Larry Peepo – VP, IR Rick Gonzalez – Chairman and CEO Bill Chase – EVP and CFO Mike Severino – EVP, R&D and Chief Scientific Officer.

Chris Schott – JPMC Jami Rubin – Goldman Sachs David Risinger – Morgan Stanley Mark Goodman – UBS Jeff Holford – Jefferies Colin Bristow – Bank of America Alex Arfaei – BMO Capital Markets Mark Schoenebaum – ISI Group Steve Scala – Cowen & Company Vamil Divan – Credit Suisse Mark Purcell – Barclays.

Good morning and thank you for standing by. Welcome to the AbbVie Third 2014 Earnings Conference Call. All participants will be able to listen-only until the question-and-answer portion of this call. (Operator Instructions). This call is being recorded by AbbVie. I would now like to introduce Mr. Larry Peepo, 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; and Bill Chase, Executive Vice President of Finance and Chief Financial Officer.

Joining us for the question-and-answer portion of the call are Laura Schumacher, Executive Vice President Business Development, External Affairs and General Counsel, and Mike Severino, Executive Vice President of R&D and Chief Scientific Officer.

Before we get started, I’ll 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 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 2013 Annual 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, And with that I’ll now turn the call over to Rick..

Thank you, Larry. Good morning everyone and thank you for joining us. During today’s call, I’ll spend a few minutes on our strong results in the quarter as well as our performance since we launched as an independent company. I’ll also discuss our pipeline advancement including forthcoming data and other milestones.

I’ll then turn the call over to Bill who will provide additional color regarding the quarter and our outlook for the remainder of the year. We’ll also make sure we leave enough time for your questions.

Since launching AbbVie 22 months ago, we are focused on driving strong performance, creating shareholder value and building a robust pipeline to derive future growth. To that end, we have delivered a total shareholder return of more than 90%, representing $40 billion of shareholder value creation.

Today, we reported robust third quarter results with adjusted earnings per share of $0.89, significantly exceeding our guidance range for the quarter. This included operational sales growth of more than 8%, also ahead of our outlook for the quarter.

We drove this performance with double-digit growth across a number of products including, HUMIRA, Synagis, Synthroid, Duodopa and Creon. In the quarter, we also delivered improvements in gross margin and continued to invest in the business for future growth.

And for the second time this year, we significantly raised our full-year EPS guidance range for 2014, reflecting the robust performance of our underlying business and positive trends we expect through the remainder of the year. This guidance reflects EPS growth for 2014 despite the headwinds created by the loss of exclusivity in our lipids franchise.

Our results demonstrate the strength and sustainability of our portfolio and they underscore our continued focus and execution. Our third quarter results were led by HUMIRA, which delivered, nearly 18% global operational growth.

HUMIRA’s performance was driven by several factors including continued market growth resulting from increasing penetration across therapeutic categories and geographies. As we’ve indicated in the past, HUMIRA’s broad label and new indications are a competitive advantage.

We recently reported positive results from our Phase 3 studies of HUMIRA in HS, a chronic inflammatory skin disease that currently has no approved treatment options. We’re on track to submit our U.S. and European regulatory applications for HS this year.

We’ve also spent the last several years, developing and implementing a strategy that we believe will protect and grow our leadership position in immunology including product enhancements and intellectual property. And behind HUMIRA we have a number of promising immunology assets and development.

As a result, we are confident in our strategies to defend our position across our immunology categories. Our interferon-free HCV therapy represents another exciting vehicle for strong growth. We’re on the cusp of approval with the regulatory reviews progressing very well.

We’re actively engaged with regulators on various fronts and have completed our pre-approval manufacturing and clinical inspections. As we said at a healthcare conference last month, we do not expect that an advisory committee meeting will be required prior to U.S. approval. In anticipation of U.S.

commercialization by year-end and European approval in early 2015, we’ve built the appropriate infrastructure and are fully prepared for our launch. Our next generation HCV program also continues to progress well. We’re currently conducting Phase 2b studies and expect to transition the Phase 3 development in 2015.

Beyond HCV, we have a robust pipeline of promising development programs. These programs stand especially therapeutic areas and include both biologics and small molecules. All told, we have more than 40 active clinical development programs underway, this includes 12 products in Phase 3 development or currently under regulatory review.

We have a high level of enthusiasm in our oncology pipeline, which includes 10 new molecular entities being studied in more than 55 clinical trials. In collaboration with Roche, we will present additional data on ABT-199 at an upcoming medical meeting, including Phase 1 data on AML and early data from a trial combining ABT-199 with Gazyva.

We’ll also see data from a large single-agent study in relapsed refractory CLL patients with 17-p dilution in early 2015. As a reminder, if the data warn and regulatory authorities agree to ABT-199, addresses an unmet medical need in this patient population. These data have the potential to support an early pathway to registration.

Veliparib is our PARP inhibitor in development for a wide range of solid tumors. Over the past year, we have initiated four pivotal studies. This includes Phase 3 trials in neoadjuvant breast cancer BRCA breast cancer and most recently two studies in non-small cell lung cancer than include patients with squamous and non-squamous cancers.

We’re also excited about ABT-414, our anti-EGFR monoclonal antibody drug conjugate being evaluated in combination with Chemotherapy for glioblastoma multiforme, the most common and most aggressive type of malignant primary brain tumor. We were recently granted orphaned drug designation for ABT-414 by the EMA and FDA.

And we are moving aggressively to start a Phase 2 study in patients with GBM by early next year. Also on our late stage development on Oncology pipeline is elotuzumab in partnership with Bristol-Myers Squibb for multiple myeloma. Results from the pivotal trial in relapsed refractory multiple myeloma patients are expected in early 2015.

Our late stage neuroscience pipeline includes daclizumab and Duopa. Daclizumab is in development for the treatment of multiple sclerosis. Despite advances in the MS category, there continues to be a significant need for novel, high-efficacy agents with favorable benefit risk profiles.

And we believe Daclizumab has the potential to be an important therapy in this large and growing market. We presented promising pivotal trial data earlier this year, which demonstrated patients treated with daclizumab had a statistically significant 45% reduction in annualized relapse rates versus Avonex.

We have begun to engage with global regulatory authorities and are working with our partner to complete our regulatory applications in the first half of 2015. Duopa, is AbbVie’s novel therapy for advanced Parkinson’s disease. It is currently under regulatory review in the U.S. with an FDA action expected in early 2015.

Elagolix is our compound in Phase 3 development for endometriosis and Phase 2b for uterine fibroids. We continue to expect to see initial data from the first of two pivotal studies in endometriosis later this year and plan to report top line data shortly thereafter. We also see data from the mid-stage program in uterine fibroids next year as well.

As I mentioned, we have a number of promising immunology assets in development, including oral selective JAK1 inhibitors, several biologics and two by specific biologics currently in mid-stage trials. We expect to see data from the selective JAK1 inhibitors next year, allowing us to make a decision regarding Phase 3 development.

In summary, we delivered excellent performance in the quarter and our pipeline continues to evolve. We’re on the verge of a number of important milestones including the commercialization of our interferon-free HCV combination and we’re prepared for a successful launch.

AbbVie is poised to deliver top-tier performance including strong sales and earnings growth beginning in 2015. We have a high degree of confidence in our strategy and our performance. With that, I’ll turn the call over to Bill for a more detailed view of our results.

Bill?.

Thank you, Rick. This morning I’ll review our third quarter performance and provide an update on our outlook for the remainder of 2014. This was another very strong quarter for AbbVie as we exceeded our guidance on both the top and bottom line. Total sales increased 8.3% on an operational basis, excluding 0.5% on favorable impact from foreign exchange.

HUMIRA delivered global sales of more than $3.2 billion up 17.8% operationally and up 17.5% on a reported basis. In the United States, HUMIRA sales increased 25.3% driven by continued market expansion, strong prescription trends and share gains partially offset by a reduction in retail buying patterns.

Internally, HUMIRA sales grew 10.3% on an operational basis excluding a 0.6% unfavorable impact from exchange. International growth was driven by strong underlying trends including the uptake of new indications and share gains but was partially offset by the timing of shipments in international markets.

We continue to see double-digit market growth for HUMIRA in most international markets. Certainly we are well on track to significantly exceed our original full-year guidance for HUMIRA. AndroGel sales were $232 million, down 6.7% from the prior year quarter.

We continue to see a notable slowdown in the market with overall prescriptions down significantly. However, we did gain share from competitors during the quarter and benefited somewhat from favorable pricing trends. U.S. sales of Synthroid were $200 million, up 24.3% year-over-year.

Synthroid maintained strong brand loyalty and market leadership despite the entry of generics into the market many years ago. The overall market has experienced low-single digit growth with Synthroid growth outpacing the market including product pricing trends. Global Lupron sales were $196 million in the quarter, up 0.4% on an operational basis.

Lupron continues to hold a leadership position and maintain significant share of the market. U.S. CREON sales were $148 million in the quarter, up 47.6%. CREON maintains its leadership position in the pancreatic enzyme market where the product continues to capture the vast majority of new prescription starts.

Growth in the quarter benefited from a favorable comparison to the prior year quarter. Sales of Synagis were $109 million in the third quarter up 18.3% on an operational basis. Synagis which protects at risk infants from severe respiratory disease is a seasonal product with the majority of sales in the first and fourth quarters of the year.

Growth in the quarter was driven by continued product uptake and strong commercial execution. Sales of Duodopa on our therapy for advanced Parkinson’s disease approved in Europe and other international markets were $56 million, up 20.8% on an operational basis this quarter.

Performance is in line with recent trends as well as our full year outlook for the product. And sales in our lipid franchise were down significantly due to generic competition. We expect these trends to continue for the remainder of 2014. I’ll now turn to the P&L profile for the third quarter.

The adjusted gross margin ratio was 81.1% somewhat above our expectations and up 140 basis points year-over-year. This reflects the loss of exclusivity in our lipid franchise offset by favorable mix impacts across the portfolio as well as and margin enhancing initiatives we’ve implemented.

Adjusted SG&A was 26.4% of sales in the third quarter, up more than 9% year-over-year reflecting continued investment in our growth brands and preparations for our upcoming HCV launch. Adjusted R&D was 16.2% of sales in the third quarter up more than 14% versus the prior year quarter.

As expected our absolute R&D investment was up sequentially over the second quarter as we increased funding of our mid and late stage pipeline assets and additional HUMIRA indications. Adjusted net interest expense was $53 million and the adjusted tax rate was 22.4% in the quarter.

Third quarter adjusted earnings per share, excluding non-cash intangible amortization expense and specified items were $0.89 well above our previous guidance range of $0.77 to $0.79. On a GAAP basis earnings per share were $0.31.

You will recall that in early September we updated our third quarter and full year GAAP EPS guidance to reflect upfront payments related to the infinity and calico agreements which were treated as specified items.

Also in accordance with the final regulations issued to the pharmaceutical industry in the third quarter by the IRS, AbbVie has booked an additional year of its branded prescription drug fee which we have treated as a specified item.

By way of background, starting in 2011, the pharma industry was acquired under the affordable care act to begin paying a fee based on branded prescription drugs sold to the U.S. government.

During the third quarter of this year, the IRS issued final regulations which changed the recognition of the fee from the period in which the fee was paid to the period for which the fee is owed. As a result, the industry is now required from an accounting perspective to recognize in 2014 one additional year of the fee.

There is no cash flow impact of this one-time adjustment. Due to the timing of the termination of the Shire transaction, the majority of one-time costs related to that event were reflected in our fourth quarter results. Moving on to our outlook for the remainder of the year, this morning we significantly raised our adjusted EPS guidance for 2014.

We now expect adjusted earnings per share guidance of $3.25 to $3.27. As a reminder, our 2014 outlook continues to exclude any potential revenue from the expected 2014 U.S. launch of our HCV therapy. Our revised GAAP guidance for the year includes the full impact of the Shire transaction costs.

Given our strong product performance, we now expect sales to exceed $19.5 billion in 2014. We’re forecasting an adjusted gross margin ratio of approximately 79% for the year reflecting product mix and actions we’ve taken to further improve our margin profile.

We expect full year R&D expense to be somewhat above 16% of sales as we continue to advance our late stage pipeline. And we expect SG&A expense of around 27% of sales in 2014. We are forecasting net interest expense of about $250 million for the full year, and we continue to expect an adjusted tax rate just above 22%.

As you know, our business generates significant cash flow and we expect this to grow in 2015 and beyond with new product introductions. As a result, we announced last week that AbbVie’s quarterly dividend will be increased by more than 16% to $0.49 beginning with the dividend payable in February 2015.

We intend to maintain our strong commitment to a growing dividend going forward. And we disclosed a new $5 billion share buyback program to be executed over the next several years, further reflecting our commitment to return cash to shareholders.

So, overall, we’re very pleased with our strong third quarter performance as well as our outlook for the remainder of 2014. And with that I’ll turn it back over to Larry..

Thanks Bill. We’ll now open the call for questions. Elon, we’ll take our first question please..

(Operator Instructions). Our first question is from Chris Schott from JMPC..

Great. Thanks very much for the questions. First one for Rick, operationally AbbVie seems to be obviously firing on all cylinders here. But with the Shire deal you highlighted the potential for greater access to your cash flow as well as the diversification that deal would bring.

So on those two topics, first can you talk about your access to cash flow and your ability to deploy capital on an ongoing basis with your current tax structure and the recent dividend increase? And then second on the business development side, what is the sense of urgency at this point to further diversify AbbVie? And can you give us any color on the range of M&A options you are considering.

I guess specifically should we think of Shire as a one-off or would the company still consider pursuing large-cap acquisitions? Thanks very much..

Okay. Hi Chris, it’s Rick. I think this question has come up a couple of times now since the termination of the Shire agreement and in the backdrop of the Shire agreement.

And so, I think it’s important to put it in perspective and important to acknowledge that at the outset, there are certain attributes of the Shire transaction that made it unique and out of the normal course of our M&A strategy.

I’d say specifically the potential for inversion is only offered with target selections of very significant size and the benefit of inversion allowed for an acquisition price that was obviously higher.

So, I think one of the things that you must remember as we approach the opportunity with Shire was against the backdrop of where was AbbVie overall, because I think that’s an important perspective to keep in mind. And if you think about the prospects of our business, they were never brighter than it were when we approached the Shire transaction.

We’ve cleared most of our significant LOE events, our growth brands are exhibiting extremely strong growth, particularly HUMIRA, we build a deep, mid and late stage pipeline with several potential blockbusters which we believe will allow us to drive top-tier EPS growth starting in ‘15 and beyond, HCV is a good example of that, 199 is a good example of that, Daclizumab is a good example of that and there were many more.

And while I think it’s fair to ask a question as our strategy, our M&A strategy changed following the Shire affair, I think it’s also important to acknowledge that we’re a company that’s in even stronger position today than we were before we announced this deal.

Today’s earnings show that very clearly, the base business is running stronger than our guidance at the beginning of the year suggested to us. We have a much better idea of the size of the HCV market and our potential to stake out a significant position in that market. We’ve had positive data readouts on DAC 888, 199 continues to perform well.

And we’ve continued to be active in the L&A front. So, there are no development really that have happened to our business, in fact any development that’s happened has actually been a positive development.

They don’t leave us with a tremendous amount of confidence that we can drive the level of performance that we have projected and the level of performance that we need going forward from 2015 with our base strategy. Which brings me to M&A.

If you look at our cash flow and our ability to access that cash flow, we clearly have the where with all to be active in the M&A front. What’s more is we have a track record in our ability and our willingness to pursue and acquire attractive assets, assuming two things, it makes strategic sense and they have a good financial return.

That’s essentially the criteria that we use. We’ve always said that our highest priority for our cash is to deploy it to further grow the business and make the business more and more healthy going forward.

And I think you’re going to expect us to continue to do exactly that, deploying cash to acquire attractive on-market and pipeline assets to further enhance our growth. But what I don’t think is that we absolutely have an imperative to one out and do another $50 billion deal, in fact I would tell you, we don’t have that imperative.

And it’s unlikely that we would do another $50 billion deal. As I said before, Shire is a unique opportunity based on a number of different factors, some of which don’t exist in the same way as they did before. So, the underlying growth prospects for AbbVie don’t require us to do a transaction that size.

I’d also say we’re not going to limit ourselves to what we do. We look at individual products, we look at mid-size companies and we look at larger companies. And we’re going to continue to do that and continue to look for those opportunities that strategically fit and give us a strong financial return. And we’ll deploy our capital accordingly.

The other thing I’d say is, we have always committed that we’ll return cash to shareholders and that’s a commitment that we’ve made as part of our cash, which I used to do that here recently with the dividend increase and the buyback program. Those are the two priorities for the cash.

The cash isn’t trapped, obviously we have access to the cash for offshore acquisitions, we have access to the cash if we choose to repatriate it. Obviously, we have an incentive to look outside the U.S. first if we choose to, but we have total flexibility as it relates to our cash..

Thanks Chris. Elon, we’ll take our next question please..

Thank you. Our next question is from Jami Rubin from Goldman Sachs..

Thank you.

Can you all hear me all right?.

We sure can..

Yes..

Thank you. Congratulations on a terrific quarter..

Thanks..

This is either for Rick or Bill. Clearly 2015 is shaping up to be a huge year. I think 2014 turned out to be a much bigger year that you or anybody else anticipated just given the profitability of the base business. But 2015 is really shaping up to be a very big year with the hep C launch.

But as we move out beyond 2015 post the HCV launch, can you comment on the pace of earnings growth? Obviously with bio-similar competition towards the end of the decade for HUMIRA that is going to have an impact on your earnings growth.

But will 2015 be a one-off year, or how should we think about the pace of earnings growth going forward? And then a second question for you, Rick. We have a lot more information now about the hep C market. We now know the pricing of the new Gilead combo. We’ve seen the spectacular initial launches of Sovaldi.

Can you comment on how I think early at one point you talked about achieving a 20% market share in this massive market, can you refresh us on your expectations just given how much more information we have now? Thanks very much..

Well Jami, this is Rick. So, first I’d say on the expectations for ‘15 and beyond, obviously we’re not going to give guidance out multiple years. But I think I can frame it this way for you.

If you look at what we expect to be able to deliver out of our pipeline including HCV and other assets like 199, we have a high level of confidence that we can continue to drive strong growth over the long-term.

As far as the bio-similar impact is concerned, obviously that’s something we have looked at and we have carefully analyzed and we’ve had now a number of years to put a strategy in place that we believe will protect in HUMIRA, through that period of time.

And so we’ve obviously modeled what that looks like and I can tell you we have confidence in what we can do in that area. I’m not going to give you a lot more specifics on that at this point.

We’ve described in detail what it looks like it is a combination of three major areas, product enhancements, both, formulation as well as device, intellectual property and commercial strategies. And this is a market we understand well. And as I said, I think we have planned this out very well.

And I think we have a high level of confidence in our ability to be able to execute that strategy in the face of bio-similar competition. There will be a time where we can give you more color I know this isn’t very satisfying to you. There will be a time where we can give you more color this just is not the time to be able to do that.

We have to make sure that we have planned this out appropriately. And so, in the future we will be able to give you a little more detail around that. As it relates to Hepatitis C, what I would tell you is this. If you look at the Hep C market and HCV for us, it’s a very exciting opportunity.

And I would tell you it’s a very important opportunity for AbbVie. So, let me say, in the backdrop of we’re getting very close to entering the U.S. market once we’re approved, it wouldn’t be prudent for us to provide a lot of specific details around our commercial strategy or go-to-market strategy.

But what I can do is I think frame for you, how we think about the competition in the marketplace, how we think about the marketplace. I’m not going to provide an expectation at this point but I’ll give you some perspective I think.

As we said many times before, we believe the clinical performance of our product across all patient types is very strong. And it’s especially strong in the psoriatic and difficult to treat patients. And we believe that will be an important factor in how we compete in the marketplace. We believe relapse rates and SPRs are important.

We still don’t believe that minor differences in pill count or shorter duration of therapy in certain patients will significantly change the competitive dynamics in this marketplace.

In fact I tell you, in our interactions with many KOLs, they indicate that they’re going with 12 weeks of therapy in patients to minimize the risk of relapse in those patients. As far as the market is concerned to the point you made, we see the market as being even more attractive than we thought about it a year ago.

It’s certainly bigger than we thought, it’s far more receptive to high curate therapies that are highly tolerable and the market wants alternatives, that’s clear. So, I can tell you, we feel very good about our ability to compete in this market and create meaningful share for our product.

As I said, I’m not going to go through a lot of specifics around the commercial strategy until we’ve launched. Last thing I’d say is, as you know, the 2014 guidance we provided excludes any HCV revenues. So, it’s not counting on any HCV revenues, whenever we get an HCV we’ll obviously be upside.

But certainly when we provide 2015 guidance and product specific detail, at that point we will provide you with what our expectation is for HCV for 2015. Thanks..

Thanks..

Thanks Jami, our next question please Elon..

Thank you. Our next question is from David Risinger from Morgan Stanley..

Yes. Thanks very much. So I missed a little bit of the call. I just wanted to ask a couple of questions about some of the select product upside. I guess specifically maybe you could just make an overall comment on whether inventory levels changed at AbbVie between the end of the second quarter and the end of the third quarter, i.e.

was there a buy-in or buy-out for the company overall? And then second, were there any buy-ins for any select products of note? And then third, with respect to Kaletra ex-U.S., I don’t know if you commented but that was unusually strong.

Could you just explain that revenue number in the quarter and what we should think about for the fourth quarter head sequentially? Thank you..

David, its Bill Chase. So, inventory I’ll discuss in really two different pieces. You’ve got inventory at wholesalers and then obviously you’ve got inventory in the retail chain. At the wholesale level, our inventories across all products in the U.S. was roughly consistent between quarter two and quarter three.

The retail channels are little tougher to call as you know. In Q2, we did see some speculative buying in advance of the price increase around HUMIRA. We think some of that buying came out in Q3, although obviously it didn’t mute the overall performance of the brand to a meaningful extent.

But in general, at the wholesale level everything was consistent quarter-to-quarter. From a Kaletra ex-U.S. standpoint, that product is subject to some volatility based on tender timing. And you saw that in the third quarter. I think in the long-term outlook for this brand is probably somewhat negative from a single digit standpoint.

So, I think what you’re really seeing in Q3 was the anomaly of tenders internationally..

Got it. Thank you..

Thanks David. Elon, next question please..

Thank you. Our next question is from Mark Goodman from UBS..

Yes, I was hoping you could give us a flavor for how much of the, pre-spend for the HCV launch is already showing up in the quarter here? And how much additional we should be expecting in the fourth quarter and the first quarter? And then second, if you could just go through what data we will be seeing at ASH?.

So Mark, Bill Chase. We’re not going to get into specific details on how much of the HCV investment we’ve put in. Sufficed to say, we have obviously begun spending this year and you should expect that spending to increase sequentially in the fourth quarter and that’s been reflected in the profile guidance we’ve given..

Change in sales force, has that started already?.

Excuse me..

Sales force?.

We are all ready to go on HCV. We’re just waiting approval..

So that is already reflected in the third quarter?.

It is..

On your question regarding ASH, this is Mike Severino, I’ll take the question regarding ASH. There is going to be a number of important presentations on ABT-199 or BCL-2 inhibitor. This includes initial single-agent data in AML.

And we’ll also provide a number of updates on our ongoing earlier studies, and update on our Rituxan plus 199 Study in CLL, including an update on patients who have stopped therapy. And we’re going to have first data on Chemo combination study bendamustine plus Rituxan plus 199 in non-Hodgkin’s lymphoma in DLBCL.

And there will be a number of other updates including 199 and GA-101, and CLL from early phase studies..

Thanks Mark. Elon, we’ll take our next question please..

Thank you. Our next question is from Jeff Holford from Jefferies..

Hi. Thanks very much for taking my questions.

So just on your HCV program you mentioned do you expect to bring a new – at any point into your next-generation program and give us any updates on how you think you might go about that if that is the case? Secondly around margins, other results of some of the cost savings you would’ve looked at as part of the Shire transaction going forward, did you see any opportunities in the base business going forward that you can look at for further margin enhancement? And then just lastly, this will be for Rick, of course, are you concerned that by highlighting your underlying tax situation that you could have potentially made the company vulnerable to a takeover by a foreign company going forward? Thank you..

So, Mike, why don’t you cover the first question?.

Sure. This is Mike Severino. With respect to our plans with hep C, we feel very good about both our current generation hep C program and our next-generation hep C program which is advancing very nicely to the clinic. We’re currently in Phase 2b studies with our next generation program.

Back in mind is our next-generation protease inhibitor and our next-generation NS5A inhibitor. Things are progressing very well. We’re going to continue to evaluate these data as they roll-out and we’ll be providing updates and appropriate scientific settings over the course of the next year.

We’re always looking at promising mechanisms in our early discovery efforts and we’ll continue to evaluate those efforts in light of the clinical results as described as well. Overall though, I feel very good the progress we’re making in hep C.

And I think we’re going to have a compelling offering with first generation and it’s an area that we’re committed and it’s an area that we’ll remain active..

Jeff, on cost savings, yes, I can tell you this is an organization that has always been focused on driving cost out of the business. I think you can see that to an extent on the progress we’ve made on gross margin. And certainly we keep our eye open for those things all the time.

I think in 2015, if you look at some drivers behind the business, the dynamics trend favorably for operating margin expansion. Obviously the TriCor/Trilipix LOE event is fully behind us at that point. You’re seeing the efficiency efforts play out on gross margin.

And we would obviously expect a strong positive impact of the HCV launch which offers both a high gross margin as well as SG&A profile improvement. So, too early to get into a specific operating margin number for you for next year, but I’m confident we’re going to have a nice story to tell on this when we get into it next year..

And on your question about potentially being a takeover target, let me address it this way. If you look at our situation about offshore cash, we’re certainly not unique in our industry in fact I’d say we’re pretty consistent with how our industry tends to operate. So I don’t know that we flagged anything in the process.

But essentially I’d tell you that our goal as a company is to stay a strong sustainable independent company. We’ve demonstrated that we can drive strong shareholder value you see that in the GSR that we’ve delivered, you see that in our market cap.

So I can tell you my focus is on driving the business at top-tier performance, building out a robust pipeline and delivering strong returns to shareholders. My philosophy is if you do that well, the market will reward you both in your PE as well as your market cap.

And that’s the focus that we have for the business and that’s what we pay attention to going forward..

Thanks very much..

Thanks Jeff. Elon, next question please..

Thank you. Our next question is from Colin Bristow from Bank of America..

Good morning and congrats on the quarter. Just on hep C, arguably you’re most competitive versus Harvoni in the treatment experience cirrhotics with the TURQUOISE-II data.

Given your excluded prior protease inhibitor patients, how should we be thinking about this from a labeling perspective and can tell you help us quantify the size of this population? And then just a little more on the label.

I know it is hard but how confident are you that you can get a 12-week label in the treatment experience cirrhotics and how important is this for you from a commercial perspective? It seems like the FDA has a very high bar for the SVR sacrifice versus duration of therapy? Thanks..

We’re in the midst right now of dialog with the agency over labeling so we’re not going to, it’s not just appropriate to talk about a lot of the specifics that we’re talking through with them. I can tell you, we feel comfortable with our data set in cirrhotics and across all the other patients.

We certainly feel comfortable when we look at our 12-week and 24-week data in cirrhotics, both have excellent SVR performance. And so, we don’t feel at all uncomfortable with the direction that our labeling is going in. PI failures..

Yes. Treatment, this is Mike Severino, treatment regimens are obviously evolving considerably. I think that I would point to the overall breadth of our data both in cirrhotics and outside of cirrhotics, we feel very good with our profile we have, very high SVR, very high cure rates. And again, we feel very good about the profile that we see.

I think that’s probably it..

Thanks a lot..

Okay. Thanks Colin. Next question Elon..

Thank you. Our next question is from Alex Arfaei from BMO Capital Markets..

Good morning and thank you for taking the questions. Bill, could you please build on your earlier comments about gross margin.

What specifically are these margin-enhancing initiatives that you are referring to? And is this what we can expect going forward because we would only expect gross margin going up with hep C? And a follow-up, could you please give us an update about your efforts to simplify your current hep C regimen with fewer pills, please? Thank you..

So, Alex, regarding the gross margin, there are a couple of things are in play on that line. First and foremost as you know we have obviously lost TriCor/Trilipix which had a higher than average gross margin than the corporate rate. So that’s some headwind we’ve actually been facing over the last couple of years.

And you can see we’ve negotiated that nicely. Offsetting that there has been a couple of things. First of all, there is an impact of product mix in pricing.

But equally important there have been efforts that we’ve put in place to reduce cost and that could be manufacturing cost, supply chain cost as well as of course to address some of our royalty burden on HUMIRA as well. And you’re seeing some of that play out this year.

Next year obviously with HCV coming online, we would expect that to have a gross margin that would be higher than the corporate mix. And HUMIRA obviously has been performing very, very nicely as well and that ought to have a benefit on that line item as well..

Alex, this is Rick.

You kind of broke off when you said the last question, but I think what you asked was what are we doing to work on simplifying the regimen for HCV, is that what you asked?.

That is correct, yes..

Okay. Well, let me start with what I commented on before. We don’t believe the difference in pill burden is going to be a competitive disadvantage. So, first and foremost I’d tell you that. The second thing is we are working on some ways to be able to simplify our regimen with the current generation and that has continued to progress well.

Next generation obviously has significant simplification associated with it as well, and that would be advancement as well. So, we have an active program in both areas to move it forward.

We’re not at a point where we want to talk a lot about it beyond that but we are working on ways to simplify the regimen and continue to make sure that we’re advancing the regimen. This is a market that I can tell you we’re absolutely committed to for the long-term.

And obviously we’re investing in a way to be able to continue to sustain our position in the market..

Thanks Alex. Next question please Elon..

Thank you. Our next question is from Mark Schoenebaum from ISI Group..

Hi guys, thanks a lot for taking the question..

Sure..

Number one, do you guys happen to have data out there in the hep C it around how many patients are actually under the active care of a treating specialist, that is a data point that one of your competitors historically has provided and declined to provide in the most recent quarter, just wondering if you have a view on that? And then number two on hep C, have you generated yet any data for your regimen in Victrelis or Incivek failures? And then finally on HUMIRA, could you just give us the year-on-year price versus volume change please? Thank you..

Thanks Mark. As far as the data of the number of patients under active care was specialist, I’m assuming you’re talking about hepatologists and infectious disease specialists. Our people know that but to be honest with you, I don’t know that number.

Does anybody else in the room know that number?.

Yes, I don’t think we have that on for you Mark..

So, maybe as a follow-up we’ll try to provide that. I can tell you that as we’ve geared up commercially, we obviously believe that it’s important and I’ve seen the numbers that a significant percentage of the patients are under the care of specialists.

But I’d also tell you that based on the massive number of GI specialists, that’s also an important commercial channel to cover. And we have scaled our sales force to cover both aspects of it, both specialists as well as GI physicians as well. But I don’t remember Mark, the actual split between the two..

Mark on HUMIRA, you really have a tail of really two different markets. In the U.S. we have typically been able to take some price along with the category. And if you really look at volume trend, script trends, which this quarter we’re very, very strong.

You can pretty much get back to the 25.3% growth on the quarter by looking at that strong TRX and really reconciling it back to the price increases we’ve taken this year. Ex-U.S., we typically see negative price so actually that’s primarily more than 100% volume.

On a total brand basis, yes, I think you can think of price this quarter netting out in the mid single-digits and the rest being volumes..

And the PI failures?.

This is Mike Severino, with respect to data on PI failures, those aren’t data that we’ve generated yet, something that we would look at and maybe do it in the future..

Thanks a lot..

All right, thanks Mark..

And our next question is from Steve Scala from Cowen..

Thank you. I have two questions. First on hep C, AbbVie would appear to have a potential competitive advantage in the sickest patients where treatment to 12 weeks might be necessary and I know that AbbVie isn’t going to reveal pricing today.

But given this possible competitive advantage, what are reasons that AbbVie would not price at a premium? Maybe you can provide at least one reason why AbbVie wouldn’t price at a premium? And then second, a bit of a broader issue, AbbVie has done a terrific job maintaining HUMIRA’S position as the leading TNF despite very similar competitive products and very high price points.

It seems that your competitors that sell basal insulins and inhaled asthma products could have learned from your strategies. But as managed care seems to be rotating among the big therapeutic categories and attempting to extract price, why won’t we see this happen in TNFs? Thank you..

Okay, this is Rick. I’ll try to answer two questions. Although I would say your first question basically asks me about our pricing strategy which I’m not going to go into any detail. But what I would say to you is, we looked very carefully at the overall market how our products would be positioned in that market, our ability to be able to take share.

And we’ve come up with the strategy that we believe optimizes our ability to take a meaningful share position. We’ve looked at alternatives that were different, some of which similar to what you described and some of which weren’t similar to what you described.

And so, we’ve come up with what our commercial strategy will be and we’re going to execute that upon launch of the product and the approval of the product. And at that point we’ll provide you more color. On HUMIRA and payer actions, what I would tell you is this we’ve competed in this market for a long-long time. Obviously in the U.S.

market the payer component is a very critical component. In scenario where we have good relationships with payers, there have been lots of competitive entrants into this market. And I take predictions of HUMIRA’s market share erosion and that hasn’t occurred.

And it’s partially because if you look at the product and its ability to be able to perform clinically, if you look at the breadth of the menu of applications and indications that it has, that plays a very important role. And so, I don’t see the payer dynamic changing significantly in anti-TNS going forward.

This has been a competitive market for many years now. And we’ve done quite well in that market and there is always price pressure and you have to work through that in the appropriate way..

I would say Steve, this is Larry that we certainly feel good about how 2015 settles out for us with payers on HUMIRA..

Thank you..

All right. Thanks Steve, next question please..

Thank you. Our next question is from Vamil Divan from Credit Suisse..

Yes, thanks for taking the questions. A couple here. One, you recently announced this $5 billion buyback program.

Can you just let us know if you’ve already started executing on that program and if so how much buybacks have you completed this quarter? I guess specifically I’m just wondering in terms of your – what your share count expectations might be that are baked into your new 2014 earnings guidance and is it a very different number from what we saw at the end of the third quarter? And the second one kind of following up on Chris’s question earlier on M&A.

You talked about size, can you talk a little bit about maybe therapeutic areas that might be of a priority now, for example rare diseases where Shire is obviously strong? Is that an area in particular that you may wish to invest more? Any thoughts around areas of investment would be helpful. Thanks..

So, Vamil, obviously the quarter is not done yet, the fourth quarter that is. We do intend to when the year finishes, you’ll see that we have repurchased shares that I can’t give you exact guidance on what that number is going to be at this point in time..

Vamil, on the M&A strategy, this is Rick. I mean, I think if you look at what our strategy is for AbbVie, we want to build leadership positions in specially focused areas.

If you look at what we’re good at, what we’re really good at is taking products that have strong clinical data and the decision making process is driven around clinical data and being able to – be able to go out and commercialize that effectively. And so, we really have two primary goals, when we look at M&A.

One is to build out those areas where we currently have leadership positions like immunology is an example. And other areas where we have leadership position, our goal is to try to restate standard care in those segments.

And in many cases, we’re looking at multiple different mechanisms of action to be able to try to do that, standard of care restatement in the areas that we have leadership positions in. And then we have areas where we have emerging strengths where we want to build out leadership positions and expand more aggressively, oncology is a good example.

199 and we believe will create a good anchor position for us in that market. AAA, 414, we have a number of assets coming behind them. Certainly we would be interested in looking for more oncology assets.

If there was the right kind of opportunity with on-market products in oncology and had some commercial infrastructure in place that would be attractive to us moving forward. Rare diseases, is certainly a profile of the specialty market. It’s consistent than what we look at. And I’d hepatology is the other area that would be of strong interest.

I’m not giving you a complete list but I’m giving you sort of the top of mind areas that we focus on..

Vamil, one other thing, Bill Chase again. Just in the event that you’re inferring something to your question. Our increase in the guidance for the year is purely based on the business fundamentals as we see them. We’re not anticipating that being significantly moved by our buyback activity, just wanted to be clear on that..

Okay. That’s helpful. Thank you..

Thanks Vamil, and Elon, we have time for one more question please..

Thank you. Our final question today is from March Purcell from Barclays..

Thanks for taking my question. On HUMIRA could you help us understand the benefit from the royalty roll-off in Q3 from the cessation of payments to Merck KGA I think was in June and how that schedule of roll-off changes going forward through the plan expiries in both U.S.

and Europe? Secondly, could you help us understand the size of the international shipment timing effect for HUMIRA in terms of how much growth it took off the ex-U.S. sales? Third, the IL-17 is about to launch in psoriasis, I think it is about 15% of HUMIRA sales.

Could you help us understand the impact you feel those will have, or otherwise, on your business for next year? And then lastly on debt $9 billion of long-term debt. Can you help us understand your plans to restructure that and that is with respect to potential capital employment going forward..

So, Mark, on the dynamics in gross margin, I guess this is a simple way to think of that. We in the quarter had about 1-point headwind from related to TriCor/Trilipix LOE event. Obviously we made that up and then some.

Our ability to make that up was driven probably somewhat equally by product mix and cost efficiency as well as including royalty – the royalty stack. I’m not going to get into specifics on how much that royalty stack impacted it.

What I can tell you though is it’s not all royalty stack, we have a lot of activities going on right now, to streamline our supply chain and our overall manufacturing base. In terms of adds the same plays out over the LRP, we’ve never been specific on what the exact royalty stack is, some have estimated it’s between 5% and 10%.

We’ve said those are good estimates. And one of the benefits of that royalty stack is, it will be largely removed at the point that we lose exclusivity on HUMIRA. So that’s an important upside to the product when we come to that point in time.

In terms of the impact of international shipments on HUMIRA, obviously that puts some volatility quarter to quarter in the XUS HUMIRA number. This quarter it was about 1%, it wasn’t huge..

Debt question..

From a debt perspective, what I would tell you is we’re pretty happy with our balance sheet right now. Obviously we’re building cash, we’re looking at ways to deploy that cash whether it be through M&A or giving it back to the shareholders as you’ve seen in our recent announcements.

I don’t think there is any compelling reason to necessarily reduce the amount of debt on our balance sheet. So, as those maturities come up, obviously we’re looking to term those things up. But as whole, we think we’ve got a very, very strong balance sheet..

This is Rick, on the IL-17 obviously we study every new mechanism that comes into this market and developer strategy to deal with that mechanism going forward. We understand the IL-17 very well and the data that we’ve seen so far.

What I’d tell you is if you look at many other mechanisms that have into all the different categories we compete in whether it’s RA or GI or psoriasis, this is a tough market to break into and gain significant share because there is a reluctance to ultimately go to a new mechanism very quickly.

These are very potent drugs and have sometimes unknown side-effect profiles until there are in large populations. And that tends to make physicians more reluctant to switch in mass patients. And so, we view IL-17 as a good mechanism, there is no question it’s a good mechanism.

And, but we view it early on it would be like other mechanisms that would come into this market, it will probably be more for failures, TNF failures, and eliminate some of that rotation that would have occurred. But we don’t assume that is going to have a dramatic impact on our psoriasis share going forward..

Thank you..

All right, thanks Mark. And that concludes today’s conference call. If you’d like to listen to a replay of the call, visit our website or call 800-262-4947 passcode 103114. The audio replay will be available until midnight on Friday November 14. Thanks again for joining us today..

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