Earnings Call Transcript - ABBV Q4 2020

Operator, Operator

Good morning, and thank you for standing by. Welcome to the AbbVie Fourth Quarter 2020 Earnings Conference Call. All participants will be able to listen only until the question-and-answer portion of this call. I would now like to introduce Ms. Liz Shea, Vice President of Investor Relations.

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 Jeff Stewart, Executive Vice President, Commercial Operations. Before we get started, I remind you that some statements we make today may be considered forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties, including the impact of the COVID-19 pandemic on AbbVie's operations 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 on Form 10-K and in our other SEC filings. AbbVie 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 AbbVie's ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Unless otherwise noted, our commentary on sales growth is on a comparable basis, which includes full current year and historical results for Allergan. For this comparison of underlying performance, all historically reported Allergan revenues have been recast to conform to AbbVie's revenue recognition accounting policies and exclude the divestitures of Zenpep and Viokace. References to operational growth further exclude the impact of exchange. Following our prepared remarks, we'll take your questions. So with that, I'll now turn the call over to Rick.

Rick Gonzalez, Chairman and CEO

Thank you, Liz. Good morning, everyone, and thank you for joining us today. I'll discuss our fourth quarter and full-year 2020 performance as well as our expectations for 2021. Mike will then provide an update on recent advancements across our pipeline, and Rob will discuss the quarter and our 2021 guidance in more detail. Following our remarks, we'll take your questions. We delivered another strong quarter with adjusted earnings per share of $2.92, exceeding the midpoint of our guidance by $0.08. Fourth quarter total net revenues were up nearly 7% on a comparable operational basis. This performance was driven by robust double-digit sales growth from our immunology, hem/onc and neuroscience franchises, as well as 9% comparable operational sales growth of Botox Cosmetic, which is demonstrating a rapid recovery. Our fourth quarter performance topped off another excellent and truly transformational year for AbbVie, which included the successful acquisition and integration of Allergan, creating a stronger and much more diverse AbbVie with leadership across numerous attractive high-growth markets. Significant contributions from our two new best-in-category immunology medicines, RINVOQ and SKYRIZI, which combined for more than $2.3 billion in 2020 sales, their first full year on the market. We expect the combined contribution from RINVOQ and SKYRIZI to nearly double in 2021 to approximately $4.6 billion based on their continued strong uptake in RA and psoriasis as well as RINVOQ’s anticipated approvals in PSA, ankylosing spondylitis and atopic dermatitis later this year. We delivered continued robust growth from our leading hem/onc portfolio, with IMBRUVICA and VENCLEXTA contributing more than $6.6 billion in combined 2020 sales. We expect our hem/onc franchise to grow double digits again in 2021. We also added two compelling oncology pipeline assets, Epcoritamab, a potential best-in-class CD3xCD20 bispecific antibody in development for B-cell malignancies, and lemzoparlimab, an anti-CD47 monoclonal antibody being studied in multiple cancers. These two assets will further support the growth of our hem/onc franchise across our long-range plan. The acquisition of Allergan brought us a substantial neuroscience portfolio with compelling therapies for migraine and psychiatric conditions augmenting our already existing neuro franchise. The newly combined neuroscience franchise delivered nearly $4.9 billion in comparable 2020 revenue and is expected to grow double digits in 2021. We also added the leading global Aesthetics franchise, a largely cash pay portfolio with roughly $3.5 billion in comparable 2020 revenues. As I previously noted, this portfolio has demonstrated a rapid V-shape recovery and we view Aesthetics as an extremely attractive long-term growth opportunity. And importantly, we made excellent progress in 2020 with our pipeline. We expect our R&D pipeline advancements to lead to the approval of more than a dozen new products or indications over the next two years, including a total of six additional indications for RINVOQ and SKYRIZI, which will cover all of Humira's major indications plus new significant disease areas, including atopic dermatitis, expanded indications for VENCLEXTA and Vraylar and several new product approvals, including Atogepant for episodic migraine, Navitoclax for myelofibrosis, and ABBV-951, a potentially transformative next-generation therapy for advanced Parkinson's disease. These new opportunities will collectively add meaningful revenue growth in advance of the U.S. Humira LOE. We've entered 2021 in a strong position, which is reflected in our revenue and earnings per share guidance. Based on the recent outperformance of our business, we expect full-year 2021 comparable operational sales growth of approximately 9.4% with total AbbVie sales expected to be approximately $1.7 billion above current consensus, and we anticipate 2021 adjusted earnings per share of $12.32 to $12.52, representing growth of 17.6% at the midpoint. This level of guidance represents impressive performance with nearly all aspects of our business expected to perform at or above current consensus for 2021. The Allergan integration continues to go very well. The transition has been seamless despite the size of the transaction and the timing of the COVID pandemic. While we're making excellent progress against our expense synergies, which Rob will cover in more detail here momentarily, it remains increasingly clear to us that there are significant opportunities for long-term revenue contributions across numerous Allergan growth platforms. As we recently disclosed, we believe UBRELVY, the first-to-market in leading oral CGRP for acute migraine, represents a $1 billion-plus peak sales opportunity. Atogepant, a potential once-daily oral treatment for the prevention of episodic and chronic migraine, also represents a $1 billion-plus peak sales opportunity. We expect Vraylar's peak sales to approach $4 billion within its currently approved indications of schizophrenia, bipolar I disorder and bipolar depression with major depressive disorder or MDD, representing a potentially significant incremental growth opportunity. Aesthetics, which is poised to regain its growth trajectory this year, is expected to generate high single-digit revenue growth over the next decade. We continue to closely monitor the COVID dynamics, which will have an impact on our business again in 2021, predominantly in the first half of the year, but significantly moderated from the 2020 impact. And despite the recent COVID resurgence within select geographies, we feel the global healthcare system is much better equipped with COVID treatment protocols and PPE to safely see and treat patients throughout the current year. That said, some therapeutic areas continue to be more impacted than others, like CLL, HCV, certain hospital-based procedures, among others, which we have contemplated in our 2021 guidance. Overall, we've been pleased with the rate of recovery across our business, a testament to our differentiated product profiles and our commercial execution. So in summary, we've assembled an impressive set of growth assets and the outlook for AbbVie's business remains strong. With RINVOQ and SKYRIZI expected to contribute more than $15 billion in risk-adjusted sales by 2025 and our expectations for continued robust growth across hem/onc, neuroscience, and aesthetics, we have a high degree of confidence that we will be able to successfully absorb the Humira LOE impact in 2023, support an immediate return to total sales growth in 2024 and produce compelling high single-digit compounded annual total sales growth in 2025 through the remainder of the decade with the diversified portfolio and pipeline that we have today. With that, I'll turn the call over to Mike for additional comments on our R&D programs.

Michael Severino, Vice Chairman and President

Thank you, Rick. We've clearly made significant progress with our pipeline over the past few years, particularly our late-stage programs in hematologic oncology with IMBRUVICA and VENCLEXTA, and in immunology with RINVOQ and SKYRIZI. Since inception, our R&D organization has delivered an impressive set of new products, which collectively contributed approximately $11 billion in revenue in 2020. We also continue to see significant evolution of our early and mid-stage clinical programs with many assets expected to transition to late-stage registrational studies over the next several years. We will continue to replenish our late-stage pipeline with innovative assets that have the potential to drive additional growth for AbbVie in the second half of the decade. At our recent immunology investor event in December, we provided a detailed overview of our immunology programs, highlighting the robust data generated to date for RINVOQ and SKYRIZI across approved and pipeline indications. Included in this event, we presented positive topline data from two new Phase 3 studies for RINVOQ. Results from the first induction study in ulcerative colitis and results from the head-to-head study versus dupilumab in atopic dermatitis. We expect to see results from the second Phase 3 UC induction study later this quarter, and from the UC maintenance study in the middle of this year, with regulatory submissions anticipated in the second half of 2021. Our regulatory applications for RINVOQ in atopic dermatitis are currently under review and we expect an approval decision in the US in the second quarter, based on priority review and in Europe in the second half of the year. We recently received European Commission approval for RINVOQ in psoriatic arthritis and ankylosing spondylitis and expect approval decisions for those indications in the US in the first half of this year. I want to take a moment to address the topic of safety, specifically MACE and malignancies following the results from tofacitinib's post-marketing safety study. At present, there are no data to suggest that the safety outcomes from their study apply to a specific JAK1 inhibitor such as RINVOQ. We are not aware of any signal for an elevated risk of MACE or malignancies with the RINVOQ or any JAK inhibitor other than Xeljanz. We conducted a pooled database analysis across our clinical trials for DVT, MACE, and malignancies at the time of RINVOQ’s regulatory submission and have updated it periodically, including up to the present. Rates with RINVOQ have not been elevated relative to competitors or to expected baseline rates. Importantly, there has been no increase or meaningful change in those rates over time. Additionally, we adjudicate events for MACE and DVT, which is considered the highest standard of evidence. If we look across our long-term database in RA, a population that is at increased risk for MACE events, our rates remain low. At the approved dose in RA, we have followed more than 3,700 treated patients totaling more than 9,000 patient-years of experience. Our rate of MACE events is 0.4 per 100 patient-years, which compares favorably to the expected rate of 1.0 to 1.7 events for 100 patient-years. In addition, there is no evidence of a dose-response between the 15 and 30-milligram doses. Similarly, the rate of malignancy, excluding non-melanoma skin cancer with similar follow-up is 0.8 events per 100 patient-years. This rate is also consistent with the expected range of rates of 0.86 to 0.94 per 100 patient-years. And again, we see no evidence of a dose-response between 15 and 30 milligrams. Moving now to SKYRIZI; we also recently reported top-line results from the Phase 3 programs for SKYRIZI in Crohn's disease and psoriatic arthritis. In the two Crohn's induction studies, SKYRIZI demonstrated significant improvements in clinical remission and endoscopic endpoints compared to placebo, with symptom improvement seen as early as week four. Based on the data generated to date, we believe SKYRIZI has the potential to become an important new treatment option for patients with moderate to severe Crohn's disease. We expect to see results from the maintenance study in Crohn's disease later this year with regulatory submissions anticipated in the second half of 2021. We're also very pleased with SKYRIZI’s results in the Phase 3 studies in psoriatic arthritis, where we saw significant improvements in disease activity across both skin and joint endpoints compared to placebo. We believe that the activity we have seen on joint disease and the impressive skin clearance that is a hallmark of the SKYRIZI program make it a compelling offering for patients with mixed joint and skin involvement. We plan to submit our regulatory applications for SKYRIZI in psoriatic arthritis in the first half of this year. We're making good progress with our early and mid-stage immunology programs as well where we expect several data readouts and phase transitions in 2021. We expect to begin three new studies for ABBV-154, our TNF steroid conjugate, including a Phase 2b dose-ranging study in RA as well as Phase 2 studies in Crohn's disease and polymyalgia rheumatica. And we'll see proof-of-concept data in the second quarter for ravagalimab, our CD40 antagonist in Phase 2 for ulcerative colitis, and for ABBV-157, our oral ROR-gamma T inhibitor in Phase 1 for psoriasis. Both of these programs experienced slight COVID-related delays with results now expected for both in the second quarter of this year. In oncology, we continue to make significant progress advancing our pipeline with numerous data readouts and regulatory milestones last year. As well as the addition of several new assets brought in through our in-licensing efforts, including Genmab's CD3xCD20 epcoritamab and I-Mab's anti-CD47 lemzoparlimab. We showcased new data from several programs at the recent ASH meeting where we presented nearly 40 abstracts from eight different assets. Notable presentations included data from the Phase 2 CAPTIVATE trial evaluating IMBRUVICA plus VENCLEXTA in frontline CLL, which showed patients who achieved undetectable MRD following this combination maintain their deep remission at the one-year mark after stopping therapy with a 95% rate of disease-free survival. We also presented new five-year data from VENCLEXTA’s Murano trial demonstrating the benefits of fixed duration VENCLEXTA combinations in helping patients achieve sustained progression-free survival. The latest results from Murano in the relapsed refractory CLL setting showed a median progression-free survival of 54 months in the VENCLEXTA and rituximab group, compared to 17 months in the bendamustine-rituximab group, three or more years after stopping treatment. Updated dose-escalation data from a Phase 1 study evaluating epcoritamab in B-cell malignancies were also presented at ASH. Epcoritamab is a subcutaneously delivered bispecific CD3xCD20 antibody being developed in collaboration with Genmab. In the Phase 1 study, epcoritamab demonstrated encouraging single-agent anti-tumor activity in heavily pretreated patients with a consistent and favorable safety profile showing no Grade 3 or higher CRS events as well as limited neurotoxicity. We believe epcoritamab has the potential to become a best-in-class therapy across a number of B-cell malignancies including diffuse large B-cell lymphoma and follicular lymphoma. The Phase 3 trial in relapsed-refractory DLBCL recently began and we will provide updates on epcoritamab as its development program progresses. Initial results were also presented from a Phase 1 study evaluating TNB-383B in relapsed-refractory multiple myeloma. TNB-383B is a novel bispecific T-cell engaging immunotherapy targeting BCMA and CD3 being developed in collaboration with TeneoBio. These Phase 1 results demonstrated that the BCMA/CD3 bispecific provided overall response rates of 80% with a large number of patients achieving a very good partial response or better despite having received multiple prior lines of therapy. TNB-383B was well tolerated at all doses tested with a few off-target toxicities and no Grade 3 or higher CRS observed. With its safety profile and efficacy, and the convenience of once every three-week dosing, this agent has the potential to become a promising treatment option for myeloma patients. And our partner I-Mab published an abstract with initial results from a Phase 1 study evaluating lemzoparlimab in AML and MDS. These results demonstrated encouraging activity in relapsed-refractory AML patients and lemzoparlimab was well tolerated with no serious hematological adverse events reported to date. Based on these promising initial results, we plan to begin new studies this year for lemzoparlimab in AML, MDS and in multiple myeloma. We also recently saw data from an interim analysis of a Phase 2 study evaluating Teliso-V in heavily pretreated non-squamous, non-small cell lung cancer patients. The encouraging results from Stage 1 of this study met the criteria for advancing the program. With Teliso-V demonstrating a 54% objective response rate in patients with wild-type EGFR with highly expressed c-MET. In EGFR wild-type patients with over-expressed c-MET, which includes both high and intermediate expression, the objective response rate was 35%. Based on these results, we believe that there is an important role for Teliso-V in this target population, which represents roughly 25% of the non-squamous, non-small cell lung cancer population. We will be opening the second stage of the study and are planning discussions with regulators regarding the potential of this study to support an accelerated filing. We expect 2021 to be another important year for our oncology pipeline with several regulatory submissions as well as data readouts across all stages of development. This year, we expect to see data for IMBRUVICA in the Phase 3 SHINE study in frontline MCL with regulatory submissions expected in the second half of the year. Data for IMBRUVICA in combination with VENCLEXTA in second line or greater MCL and frontline CLL with regulatory submission for frontline CLL expected in the second half of the year. We also expect to see data from registration enabling studies for VENCLEXTA in high-risk MDS and navitoclax in relapsed-refractory myelofibrosis. And we expect to see data from numerous programs in our early-stage oncology pipeline. In addition, the programs under collaboration with Calico are also progressing well. Our partnered effort is comprised of a strong pipeline of novel targets, which includes more than 20 active programs in discovery or preclinical development. Importantly, we currently have programs that have advanced into clinical development in two areas: immuno-oncology and neurodegeneration. The lead Calico program in oncology is focused on PTPN2 inhibitors, which act at multiple steps in the cancer immunity cycle and have potential applicability in a broad variety of tumor types. The discovery of novel orally bio-available PTPN2 inhibitors represents a significant breakthrough and a target class that has historically been considered undruggable. We currently have two assets in Phase 1 development, ABBV-CLS-579 and 484. We've seen evidence of immune activation in the clinic with this pathway and we expect to see proof-of-concept data from this program in 2022. The lead Calico program in neuroscience is an eIF2B activator, which targets a key regulator of the highly conserved integrated stress response pathway. Inhibition of this pathway has the potential to prevent pathology and restore function in a number of neurodegenerative diseases such as ALS and Parkinson's disease as well as in traumatic brain injury. Our lead eIF2B activator ABBV-CLS-7262 is currently progressing through Phase 1 and we plan to begin a study later this year in patients with ALS. In other neuroscience updates, last year, we completed our registrational program for atogepant in episodic migraine prevention and we recently submitted our regulatory application to the FDA. We expect an approval decision by the end of the third quarter. The data generated in our Phase 3 programs support a strong benefit-risk profile and we believe that atogepant has the potential to offer meaningful benefits to patients as a safe, effective, oral treatment option for the prevention of episodic migraine. In 2021, we expect to see data from several late-stage neuroscience assets, including results from two Phase 3 studies for Vraylar in major depressive disorder and results from the pivotal program for ABBV-951 in advanced Parkinson's disease, with regulatory submissions for ABBV-951 expected in the second half of the year. We also expect to see proof-of-concept data for Elezanumab in a Phase 2 study in multiple sclerosis and ABBV-8E12, our lead anti-tau antibody in a Phase 2 study in Alzheimer's disease. In addition to ABBV-8E12, we have a number of promising approaches in Alzheimer's, including our neuroinflammation programs aimed at TREM2 and CD33, currently in clinical development, as well as other tau approaches in preclinical development. These include tau antibodies with different epitope specificity as well as approaches to clear intracellular tau. In Aesthetics, we continue to make excellent progress with our portfolio of facial toxins and dermal fillers with several regulatory submissions, data readouts, and pivotal study starts expected this year. Our programs include new indications for Botox as well as innovative toxins such as new liquid formulations and both the long and short-acting toxins. We also have programs to develop new indications for the Juvederm Collection as well as novel dermal fillers such as HArmonyCa, which will be entering registration-enabling studies in the U.S. And in eye care, based on the positive results from the Phase 3 studies evaluating our topical eye drop AGN-190584 for the treatment of symptoms associated with presbyopia, we plan to submit our regulatory application later this month and expect an approval decision in the fourth quarter of this year. So in summary, our R&D productivity remained high last year despite multiple COVID-related challenges and we were able to maintain steady continuity and minimize delays. We're entering 2021 well-positioned for continued success and we expect significant program advancement across all stages of our pipeline. This includes five new asset or major indication approvals, half a dozen regulatory submissions, more than ten pivotal study readouts, and more than 15 data readouts from early and mid-stage programs. With that, I'll turn the call over to Rob for additional comments on our fourth quarter performance and our 2021 guidance.

Rob Michael, Executive Vice President and CFO

Thank you, Mike. Starting with fourth quarter results, we once again delivered strong top and bottom-line performance. We reported adjusted earnings per share of $2.92 above our guidance midpoint by $0.08. Total net revenues were approximately $13.9 billion, up 6.8% on a comparable operational basis and ahead of our expectations. Immunology global sales were approximately $6 billion, up 14.8% on an operational basis. Within immunology, Humira sales were approximately $5.2 billion, up 4.4% on an operational basis with continued high single-digit growth in the US offset by biosimilar competition across international markets. SKYRIZI sales were $525 million and RINVOQ sales were $281 million with both products demonstrating strong sequential growth above expectations. Hematologic Oncology delivered another strong quarter with revenue of approximately $1.8 billion, up 15.5% on an operational basis with solid growth from IMBRUVICA and VENCLEXTA. Aesthetic sales were more than $1.1 billion with Botox Cosmetic and Juvederm both experiencing a rapid recovery from the COVID pandemic. Neuroscience revenues were nearly $1.4 billion, up 14.9% on a comparable operational basis, led by Vraylar and our migraine portfolio. We also saw a significant contribution from eye care, which had sales of more than $900 million. Turning now to the P&L profile for the fourth quarter. Adjusted gross margin was 81.8% of sales, adjusted R&D investment was 12.6% of sales, and adjusted SG&A expense was 22.3% of sales. The adjusted operating margin ratio was 46.9% of sales, an improvement of 230 basis points versus the prior year. Net interest expense was $618 million, and the adjusted tax rate was 11.6%. As we look ahead to 2021, our full-year adjusted earnings per share guidance is between $12.32 and $12.52, reflecting growth of 17.6% at the midpoint. Excluded from this guidance is $5.63 of known intangible amortization and specified items. We expect adjusted net revenue of approximately $55.7 billion. At current rates, we expect foreign exchange to have a 1% favorable impact on full-year comparable sales growth. This forecast comprehends the following assumptions for our key products and therapeutic areas. We expect immunology global sales of approximately $25 billion, including US Humira growth of approximately 8%, internationally Humira revenue of approximately $3 billion at current exchange rates, SKYRIZI global sales of approximately $2.9 billion, and RINVOQ global sales of approximately $1.7 billion. We expect hematologic oncology to grow double digits with IMBRUVICA global revenue of approximately $5.7 billion and VENCLEXTA global sales of approximately $1.8 billion. For Aesthetics, we expect global sales of approximately $4.5 billion, including approximately $1.8 billion from Botox Cosmetic and approximately $1.3 billion from Juvederm. For neuroscience, we expect global revenue of approximately $5.7 billion, including Botox Therapeutic sales of approximately $2.3 billion, Vraylar sales of approximately $1.8 billion, and UBRELVY sales of approximately $400 million. For eye care, we expect global sales of approximately $2.9 billion, including approximately $550 million from RESTASIS, which assumes no generic competition in the first half of 2021. For women's health, we expect global revenue of approximately $1.1 billion. For remaining larger products, we expect global sales of approximately $2 billion from Mavyret, $1.2 billion from Creon, $1 billion from Linzess, $800 million from Synthroid, and $750 million from Lupron. Looking at the P&L for 2021, we are forecasting full-year adjusted gross margin of approximately 83% of sales, adjusted R&D investment of approximately $6.6 billion and adjusted SG&A expense of approximately $11.8 billion. This guidance includes approximately $1.7 billion in expense synergies from the Allergan acquisition. We are forecasting an adjusted operating margin ratio of approximately 50% of sales, which represents an improvement of roughly 200 basis points versus 2020. We expect adjusted net interest expense of approximately $2.4 billion. Our non-GAAP tax rate to be approximately 12.5% and our share count to be roughly flat to Q4 2020. As we look ahead to the first quarter, we anticipate net revenue approaching $12.7 billion. At current rates, we expect foreign exchange to have a 1% favorable impact on comparable sales growth. We are forecasting an adjusted operating margin ratio of approximately 50% of sales. And we model a non-GAAP tax rate of 12.3%. We expect adjusted earnings per share between $2.79 and $2.83, excluding approximately $1.32 of known intangible amortization and specified items. Finally, AbbVie's strong business performance and outlook continues to support our capital allocation priorities. Our cash balance at the end of December was $8.4 billion, and we expect to generate free cash flow of approximately $21 billion in 2021. This fully supports a strong and growing dividend, which we have more than tripled since inception, as well as rapid debt repayment where we expect to pay down $17 billion of combined company debt by the end of 2021, including the $8.6 billion that was repaid in 2020. We expect to achieve a net debt to EBITDA ratio just below 2.5 times by the end of 2021 with further deleveraging through 2023. We anticipate that our net leverage ratio will be approximately 2 times by the end of 2022. Our strong cash flow also allows for continued business development with approximately $2 billion allocated annually to augment our pipeline with the most promising external technologies and innovative mid to late-stage assets. In closing, we are very pleased with AbbVie's strong performance in 2020. We've driven top-tier growth while also advancing our strategic priorities and we expect to deliver robust performance in 2021 and over the long term. With that, I'll turn the call back over to Liz.

Liz Shea, Vice President of Investor Relations

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

Operator, Operator

Our first question today is from Geoffrey Porges from SVB Leerink.

Geoffrey Porges, Analyst

Thank you very much. And as usual, I appreciate all the detail in the guidance and congratulations on the results. A quick question on SKYRIZI and one on RINVOQ. First, one of your competitors had a negative result of a post-marketing study recently. I'm just wondering if you've had any discussions with regulators about conducting any other studies for RINVOQ or updating the label for RINVOQ as a result of that negative signal? And then, secondly on SKYRIZI, a commercial question. Your current price for the 150-milligram dose is about $85,000, and you're using 4x the dose for ulcerative colitis. Could you just tell us how you can manage that? And is it feasible to have sort of different prices despite the big difference in dosing? Thanks.

Michael Severino, Vice Chairman and President

Okay, this is Mike. I will take your second question first and then we can cover the SKYRIZI question. With respect to RINVOQ, I assume you're talking about the tofacitinib safety study, which top line results recently showed that they were unable to exclude a risk of MACE or malignancy based on the criteria that were used to analyze that data set. As I said in my prepared remarks, we've kept a very close eye on our data, both at the time of the NDA and in an ongoing manner since that time and we've not seen a signal. Our rates have not been elevated with respect to comparator or baseline rates and the rates overall remain low. With respect to your specific question about whether we've had discussions with regulators, regulators have not asked us to do a long-term safety study in the way that Pfizer was asked. So that has not been discussed with regulators and we have not had any contact with regulators around labeling updates up to present time.

Geoffrey Porges, Analyst

Great.

Michael Severino, Vice Chairman and President

And with respect to SKYRIZI?...

Jeff Stewart, Executive Vice President, Commercial Operations

Yes. Hi, it's Jeff. It's Jeff Stewart on the commercial question. We have anticipated the different markets and how we will approach the pricing. Now, it's important that we're just starting to see the SKYRIZI data. We saw the induction data, and we'll see the maintenance data. I think it's important that as we look at our strategy that we're honing is for SKYRIZI, you're going to have an induction dose, which is an IV at a different dose, and we know that based on the form and some things we can believe we can price that to market. And also, we are coming with a unique approach for the maintenance as well depending on where that dosing falls out. And we would be using at that point, which is known as an on-body injector. So the combination of the forms as well as basically the ways that we will deliver the medication when we get there, we believe that we can price effectively to the market and manage it across the indications.

Rick Gonzalez, Chairman and CEO

So this is Rick. So I think the bottom line is we've contemplated that. It's a good question, Geoff, but I think we have a strategy that will allow us to deal with that and impact the market in an appropriate way.

Liz Shea, Vice President of Investor Relations

Thanks, Geoff. Operator, next question, please.

Operator, Operator

And our next question is from Vamil Divan from Mizuho Securities.

Vamil Divan, Analyst

Hi, great. Thanks so much for taking the questions. And maybe two if I could. So I want to appreciate the long-term guidance you've given recently on the top line. I'm just wondering how we should maybe think about the margin progression as we think about the Humira LOE in a couple of years? And then as we sort of get past that and your sales touch ramp up again, if you could maybe give us some sense of where you think your margins could sort of come back to? And then, the other one I have is just on Vraylar. Again, appreciate the guidance you've given there. I think one of the big events for you guys this year will be the Phase 3 data in MDD. I’m just curious, kind of what gives you confidence that maybe you can just talk about whether it's around the drug or the study design, sort of, what gives you confidence or why should we be confident sort of going into that data readout? Thanks.

Rob Michael, Executive Vice President and CFO

Vamil, this is Rob. I'll take your question on margin progression. I think when you consider the greater than $2 billion expense synergies from Allergan by next year and the P&L leverage that will come from the sales growth, we also expect for next year, you should expect that our operating margin will continue to expand through 2022. Upon the entry of U.S. biosimilars in 2023 and given Humira's profitability, it is reasonable to expect operating margin pull back. We've indicated before the 45% range based on our current long-range plan, and I think it'll be a little bit higher than that. But then we've returned to growth immediately – in 2024, we'll return to revenue growth, a very strong revenue growth starting in 2025, you can expect then operating margins once again expand. We've had a long history of expanding operating margin by leveraging the P&L. I would expect that to continue as we start to see very strong revenue growth starting in 2025 and beyond.

Rick Gonzalez, Chairman and CEO

Yes, Vamil, this is Rick. Mike and I will address the second question on Vraylar. It's important to note that our long-term guidance for Vraylar is based on the three currently approved indications, not on the success of MDD. That said, we are cautiously optimistic about the MDD indication, and I'll let Mike explain our perspective and the confidence we have. However, if it does not go as planned, it will not affect the guidance we provided.

Michael Severino, Vice Chairman and President

So this is Mike. I'll continue from here. Our optimism regarding Major Depressive Disorder, which is a difficult condition to address, is based on several factors. One of these factors is the unique pharmacological profile of Vraylar, which includes a specific mix of D3 and D2 actions and other characteristics that contribute to what has been clinically described as a brightening effect, beneficial in various situations. Additionally, our confidence is supported by the positive results from the MDD study that we currently have. With one positive study, we would need at least one, or preferably both, of the next two studies to also show positive results; either outcome would help support a filing. We have thoroughly examined the study design and the patient population, and we believe it is well-designed. The patient characteristics regarding baseline factors and other elements are suitable for this type of study, and we can evaluate them in an unbiased overall manner in line with the study’s rules. All these aspects give us a strong sense of optimism that this is a promising molecule, and we look forward to the results. However, as I mentioned, MDD is a complex area, and for this reason, we didn’t include it in our deal model or factor it into our guidance, as Rick mentioned, so we see this as potential upside.

Liz Shea, Vice President of Investor Relations

Thanks, Vamil. Operator, next question, please.

Operator, Operator

And our next question is from Randall Stanicky from RBC Capital Markets.

Randall Stanicky, Analyst

Great. Back to RINVOQ in atopic derm. How quickly do you guys expect that launch to ramp? And maybe just help us with expectations given coinciding JAK competition from abrocitinib and the timing to payer ramp and coverage. And then we sense a lot of patient warehousing, maybe if you could help quantify your thinking around that opportunity within the $1.7 billion outlook for the year, that would be helpful? And then a quick follow-up, Rick. You don't get asked about eye care a lot. It's a $3 billion global franchise. You have some pipeline behind it. It could be a good growth business, but it's declining. Any appetite to strategically add to that business or reposition it? Or should we view it more as a mature cash flow generator? Thanks.

Jeff Stewart, Executive Vice President, Commercial Operations

Yes, hello. It's Jeff Stewart. I'll begin with the question regarding the atopic dermatitis market. We're very optimistic about the market we're about to enter, and I'll provide some context. When we examine the population, we estimate that the market size for moderate to severe atopic dermatitis patients is at least double and possibly closer to triple that of the psoriasis market. This is very encouraging for our entry. Additionally, the market is significantly under-penetrated. In the psoriasis market, penetration is around 10% to 12%, while we're currently in the low single digits with the one biologic, dupilumab. This is highly attractive. Furthermore, we have a solid understanding of the healthcare professionals in this area, with about 85% of the market being driven by dermatologists. We have strong relationships with these dermatologists, and there's approximately 90% overlap with the primary prescribers of dupilumab and drugs such as SKYRIZI and Humira. We are very encouraged about the rapid expansion potential in this segment, despite the expected influx of new competitors. Regarding the access ramp, we currently have a strong position with RINVOQ in rheumatoid arthritis, enjoying over 95% commercial access, which is crucial for atopic dermatitis. We anticipate that we will develop robust access levels that align with that over the course of 2021. However, there will be a gradual start as we navigate the final approval processes of major commercial plans. We expect initial slow progress but anticipate growth by mid-year, reaching significant levels by the end of the year. The combination of the market potential, the strength of our asset as evidenced by the data, and our strategy in both the dermatology and allergy segments gives us strong confidence for a robust ramp-up in 2021 and beyond.

Rick Gonzalez, Chairman and CEO

The only thing I would add to Jeff's comments, I mean if you look at RINVOQ did $731 million last year. Obviously, if you look at the running rate out of the fourth quarter has strong running rate coming out of the fourth quarter but that's a $1 billion worth of growth from '20 to '21. The majority of that growth is going to come from continued performance in RA. I think where you will see the most significant impact from atopic dermatitis will be as we flow into '22, much like as you saw what happened in the RA market, it takes time for physicians to start to get adapted. Once they do, their momentum picks up. So, I don't remember the specific number. I'm not sure we gave that guidance anyway, but I would be thinking about it more than its continued penetration and growth in RA which drives in the bulk of that growth. Rob, anything you want to add?

Robert Michael, Executive Vice President and CFO

Yes, regarding your question about warehouse patients, we have only a small number of warehouse patients included in our forecast. The $1.7 billion figure does not account for that. Additionally, keep in mind that RINVOQ experienced less impact from COVID, so there isn’t significant warehousing reflected in that forecast.

Rick Gonzalez, Chairman and CEO

And then, Randall, on your second question; I would say we absolutely agree with your point of view. I think eye care is a very attractive market. The kinds of markets that I think we look for and that we are the very best at is where there are specialized physicians who really drive the use of medications based on the clinical data and being able to restate markets and improve standard-of-care in those markets, and certainly, eye care, I think fits that description. And so we would have a strong appetite to look for opportunities and we are looking for opportunities now that we could add to that eye care business to be able to drive growth. Obviously, RESTASIS, as Rob indicated in his formal remarks, we've built in a half a year that's still an unknown of when that product will go generic or if it will go generic. But I think even aside from that, regardless of what happens with RESTASIS longer-term, this is an area that we would have interest in and if we could find the right kind of assets to add to it, we would enthusiastically do that.

Liz Shea, Vice President of Investor Relations

Thanks, Randall. Operator, next question, please.

Operator, Operator

And our next question is from Chris Schott from JPMorgan.

Chris Schott, Analyst

Thank you for the questions. Could you provide more details on Aesthetics and share some insights you've gained from that franchise since its acquisition? Have there been any changes in your commercial approach or investment levels? I'm trying to understand the high single-digit growth you mentioned, which seems more promising than what the market anticipated. I would like to know what market trends give you confidence in this growth. My second question is about IMBRUVICA, where growth has slowed. Can you explain the reasons for this, including any potential COVID-related factors or competitive influences? I want to assess the long-term health of that franchise. Thank you.

Rick Gonzalez, Chairman and CEO

Yes, Chris, this is Rick. I'll address the Aesthetics question. After studying the Aesthetics market and managing the business for a while, we're even more optimistic about our long-term growth potential in this market. One surprising finding has been the market's strong response to patient activation. Our strategy is to continuously fund the business at a high level to achieve the activation we seek. For instance, we are seeing strong growth in Botox, which increased by 9% in the fourth quarter. I believe we can sustain that growth rate. Previously, under legacy Allergan, funding was more sporadic on a quarterly basis, but we’ve developed a long-term funding plan that supports sustained activation. Additionally, we see significant opportunities for innovation in this market. By continuously funding innovation and advancing these programs strategically, we aim to enhance the performance of both the toxin and filler markets over time. There are many ways to expand filler applications globally, which presents a significant opportunity. Long-term, we believe we can leverage our biologic expertise at AbbVie to develop more biologically active fillers that not only provide physical volume but also enhance skin quality through improvements in collagen and elastin. Furthermore, AbbVie's broad geographic presence allows us to operate a fully integrated global unit that can aggressively expand in regions with considerable potential. For example, in the fourth quarter, we invested in expanding our sales force in China to penetrate deeper into more cities, and we are already seeing positive results; China’s market is recovering to pre-COVID growth rates. Regarding IMBRUVICA, Jeff and I will address that. We are seeing COVID impact patient starts in CLL, not just with IMBRUVICA but also with VENCLEXTA. Oncology practices are trying to reduce patient density, and many CLL patients can delay therapy for some time, which accounts for much of the slowdown. However, we still hold a dominant market share across first, second, and third-line treatments, and VENCLEXTA is gaining momentum. Our performance expectations for Calico are being met; our first-line share is around 12%, slightly higher in the second line at about 14%. I don't recall the third-line share right now.

Jeff Stewart, Executive Vice President, Commercial Operations

Very similar, yes.

Rick Gonzalez, Chairman and CEO

So I'd say that's within the range or we saw with MCL; it's within the range of what we had modeled. So it's not really a competitive issue that we're dealing with. It's more a function of getting those patient starts back up to the level they were before. Anything you want to add, Jeff?

Jeff Stewart, Executive Vice President, Commercial Operations

No, I think Rick, that's exactly right. The only thing I would say in terms of our forecast, we think that in the first part of the year, the early part of the year, we continue to see some suppression in the new patient starts. But as we hit the second and third quarter, we anticipate that the market will recover.

Liz Shea, Vice President of Investor Relations

Thanks, Chris. Operator, next question, please.

Operator, Operator

And our next question is from Tim Anderson from Wolfe Research.

Nicole Maher, Analyst

Hi. Can you hear me? This is Nicole Maher on for Tim Anderson. What does your long-term guidance assume for potential austerity measures in the ex-U.S. countries in 2021 and beyond, similar to what we saw in the post-2008 time period except this time around, it would be the fall from the COVID impact?

Rick Gonzalez, Chairman and CEO

Hey, Nicole. This is Rick. I think this is something we've got experience with, if you think about the economic crisis, I thought we saw a similar kind of uptick in price erosion outside the United States and in particular. I'd say in the European Union, we have factored in a reasonable assumption into our guidance for 2021. I feel good about that. I think it is reflective of what we're likely to see. So I think we're covered from that perspective. Anything you want to add Rob?

Robert Michael, Executive Vice President and CFO

No, that covered it.

Liz Shea, Vice President of Investor Relations

Thanks, Nicole. Operator, next question, please.

Operator, Operator

And our next question is from Steve Scala from Cowen.

Steve Scala, Analyst

Thank you. I have two questions. AbbVie reported one of the strongest quarters in the pharmaceutical sector this cycle, and I believe they may have more potential for growth as the year progresses. Considering your awareness of the competition, what aspects of your business do you think contribute to your success? Would you say it's primarily due to the products, payer strategies, geographic diversity, or other factors? My second question is regarding the ongoing Phase 3 trials for Vraylar, which are using doses up to 3 milligrams, while previous successful trials used up to 4.5 milligrams. Why was the decision made to lower the doses? Additionally, what measures are being taken to address placebo response in the ongoing trials? Thank you.

Rick Gonzalez, Chairman and CEO

Okay. Steve, this is Rick, I'll cover the first one, and Mike can cover the second one. I would say, first and foremost, we are a very disciplined organization in how we approach execution in the marketplace. We tend to probably, to some extent, obsessively plan and then go out and try to execute against that plan and I think in times of difficulties that kind of discipline tends to demonstrate itself and that's when you see the biggest differences. So that's not to say other people don't do it like that. I'm not that familiar with how others operate, but I know how we operate and I know how we contingency plan and we look at. Okay, if that doesn't work, what are we going to do and we do that ahead of time, if that doesn't work, what are we going to do. And I think that kind of contingency planning and focus on execution is helpful. I'd say the second thing is, if I look at our business, we put a strategy in place and I feel very good about how the business is performing overall. I mean I would say the business is firing on all cylinders. And you can look at our fourth quarter performance, to your point, and I think it demonstrates that and you can look at our guidance and it demonstrates that almost every single product area is performing at or above, most of them above what consensus was and then I think it's another indicator for you and we have a much more diverse business now. We have four major growth platforms that are helping us drive that level of growth. Our new product launches are doing extremely well. Obviously, SKYRIZI and RINVOQ are, but I'd also say UBRELVY and Vraylar are performing extremely well, and the pipeline, I would say one of the things gives me the most confidence is when I look at the pipeline behind that. It's designed to be able to drive our long-term growth because one of the things that we focus on is how we're going to make sure that we continue to drive this business to perform at the level it's performing over the long term. And so if I look at the SKYRIZI and RINVOQ R&D execution around the follow-on indications, it's been nothing less than spectacular both from a timing standpoint and the kind of data that we have been able to produce. When I look at our hem/onc strategy, we've had a very disciplined strategy there ensuring that we have enough assets to continue to grow. What has become a very large franchise for us. Our franchise is $6.6 billion as we said, we're going to grow in double digits. Over the long term, what's going to allow us to do that? Well obviously IMBRUVICA is going to continue to drive share, VENCLEXTA is going to continue to drive share in CLL, but VENCLEXTA has indication expansions in the area of potential, in the areas of T1114 and a broader AML population and several other areas. Then I look at Navitoclax. We should get that product approved and give us an opportunity in myelofibrosis, and then you look at Genmab and you look at our CD47, those will all allow us to ensure that we can sustain that growth profile over the long term. In neuroscience, same thing. Atogepant will allow us to expand into the broader migraine population. So I feel very good about what we put in place and our ability to execute against that. So I think there is not one silver bullet that I can point to. I think it's all of those things; certainly, our ability in market access has helped a lot in the US. I think we're very good at that, but you have to have the right kinds of assets in order to execute that; you have to have assets that are differentiative like SKYRIZI and RINVOQ. So it's the combination of all of that gives you this performance and gives you the long-term sustainable ability to deliver that kind of performance, and I feel awfully good about where we are.

Michael Severino, Vice Chairman and President

So, this is Mike. I'll take the Vraylar question. I believe you're talking about the ongoing MDD studies and what I would say there is that the dose selection was based on everything we know about dose-response, not only from the prior MDD studies but across the program, and we've done a deep dive into that and we're confident that we're at a dose that ought to have optimal effect in these indications. With respect to your question about controlling the placebo response, managing or controlling the placebo response is extremely important in all studies, but particularly in depression studies and other studies in psychiatry. And I would say that there are many different approaches that are taken that are complementary to each other. The first and most important is appropriate site selection; one has to select sites with an appropriate patient population with experienced investigators who are also experienced evaluators in a clinical trial setting, and that's one of the most important things to getting high-quality data to determine whether a drug works. The next element has to do with investigator training, investigator manuals, protocol design, and also with respect to inclusion and exclusion criteria to make sure that you have a patient population that is representative of the population that you would expect to treat post-registration if the study is successful. And we've taken a look at all of these things, we've taken a look at the blinded aggregate data and we feel good that the measures that we have in place will effectively control the placebo response and give us a quality readout.

Steve Scala, Analyst

Thank you.

Liz Shea, Vice President of Investor Relations

Thanks, Steve. Operator, next question, please.

Operator, Operator

Thank you. Our next question is from Gary Nachman from BMO Capital Markets.

Gary Nachman, Analyst

Hi, good morning. Could you talk about how much more you plan on investing behind the neuroscience franchise to accelerate growth there to get to the long-term targets you talked about like the $4 billion in Vraylar even with that MDD, and how you see the long-term potential in Botox Therapeutic? And then how are you thinking about the launch for atogepant later this year? And how will you leverage the work that you've done so far with Ubrelvy? And how do you think that product will take off in the migraine market? Thank you.

Rick Gonzalez, Chairman and CEO

We have a substantial investment in neuroscience, especially from a research and development perspective. This includes disease-modifying approaches for various neurological conditions that Mike mentioned earlier. Our focus is on continuing to invest in Vraylar to enhance that asset. Our aim is to maximize market share in these areas. If you consider Vraylar and the growth projections we've shared over the years, you can see the year-over-year increase in revenue that supports our goals. We anticipate maintaining this growth despite our current market share being relatively low, which is common in this sector because psychiatrists often use a variety of generic treatments in their patient management. We will continue to invest in the business to achieve the highest possible level of profitable market share, similar to our strategy in other segments. The same applies to Botox Therapeutics, where we also have R&D initiatives aimed at expanding therapeutic opportunities.

Robert Michael, Executive Vice President and CFO

If you look at the overall portfolio, we've detailed out what we expect for Vraylar and that's without the additional indication. We think we can get to approaching $4 billion. When you look at the migraine portfolio, peak sales are greater than $1 billion for both UBRELVY and Atogepant. We have ABBV-951 in the pipeline that we think can be a significant contributor, obviously, Botox Therapeutic will continue to grow. So we feel pretty good about the portfolio we have and that double-digit growth outlook is supported by a number of very promising assets.

Jeff Stewart, Executive Vice President, Commercial Operations

Yes, hi. This is Jeff, and I'll address the second question regarding Atogepant. First, the asset itself is very appealing. The data on migraine-free days at the 10 to 60-milligram dose is quite impressive, showcasing its strong oral efficacy. We believe we can approach this from multiple angles. You've pointed out the leveraging of Ubrelvy; we have a dedicated sales force targeting specialty organizations, including neurologists and headache specialists, who will be equipped to promote both UBRELVY and Atogepant. This strategy allows us to capitalize on the established sales force's expertise while also focusing on primary care providers who treat a significant number of migraine patients. This will be a crucial dynamic for us as we enter the market towards the end of the year. Additionally, we're assessing how patients fare at the end of their migraine treatment journey, especially those on Botox Therapeutics, which has a strong market share in chronic migraine but may not always deliver complete efficacy. We foresee that combining Botox with Atogepant could lead to true migraine relief for the most challenging cases. Overall, we believe we have a robust portfolio to manage commercially over time to achieve the objectives Rob outlined.

Liz Shea, Vice President of Investor Relations

Thanks, Gary. Operator, next question, please.

Operator, Operator

Thank you. And our next question is from Naveen Jacob from UBS.

Naveen Jacob, Analyst

Hi, Naveen from UBS. Thanks for taking the question. So first on the ADC steroid you see for inflammatory conditions. Just wanted to get an update there, it's been, I believe you said delayed for COVID-19 do you still believe that this approach can lead to success for refractory RA or other inflammatory conditions. Just wondering about your confidence in this technology, understanding, it's still early in development. And then secondly, as it relates to your current state of affairs with RINVOQ and SKYRIZI, could you remind us of what the current in-play market share for our RINVOQ is in RA and SKYRIZI in psoriasis. Thank you so much.

Michael Severino, Vice Chairman and President

Okay. This is Mike, I'll take your first question on ABBV 154 our TNF steroid conjugate, which has not been delayed because of COVID. There were some delays in other early immunology programs. Our CD 40 and our ROR gamma-T program experienced modest delays but 154 did not. As we said at the time of the COVID peak over the course of last summer, there were a small number of studies that we delayed initiation and delayed enrollment is the programs that I'm talking about, CD 40 and ROR gamma T were impacted modestly in that time period but 154 was not so that remains on track. We remain confident in it. We have selected 154 as the agent to go forward. Remember that we had two 3373 and 154 and we selected 154 because of advantages it had in linker technology, we're planning to initiate a large Phase 2b study in the first half of this year and then today, we're now saying that we will also be studying Phase 2 Crohn's disease as well as polymyalgia rheumatica, and that's an important set of indication that covers a wide range of opportunities, RA and Crohn's disease areas where we are very active, PMR polymyalgia rheumatica is a new area where there is not a lot of therapeutics, unfortunately, it is a well-established area in medicine but there is very little in terms of treatment for these patients, they have considerable pain and suffering from their condition and it's particularly steroid-responsive. So we think it is a very attractive target for our steroid ADC approach. The 154 remains on track and we continue to have confidence.

Jeff Stewart, Executive Vice President, Commercial Operations

Thanks, Mike. It's Jeff, I'll take the in-play share. So if we look at the psoriasis market and SKYRIZI we have on our latest data point 33% of in-play share, which is of course is new patients coming in or newly switch patients. If you look at the total AbbVie share, it's approximately 45%, so very remarkable when you add Humira plus SKYRIZI in the dermatology space. If you look at the RA space, our latest data points are between 15% and 16% in terms of in-play share for RINVOQ in RA and that's basically neck and neck with Humira, so for a total AbbVie share of roughly a third of the RA market.

Rick Gonzalez, Chairman and CEO

This is Rick. The only thing I'd add on that is when you look at that SKYRIZI 33% in-play share, it's almost double what the next closest competitor is; I mean it's impressive. The gap between SKYRIZI and the number two player and the other thing is, as these brands get more experience in the market, we'll also start to talk about the total TRx share and I think SKYRIZI is at that point now. I think it's total TRx share now is 14%, or something like that. That's right. And that's pretty impressive for this short period of time and it is close to number two in the market in TRx share. So they are both doing very, very well.

Liz Shea, Vice President of Investor Relations

Thanks, Naveen. Operator, next question, please.

Operator, Operator

And the next question is from Chris Raymond from Piper Sandler.

Chris Raymond, Analyst

Hi, thank you. I have a couple of questions. First, regarding the relationship with BI and SKYRIZI. We've received several inquiries about the treatment of the royalty, and while you've addressed this previously, I noticed the significant non-cash GAAP charge this quarter, which you account for in your non-GAAP earnings. You've mentioned that the accounting is viewed as a business combination. Could you provide more insight into the rationale and the accounting for that non-cash charge? Additionally, is there a specific threshold or event that would lead you to include this royalty expense in your non-GAAP measures? Moving on to AbbVie 951, there seems to be a lot of excitement from key opinion leaders about this asset in Parkinson's disease. I know the Phase 3 trial is expected to start later this year, but could you discuss your launch expectations regarding this and perhaps compare it to the Duodopa experience? Based on our feedback, it appears that this could significantly broaden the addressable population for Parkinson's disease. Rick, could you also explain how this fits into your long-term $10 billion neuroscience guidance? Thank you.

Rick Gonzalez, Chairman and CEO

Yes, Chris, I'll address your question about contingent considerations. We accounted for this as a business combination, which means each quarter we assess the fair value of future milestone royalty payments. This quarter, we did see an increase in fair value due to a higher sales outlook, as we indicated during our Immunology Day event in December and in the guidance we provided today. The outlook for SKYRIZI continues to improve, and so we are acknowledging that liability moving forward. We also consider market assumptions since it's a fair value measure, which incorporates both our forecasts and market expectations that have also risen. We're observing a boost in confidence from the market, leading to a brighter outlook for SKYRIZI, which translates into higher potential future royalties. I want to emphasize the free cash flow figure I mentioned today because there is some confusion regarding how we account for it. When I refer to free cash flow of $21 billion this year, it includes the royalty payments to BI. You can analyze this from different perspectives; you can track the consideration accretion we are recording and the liability on the balance sheet as a future outlook indicator. We monitor our cash flow closely to see how it contributes to the overall cash flow. We have firmly decided on the business combination and do not anticipate reversing that, but we will provide more clarity on future royalties given the size of the asset.

Michael Severino, Vice Chairman and President

I also say in that time period when we did BI it was an absolute requirement on the account. Well, that was really, it wasn't like a judgment call or something thing to desire to do the accounting. That was really required to do that at that time.

Jeffrey Stewart, Executive Vice President, Commercial Operations

So I think you have sort of hit the nail on the head over at one point. It’s really the absolute efficacy tone of having good, PATH data and we will set path and we can do that at a very nice rate in early casing to be seen. So I think it’s going to be good for the market going forward.