AbbVie Inc.

Good morning and thank you for scanning by. Welcome to the ABVI Third Quarter 2019 Earnings Conference Call. All participants will be able to listen only until the question and answer portion. And you may ask a question by pressing star 1 on your touchtone phone. I would now like to introduce Ms. Liz Shea, Vice President of Investor Relations.

Good morning and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer, Michael Severino, Vice Chairman and President, and Rob Michael, Executive Vice President and Chief Financial Officer. Joining us for the Q&A portion of the call is Laura Schumacher, Vice Chairman, External Affairs, Chief Legal Officer and Corporate Secretary. Before we get started, I remind you that some statements we make today may be considered forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. ABVI cautions of these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Additional information about these risks and uncertainties is included in our 2018 Annual Report on Form 10-K and in our other SEC filings. ABVI undertakes no obligation to update these forward-looking statements except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand ABVI's ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures and are earnings relief and regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions. So with that, I'll now turn the call over to Rick.

Thank you, Liz. Good morning, everyone, and thank you for joining us today. I'll discuss our third quarter performance and highlights as well as our full year guidance, which we are raising again this quarter. Mike will then provide an update on recent advancements across the R&D programs, and Rob will discuss the quarter in more detail. Following our remarks, we'll take your questions. ABVI delivered another outstanding quarter with adjusted earnings per share of $2.33, representing growth of nearly 9% versus last year and exceeding the midpoint of our guidance by 4 cents. Total revenue of $8.4 billion was also ahead of our expectations for the quarter, driven by continued strong performance in hematological oncology and immunology. I'll start with our hemat business, which delivered operational sales growth of .5% in the quarter. Embruvica continues to perform exceptionally well with global revenue of more than $1.2 billion in the quarter, an increase of nearly 30% versus last year. Embruvica has a strong position across multiple indications and remains the clear market share leader across all lines of therapy in CLL. We're especially pleased with the recent inflection in the front line setting, driven by Embruvica's growing body of clinical evidence, label augmentation, and update to treatment guidelines. We're also seeing a substantial contribution from VanClexta with total revenue of more than $200 million in the quarter. VanClexta continues to expand new patient share in the broad relapsed refractory CLL segment, and we're making very good progress with our recent approvals for front line CLL and AML. Now turning to immunology, where we've strengthened our leadership position with the introduction of two new -in-class therapies, Skyrizy and RimVogue, creating a broad portfolio of therapies well positioned to further improve patient care. We continue to see excellent performance from Skyrizy with total revenue of approximately $90 million in the quarter. The launch is going extremely well with prescription trends that continue to remain well above recent launch analogs in the psoriasis category. Through the first six months on the market, we already have approximately 3,500 prescribing physicians and more than 9,000 patients treated with Skyrizy, including those in our Bridge Access Program. And in this short timeframe, Skyrizy has already established its position as the leader for in-play psoriasis patient share. This includes both new patients and switching patients. In addition, commercial access for Skyrizy is now at more than 80%, a testament to its -in-class product profile. We continue to expect Skyrizy to drive significant growth over our long-range plan. In the quarter, we also announced the approval of Eupatosytenib, known as RimVogue in the U.S., for the treatment of adult patients with moderate to severe rheumatoid arthritis. This approval marks yet another major milestone for ABVI, the 14th new product or major indication approval in the last five years, and continues to demonstrate our commitment and our leadership in immunology. With the strong benefit-risk profile demonstrated across our registrational trials, RimVogue offers meaningful advantages over products on the market today or in development for rheumatoid arthritis. Feedback from prescribing physicians has been very positive, and we have a highly experienced immunology commercial organization to support a strong launch trajectory. The early trends for RimVogue are highly encouraging, and performance has been tracking ahead of comparable analogs within the RA segment. I'll highlight a few recent data points for you. In the month of October, the second full month RimVogue was on the market, we estimate more than 1,400 prescriptions were filled, including both paid prescriptions and those who received RimVogue in our Bridge Access Program. Based on this level of prescription volume, RimVogue is currently capturing approximately 6% of in-play RA patients. After less than 90 days on the market, RimVogue's in-play patient share has surpassed Remigade and several other established products and is rapidly approaching the in-play share for EMBL. We're also seeing very little cannibalization of the Humero market share thus far. Commercial access is ramping strongly and in line with our expectations. By early January, we expect RimVogue to have commercial access above 75%, and we expect paid prescription volume to increase significantly as this access expands over the next several months. So while we're still early in the launch, we're certainly pleased by the feedback we've received from the field, from physicians, and the robust demand trends that we are seeing. Now turning to Humero. Humero grew .5% in the US this quarter, driven by continued strong volume growth across all three segments, RUM, DERM, and GASTRO. International Humero sales were down approximately 32% on an operational basis, reflecting the impact of direct biosimilar competition in Europe and other international markets. The international biosimilar trends and dynamics remain consistent with our expectations. Based on the continued strong momentum of our business in the quarter and the progress year to date, we are once again raising our full year 2019 EPS guidance. We now expect adjusted earnings per share of $8.90, $8.92, reflecting growth of .6% at the midpoint, which remains at the top tier of our peer group. I'm extremely pleased with the underlying performance of our business. Additionally, with the planned acquisition of Allergan, we will be adding highly valuable on-market assets with leadership positions across additional attractive growth segments, including significant new growth platforms in medical aesthetics and CNS. The proposed acquisition is proceeding as expected, with the recent successful completion of the Allergan shareholder vote, who approved the transaction, and advancing regulatory reviews around the globe. Integration planning is also well underway, and we have made substantial progress. We remain on track for closing in the first quarter of 2020. The Allergan transaction has significant strategic merit, and the new ABVI is poised to deliver top tier financial performance. Combined, we will generate significant earnings and cash flow to enhance our innovative R&D platform, support a strong and growing dividend, and rapidly pay down debt. As noted in our press release today, we are announcing a .3% increase in our quarterly cash dividend, from $1.07 per share to $1.18 per share, beginning with the dividend payable in February 2020. Since our inception, we have grown our quarterly dividend by 195%. So in summary, we continue to demonstrate strong momentum, and I'm extremely pleased with our execution across the portfolio, including the progress that we're making with the recent new product launches and our pipeline advancement. We have assembled an impressive set of growth assets, and the outlook for our business remains strong. The Allergan transaction will make us even stronger and more diversified. We remain focused on achieving our long-term strategic vision for the company, delivering industry-leading performance and outstanding shareholder value while improving patients' lives. With that, I'll turn the call over to Mike for additional comments on our R&D programs. Mike?

Thank you, Rick. We continue to make great progress across all stages of our pipeline, with several significant pipeline milestones since our last earnings call, as well as notable data presentations at a number of medical meetings. In immunology, we achieved another major milestone and continued to expand our portfolio with the U.S. approval of RINVOC and its initial indication of rheumatoid arthritis. We're very pleased with the label, which reflects the strong benefit-risk profile demonstrated across our large and comprehensive registration program. RINVOC, which was internally discovered and developed at ADVI, represents an important advancement in the treatment of RA, providing physicians with a new, highly differentiated therapeutic option for their patients. The launch is underway in the U.S., and feedback from the medical community has been very positive. We also recently received a CHMP-positive opinion for RINVOC, with an approval decision in Europe expected in the next few months. In addition, we expect approval in Japan in the first quarter. We are making good progress with the development programs for RINVOC in other immune-mediated conditions as well. We recently announced results from the first of our registrational trials in psoriatic arthritis, the SELECT PSA2 study. In this study, which evaluated RINVOC compared to placebo in psoriatic arthritis patients who had an inadequate response to one or more biologic DMARDS, both doses of RINVOC met all primary and key secondary endpoints. We're very encouraged by the strong levels of response on both joint and skin endpoints, including ACR responses and POSI measurements, as well as minimal disease activity scores in this heavily pre-treated biologic refractory population. We look forward to presenting detailed results at a medical meeting next year. We expect to see data from our second registrational trial, SELECT PSA1, in the first half of next year, with our regulatory submissions expected in mid-2020 and commercialization anticipated in 2021. At the ACR meeting later this month, we'll be presenting 26 abstracts for RINVOC in rheumatic diseases, including results from a Phase II study in ankylosing spondylitis. In this study, RINVOC met a primary and key secondary endpoints, demonstrating significantly greater improvements in signs and symptoms, as well as physical function and imaging endpoints compared to placebo. We plan to begin a Phase III study in axial spondyloarthritis in the coming months, an indication expansion that will further strengthen RINVOC's position within rheumatology. Both psoriatic arthritis and axial spondyloarthritis are large and important markets in the rheumatology segment and are key areas of focus for Abbott's immunology portfolio. In the dermatology segment, we expect to see results from the first of RINVOC's registrational trials in atopic dermatitis in the first half of 2020. We continue to make great progress with Skyrizy as well. Skyrizy was approved in its first indication, psoriasis, in the second quarter, and the launch is going extremely well, with its differentiated profile and quarterly administration resonating with both physicians and patients. One important feature of Skyrizy's profile is its strong durability of response. We recently presented long-term data at the EADV Congress showing that after two and a half years on treatment, Skyrizy continues to provide high levels of efficacy, as demonstrated by 61% of patients achieving POSI 100, or complete skin clearance. Similar to RINVOC, Skyrizy is being developed in several additional indications. The gastro segment in particular represents a significant opportunity for Skyrizy, and the registrational programs in both Crohn's disease and ulcerative colitis are progressing very well. We expect to see data from a Phase 2b study in ulcerative colitis next year, and data from the Phase 3 studies in Crohn's disease are expected in 2021. Moving now to hematologic oncology, where we continue to make good progress advancing our programs and expanding the breadth of data for Imbruvica and Benklexta. We've made significant progress this year with Imbruvica in the frontline CLL setting. We received a label update to include data from the Illuminate study, which evaluated Imbruvica in combination with Gizaiva in frontline CLL. In addition, the NCCN guidelines were updated to include data from three important studies in our frontline CLL program. We also reported positive Phase 3 data in the watch and wake population. And later this year, we plan to submit data for regulatory approval from the Phase 3 ECOG study in young and fit first-line patients. An important element of our hemonx strategy is our ongoing clinical program evaluating combination use of Imbruvica and Benklexta. In the area of non-Hodgkin's lymphoma, we expect to see results from the Phase 3 simpatico study next year, a trial evaluating Imbruvica in combination with Benklexta in relapse refractory mantle cell lymphoma. We're also making good progress with the combination program in CLL. We expect to present data from a Phase 2 study in frontline CLL at the upcoming ASH meeting, and additional data from the Phase 3 program are expected in the next 12 to 18 months. We continue to advance other programs in our hemonx portfolio. We'll see data next year from two confirmatory Phase 3 studies evaluating Benklexta in frontline AML. And at the upcoming ASH meeting, we'll be presenting data from several early stage programs, including results from a Phase 2 study evaluating Nibidoclax in myelofibrosis, where we're seeing very encouraging data in patients who have failed JAKAfE. High-risk myelofibrosis is a serious hematologic disease in which bone marrow is replaced by fibrotic tissue, interfering with bone marrow function. Current therapies attenuate signaling through the JAK-STAT pathway to address symptoms, but are not disease modifying. With Nibidoclax, we're targeting the mutated clonal cells causing myelofibrosis for apoptosis through the BCL-XL and BCL-2 pathways, a unique approach offering the potential to modify the course of disease, reverse fibrosis, and restore hematopoiesis. Nibidoclax may also act to resensitize cells and have developed resistance to JAKAfE, thus representing a potentially important treatment option for myelofibrosis patients. Also in the quarter, we submitted our regulatory application for elegolix in uterine fibroids, with an approval decision expected in the second quarter of next year. And in neuroscience, we recently presented data for ABBV951, demonstrating its potential as a new treatment option for patients with advanced Parkinson's disease. ABBV951 is a subcutaneous delivery system for our levodopa-carbidopa prodrugs, an innovative approach to treating motor fluctuations in Parkinson's disease, with the potential to provide duopa-like efficacy with a less invasive, non-surgical delivery method. If successful, ABBV951 would represent a transformational improvement to current treatments, with the potential to significantly broaden the addressable patient population beyond those treated with duopa today. The Phase III program for ABBV951 is underway, and we look forward to updating you as the program progresses. So, in summary, we've continued to make very good progress advancing and accelerating our programs this year, and we look forward to many more important pipeline milestones in the coming months and through 2020. With that, I'll turn the call over to Rob for additional comments on our third quarter

performance. Rob? Thank you, Mike. We had another quarter of strong performance. We reported adjusted earnings per share of $2.33, reflecting growth of .9% compared to prior year and 4 cents above our guidance midpoint. Net revenues were up .5% on an operational basis, excluding a .5% unfavorable impact in foreign exchange. Strong growth from several key products and newly launched assets offset the impact of international biosimilar competition. U.S. humerus sales were $3.9 billion, up .6% compared to prior year, with volume growth of .6% and a favorable price impact of 1%. Full-sale or inventory levels remained below half a month in the quarter. International humerus sales were approximately $1 billion, down 32% operationally, reflecting biosimilar competition across Europe and other international markets and in line with our expectations. Skyrizy continues to demonstrate strong uptake, with sales of $91 million in the first full quarter following the launch in April. As Rick mentioned, we are pleased with the launch and early cancer invoke. Sales in the partial quarter were $14 million. Hematologic oncology global sales were nearly $1.5 billion, up .5% on an operational basis, driven by the continued strong growth of both Imbruvica and Benklexta. Imbruvica global net revenues were more than $1.2 billion, driven by strong share in all lines of therapy in CLL. Benklexta revenues were $221 million, driven by continued share gains across all approved indications. Global HCV revenues were approximately $700 million, down roughly 19% on an operational basis, driven by lower treated patient volumes in select international markets and increased competition within the US managed Medicaid segment. Despite the dynamics impacting performance this year, Maverick remains the global leader in HCV therapy, and we expect it to generate durable cash flow for ADVI well into the next decade. We also saw continued strong operational sales growth for Creon and Dua Dopa. Turning now to the P&L profile for the third quarter, adjusted gross margin was 82% of sales, up 30 basis points compared to the prior year, including a 140 basis point benefit related to the expiration of Humira royalties, partially offset by the impact of partnership accounting. Adjusted R&D investment was .5% of sales, supporting our pipeline programs on oncology, immunology, and other areas. Adjusted SGA expense was .1% of sales, reflecting continued investment in our on-market products and newly launched assets. The adjusted operating margin ratio was .4% of sales, an improvement of 120 basis points versus the prior year. Adjusted net interest expense was $288 million, and the adjusted tax rate was 8.8%. In the quarter, we recorded a net charge of 56 cents per share related to the impairment of intangible assets acquired as part of the STEMCENTRICS acquisition. The net after-tax impact of this impairment and the related adjustment to contingent consideration liabilities was $823 million. This net charge has been excluded from our adjusted EPS results. Based on our continued strong performance -to-date, we are raising our full-year adjusted earnings per share guidance to between $8.90 to $8.92, reflecting growth of .6% at the midpoint. Excluded from this guidance is $3.82 of known intangible amortization and specified items. We are also increasing our revenue guidance for the full year, and now expect growth of approximately .5% on an operational basis. At current rates, we continue to expect foreign exchange to have approximately 1% unfavorable impact on full year reported sales growth. This forecast comprehends the following updated full year assumptions. We now expect U.S. Humira sales growth of approximately 8.5%. We continue to see robust volume growth and maintain a strong leadership position across all segments. For international Humira, at current exchange rates, we now expect sales to approach $4.3 billion, representing an operational decline of approximately 28%. We now expect Skyrizy global revenues of approximately $275 million, reflecting continued launch momentum. For our Hemoc franchise, we now expect Imbruvica global revenues approaching $4.7 billion, with U.S. sales growth of approximately 28%. And for Venklexta, we now expect sales of approximately $775 million. We are now forecasting global HCV sales approaching $3 billion. And on the P&L, we now forecast adjusted gross margin of approximately .5% of sales and adjusted operating margin to remain just above 47% of sales. Finally, we now expect a non-GAAP tax rate just below our full year rate in 2018. All other full year 2019 Guinness assumptions remain unchanged. For the fourth quarter, we expect adjusted earnings per share between $2.17 and $2.19, excluding approximately $0.49 of non-cash amortization and other specified items. We anticipate fourth quarter operational sales growth approaching 5%. At current rates, we expect a modest unfavorable foreign exchange impact. As Rick mentioned earlier, today we announced a .3% increase in our quarterly cash dividend, beginning with a dividend payable in February 2020. The significant earnings and cash flows that the combination of AVI and Allergan will generate allows to support a strong and growing dividend and rapidly reduced debt. We do expect the combined company to achieve a net debt to EBITDA ratio of 2.5 times by the end of 2021. We're further deleveraging through 2023. In closing, AVI has once again delivered outstanding performance. With our strong track record, combined with the momentum of our business, we remain well positioned to deliver top tier financial performance in 2019 and beyond.

With

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

Thanks, Rob. We'll now open the call for questions. Operator, first question,

please. Thank you. As a reminder, if you would like to ask a question, please press star 1. Our first question today is from Navin Jacob from UBS.

Good morning. Thanks for taking the question. A couple, please. Number one, just want to understand how we should think about the psoriatic arthritis market for RenVoc relative to RA, same I guess for Skyrese. And on a relative basis, how big those opportunities could be. And then with regards to Imbuvica, there's been some questions around AstraZeneca's, CaliQuinx, they're going to be reporting some updated data at ASH. Wondering how you're thinking about the competitive landscape. And then finally, just on the Allergan transaction, do you have an update on or when should we hear an update about the divestment of some of your assets? There's some questions around Skyrese versus Brasicumab. So any clarity would be helpful. Thank you.

Okay. Hi, this is Rick. I think I'll have Mike walk you through PSA and then I'll cover the CaliQuinx question. And I'm going to have Laura talk a little bit about the status of the regulatory reviews for Allergan's products. Okay,

this is Mike. I'll take the PSA question. The PSA segment is an important part of the overall room segment. It's quite as large as the PSRA, but it makes a meaningful contribution. That and spondyloarthritis, you know, axial spas it's often referred to, those two components provide meaningful revenue in that area. And as we announced earlier this week in the psoriatic arthritis study, we delivered very strong results, which were completely aligned with our expectations. We had a very strong impact on both joint measures, on the ACR measures, on the skin measures, and on composite measures of minimal disease activity, which look across both joint and skin and show that we're getting a substantial proportion of patients at a very high level of control. So we think it's a very, very substantial opportunity for RINVOK in the long term. We haven't put a dollar on that market yet, but we do think it's going to be a very important contributor to the overall RINVOK profile. Skyrizi is doing very well in its initial indication of psoriasis. We have a psoriatic arthritis program underway. We think it's important to show the benefit of Skyrizi in a psoriatic arthritis setting. That's not as advanced. We don't have those data readouts yet, but we would expect it to form well in that setting as well based on phase two. So we think between the two we'll really have a very strong portfolio in that important segment of the market.

Okay, so let me talk a little bit about the, and I'm going to talk about maybe a little more broadly, the competitive environment around Imbruvica and VanClexa or in the CLL setting. I think certainly as we look at CalQuens being a BTK, we would certainly expect that it will have positive data. In fact, we'd be frankly surprised if it didn't have positive data in first line. I mean obviously Imbruvica has very impressive data and a large and comprehensive set of data, and that will certainly play into the competitive dynamics. I think if you think about the competitive dynamics in this field, you need to think about them sort of from two perspectives. What does the competition look like today, and what's the experience been against that competition, and then what would it look like going forward for a competitor to be able to compete in this market in an effective way. I'm specifically talking CLL now. So CalQuens has been on the market now for I think about two years. It really has not been able to get a label that has any real differentiation. It has today in its approved indication of MCL second line plus about 14% share. It's had between 10 and 14% share for quite some time, so it's kind of vacillated in that area for quite some time. Its current use in CLL is about 1% despite being on treatment guidelines I think since about 2018. And almost all of that 1% is in third line plus, which gives you an idea of how physicians view it behind Imbruvica and then CLEPS stuff. If and when they get approval in first line, I think the thing that's important to remember or anybody that competes in this marketplace is how the market operates today. If you look at Imbruvica's share of treated patients, and what I mean by that is patients who are currently under active treatment today. Imbruvica's first line share of treated patients is 51%. So roughly half the patients that are under treatment today are utilizing Imbruvica. Second line plus is about 75%, so three quarters of the patients who are under treatment right now are using Imbruvica. Imbruvica's treat to progression therapy, I don't see physicians taking well maintained patients off of Imbruvica and switching them to CalQuence or anything else. And if we were seeing that, the duration of therapy, which is something we track, would be going down, but indeed it's not. It's stable to slightly increasing. So anyone that comes into this market will have to compete for share and will be limited to compete for share by only competing in the areas where you have new patients or you have failure patients. And in the case of new patients or failure patients, they're also going to have to compete against BenClexta in this market. And as you know, BenClexta has recently been approved in first line. We're about three months post that approval. If you look at BenClexta's new patient capture share, in first line it's 5% already. In second line it's 10% and in third line it's 21%. So I think the reality is we fundamentally believe, and I think many physicians believe, that we have the two best assets for being able to treat CLL patients and provide them with long durations of disease free intervals between BenClexta and Imbruvica. So if CalQuest gets a first line approval in CLL, they'll certainly get some share, but I would tell you that I feel highly confident in our position in this marketplace based on our performance and based on the assets that we have. So, Laura?

Okay, with respect to the regulatory process, the regulatory process overall is proceeding well. We've filed for approval in all major jurisdictions. With respect specifically to the FTC, we received a second request for information at the end of September, which was not unexpected, and we're working through those requests with the FTC. We've also notified them of our intent to divest two assets, one Brasikizumab, which is an IL-23, and the other ZENPAP. We have a robust divestiture process ongoing right now with several interested parties, and I think as Rick said earlier, we remain optimistic of a first quarter 2020 closing.

Thanks, Naveen. Operator, next question, please.

Thank you. Our next question is from Terrence Flynn from Goldman Sachs.

Hi. Good morning. Thanks for taking the question. Congrats on all the launch progress. Maybe just two for me. I was wondering, with respect to XUS Skyrizy, looks to be off to a strong start there. Wondering any more color you can give us in terms of where sales are coming from and anything similar or different versus the U.S. launch? Great. And then, Rick, how should we think about U.S. Humira pricing next year? Amgen had some comments earlier this week, but we'd be curious to hear your thoughts as well. Thank you.

I think on international Skyrizy, you have to remember we really only have reimbursement in a relatively small number of countries today, but that reimbursement process, that pricing reimbursement process is ongoing. So you can expect it's doing extremely well in the markets that it's in, but that's going to expand significantly over the course of the next 12 months as we get pricing and reimbursement in additional countries. I would expect Skyrizy to perform reasonably consistently with what we're seeing in the U.S. and certainly in the Western European markets. So I think there's a good opportunity there and we're excited about that opportunity. Certainly as it relates to Humira pricing, we're obviously in the process of going through all of our managed care and I'd say we're far into that pricing or that contracting process for 2020. I don't view any significant change in the dynamics around Humira pricing in 2020. It would be significantly different from what we've seen in 2019.

Thanks, Terrence.

Operator, next question, please. Thank you. Our next question is from Steve Scala from Cowen.

Thank you. Congratulations on a very well executed quarter. Despite all the investor apprehension, Humira foreign has beaten three quarters in a row. How is that success split between regions where there are biosimilars and ABI is just delivering despite the pressure and regions where patents are still in force? So that's the first question. And then second, it seems like the Allergan closing might be earlier than generally thought. The company had been saying Q1, but in the release it says early 2020, which kind of implies January. So what what key steps have been achieved earlier than expected to allow for that earlier closing? Thank you.

So if you look at you are correct, Steve, this is Rick on OUS Humira. If you go back to our guidance in the fourth quarter of last year, we guided to overall erosion at about 30 percent. As Rob said in his comments, our forecast now is that that erosion will come in at about 28 percent. So slightly lower than what we expect. And you've seen that in each of the quarters, as you indicated, we've overachieved. I would say the bulk of that is slightly better performance in the areas where biosimilars are impacting the market. There is a portion of it that's a little better performance in the other in the other market as well, but the majority of it is driven by stabilization of pricing in those markets at a level that came earlier than we would have expected. As far as the closing is concerned, I don't think we were trying to telegraph an earlier date if that's if that's how the market interpreted it. We are making good progress on the Allergan closing integration activities are going extremely well. You know, we're obviously managing that very tightly. As Laura indicated a few minutes ago, the regulatory processes are advancing, but we'd like to stay with the current guidance that we've had. And that is a first quarter close. Obviously, we'd like to close it as rapidly as we can. And we're pursuing that activity to get that done. But at this point, I wouldn't want to change what the original guidance was. So if that's how it was interpreted, that was not our intent. Thank

you. Thanks, Steve. Operator, next question, please. Thank you. Our next question is from Andrew Baum from Citi.

Thank you. A couple of questions, please. First on Washington, obviously, it's very dynamic that the Senate Finance Committee proposal probably has more legs than most. Within that, there is a proposal to fund a cap of -of-pocket spend through funding of the catastrophic coverage period from both pharma as well as the planned sponsors. Thinking about in Brubica, how do you balance the impact of that? I'm thinking on the positive side of the increased volumes due to compliance adherence versus the negatives of both the direct hits net revenues, but also the indirect hit from pairs playing you off against competitors, including CalQuest, in order to claw back economics. The second question is on serratic arthritis. So both Novartis and Lilly have failed to show ACR 20 improvements in front line setting versus Humira. Given your awaiting data next year for your trial, are you confident that RIMVOC will enable you to do that? I know it's dangerous making cross-trial comparisons. The second line from what you've presented today doesn't necessarily provide significant reassurance, but I'm interested in that. And then finally, could you comment on the infection rate that you saw with RIMVOC in the 30-milligram arm of the serratic arthritis trial versus placebo? Many thanks.

All right, Andrew, this is Rick. I'll cover the first one. I'll have Mike cover the other two. You know, certainly, as you indicated, the situation is still pretty dynamic, although I'd say it's a little quieter over the last month or two than it had been across the summer. But I still think there is a lot of interest and a lot of activity that's still going to continue to look at ways to try to open up access and affordability, particularly in the Medicare population. And I think that's appropriate. I would tell you, we as a company support that. We do believe we need to make medicines more affordable to Part D patients. The Senate Finance bill goes in a direction that I think is helpful. It takes those -of-pocket costs down from where they are today. On a therapy like Imbluvacum or even a therapy like Humira, as an example, it takes them down fairly significantly to an -of-pocket cost. It's about $3,000 or $3,100. I would say we still fundamentally believe that's too high for most Medicare patients. The average Medicare patient has an income of $26,000. We think it needs to be more in the neighborhood of, you know, something below $2,000. And our government affairs people are working to try to articulate that position. The other issue with it is it's still front-end loaded in the year. So from a cash flow standpoint, the patient has to come up with that $3,100 in the first two months, typically in the first three months. And most of these individuals don't have that kind of cash flow. So coming up with a structure that would allow it to be spread across the full year would be certainly a more reasonable approach to allow those patients affordability. As it relates to the funding in the catastrophic area, certainly if you look at trying to make these drugs more affordable to patients and have broader access, someone has to pay for that. And certainly I can't speak for the entire industry, but I can speak for Abby. You know, we have said, and when I testified at the Senate Finance Committee, I said we are willing to step up and cover more of that cost. You know, health care plans have to pay more of the cost, and obviously the government needs to pay a piece of that as well. It moves in that direction, although I will say the way they've structured it so far, it is more punitive or more costly to companies that have more innovative therapies, and it actually gives a benefit to certain companies who have drugs where the total cost would be below $6,000 per year. I don't think that was the intent. I doubt seriously they were trying to give a benefit to any specific company. So re-looking at where that threshold is and the overall percentage in the catastrophic phase is something that would be an important aspect of modification to this bill. But I'd say it moves in the right direction. Specifically to answer your question about volume, we have looked carefully not just at the move up across our entire portfolio. We do believe there will be some volume increase. -to-net, I can tell you the volume isn't enough to offset the overall cost, but I think in the grand scheme of where we want to go with this, I think this is a reasonable approach and with some modifications, I think it could have a meaningful impact on the issue and potentially put the debate to rest. So it's something that with modifications, I'm supportive of it.

Mike? This is Mike. I'll take the question on psoriatic arthritis. One thing that's important to keep in mind is that the study that we just released is in a bio-IR population. And in fact, it was in a pretty heavily pretreated bio-IR population where a number of patients had failed two or three prior biologic DMARDS. And despite that, we drove very high levels of response at the ACR20 level and at higher levels on the joint endpoints. And if you look at the placebo subtracted differences, they're entirely in line with our expectations. So, you know, these data would increase our confidence in the overall program and our ability to hit our marks in the second study, which includes not only the -to-head comparison, but also the structural endpoint. The second thing that I would add is that that second study is a very large and robust study because it has those structural endpoints. So it's very well powered to show the effects that we would expect to see. So we remain confident in the -to-head and in our overall psoriatic arthritis program. And then on the third part of your question with respect to infection rates, in the data that we just released in psoriatic arthritis, we did see numerically higher rates of infections and serious infections in the 30-milligram dose. That's not uncommon in a therapeutic immunomodulator class. This is our first study. So I think we're going to have to see how that second study plays out, not only with respect to the safety parameters, but also with respect to the dose response that we see or do not see across doses on the joints and other endpoints. And we'll make a determination of the most appropriate dose to carry forward based on that complete data set, as we did in RA.

Thanks, Andrew. Operator, next question, please. Thank you. Our next question is from Jeffrey Porges from SBB Liering.

Thank you very much. I appreciate the questions. Congratulations on the strong results. Two questions from me. First, on Venclexta and Boruvica, could you give us a sense of whether you really think a significant volume of CLL patients could really be treated with a non-chemo, non-CD20 regimen? And how are you thinking about the duration of Venclexta in that setting, because it could be potentially transformational? And then Rick, could you just talk a little bit about capital allocation? I'm sure there's some relief out there that the dividend went up. Now you're getting close to closing the Allergan transaction. Could you talk about how confident you feel about the outlook for the dividend and your ability to continue the long record of dividend increases? Thanks.

This is Mike. I'll take the first part of your question on Venclexta and in Boruvica combination use in CLL. I mean, we do think there's a very meaningful opportunity there. When you look at the CLL population, it's a heterogeneous group that ranges from patients who develop CLL later in life and have a number of comorbidities. Those patients today tend to receive pre-trained progression therapy with the Boruvica. We're seeing that shift very strongly as we've released those in Boruvica data. But there are other patients, patients who developed CLL earlier in life, patients who have less comorbid illness, who are interested in treatment intensification and getting very, very deep responses. And for those patients in particular, the Venclexta and Boruvica combination, I think, is very compelling based on the data that we've generated to date. We see very deep responses. We'd expect that to translate into long disease free intervals. And we think it's a therapy that will be an important treatment option. With respect to the specific duration, that's going to be tailored based on the data to individual settings. But those combination regimens do tend to have fixed duration therapy.

Okay. Hi, this is Rick. I'll take the capital allocation question. Let me start maybe with more broadly about capital allocation. You know, we have basically three priorities when we look at capital allocation. We want to invest in the business. We want to continue to drive a strong and growing dividend. And we want to pay down debt. And those are the priorities for us. We have a debt pay down plan that we have put in place that's consistent with the objectives that Rob indicated in his formal comments. And that will be something that we will absolutely drive towards. Now, we're fortunate that we're in a business that generates a tremendous amount of cash flow. And the combination of Allergan and ABI together will generate very, very significant cash flow. And so we have the luxury that we're able to do both. And we certainly would not have increased our dividend double digit now if we had any concerns about that going forward. So I can tell you we are committed to a strong and growing dividend. And we're committed to paying down debt. And we have the ability to be able to do both. And I think the dividend increase that we're announcing today is a reflection of our confidence in that cash flow generation. Thank you.

Thanks, Jeffrey. Operator, next

question, please. Thank you. The next question is from Tim Anderson from Wolf Research.

Thank you. Going back to Astra's CalQuence, if that product is able to show differentiation either on -by-side analysis to your product or in the -to-head that reports out next year, where does that come? In what form does that come? Is that likely to be efficacy or on safety? And I understand the commercial dynamics still might keep them on the sidelines. But in terms of what the clinical data shows with these next-gen products like CalQuence, if it were to be better, where would that be? And then a second question on Allergan, obviously a lead asset, is Botox. Wondering if you can give us some indication of your view of the product's durability over an extended period of time in your long-range planning assumptions. It's fended off competition well in the past. There's obviously certain new threats on market now. What does your long-range planning assume? Is it continued positive growth through the next decade at about the same rate, for example?

Okay, Mike? So this is Mike. I'll take the first part on CalQuence. We really wouldn't expect to see differentiation on efficacy or safety, you know, based on our look at the data. We understand the positioning that some of the follow-on BTK inhibitors have put forward. But when we look at the data, they look like MeToo's, as Rick has said. If you look at -for-like data in second-line CLL, for example, which is the only indication where they have publicly available Phase III data, and you line that up against our Phase III data, if you look at response measures, they look very, very similar. And that's despite the fact that in the CERTA study, they had a median number of prior therapies of one prior therapy, and we had a median number of three prior therapies. So a much more heavily treated patient population and yet the same efficacy results. So that's not indicative of likely differentiation in our mind, and you wouldn't expect that based on the mechanism of action. It's a BTK inhibitor. And when you look at safety, that story has evolved as well. It started off as no bleeding, no aphid, and now we see both of those in their label, and those events are showing up in their larger-scale clinical trials as well. And if you go back to that same study comparison that I talked about, you see rates of aphid that actually look pretty similar if you look at corresponding time points. So we don't really see differentiation there either. And it's important to keep in mind that labels evolve over time. If you look at how our label has evolved, as we have unblinded multiple large Phase III trials and also accumulated extensive post-marketing experience, things get added to your label, and that's the natural course of a product's life cycle over time. If you look at their label today compared to a Blubica's label at a corresponding time point, they look pretty similar. So to our eye, these look like MeToo's, and we wouldn't expect to see that differentiation.

Okay. This is Rick. I'll answer your second question about Botox. And I'm going to answer it in the backdrop of the work that we did as it relates to the acquisition, the market research that we did leading up to the acquisition. So we looked carefully at Botox and the durability of Botox. It's an important product for Allergan. And I would tell you the Allergan organization, I think, has done an outstanding job with Botox. But if you look at competition, it comes in two forms, or potentially can come in two forms. One, other branded toxins, which is what they've experienced thus far, and we expect to see more other branded toxins. And I would tell you that what the market research clearly told us is that the brand equity of Botox in the channels that they operate is so strong that it is extremely difficult for those practices to operate without offering Botox because many patients, when they walk in the door, ask for it by name. And so because of that, they have a bundling program that has been extremely effective at being able to manage the competitive dynamics around this asset quite well. And in fact, I would say as we built our model for the Allergan transaction, we built, and we've said this a number of times, we built a fairly conservative model. And we did that across virtually every single product. And so our model is more conservative than what the Allergan current performance is, and it's certainly more conservative than their longer range forecast. But it still does project growth for Botox going forward. I would say we've watched their quarterly performance last quarter, and Botox, despite the fact that there was a lot of speculation that competition was going to have a big impact, Botox performed very, very well. We'll see their performance here soon. But I would expect that Botox will continue to perform very well. And so I think that organization deserves a lot of credit for the way they've handled competition and the way they've continued to grow this brand quite well. The second aspect that you have to look at as it relates to Botox is whether or not you're going to see any biosimilars for Botox. And we've talked to investors in quite a bit of detail around here, but the short answer is based on the uniqueness of this particular molecule, we have come to the conclusion that it would be extremely difficult to create a biosimilar version of Botox. And I would tell you we looked at this very extensively with a lot of outside expertise, and we feel very confident that that's the case. So that was a long answer to basically say to you we feel good about Botox. We feel good about our ability to be able to continue to grow Botox both in the aesthetics area as well as the therapeutic area. And I think all of the data thus far only further supports our confidence.

Thank you. Thanks, Tim. Operator, next question, please. Thank you. And our next question is from Dave Reisinger from Morgan Stanley. Thank

you very much. So obviously the results were quite impressive. I just had a question on the gross margin. So that was down slightly sequentially to 82.0 percent. Could you just comment on that and the outlook for AbbVie's gross margin? Second, with respect to a comment you made earlier, Rick, you said that RINVOC is capturing 6 percent of in-play RA patients. I was wondering if you have the Skyrizi in-play psoriasis patient percentage as well. And then finally, with respect to Imbruvica, there was a recent blood article on the product's link with hypertension. Could you just comment on that and talk a little bit about how you are managing that? Thank you.

David, this is Rob. I'll take your first question. So if you look at our -to-date gross margin profile, we're at 82.7 percent. I've given guidance of approximately 82.5 percent for the year. But keep in mind, within a particular quarter, you'll have sales mix, and it can have more pronounced impact on gross margin profile. In Q3, we saw stronger sales from partner products like Imbruvica and VanClexa, as well as a seasonal impact of SynaGist. But keep in mind that we also share expenses with our partners for Imbruvica and VanClexa. So that gross margin impact is offset in our expense profiles. So as a result, you can see that we've exceeded our guidance on the operating margin profile this quarter. We just achieved an all-time high at 48.4 percent. So it's really important when you think about those partner products to be really focused on operating margin as opposed to just gross margin.

And then, David, this is Red Bound Skyrisi. The in-place psoriasis share for Skyrisi is over 20 percent right now and growing pretty rapidly.

And this is Mike. I'll take the Imbruvica question regarding hypertension. So hypertension has been seen with clinical use of Imbruvica and other BTK inhibitors. And, you know, obviously we believe that it's important to pay close attention to patient safety and that it needs to be managed effectively. And we think it is managed very effectively, both in clinical practice and in our clinical trial programs. If you look at the overall benefit-risk profile, it's very strong. We have released data from a number of phase III studies across a wide range of settings. And that benefit-risk profile comes, I think, very clearly in all of our data. So we're very confident in the overall profile of the molecule. And we're managing hypertension, I think, quite effectively. Great. Thank you.

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

And I am showing no further questions at this time. Okay. Thanks, Solan.

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

Thank you. And this does conclude today's conference. You may disconnect at this time.