea. Thank you, Luisa. It's Jeff. And we have we have contemplated in our planning and long-term guidance, both the Part-D redesign and of course the IRA impacts based on our projections over when some of our drugs might be negotiated. To give you some color on the Part-D redesign, we have clearly a very good visibility over the pricing dynamics that will take place as you say, many of our brands basically will be under the catastrophic redesign component. Now we've also understood based on one of the policy items, which is the cap and smooth, we've also countered some of that price with volume offsets based on patients having the ability to acquire these. Now that volume does not fully offset the pricing impact. But suffice it to say that, that's been very much contemplated into that. I'll let Rob comment over how that sort of feeds into the growth rates.

Rob Michael: Luisa you asked a very good question. This is Rob. Clearly, and we have contemplated that in the high single digit CAGR, the impacts of IRA. But as you think about the annual progression, it is important to note that Part-D benefit redesign starts in 2025. So that is certainly something you should consider for modeling of annual sales. I mean, that impact by itself, on a net basis could be worth a few points of growth. As Jeff mentioned, the higher cost share with an offset in volume, we have studied the improvement in abandonment rates as we look at the low-income subsidy part of Part-D which doesn't have the out of pocket burden that the standard benefit does. And when we compare the abandonment rates and as you address this issue of out of pocket burden, we would expect the abandonment rates to improve across Medicare Part-D, but not enough to fully offset the higher-cost share. That was something we certainly contemplated. But as you think about the progression of growth, the rate of growth will accelerate starting next year through 2029. So we'll deliver a high-single-digit CAGR. But it's important to note that in 2025, you do have that beginning of Part-D benefit redesign, which adds, I'd say a couple of points of growth headwind that will still allow us to deliver robust growth, but it won't -- you shouldn't think about the same amount of growth every year, it's going to accelerate over the long-range plan.

Rick Gonzalez: And then, this is Rick on the Imbruvica price, yes, we have received the initial offer on Imbruvica recently. As you know, there is a process that CMS is going through here to set pricing. And because none of us have any experience with this, we don't know exactly how that process will proceed. There will be some back and forth between the manufacturer and CMS. CMS has indicated that they'll have the final price by September 1st. It's certainly premature for us to talk about the price now, because it's not the final price. I don't know that we'll know the final price until very close to the point at which they are prepared to publish that price, having not had any experience here. So, I wouldn't anticipate we will get any updates until that date or very close to that date.

Liz Shea: Thanks, Luisa. And 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.

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