Q1 2020 Earnings Call
Good morning, and thank you for standing by welcome to the LP first quarter Twentytwenty earnings Conference call, all participants will be able to listen only until the question and answer question and you May ask a question by pressing star one on your phone.
I'd now like to introduce Nestle shade, Vice President of Investor Relations.
Morning, and thanks for joining US also in the call with me today are reconcile as chairman of the Board and Chief Executive Officer, Michael Severino, Vice Chairman and President and Rob Michael Executive Vice President Chief Financial Officer, joining us for the Q and a portion of the call. It works Schumacher Vice Chairman external affairs, Chief Legal officer, and corporate Secretary before we get started I read.
I knew that some statements we make today, maybe considered forward looking statements for the purposes of the private Securities Litigation Reform Act of 1995.
I'd be cautions that these forward looking statements are subject to risks and uncertainties, including the impact of the cobot 19 pandemic on abbey's operations results and financial results 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 2019 annual report.
And form 10-K and in our other SEC filings Abby 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 abbey's ongoing business performance. These non-GAAP financial measures are reconciled the comparable GAAP financial measures in our earnings release.
And regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions. So with that I'll now turn the call over to Rick.
Thank you Liz good morning, everyone and thank you for joining us I'd like to start my remarks by acknowledging the tragic nature of the cope with 19 crisis, which has touched all elements of our in our lives in ways, we never thought possible.
The human told that this pandemic as inflicted is unprecedented and the suffering unimaginable.
During this very challenging time I want to assure you that across Abbvie, we're working carefully to ensure that our business continues to operate properly our employees remain safe.
Patients continue to receive their medicines, and we are providing aid including product donations and financial assistance to address some of the critical needs of health care systems and underserved communities across the globe.
As a matter of priority, we continue to closely manage manufacturing and supply chain resources around the world due to ensure that our patients receive an uninterrupted supply of their medicines or manufacturing sites remain operational and we have implemented additional measures at these facilities.
To ensure the safety of our employees and to protect our supply of Apiay and finish medicines.
We have adequate supplies in inventory to meet the expected demand for all add BG medicines, including police right in NIM bags to therapies that experienced a significant increase in demand directly related to covert patient treatment.
And we currently do not anticipate any product supply issues.
Abbvie is also committed to supporting clinical research efforts for Cobiz 19, we have provided product donations to many health authorities and institutions globally. So that abbvie products, maybe further evaluating externally as potential treatment for this difficult disease.
In times of crisis. It is our nature as individuals and our culture as a company to get back in any way we can.
We recently announced that Abbvie is donated $35 million to help meet some of the critical needs around the world.
We partnered with several non for profit organizations, who were on the front line to the battle against covert 19, and our donations have helped to support several important initiatives, including the creation and operational 20 mobile feel hospitals in U.S. cities most impacted by the pandemic.
The procurement and delivery of oxygen concentrators ventilators and personal protective equipment to healthcare systems in Europe.
And various other essential programs, including a donation to feeding America to provide food and household supplies those most indeed, including the elderly.
We have donated a significant portion of bad these own personal protective equipment supplies, including and 95 in surgical masks to hospitals and your facilities throughout the U.S. in Europe.
We have also converted some of our own facilities, including a pilot plant and several research laboratories to manufacture culture media and provide cobot 19 patient testing to supplement several public health departments were honored and committed to do what is in our power to help with this devin.
Stating pandemic and we will continue to look for ways, where we were able to help.
Now turning back to our business and want to further discuss how the crisis is impacting our performance and expectations for the full year 2020.
Today I'm pleased to report strong results for the first quarter Abbvies total revenues were up more than 10.5% our operational basis and adjusted earnings per share of $2.42 was up more than 13% versus the prior year.
These metrics were significantly above consensus and our initial expectations.
Fortunately, we had very robust demand across our product portfolio heading into the kobin prices.
As the U.S. and other major countries around the world started implementing stay at home orders and social distancing strategies in late February.
Abbvie as well as most of our customers started restricting face to face interactions, resulting in reduced physician and patient contacts these limitations, which are still in effect to most major countries created two fundamental impacts on our business in the quarter.
First patients in pharmacies built up some additional inventory of our medicines to ensure they had adequate supply and second we saw fewer new patients visiting physicians offices, which had a modest impact on the number of new patient starts.
Adjusting for covert inventory dynamics.
First quarter underlying operational sales growth was roughly 8.3% significantly above expectations with double digit underlying performance in both team on.
And immunology, demonstrating the strong underlying performance of our business.
We then anymore imbruvica the market leading treatment for CLL grew strong double digits driven by increased demand in the frontline setting where we recently received another important label update which Mike will discuss momentarily.
Ben collects the also performed very well in the quarter with global revenues of $300 million roughly double the first quarter of last year following share expansion in both CLL and am Mel.
Turning to our immunology business Tumeric continues to generate significant revenue.
Numero benefits from a substantial installed patient base, representing more than 80% of current demand.
Globally to mirror revenues were up nearly 6.5% on an operational basis in the quarter, including strong double digit growth in the U.S.
The international bio similar trends and dynamics remain largely consistent with our expectations.
Scott resin global revenues of $300 million were also significantly above expectations.
Since the launch late last April we have quickly established and expanded our leading in place psoriasis patients here, which includes both new and switching patients and now exceeds 30%.
This launch trend is truly remarkable and a testament to sky rizzi strong efficacy compared to other novel agents in this arises category, including Humira and Cosentyx.
Rendac is also performing at a very high level in the already segment with global revenues of $86 million in the quarter, we estimate more than 17500 prescriptions were filled including both paid and bridge.
Which is more than doubled the activity we saw in the prior quarter and now reflects approximately 11% in play or a patient share.
As demonstrated by our first quarter results the underlying performance of our business remains very strong.
We have now also begun to return to ordinary operations in select geographies around the world where health authorities have deemed it's safe to do so and although early we are seeing those countries ramp towards a normal operation and expected performance.
This is obviously a challenging time to forecast given the unique nature of the cobot pandemic, including its global scope and unknown duration and it is difficult to predict precisely when major countries around the world will return to normalcy.
Despite this uncertainty we believe it's important to provide a clear set of updated assumptions that reflects the latest view of our full year performance. We based our forecast on the best estimates we have at this time and we will make updates if necessary our next quarterly call.
As I indicated earlier, our business was performing robustly above expectations and above our guidance prior to the covert related impacts.
We have spent considerable time carefully evaluating the covert dynamics from late March and April.
Based on this analysis over it appears to be having two fundamental impacts on our business.
Okay.
There has been a variable impact on new patient starts due to physicians offices restricting patients visits and patients adhering to stay at home orders.
As an example.
Many dermatology offices are currently closed Abbvie has a strong frontline position in dermatology with Humira and Sky reserves and here, we see new patient starts for these two brands were lower by approximately 30% to 40% over this timeframe.
Once these offices reopen patient volumes should return back to normalized levels.
Second we've also seen lower new patient utilization of hospital based treatments, such as Venclexta and HCV internationally due to many hospitals limiting access to non emergency nine cope with patients.
We've carefully model these coated related dynamics and incorporated the expected impact our full year results are for our current forecasts now assumes the following.
Stay at home orders will be gradually lifted starting in may across Europe, and the United States.
60 days after geography lift stay at home orders, we expect physician offices and hospitals will reopen for more routine patient diagnosis in care and we expect patients will start returning to physicians offices for routine treatment in that timeframe.
We have also factored in a modest increase to our patient assistance programs as well as a shift in our U.S. payer mix due to increased unemployment.
Based on these specific assumptions we are confident we can maintain our current full year 2020 adjusted earnings per share guidance.
We will learn more as the second quarter progresses, and we will continuously evaluate our current assumptions relative to how the environment evolves.
Any updates will be provided on our next quarterly call.
On a related note, while we have not yet completed the Allergan transaction. We have also been actively working to assess the impacted the koby prices on the Allergan business.
It's important to highlight that allergan as both a therapeutic business, which is similar to the abbvie business and represents approximately two thirds of their revenues and profits and aesthetics business, which represents roughly one third of the revenues and profits.
On the differences in the nature of these two portfolios, we expect them to be impacted differently as a result of the coven pandemic.
We expect our gains therapeutic business, except for botox therapeutics to be impacted and recover from the coated prices in a manner very similar to the abbvie business I outlined earlier.
We expect Botox therapeutics, which has a substantial hospital base to experience a more significant impact given that patients are being discouraged from going into the hospital for non emergency procedures during the pandemic as I mentioned earlier.
We also expect to see a more pronounced impact on allergens, a steady business as many of their customers, including plastic surgeons med spas in dermatology offices are closed and therefore not performing procedures.
However, after carefully analyzing.
Steady business performance during the 2008, 2009 recession, which experienced a rapid V shaped recovery.
The recent trends, we're absorbing in China as clinics have reopen locally and procedures have started to ramp significantly.
And taking into account the household income and employment status of the a steady patient base.
We remain confident at the expected near term impact will likely substantial.
We'll be trends together with the a steady business quickly ramping back to normalized trends following the relaxation of quarantine restrictions in the U.S. and major European markets.
As it relates to the closing of the Allegan transaction, we have completed all requirements with the FTC and they are in the final stages of their review process.
During the FTC process. The last step is the Irish High Court approval based on everything we know today.
Continue to expect the transaction should flows in may.
We remain confident that the Abbvie Alexander combination will generate significant cash flows, which will support our strong and growing dividend and rapid debt repayment and.
And we remain highly committed to both of those priorities.
So in summary.
We reported a very strong first quarter performance to covert prices is truly unprecedented and we expect it will have a transient impact our business primarily affecting our second quarter performance.
However, based on our analysis of the situation as well as reasonable timing assumptions for the returned to a more normalized environment. We're confident in maintaining our full year adjusted earnings guidance, which speaks volumes about the strength of Abbvies business momentum entering the kobin prices.
With that I'll turn the call over to Mike for some additional comments Mike.
Thank you Rick.
Let me begin by echoing Rick sentiment about how proud I am of our colleagues as our teams work to ensure our business continues with minimal disruption and our patients received their essential medicines.
The entire organization, including our colleagues deemed onsite essential who continue to come into work every day and the individuals who have effectively adapted to working remotely.
Have demonstrated resiliency dedication and compassion throughout this time of crisis, It's a testament to the culture, we built it abbvie.
Today I'll focus my commentary on the ongoing efforts within Abbvies R&D organization to address cobot 19, and provide updates regarding our key development programs.
As a leading global biopharmaceutical company Abbvie is committed to supporting relief efforts for the Corona virus pandemic.
In addition to the efforts highlighted by Rick we have deployed our scientific and medical resources to help fight Cobot 19 on several fronts.
There is an urgent need to increase testing capacity within the United States.
Public health authorities are actively working to address the issues that have limited capacity to date, including instrument availability availability of diagnostic kits in reagents and CLIA certified lab capacity.
Given the unprecedented nature of this pandemic and the need to significantly increase access to testing Abbvie is working with health authorities here in Illinois, where we are headquartered and it looked weeks off in Germany, where we operate a major site to create a clinical co the testing capability.
This will allow us to use our laboratory expertise to expand the cobot 19 testing capacity in both jurisdictions.
We have also used our GMP capabilities to manufacture viral transport medium, which is necessary to preserve swabs prior to lab testing for the Illinois Department of health and a number of academic medical centers.
Like many companies in our industry, we recognize the extreme burden being placed on our hospitals public health systems and medical professionals by this crisis.
And in response, we have created programs to allow our employees, who have relevant medical scientific or public health expertise to volunteer to support the fight against this pandemics.
Abbvie has tremendous resources and we're doing everything we can to make these resources available in the fight against Cobot 19.
In addition to the efforts I just described our R&D team is looking at our existing medicines and pipeline assets to assess their potential for the treatment of cobot 19.
Abbvie is collaborating with health authorities and academic institutions globally to support clinical trials of culture, a protease inhibitor approved for the treatment of HIV infection.
Determine whether it has potentially use in cobot 19.
Two notable ongoing trials are the solidarity study being run by the World Health organization and the discovery study being led by a consortium in France.
We expect to see data from these studies very soon and we'll continue to monitor and update as information becomes available.
We have also initiated a phase two study of Imbruvica in patients with cobot 19 infection.
The goal of this study is to determine whether imbruvica is able to improve outcomes by blunting. The overly exuberant immune response, often referred to as the cytokine storm that contributes to the morbidity and mortality in cobot 19.
Lastly, we are also collaborating with a number of groups to screen, our internal libraries for compounds with activity against Cobot 19.
Clearly this is a rapidly evolving situation and we will provide updates as additional information becomes available.
Turning now to an update on the status of our clinical development programs.
Our top priorities in the R&D organization, our ensuring the safety of patients investigators and our employees around the world.
Maintaining the integrity of our clinical studies.
And continuing to advance our pipeline.
We are carefully monitoring the situation and taking appropriate precautions to protect the safety of our study participants clinical site staff and our employees.
We understand that healthcare systems are under extreme pressure because of the need to respond to the cobot 19 pandemic.
In many instances hospital based research staff have been redeployed to other duties and aren't available to address clinical trial related matters.
Abbvie is doing everything possible to avoid creating an additional burden to our clinical trial sites.
Given the current environment, we have delayed onsite startup activities for new clinical studies.
Startup activities that can be performed remotely will continue and we will resume onsite activities and new study initiation on a case by case basis as local conditions allow.
We also paused screening of new patient recruitment for a small minority of non critical ongoing studies, representing approximately 15% of our clinical trials.
But are already in the process of reactivating screening in some of these studies again as local conditions allow.
The remainder of our studies continue to enroll although we have seen decrease screening rates in the short term as would be expected in the current environment.
At this time, we expect limited impact to clinical trials that are already fully enrolled.
Across our portfolio, we've implemented measures to ensure study continuity and minimize delays.
These include actions such as shipping study drug directly to patients to avoid unnecessary study visits.
Conducting virtual study visits and remote data collection wherever possible.
And shifting enrollment to geographies and clinical centers that are either less impacted or are already entering recovery.
Based on these efforts, we currently expect minimal impact to the overall timing of our critical programs and to our key regulatory submissions.
In immunology, we expect to limited impact to the programs for rent Vulcan Sky resi in new disease areas.
We are on track to submit our regulatory applications for rent book in Psoriatic arthritis in the second quarter.
And our filings for atopic dermatitis, and ankylosing spondylitis, our plan for the second half of this year.
The data from our phase three studies evaluating RIN Woking atopic dermatitis are also expected in the middle of the year.
The programs risque rizzi in new disease areas are also advancing very well.
We continue to expect to see data from phase three studies in both Psoriatic arthritis, and Crohns disease, and the second half of the year with regulatory submissions for both indications expected in 2021.
We continue to make good progress with our early stage immunology pipeline as well and we expect to be able to share results from the proof of concept study evaluating our novel TNF started conjugates in our a patients very soon.
We recently completed the phase two proof of concept study evaluating ADB 599 in our patients.
Where our Jack BTK inhibitor combination demonstrated superior efficacy compared to placebo, but the efficacy results did not prove differentiated from monotherapy with Rainbow.
Based on these results, we're just continuing development of ABVD 599 in rheumatoid arthritis.
We plan to continue development in other auto immune diseases, where there is a greater b cell contribution such as lupus and systemic sclerosis in which dual Jack BT can inhibition could provide superior benefit over current standard of care.
In the area of oncology, we continue to make good progress with our Hmong programs, where we achieved several important milestones in the first part of the year.
We recently received a label update for Imbruvica based on results from the E 1912 study.
Which demonstrated the superiority of imbruvica to Fcr in frontline patients with CLL.
For patients who could tolerate it the fcr regimen had been considered the gold standard for efficacy in frontline treatment for more than a decade.
Demonstrating a strong progression free survival benefit over Fcr and incorporating these data into the label is another important addition to the breadth of data supporting Imbruvica use in frontline CLL.
Continuing with our Hmong programs, we recently announced positive top line results for Venclexta in the Phase III V Ali a study in AML.
In this study venclexta in combination with a decitabine demonstrated a statistically significant improvement in overall survival and in composite complete remission rate versus a decitabine alone in patients with previously untreated AML, who are ineligible for intensive chemotherapy.
To be Ali eight study was stopped early due to positive efficacy results at the first interim analysis of overall survival.
Demonstrating venclexta clinical benefit to these patients for whom there are few treatment options.
We also announced results from a second smaller phase three study in frontline ineligible AML patients the bialy see trial, which evaluated venclexta in combination with low dose cytarabine.
While the study did not meet its primary endpoint of overall survival treatment with the Venclexta combination showed in observed 25% reduction in the risk of death compared to low dose cytarabine alone.
We believe that the Tiger to hit statistical significance on the survival endpoint in this trial was due to limitations on the sample size of the study.
With an additional six months of follow up in the Bialy see study the Venclexta combination demonstrated a median overall survival of 8.4 months compared to 4.1 months for low dose cytarabine alone.
With a hazard ratio of 0.7, and a nominal P value of 0.0 for.
All secondary endpoints were in favour of the Venclexta combination as well, including higher rates of response earlier remissions increased transfusion independence and longer event free survival.
The data from both phase three studies in AML will be submitted to the FDA and global health authorities in the coming months with regulatory approvals. Beginning later this year or early next year.
We also remain on track to start several additional phase three studies in Bcl two driven diseases later, this year, including Venclexta in fit patients with and now and in high risk Myelodysplastic syndrome.
As well as in the Venetoclax in frontline and second line myelofibrosis.
So in summary, we've continued to make good progress with our development programs. Despite the challenges associated with that Corona virus pandemic.
Once the situation has stabilized we will work to restart Pos clinical studies and evaluate the impact to our portfolio.
But at this point, we do not expect the global pandemic to have long term or significant impacts on our R&D programs.
Our pipeline remains very robust and we expect many important milestones over the course of the next several years, which will support abbvie stronger growth over the long term.
With that I'll turn the call over to Rob for additional comments on our first quarter performance Rob.
Thank you, Mike starting with our first quarter results, we delivered strong top and bottom line performance total net revenues were $8.6 billion up 10.7% on operational basis, excluding a 0.6% unfavorable impact from foreign exchange.
These results include approximately $190 million of inventory stocking relate to the covert 19 pandemic.
We reported adjusted earnings per share up $2.42, reflecting growth of 13.1% compared to prior year and above our guidance midpoint by 13 cents.
Including four cents from underlying business strength and nine cents related to covert 19 inventory stocking.
Several key products contributed to growth in the first quarter.
Do you assume air sales were $3.7 billion up 13.7% compared to prior year, reflecting double digit volume growth plus price.
These results include approximately $65 million of Coven 19 inventory stocking.
Internationally Humira sales were $1 billion down, 12.8% operationally, reflecting biosimilar competition across Europe, and other international markets and ahead of our expectations.
These results include approximately $35 million of Covance 19 inventory stocking.
Guy Rizzi is performing extremely well and above our expectations.
Global sales were $300 million with us in market in play market share now exceeding 30%.
We also continue to see robust demand for rent voake with sales of $86 million in the quarter.
Hematologic oncology global sales were more than $1.5 billion up 32.3% on operational basis, driven by continued strong performance of both Imbruvica and Venclexta.
Imbruvica Global net revenues were $1.2 billion up 20.6% driven by strong share and all lines of therapy in CLL.
These results include approximately $45 million of Coven 19 inventory stocking.
Then click to revenues were $317 million driven by continued share gains across all approved indications.
Global HCV sales were $564 million down 30.2% on operational basis, driven by lower treated patient volumes in select international markets and increased competition within the U.S. managed Medicaid segment.
We also saw continued strong operation operational sales growth for Creon and Duodopa.
Turning now to the PML profile for the first quarter. Adjusted gross margin was 82.7% of sales ahead of our full year guidance due to sales mix and currency hedges in place.
Adjusted R&D investment was 14.3% of sales supporting our pipeline programs and oncology immunology and other areas.
Adjusted SNA expense was 18.6% of sales, reflecting continued investment in our on market products and newly launched assets.
The adjusted operating margin ratio was 49.8% of sales and improvement of 170 basis points versus prior year, including a 70 basis point benefit from inventory stocking.
Adjusted net interest expense was $284 million and the adjusted tax rate was 9.7%.
As Rick previously discussed we're closely monitoring the impact of the coven 19 pandemic.
Given the momentum of the business heading into the pandemic and our current assumptions regarding timing of the recovery. We remain confident in our previously communicated full year adjusted earnings per share guidance of between $9.61 to $9 in 71 cents for Standalone Abbvie.
Excluded from this guidance is $2 in one sense of known intangible amortization and specified items.
This guidance now contemplates full year revenue growth of approximately 7% on an operational basis.
At current rates, we now expect foreign exchange to have a 70 basis point unfavorable impact on full year reported sales growth.
Included in this guidance are the following updated full year assumptions.
We now expect us humira sales growth of approximately 7%.
Or sky Rizzi, we now expect global revenues of approximately $1.4 billion.
And for global HCV, we now expect sales of approximately $2.3 billion.
Moving in the TNL, we now forecast adjusted gross margin approaching 82% of sales.
As you know expense to be approximately 19% of sales and adjusted operating margin approaching 49% of sales and improvement of 140 basis points versus 2019.
All other full year 2020 guidance assumptions remain unchanged.
As we look ahead to the second quarter, we anticipate adjusted revenue of approximately $8.1 billion for Standalone Abbvie.
This guidance assumes reversal of inventory stocking for the first quarter as well as slower new patient starts due to covert 19.
At current rates, we expect foreign exchange to have an 80 basis point unfavorable impact on reported sales growth.
We are forecasting and adjusted operating margin ratio of approximately 47.5% of sales, including a reversal of the 70 basis point benefit from inventory stocking in the first quarter.
We expect adjusted earnings per share between $2 in 10 cents and $2 in 16 cents, excluding approximately 53 cents of known intangible amortization and specified items.
Abbvie remains well positioned to execute on our capital allocation priorities, we generated $3.8 billion of operating cash flow in the first quarter.
Our cash balance at the end of March was $41 billion, including funding designated for the Allergan acquisition.
The robust cash flow generation of the combined company will be used to rapidly pay down debt support a strong and growing dividend and pursue additional innovative mid to late stage pipeline assets.
We have committed to paying down $15 billion to $18 billion of combined company debt by the end of 2021 of which nearly $7 billion will be repaid by the end of May 2020.
We expect to achieve a net debt to EBITDA ratio up 2.5 times by the end of 2021 with further deleveraging through 2023.
In closing Abbvies performance and financial condition remains strong given the nature of the important therapies and our portfolio and the ongoing efforts of the people within our organization our business is well positioned and navigate the current covance 19 related challenges.
With that I'll turn the call back over to list.
Thanks, Rob we will now open the call for questions Operator first question.
And as a reminder to ask a question. Please press star one.
First question today is from Vamil Divan from Mizuho.
Great. Thanks, so much for taking the questions and all the color you provide in your comments, maybe just a couple of I could.
One you talked about.
Allergan deal, obviously somebody assumptions, there I'm just thinking big picture.
Yes. This is Rick just in terms of your kind of what you see as the value that deal in the other piece on the assumptions in the near term change and you mentioned aesthetics and thanks, applying more transient, but just to confirm for investors to see any changes a little longer term value of that this transaction.
Thank you want to question just given the nature. This six business right now and then second one on the dividend you mentioned, obviously support for a strong and growing dividend. They're also just any changes to how you think about dividend growth going forward given the current environment. This year still thing growing but is there may be growing at a lower rate or any change at all.
Just to integrate to declare thanks again.
Hi, Bob This is Rick I mean, I'll take those two questions. Let me do the second one because of the shorter first so we don't see any changes in the assumptions were making from the standpoint of the growth of the dividend.
Based on everything that we have analyzed and I would say the robust performance of our business going into the coven crisis, and how we view the tobin prices being.
Trends situation.
Beds, although difficult to predict exactly when all the geographies will read some level of normalcy.
We know that will occur at some point and so we don't view any significant change there.
On the value of the Allergan transaction I would tell you that we don't see any any channel fundamental change in the long term value of the transaction.
The benefits that we were trying to derive by acquiring the allergan business or the same and the long term valuation I believe is saying no I think what some of your investors will probably be concerned about.
Is obviously the aesthetics business is an important franchise as I indicated before represents about third of the revenues about third of their profits.
And it's on track to franchise and so I think the question that investors have is.
I always going to recover at how long will it take to recover and I think those are reasonable questions.
And as you can probably imagine we have been doing a tremendous amount of work to try to evaluate.
Not only the impact of posted on our business, but also the impacted focused on the Allegan business and specifically I'd say, we've spent a considerable AD time looking at the aesthetics business I'm going to take a couple of minutes here and walk you through what that data looks like so that you have a good perspective, if at least that day.
As it were operating again to make the assumptions that were making.
Now what I am going to say is because of the Irish Irish takeover code, we can't talk about the specific financials of allergy and until they are public and they're not public right now so I'm not going to talk about their financial performance in any anyway, but I think I can give you a pretty good characterization as to.
The work that we've done here and the conclusions that we've drawn.
I think if you step back and you look at this situation. It is clearly a situation wants a complex situation too it's not a situation do any of us have ever experience before.
Meaning that this has both a economic disruption factor built in and it has a supply and demand disruption factors. It's built and we've certainly seen economic impacts on this business for and we know out behaved in those circumstances.
So as Weve tried to approach understanding what the recovery will likely look like we've essentially look to four fundamental issues number. One is are there any analogs that would tell us what that recovery curve is going to look like humbled to what is going to what is going to take in order for the supply side.
I'd say supply side, I mean is plastic surgeons med spas dermatology offices, which are the primary.
Providers of those procedures, what what is we can take for the supply side to get back to where it was and then number two or number three rather what is going to be necessary on the demand side and demand I mean consumers.
Users of these procedures and then finally will there be any change in the situation from a competitive standpoint. Those are the four fundamentals that we've looked at we've looked at this both in conjunction with Allergan and we also have done an independent analysis with the same consulting firm that we use.
When we are we're considering acquiring the allergan business. So we did two independent workstreams to come to our conclusions. So let me start with the analog SER two right. There's the 2008 2009 recession and as I've said in my comments there we saw very sharp.
Shaped recovery and in fact, the business recovered and actually grew faster on the other side of that.
The second analog is China.
China has reopened most of its geography is not all but most.
And they built in for approximately seven or eight weeks now if we look at the data from China. What it says is 86% of the clinics have reopened patient traffic is back to about 55%.
All of them is just under 50%, 45% to 48% slightly lower because those clinics are also burning off some of their inventory. So it doesn't out day. So I'd say the two analog that we came up with pretty encouraging now let's look at the supply side. So on the supply side, what we're trying to understand.
And here is what is the intent and what is the preparation for these offices to reopen and I think theres a couple of important facts here that helped support and guide us to what that might look like.
First the major medical societies like the plastic surgery societies static society and the others have now issued guidelines.
To these practices on the procedures that they should use to restart.
And they include things like temperature checks mass globes face yields lower densities in their offices. So why is that important well why that's important is this gives those offices a guideline as to how they should reopened and probably more and more importantly, it gives them confidence on how they should Rio.
Open.
Allergan has worked with their customers a number of their customers a large percentage of their customers requested the U.S. government stimulus funds.
And so what we do know is that a significant portion of those practices should be in a position were financially they can reopen fairly quickly.
And finally Allergan has done a number of surveys with their large with a large group of customers that show the demand to reopen upon lifting of the stay at home orders and implementation of these patient safety guidelines is very high and we anticipate that they will start reopening.
In may.
And Thats, where our data told us in the survey data those I'd say, if anything it seems to be moving faster than what we originally anticipated because some states in the U.S have opened up more quickly. So then the next question is the demand side, what's that going to look like and here I'd say again Allergan did some very good work.
If you look at the brilliant distinctions database, which has about 2 million active members represents about 70% of allegations users. It shows that 70% of the prudent distinction consumers have household incomes of greater than $100000 and 50% having come together.
Incomes of greater than $150000 a year.
And it shows that 60% of those consumers work for corporation's not small businesses.
Allergan also conducted a recent user survey that had just under 450 consumers as they interview and.
And it shows that 80% of the consumers said that the coated prices, we have no or little impact on their household incomes.
94% of those consumers said they'd rescheduling appointment for procedures in the next 90 days and two thirds of them said upon restrictions being lifted they would scheduling appointments.
30 day.
So now you turn to the competitive environment.
Again competes mostly against smaller less financially strong companies.
Also say that Allergan has done an excellent job I give a tremendous amount of credit to carrying strom and bill Murray they respond quickly and aggressively to this crisis with their customers. They extended payment terms they converted credits to checks to help with cash flow with or at these offices.
They protected the customers volume discounts they facilitated online sales of Allegan skin medical products again to get those offices, some cash flow and they changed the product return policies. So that customers are protected from any product out.
I'd also say from a competitive standpoint, Allergan didnt lay offs, they maintained or accelerated their R&D programs and yet to remember elegant has the largest commercial footprint by a significant margin compared to anyone else in this business. So what the data tells me is this.
The analog show the business bounces back and its resilient.
The supply side should ramp quickly when the environment allows consumers have a strong desire to restart treatments and they have the financial capacity to do so and I think allegan did a nice job of creating loyalty with these practices and should come out of this in a very strong competitive position, maybe even stronger than they were.
For.
The independent analysis that we did also surveyed customers and providers and I would say it looks very similar to what the Allergan analysis looks like so.
What we can't predict is exactly how long will take in every state in every country around the world, but I think we can't predict with a pretty high degree of certainty that the business will bounce back. So those are some of the keys that I think make us feel confident in the valuation.
Thanks Baumel operator next question. Please. Thank you. Our next question is from Geoffrey Porges from SVB Leerink.
Thank you very much for taking the questions.
First there are number of things sort of obviously affecting the environment right now Rick.
I just wanted to ask about scar revision Rinpoche, you previously given some longer term aspirational revenue targets Im just wondering how you feel about those targets now we've seen a few quarters for each product and also.
It's done have little bit of co. The disruption and then could you just talk a little bit more I think that's very helpful coverage of the plastic surgeon Tong. Please could you just talk a little bit more about the other specialties.
Products were you expecting impairment in Q2, and how quickly they could bounce back. Thank you.
Yes so.
Fundamentally I would tell you we don't have any change in the long term forecast for Scott to resume Rainbow I think one of the things that's impressive when we look at both Scott Reserve and Rainbow.
Though the speed an acceleration of the ramp that we're seeing and the share capture of these assets. So let me give you a perspective on it.
If you look at scale Rizzi as an example, sky rizzi within about three months achieved the number one position and in psoriasis in place psoriasis share.
And then the rate of capture has actually accelerated from there and achieved at about 20%.
If you look into January data, which is the most recent independent data that we have we have internal data that we also use to project, but the January data shows that it's at 31% and the slope of that line is accelerating and accelerating at a pretty good clip.
And it is widening the more though the range between it and the number two player in a significant way and so this thing has tremendous momentum.
Yes, obviously the Covance crisis has has created a disruption you know as I mentioned in my comments dermatology offices closed obviously, they're not prescribing anything including Sky reserve, but thats, a temporary phenomenon and we'll see these offices so to open back up but I have no reason to believe that that momo.
Then to won't come back as patients feel comfortable to to go back into their offices.
We're invoke obviously a launch Scott was launched in April and remote launched in August.
So launch later, but I'd say, we've also seen on when both now a similar acceleration.
One of its capture rate of share.
In place share at all right and it too is accelerating going into this.
It's at about 11.3% on the last data point and I'd say based on a once things settled back out some coven. It would take it probably three months to pass as a whole group of players at number two humiras number one but it would take probably three months for to pass.
That will fits and number two and I would expect it moves into the number two position.
Shortly after that after the disruption has has subsided and we have a chance to continue to drive it and so I feel very good about both of those assets and what the long term performance of those look like.
I think as I look at the R&D programs for both of them and the ability to expand the indications much like we did with Humira.
These assets have tremendous opportunities.
So so I feel good about it.
Others that by other specialties I believe what you're asking is what's going to happen to the other aspects of the business because what I was referencing on aesthetics really cover the range of a supply side, so as plastic surgeons terms and med spas.
So again, we can't talk about the numbers, but as I indicated in my comments I would expect a therapeutic side of of Alexander will cover very similar to ours side.
A temporary disruption.
There is likely to be a more significant impact on botox therapeutic because you know about half of its volume comes from hospitals.
And but we would expect that to bounce back once those hospitals started accepting non emergency nine covert patients. So we.
We don't see anything in the data as we analyze it that would suggest that there's anything that's happening to any of their products that would impair the original assumptions, we made about those products.
Thank you next next question. Please operator. Thank you next question is from Steve Scala from Cowen.
Thank you I've a couple of questions, but first congratulations on a very strong quarter under very difficult conditions.
So first question is even pre pandemic have the seem to have embraced digital marketing I think the company previously said that pre pandemic, 40% of commercial activities were already virtual what does have the do differently than peers and does this expertise explain in part.
The strength of scar receipt in rent folk in the first quarter and then the second question is just a housekeeping question. Just curious do you expect that allergy animal publicly report its first quarter. Thank you.
Digital marketing I mean, obviously, we have Oh, we have a significant expertise in that area.
And I I honestly can't tell you how differentiated that is versus other competitors because I think many many companies like ours have gone to a significant portion of their of their promotional messaging is through digital marketing I think we're very effective that it.
I don't think that is what's driving the RIN, though sky Rizzi performance I think what's driving it is really two fundamental things. One is obviously these assets have very strong clinical profiles they fit a need in the market unmet needs in the market that was consistent with.
So when we're trying to develop replacements for humira.
We're all extremely pleased that these assets are doing a very good job of demonstrating superiority to the gold standard acumera.
The second thing is I think obviously this is a market we know how to execute in at a very high level, we have a tremendous a level of experience in this market a tremendous reputations market and I think.
Our commercial organization executes at a very high level in this market I think that's what's driving the ER the performance and.
It makes me feel good about what the future looks like for these assets.
As far as Allergan is concerned.
I don't know if they're going to well over this way I don't think actually talking.
Publicly.
Ah report their first quarter results I think thats something they should they should probably.
Respond to us.
Thanks, Steve Operator next question. Please. Thank you. Our next question is from David J. comes from yes.
Hi, Levine from your thanks for taking the question.
Or heard the 1.4 billion per square is you an upgrade versus the 1.2 just wondering if you had an update on a written book as well I think you had us at 500 million for the full year, maybe I missed it but just wondering if you could provide an update on the guidance as well and then with regards to the a slightly lower.
Turning of the full year Humira guidance wondering if there's any color on what's driving that obviously over 19 impacting things, but is it because of any color as to whether it's over 19, specifically or if its increase and gross to net or if that's an increase in the switching to Scott.
As you can bring back any of that would be helpful. Thank you so much.
Okay. Thank you. So let me talk about it at a little higher level and I'm going to hand over to Rob to give you more specifics.
I think the way to think about this is.
We came into this first quarter. If you look our first quarter performance had cobot not happen.
We would have been sitting here contemplating how we raised guidance.
But because of the uncertainty of what's going to happen in the second quarter. We obviously had to make an assessment of what we thought that impact would be.
Thats why outlined what those assumptions are.
So you can think about it this way, we're essentially assuming the businesses the over performance and the data clearly supports the businesses, though or we're going to have somewhat of a a negative impact in the second quarter that were basically saying, we can overcome and we had to estimate where that would occur we're raising sky reservoir.
Because the momentum is such that even with some some caution about second quarter. We know we're going to beat that number.
RIN vote, we feel good about when book as well, but we don't need to raise that at this point, we need to give it probably another three four months and then we'll make a decision what that looks like Chimera has a very large installed base and so I indicated that we are.
We are making some adjustments.
To what we think will happen with a channel channel mix specifically Medicaid.
We've worked diligently to try to understand what that looks like and as you probably know during the 2008 2009 recession, which is probably the best thing that we have to be able to compare to a Medicaid went up about two points from seven to own nine two percentage point.
Yes.
So we have factored in some potential shift in Humira, and that's primarily what will reflecting.
Rob can give you a little bit more color, but I'd say, that's a significant part of what we're trying to reflect there. We also took down Maverick and Maverick is two things one.
It is posted related probably about half of its covert related there were.
HCV internationally is administered through hospitals, and Bates clearly been disrupted and we knew that disruption due.
To play through before we can get back to the same momentum.
In the U.S., So I would say, it's primarily driven by price.
That market is still under price pressure and some share pressure.
So those are the two most significant ones Rob.
And the being so if you look at the guidance, we gave approximately 7% growth. So that translates in about a 300 million change for us Chimera I split and really in the three buckets evenly. So as we think about on unemployment higher pp volume Medicaid channel mix each of those let's say a third and a third from those two and then the remaining third would be just lower new ERP.
Patient starts during the stay at home period, so that would be most acute in the second quarter as it relates the sky resi and looked at the momentum from Sky Rizzi is very very strong and we would have raised at even higher had not been for the disruption in Q2 and UK new patient starts so despite having that disruption on new patient starts we're still taking the guidance up we would have taken up higher with.
With that and I think Rick characterized the HCV changed very well.
Thank you operator next question. Please. Thank you. Our next question is from Randall Stanicky from RBC capital markets.
Great. Thanks, guys, Rick focus is going to shift pretty quickly here. It's a pro forma 2021 earnings you you've had more time to prepare.
For the integration given covert 19, but.
Can you just talked about the scope and making impact those integration plans at all and then how are you thinking about.
The synergies and specifically how quickly you can really like realize those 2 billion plus you cost synergies I know there third party verified it or Irish law, but at the same time, it's 90% of 90% of that is up operating expense. So the question is why why couldn't we see more of that realized early on thanks.
Yes, I think as it relates to pro forma earnings I mean, once we close the transaction at that point, we will evaluate the business again and make a decision at which point, we're going to provide pro forma earnings.
Earnings as far as integration is concerned I would tell you that we're not we have done all the integration work, we're well prepared and have been prepared now for several months.
To do the final integration.
And I don't believe we're operating at the AD at a very high level of effectiveness as as we're operating today, where a significant number of people are working remotely I wouldn't say, it's the ideal scenario I much prefer a we can all get back to a its operating the way we did before but look at stat Pak.
All right now and I don't believe that anything will change the performance of the integration as it relates to cold so I'm not overly concerned about that.
Synergies, obviously, we have built a synergy plan that we're very comfortable with.
And.
We haven't I don't believe we've given the gating of that yet right. We have not okay that was Rob shaking his head no because you can't see Rob.
So.
We've obviously gated that I Wouldnt say, we have changed the gating because of posted one way or another.
But we feel good about achieving those synergies and obviously everyone that does transactions like ours tries to over achieve those synergies and we won't be any different than that but we'll give you an update on what that gating looks like a once we gave you the pro forma guidance.
Thanks Randall operator next question. Please. Thank you. Our next question is from Terence Flynn from Goldman Sachs.
Hi, Thanks for taking the questions and thanks for all the color today really appreciate it.
Just wondering if first question is if covance has impacted the rate of uptake of bio similars in Europe at all either on the positive side or the negative side and then for Abbvie 3373, I know you mentioned that data is coming out in the near term maybe just can you remind us what you're hoping to see here on the efficacy side to advance this into further.
Thank you.
Yeah.
So this is this is Rick I'll cover the first one on me Rob to give you a little more specifics.
And Michael covered the second question.
So as you probably saw in the quarter, we did better internationally than we had projected initially.
And so that is related to a great extent that we have seen less a biosimilar conversion than we originally anticipated.
It's a little difficult to tell at this point, whether or not that is cold related in other words want to hypothesis could be and it is nothing but a hypothesis is that because people are staying at home. They can't get can limited to bio Similars is rapidly I think it's not the one that that our area organiser.
Patients think is happening interest appears that we're performing better than we had expected, but I think to know that for sure. We'll have to see a little more time play out, but overall, we feel pretty good and so I'm not giving you a very good answer because I don't know the answer Oh totally so I'm, giving you the best.
Information that I have available to me, Rob anything you'd add on it I think if you look at the our beat versus guidance as about probably 140 million keep in mind that we about 35 million of cobot related inventory stocking. We did have some tender timing in Brazil is about 30 million to the balance of that you would call 75 million favorability could there be some corporate related impacts.
Back there, possibly if you look we didn't change our full year guidance, even though we have the U.S. dollar strengthening so that's inherently about a 70 75 million dollar of operational upside that we've baked and that's offsetting that foreign exchange headwind. So.
It is going better so far than we expected, which is great, but it's hard to pinpoint whether its covert related or not.
This is Mike I'll take the question on 3373, which is our TNF sorry conjugated. It's in a proof of concept study in rheumatoid arthritis, what we'd like to see there is a efficacy that is greater than what can be achieved with currently available agents really across the board, but also with a with a particular focus.
On higher levels of response, obviously, we're going to want to see that with an appropriate safety profile recognizing that a proof of concept study is a relatively limited safety database and importantly, we're going to want to confirm that we can deliver that without impacting.
The pituitary axis as a measure for systemic steroids effects. We have stated a in other settings that from the one be portion of this trial in healthy volunteers. We've shown we can deliver this this construct without those steroids effects without impacting the pituitary axis.
So we would expect to be able to do the same thing in our eight patients in in treatment, but we want to confirm that obviously.
Thanks, Karen Operator next question. Please. Thank you. Our next question is from Andrew Baum from Citi.
A question.
Okay, 'cause it 19 I.
Im interested in what's the prescription rates of both currency and then book.
Private practice.
Yes, the salary, which hematologist rheumatologist, I guess, what I'm going from about his extensive which the economic pressures that 19 makes force many private practice positions, it's become salaries with perhaps more constraints on that scrapping will switch frequency many thanks.
Andrew I would say I don't have the answer to your question to be honest.
I I can tell you that we don't see ace today, we don't see a significant difference across practices from a behavior standpoint.
But future behavior, I think that will be a little more difficult.
X. I think most physicians.
Prescriber medicine that they believe in the United States that they believe is fundamentally the right medicine for that patients.
And.
I would say that the.
The profile of the drug is what tends to drive their prescribing habits more than anything else. So I would say I, we supply I would be surprised if theres any difference in the behavior will go back to our commercial group into a if they have any data on it and so will provide something.
Bacteria.
Thanks, Andrew Operator next question. Please. Thank you. Our next question is from Tim Anderson from Wolfe Research.
Thank you a couple of questions. Please.
The first is on business development and.
Allergens, certainly helps fill of a long term whole from humiras going off patent, but I still view it as M&A is going to be a likely continued part of the stories. So my question here is a timeframe for abbvie being kind of actively back in the marketplace to do additional acquisitions.
And I'm defining those acquisitions as smaller bolt ons single digit billion dollar types of deals could that start to happen as soon as the current year in 2020.
Second question is on written folk.
In a topic term you are running a head to head study versus Dupixent called heads up similar to what Pfizer John Dunn with his chade compare.
Trial, and I think your results come out in early 2021.
Pfizer results for perceived as being a bit underwhelming I'm wondering if you expect to invoke results would be any different from pfizer's. Thank you.
On the BD front.
We havent changed from what we have talked about historically.
Our capital allocation strategy is.
To support a strong and growing dividend pay down debt aggressively and we've allocated approximately $2 billion per year that we can do no more bolt on kinds of transactions I can tell you that Mike and the BD team have been very actively pursuing what we think fits strategically and.
During the work that's necessary to determine.
Is it an asset that we want to add to our portfolio and where we find those opportunities and we believe there are good returns for the company.
We are aggressively pursuing those and so I think you will see over the course of time here you will see us do deals that are consistent with that strategy and.
No that clearly there's a lot of focus on oncology or that we up interest, but other areas as well.
Mike. So this is Mike I'll cover the question on atopic dermatitis, obviously, we're we're well aware of the Oh Pfizer data from their program in a topic dermatitis at least at the top line level that at that are currently available.
I would say is we're gonna have to look at each of these programs individually. Although there are some mechanistic similarities.
Factors, such as a dose selection ability to cover the relevant pathways are important wins. When you are trying to predict the results that you're likely to see we feel good about the park pharmacodynamic coverage, we've been able to drive with Renvela really across the board that particularly in a D. A we had very strong faith.
To be results. So we feel that our program will stand on its own merits and we look forward to those head to head data as we look forward to all the data from the phase three program any atopic dermatitis.
Thank you.
Thanks, Tim Operator next question. Please. Thank you. Our next question is from Carter Gould from Barclays.
Great. Good morning, Congrats on the quarter a few questions Rick I appreciate the color on the only going to sort of business.
Maybe just to follow up just trying to understand that sort of the sensitivity around your de leveraging forecast to the return of up if that expenses in line with your assumptions and I guess also based on your survey work, maybe your read on sort of the rate and that's what's the rate, but like the ultimate return of the Medis positive sort of.
Any view on I guess, what percentage of those may may or may not return given I guess theres a view that that's somewhat of an more economically sensitive population relative to the broader botox community and then.
Apologies if you if you already commented on this on the pro forma Guy that's going to calm the expectation that'll come upon deal closing or walk the weight to to Q and then maybe just given all the uncertainty around cobot. Your latest thoughts about also providing longer term guide at that point. Thank you.
The car. This is Rob I'll take your question on deleveraging look if you think about the amount of cash flow to come to combined business generates.
A tremendous amount of cash that we feel very confident our ability to deliver on our deleveraging commitments I as I mentioned my remarks.
We still expect to pay down 15, 18 billion a debt we're going have to 7 billion paid down by the end of this month.
And we still will be able supporting strong growing dividends. So even as we flex various scenarios, we feel very confident we've reaffirmed those commitments on deleveraging.
As it relates to the med spot question I would say across the board we looked at.
What kind of assumption should we make about.
About any consolidation in the industry.
And one thing I would say as it does appear that these businesses a fairly aggressively participated in the U.S. government stimulus programs.
The payroll protection programs and the other the other programs that were available and so I think.
The data would suggest to us now that that won't be a massive impact and if there were any consolidation across any of the channels and I don't know that.
Anyone channel really stands out in a significant way, we believe that they're all we'll see as a shift of that capacity to other players, meaning they get bigger and so we're not assuming any significant.
Reduction in the supply side of the channel they can't be absorbed through consolidation if necessary.
On the pro forma guide, obviously, we're going to wait for the business flows.
Well, one and do some work on the business and then we'll provide the pro forma guidance after that so depending upon the timing of when it closes.
And I'll close we are in the second quarter it could come on the second quarter call.
So we're not really in a position right now where we can give you a total clarity.
Uh huh.
On that.
Thanks, Carter operator, we have time for one final question. Thank you and our final question today is from Damien Conover Morningstar.
Great. Thanks for taking the question just wanted to ask a question on the eastern prescribers on runs off we're seeing great growth there and both in starts as shown excellent data, but elsewhere to ask.
Ability to leverage.
How did the positioning of the merit here and I guess I asked that because I think about the recent launch of the iOS seven teams, which those competitors and stuff complained about the strong and consequent needs in our class and some of the rebuilding that what's going on there. So just wondering.
Gross subscribers, when regardless that really coming from the medicines themselves. So that's that's question one and then the second question is when thinking about the [laughter] back towards normal answer to the currency impact that.
We are likely to see from co. Good I wanted to ask about the thoughts around the potential second wave or current affairs patients as some of the stay at home orders lessened out and doctors office reopened if if if you are bad either at the second wave won't be that large, Oregon, when the second wave Kerman School.
Strong treatment options and PR insulin that we'll be able to gets more business as normal operations. Thank you.
Yes.
Yes, I think if we look at the strength of a of Scott Rizzi in both it's driven by a couple of factors right.
Particularly I'd say in the US it's driven by a couple of factors as I said, a few minutes ago certainly the clinical profile. The drug is first and foremost the second as you have to have a broad based managed care access in the United States to be successful visit at all yet how much you convince the physician to use the product based on his clinical profile.
But they can't get reimbursed, obviously can't prescribe it to their patients. So ER and so that takes a company that has strong expertise and being able to deliver.
Hi levels of a managed care access, which obviously, we can and then we'll third is just the effectiveness of your of your commercial and Medical Affairs organization I think in this area. We have one of the best.
Yes.
So I think those are the things that really drive it in our business you can't really leverage one product against the other specifically so so I don't believe it's a it's a leverage issue.
As far as the second wave and then let Mike covered most of that you only I would say as we have not assumed a mother major.
Shelter in place or in the fall.
In our assumptions.
So we have assumed that we'll be able to manage through any increase in infections in the way we built this forecast.
That's correct Trek and so I think it's it's very hard to make a exact predictions about the longer term nature of the corona virus infection rates, but at what we are assuming as Rick said is that there will not be is a major second wave and lock down and I think the factors that would play into that.
That would be a much greater understanding of surveillance a broader access to testing the ability to respond a much more quickly based on experience and based on those factors that I just mentioned, if if a small pockets of new infection to pop off as.
Well as hopefully the availability of some treatment options on although I think treatment options will continue to evolve.
Over some period of time.
And inc. and a renewed capacity or relief from from the overcapacity status.
At the healthcare systems are currently operating under so I think it's it's all of those features a together that lead us to the view that supported.
The.
The the assumptions that Rick outlined.
In our thinking on this.
Thanks, Damian and that concludes today's conference call, if you'd like to listen to a replay of the call. Please visit our website at <unk> investors that Abbvie dot com. Thanks again for joining us.
Thank you. This does conclude today's conference you may disconnect at this time.