Good morning and thank you for standing by. Welcome to the AbbVie Fourth Quarter 2018 Earnings Conference Call. All participants will be able to listen only until the question-and-answer portion of this call. [Operator Instructions] And I would now like to introduce Ms. Liz Shea, Vice President of Investor Relations.

Good morning and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Michael Severino, Vice Chairman and President; Bill Chase, Executive Vice President of Finance and Administration; and Rob Michael, Senior Vice President and Chief Financial Officer. Before we get started, I would like to remind you that some statements we make today are or 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 that may cause actual results to differ materially from those indicated in the forward-looking statements. Additional information about the factors that may affect AbbVie's operations is included in our 2017 Annual Report on Form 10-K and in our other SEC filings. AbbVie undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments 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. Following our prepared remarks, we'll take your questions. So, with that, I'll now turn the call over to Rick.

Thank you, Liz. Good morning, everyone, and thank you for joining us today. This morning, I'll discuss our fourth quarter and full-year 2018 performance as well as our expectations for 2019. Mike will then provide an update on recent advancements across our R&D pipeline, and Bill will discuss the quarter and our 2019 guidance in more detail. Following our remarks, we will take your questions. We delivered another impressive year with results well above initial expectations. Adjusted earnings per share in the fourth quarter were $1.90, representing growth of more than 28% versus last year and once again achieving our guidance for the quarter. Total adjusted operational sales growth of 8.3% exceeded our guidance for the quarter. This growth was driven by a number of products including hematological oncology portfolio with global operational sales growth of more than 50% and U.S. HUMIRA, which grew by more than 9% versus the last year. Our international HUMIRA sales were down nearly 15%, reflecting the impact of direct biosimilar competition in Europe and other international markets. We also saw a continued strong performance from several other products including MAVYRET, CREON and DUODOPA. AbbVie has demonstrated an exceptional track record of consistently delivering top-tier financial performance despite any market or competitive challenges and 2018 was another clear example of that performance. We continue to drive strong commercial and operational execution, resulting in full year 2018 global operational sales growth of more than 15% and adjusted earnings per share growth of more than 41%. As we look at the evolution of our business and of our strategy, we're pleased with the progress that we’re making. AbbVie's strategy has contemplated biosimilar competition since day one of the launch of this Company. Our focus has been on building a pipeline that would allow us to absorb the…

Thank you, Rick. 2018 was a very productive year with significant pipeline advancement, including numerous development and regulatory achievements and successful data readouts across our pipeline. We secured regulatory approvals for several programs including VENCLEXTA in the broad relapse/refractory CLL population, and conditional approval for VENCLEXTA in newly diagnosed AML patients ineligible for intensive chemotherapy; approval for IMBRUVICA in combination with Rituxan as the first chemotherapy-free combination treatment for Waldenström's, the 9th FDA approval for IMBRUVICA overall; and for ORILISSA, for the management of moderate-to-severe pain associated with endometriosis. We completed registrational studies and submitted regulatory applications for our two next generation immunology therapies, risankizumab and its initial indication, psoriasis; and upadacitinib in its first indication, rheumatoid arthritis. Across each of the four Phase 3 studies in the pivotal program for psoriasis, risankizumab showed consistent, high, durable rates of skin clearance. Based on these results, we believe risankizumab has the potential to significantly improve upon current treatment options for both bio-naïve and TNF-inadequate responder patients with moderate-to-severe psoriasis while offering the convenience of quarterly dosing. Our regulatory reviews are well underway with approval decisions expected in the second quarter. With upadacitinib, our goal is to deliver a differentiated treatment to RA patients. We designed a broad and comprehensive set of six pivotal studies in RA, enrolling nearly 5,000 patients across multiple populations, including two studies with biologic comparators. We evaluated upadacitinib head-to-head against the standards of care in RA, including methotrexate and HUMIRA, and in a broad range of patient types within the moderate-to-severe RA segment. This includes monotherapy treatment in patients who are naïve to methotrexate as well as studies in very difficult to treat patients who have failed one or more biologic therapies. Across the select clinical program, both doses of upadacitinib performed extremely well and demonstrated a…

Thanks, Mike. Today, I'll review the highlights of our performance for the fourth quarter and full-year 2018, and then walk through our 2019 outlook. As Rick mentioned, we have completed another year of outstanding performance, delivering top and bottom line growth that ranks AbbVie among the very-top of our industry peers. We reported adjusted earnings per share of $7.91, up more than 40% compared to 2017 and $1.44 above the midpoint of our initial expectations for the year. For the year, adjusted revenues were $32.7 billion, up 15.2% on an operational basis, excluding a nearly 1% favorable impact from foreign exchange. For the fourth quarter, total revenues were $8.3 billion, an increase of 8.3% on an operational basis, excluding a 1% unfavorable impact from foreign exchange. This performance reflects double-digit underlying volume growth offset by approximately 2.5 points of negative price. Global sales of HUMIRA were $4.9 billion in the quarter, up 1.4% operationally. In the U.S., HUMIRA sales increased 9.1% compared to the prior year, reflecting high-single-digit volume growth plus price. Wholesaler inventory levels remained below half a month in the quarter. International HUMIRA sales were $1.3 billion in the quarter, down 14.8% operationally, reflecting the introduction of biosimilar competition across Europe and other international markets. Global HUMIRA sales for the full -year 2018 were $19.9 billion, reflecting operational sales growth of 7.4%. Full-year sales of HUMIRA in the U.S. grew more than 10%, and international HUMIRA sales approached $6.3 billion, performing in line with our expectations. Hematologic oncology global sales were $1.1 billion in the quarter, up 50.3% on an operational basis, driven by the continued strong growth of both IMBRUVICA and VENCLEXTA. In the quarter, IMBRUVICA net revenues were $1 billion, primarily driven by continued uptake in the frontline CLL segment. VENCLEXTA revenues were $124 million in…

Thanks, Bill. We’ll now open the call for questions. Operator, first question, please?

[Operator Instructions] Our first question today is from Steve Scala from Cowen.

Thank you very much. In 2019, if HUMIRA grows $1 billion in U.S. but declines $2 billion o-U.S., it would have to grow up 11% in 2020 to hit the $21 billion guidance figure. Is that still your expectation? Secondly, do you anticipate an FDA AdCom for upadacitinib? And then, lastly, perhaps in part due to AbbVie’s openness to do a deal and its desire to have another therapeutic vertical, there's been some speculation that AbbVie might pursue a big deal, even in an unfriendly way. Considering the many moving parts at AbbVie, what is your appetite right now for a big deal and would you consider an unfriendly one? Thank you.

Yes. Steve, this is Rick. So, I’ll cover one and three, and then Mike can cover number two. So, first of all, if you look at HUMIRA, obviously, we continue to see strong growth in the U.S.; we’re continuing to see the biosimilar effect play out. We've assumed within our planning period of 2019 that we’ll see some continued erosion from a price standpoint across the time period that is greater than what we currently have -- is currently in place. So, obviously, we’ll have to see how that plays out. In the end, if we look at the long-term targets that we put in place, we still feel confident in the overall long-term targets. Whether or not one product is slightly different than another, I mean we'll see how that plays out, but we obviously feel confident in what we have committed to and we maintain that commitment. As far as the appetite for a big deal, I can tell you that is not something that we are contemplating.

Okay. So, this is Mike. I'll take number two. With respect to upa and the potential for an AdCom, I think it's important to keep in mind that we’re in very-early stages of a regulatory review. But, if you look at the practice of this review division, it's common for filings like this for new molecular entities in RA to go to an AdCom. So, it's certainly possible article. But, we’ll have a much better idea once we’re further along in the review process.

Thanks, Steve. Operator, next question, please?

Thank you. Our next question is from Andrew Baum from Citi.

Thank you. Apologies if I missed the early part of the call. But, just in terms of what's embedded in your 2019 adjusted earnings guidance for HUMIRA in international markets, if you could give us additional color on that that would be great. Second, you recently had a management reorg. Could you talk to that in relation to also succession planning of the organization? And then, finally, you disclosed a couple of negative headlines in two Phase 3 veliparib trials over a year-ago. I haven't seen the data for that. It's just broader interest as what is -- as when might we see that data being presented. Many thanks.

Hi, Andrew. I’ll start with your first question. It’s Bill Chase. Our guidance around HUMIRA for 2019 is in the U.S. strong growth, 7% is what we are recommending to model. Outside of the U.S., obviously with the advent of biosimilars, we are forecasting a decline, and currently we view that as about 30% on an operational basis.

So, Andrew, this is Rick. I'll cover number two. We did announce a change in our organizational structure at the executive level. The purpose of that change -- and we've operated now for six years with a fairly a broad management structure reporting to me, and the purpose of the change really was to narrow the focus of the direct reports that I had that ultimately would allow us to focus and execute even at a higher level around where our strategy is going forward. In addition, we have a very talented executive leadership team and we wanted to get those people some additional experience in other areas, and this will allow us to be able to do that. I've heard all the rumors about potentially me retiring. I can tell you they are not true. As many of you probably know, I retired once. And I can tell you, I'm heck of a lot better running AbbVie than I was at retirement. So, hopefully that clarifies it.

This is Mike. With respect to veliparib data, so, we announced those topline results when we had them. We’re committed to publishing all results and making the data available. I don’t have a specific meeting or a specific timeframe to point to here on the call today. But, we will be making those data publicly available.

Thanks, Andrew. Operator, next question, please?

Thank you. Our next question is from Geoff Meacham from Barclays.

I just had a few on HUMIRA. For O-U.S., are there countries that still need to be contractual locked in for ‘19? And what’s your new guidance, Bill? Are there resets at year-end looking to 2020 and beyond? And then, when you guys talk about the U.S., the strategy seems to be moving HUMIRA to later in the paradigm across different markets and then upada and rizu upstream. As you guys get closer to launch, are you thinking about -- how is the contracting going to make this happen? Is it just about discounts or rebates or other more novel strategies under discussion?

So, this is Rick. I will cover those first two. So, there are still some countries where obviously, it is still evolving. The southern European countries are probably the most significant, and to some extent in Germany. I’d say, we haven't seen a lot of movement in price over the last 60 days or so. But, we are anticipating -- and as I said, we built into our forecast some incremental decline in price, just to make sure that we felt comfortable with where it potentially could go. As far as other countries in 2020, the majority of the volume doesn't come under additional biosimilar exposure in 2020. The more significant countries are in 2021. So, there is some, but the majority of it occurs in 2021, not in 20. As far as what you described as contracting dynamics, I think if you talk about our go-to-market strategy for these products, we’re not in a position, nor from a competitive standpoint do I think we would want to talk about at this point what our go-to-market strategy is. But, I think in general, the way you can think about these assets and then certainly the way we're thinking about it is, now that we’ve produced the data on upa and risa across the broad range of indications, it is validated for us that these assets ultimately are superior to what’s out there today. And clearly, as I indicated, we now have enough data across a broad range of clinical trials and across a broad range of patient population from naïve patients to TNF inadequate responding patients that we know these assets will ultimately be able to deliver significantly superior results to both HUMIRA as well as other assets that are out there, other medicines that are out there. And therefore, the logical strategy with these assets is to position them to be lead products in the marketplace. We would obviously put a contracting strategy in place that will be consistent with that approach, and obviously we will find those launches in a way to be able to drive that approach in the marketplace, both in the U.S. as well as outside the U.S. And we expect the uptake to be consistent with the profile of those assets.

Operator, next question, please?

Our next question is from Tim Anderson from Wolfe Research.

I have a question on spending infrastructure over the long-term. So, naturally, the big concern is HUMIRA biosimilars and how that impacts the P&L. And one of the levers you could potentially pull is cutting cost some point in the future. And I know you've given long-term operating margin guidance. But, can you give us kind of more detail on how you see SG&A and R&D evolving over time? I’m wondering if you can call large amounts of spending out of these line items. It seems like that could be challenging in the context of still investing heavily in the INI space with your other assets. So, how much is spending, a major lever that can be pulled in the future? And then, second question just goes back to HUMIRA international. So, in October, you revised down your erosion guidance. And now, just three months later, you’ve revised it down again in terms of international performance for 2019. Can we be confident that you won't have to revise it down yet again at another point in the current year?

So, I'll cover most of those questions, and Bill can fill in if anything that I haven't covered. So, let me start with what you described as the guidance. And let me go through the history of the guidance because I think it is important to lay out. We came out with the original guidance back in 2015, and that was based on what we saw out in the marketplace primarily at the time REMICADE and then followed it with ENBREL. And we updated it I think in 2017, specifically what we thought. And then from that point forward, we said we needed [ph] to see what it would look like going forward. On the third quarter call, what we -- we were only, to my best of my recollection, three weeks into biosimilars. Right? And we made it fairly clear, and I think if you go back and if you read this transcript, it's fairly clear that what we were giving the market was a snapshot of what we saw at that time. And in fact, I think I said at the time, you should not assume this is guidance, it's likely to get worse. So, hopefully, we were clear at that point. As far as specifically to your question, as I indicated, we have built in further erosion that we haven't seen yet. So, in the number that Bill described, the 30% to 31%, which is roughly 5 points above where it was before, that has some assumed erosion that has not occurred. And look, what we're giving you is our best estimate of what will happen. Obviously, this is driven by -- not us, it’s driven by competitors and their behavior. And so, ultimately, it's not like we have a crystal ball that we can predict exactly…

Yes. The only thing I’d also add is as you look at the 50%, look, the big part of the story from here on out is going to be obviously P&L leverage, given robust sales that we’re expecting once these new products get up to into their ramp. So, 2020 should be a sales expansion year. But, even then, we’re always going to be thoughtful about how we deploy our resources. If you look at this year, on a operational sales increase of 1%, we’re still delivering 200 basis points of op margin progress. So, I think that's pretty good. And we are appropriately funding those new product launches. The only way you can do that is being thoughtful about your overall book of SG&A and do some prudent reallocation. And obviously, you could infer to that happening in the numbers this year. So, look, we’re always going to be thoughtful on spend. But, the real way to get an improved op margin is going to be through sales leverage, P&L leverage. And we are going to remain focused on making sure that we appropriately fund new opportunities.

And the only other thing I would add is, I think it’s important to keep in perspective how this business is performing. You have a business here that for six years has delivered top-tier performance. Last year, we grew the bottom line 41% with the top line 15%. If you look at 2019 and you look at that guidance range at the midpoint being 10%, you back out the share repurchase, which is about 3 or 4 points of it, it says that the underlying business, despite taking almost $2.5 billion hit, is growing at 6% or 7% from an EPS standpoint. If you adjusted for the $2.5 billion, the bottom line is growing at 23%. There aren’t many businesses around here that have that kind of performance. Top line is same thing. If I adjust the top line, which is roughly 1%, if I adjust it for the $2.5 billion, the rest of the business is growing high-single-digits. And so, you certainly want to make sure that you're in a position that you can continue to drive this business in a way that it can continue to perform because that is ultimately the way you’re going to absorb biosimilars. And I would tell you that despite the fact that these biosimilars have priced more aggressively than we thought or the analogs would have suggested, the business is absorbing them effectively, and that's what the strategy was designed to do.

Our next question is from Geoffrey Porges from SVB Leerink.

First, could you just talk a little bit about pricing, Rick? What assumptions about pricing you baked into your guidance for particularly U.S. revenue growth in 2019, and what do you think of the political risks that could affect that outlook? And then, secondly, could you talk a little bit about the launches of upa and risa in 2019? Could you help us understand what if any ability you have two prepare for those launches in your discussions with payers? Should we be expecting them to launch with the same sort of trajectories as the preceding products in that class or should we push those launches out to 2020, as you get into that payer cycle? Thanks.

I think if you look at pricing, we have now -- we were one of the companies that made a commitment that we're going to do one price increase per year, a couple of years ago, and it would be below double digits. And we've obviously honored that going forward. So, we've done the price increase for this year. You saw that it was lower, 6.2% roughly. And so, I think you know what the pricing will be in 2019 because we have no intention of doing another price increase in 2019. I think, if you look overall, yes, the industry has adjusted to some extent I believe to the environment as it relates to pricing. Our business is not a business that is driven to any great extent by pricing. We’re fortunate that we have innovative products, and volume is the vast majority of it, though I mean you're probably talking -- 2019, you're probably talking overall negative price.

For the entire book of business in the U.S., low single digit.

Yes. So, it’s not heavily reliant upon price, nor last year was it heavily reliant upon price. So, I think we're comfortable with where we are from a pricing standpoint. We don’t see any exposure related to that. As far as, upa and risa, obviously, we will want to get these products on formulary as broadly and as quickly as possible. I would say, that's an area that we have a team that is good at doing that, effective at doing that. And so, obviously, based on the fact that we assume risa is going to be approved here in the not too distant future, we have to be in a position we are in discussions, nothing that we update you here on. But, I would say the operating assumption that is probably a good assumption is that we will end up with broad coverage of these assets. As far as the ramp is concerned, I think I understood your question, and I'm going to answer it in the backdrop of what I thought you asked. What I thought you asked is how would I compare these to prior competitive launches? And I can tell you that we would expect, like other launches that will take a little bit of time in order to ramp. But, I'd say also, with our expertise in this area and the portfolio of assets that we have and the profile of these particular drugs from a clinical standpoint, I would expect that these assets will be able to drive significant share over time, and a significant capture of new patients and switching patients. And that will certainly be the strategy we have in place to drive a significant part of those available patients to these better assets.

Thanks. Operator, next question, please?

Thank you. Our next question is from Chris Schott from JP Morgan.

Thanks very much for the questions. My first one is just following up on the longer-term international HUMIRA business, so beyond 2019. Do you see 2019 as a peak rate of erosion for that business and then maybe more moderate step downs beyond 2019, or could we see several years of this more severe erosion level as we just think about kind of getting past this year and the outlook for that business? My second question was on capital allocation. And I guess, is the more challenging HUMIRA environment change or alter your priorities at all? I guess, specifically, the Company’s been very active on the share repo front over the past few years. But, how do you balance, I guess that repo with priority with diversification, given some of these HUMIRA dynamics that we’re seeing playing out?

So, I think, I would see that you have gotten the vast majority of the impact from a price erosion standpoint in 2019. But, remember what I described before. We have factored into our plan further erosion as you go throughout. So, there’ll be some annualization impact that you would obviously see in 2020, if that is going to play out the way that we have planned for. And then, you will have some countries that will go biosimilar in ‘21; they have not gone biosimilar today. And then, we obviously have some impact, although I would say most of those countries, it should be a lower impact, but we’re going to have to see how that sorts itself out. So, certainly, I don't think you will see a step down that’s as significant as we’ve seen in the first year because there have been very aggressive pricings in certain countries. And so, we’ll obviously get to the point at which the biosimilar players have gotten to what they believe is the floor where they want to operate. And so, I think you should see it moderate, I guess, is the best way to describe it. As far as capital allocation versus share repo, I’d say, if you look at how we’ve operated this business since day one, we’ve obviously been very vocal about how we view the business and what our mission and what our vision is for the business; and that is to drive long-term, sustainable top-tier performance. And in order to do that, you have to invest in the business appropriately. We have obviously invested significantly in R&D. Since we launched the Company, we grew significantly. We've obviously been very active from a BD standpoint. At the same time, we have a business that generates a tremendous…

Thanks, Chris. Operator, we’ll take the next question, please?

Thank you. Our next question is from Jason Gerberry from Bank of America.

Thanks for taking my questions. First one, just coming back to U.S. HUMIRA, just curious, the softening of the 2019 number, just sort of curious, to what degree is that cannibalization from the next generation immunology brands, sort of curious, if that's a factor or if it really is just sort of maybe the moderation of pricing. And then, my second question, I guess with Jamie no longer on these calls, I'll ask the question. Rick, how are you defining a large M&A deal? That's a question that we’re getting from investors. So, if you can maybe put some parameters around that that would be great.

Last time I defined a large bolt-on, it had a undesirable reaction in the marketplace. The largest transaction that we've done so far has been Pharmacyclics. That's what I view as a -- the size of roughly a large bolt-on kinds of transaction. And when I say a large deal, I'm thinking about a very significant kind of deal, merger type deals; we’re not contemplating anything of that magnitude at all. U.S. HUMIRA, do you want to cover that, Bill?

Yes, sure. So, if you look at U.S. HUMIRA, we're guiding 7% in 2019. That's coming off of a number in ‘18 of 10%, and with, as I thank you pointed out, a lighter price increase on the years. So, if you really factor out the change in pricing year-over-year, you'll see that the business is still performing very, very well; volumes are still pretty much pegged right where they have been historically. You got the law of large numbers here a little bit. But, I wouldn't read much into underlying dynamics on HUMIRA other than continued strong performance in the U.S.

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

Thank you. Our final question today is from Katherine Xu from William Blair.

I'm just curious about the hem-onc franchise strategy. Apparently, IMBRUVICA and VENCLEXTA are doing well. What are you thinking about boosting over that? There is of course the case [ph] that you used have with other companies and returned, and there is also the cellular therapy -- therapeutic space there. I was just wondering about your general strategy there?

Mike?

This is Mike. I’ll take that. With respect to our hem-onc franchise, both IMBRUVICA and VENCLEXTA are performing very well, both from a data perspective and from their trajectories in the marketplace. One of the things that I think is particularly attractive about those two, with respect to our franchise, is that they cover a broad range of hem malignancies. They work well together in areas like CLL and mantle cell lymphoma, MCL, and they also have some unique areas, for example, like venetoclax in AML. So, that’s going to be an important area for us going forward. It’s now annualizing over $4 billion; it’s growing at a robust rate. So, I think, you can expect to see us continue to work in this area. We’re going to look at how we not only continue to develop those mechanisms in areas like multiple myeloma for VENCLEXTA, but also how from our earlier pipeline we can add additional mechanism, so that will further strengthen our position in hem-onc. And there are lot of things in our early, now approaching mid-stage pipeline work in apoptosis and other areas that could apply there. And of course, we’re looking more broadly than that. You’ve seen us do early stage deals, but early stage deals that give us access to interesting technologies. We have some very early plays that could be in toward cellular therapies and to other mechanisms that could further develop that franchise.

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

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