Larry Peepo - Vice President, IR Rick Gonzalez - Chairman of the Board and Chief Executive Officer Bill Chase - Executive Vice President of Finance and Chief Financial Officer Laura Schumacher - Executive Vice President Business Development Mike Severino - Executive Vice President of R&D and Chief Scientific Officer.

Mark Schoenebaum - Evercore ISI Jami Rubin - Goldman Sachs Jeff Holford - Jefferies Marc Goodman - UBS Alex Arfaei - BMO Vamil Divan - Credit Suisse Steve Scala - Cowen Robyn Karnauskas - Deutsche Bank Chris Schott - JP Morgan Colin Bristow - Bank of America.

Good morning and thank you for standing by. Welcome to the AbbVie First Quarter 2015 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 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 Q&A 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 2014 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 Web site.

Following our prepared remarks, we’ll take your questions. So with that, I’ll now turn the call over to Rick..

Thank you, Larry. Good morning, everyone and thank you for joining us for our first quarter 2015 earnings conference call. Today we are pleased to report strong results with adjusted earnings per share of $0.94, up more than 32% from the first quarter of 2014 and significantly exceeding our guidance range for the quarter.

Our performance included strong operational sales growth of nearly 18%, we delivered these results with growth across the number of products in our portfolio including update of our new HCV therapy Viekira, as well as strong growth from HUMIRA, Synagis, Synthroid, Creon and Duodopa.

We continue to see strong underlying demand for HUMIRA with accelerating new U.S. prescription growth and continued market-share gains. We also saw improvement in gross margin to 82.9% and we continue to see our investment in the business deliver strong results.

Based on our out-performance, we’ve raised our full year EPS guidance range for 2015 by $0.05, reflecting our strong underlying business performance year-to-date and the expected continued positive trends through the remainder of the year and we’ve also done this despite the negative impact of foreign exchange.

In addition to our strong financial results we also have advanced several of our most important strategic priorities during the quarter. Since the start of the year, we’ve achieved a number of important regulatory and development milestones including the EMA approval of our interferon-free HCV treatment.

The regulatory submission and priority review of our 2-DAA ribavirin-free once daily combination for genotype 1b HCV patients in Japan. The U.S. regulatory approval for DUOPA our therapy for advance Parkinson disease and the U.S. and EMA regulatory submissions for Zinbryta, our novel treatment relapsing remitting multiple sclerosis.

We also reported positive top-line efficacy data results from the first goal ex-pivotal trial in endometriosis. And recently our partner Galapagos reported positive data on our partnered selective JAK-1 compound. Each of these milestones continue to underscore the advancement and robust nature of our mid and late stage pipeline.

Importantly we recently announced the acquisition of Pharmacyclics, a strategic addition to our business that will provide significant benefit for our shareholders and the patients which we serve. Pharmacyclics acquisition will add another compelling growth platform to add these existing strong prospects in immunology and virology.

We'll accelerate AbbVie’s clinical and commercial presence in oncology broadening our portfolio in haematological oncology an attractive and rapidly growing market and a segment where we have several other assets in mid and late stage development.

While strategically important this acquisition will also drive strong financial benefits, it further diversifies our revenue base and significantly enhances our revenue growth across our long range plan.

We expect the transaction will be accretive beginning in 2017 and significantly accretive in the years to follow specifically as we have outlined we expect accretion in excess of $0.60 per share in 2019, ramping to more than $1 per share by 2021. The addition of Pharmacyclics will augment at these already strong position and growth prospects.

We remain on track to complete the acquisition in the second quarter. When we launched AbbVie as an independent company nearly 2.5 years ago it was our stated goal to build an innovation driven patient focused biopharmaceutical company which can deliver strong sustainable performance over the long-term.

Our efforts have been focused on developing our culture of innovation and building a strong and talented team, driving strong performance from our current portfolio and building a robust pipeline of innovative new drugs, and enhancing our efficiency and delivering outstanding returns for our shareholders.

As we look back at our performance we are pleased to say that we've made significant progress towards all of these objectives. Our 2015 guidance underscores our goal of driving industry leading growth this year. As we expect earnings per share growth of nearly 27% at the midpoint of our guidance range.

Our strong first quarter performance certainly supports our ability to deliver on this objective. And we expect to be among the top performers over our long range plan.

In fact given our execution across the number of fronts in the strategic actions that we've taken in the business and now the addition of Pharmacyclics we’re well positioned to generate top tier growth through the rest of this decade and beyond.

As we look at our business following the acquisition we’re strategically positioned with a number of compelling growth platforms. Clearly we’re enthusiastic about our oncology franchise.

The acquisition of Pharmacyclics is highly complementary with our existing oncology pipeline which is comprised of five late stage assets poised to launch over the next few years. This includes our BCL-2 inhibitor [indiscernible] and our dual PI3 kinase inhibitor Duvelisib both being investigated for the treatment of a wide range of blood cancers.

So our portfolio will include three novel and promising mechanisms for the treatment of hematological malignancies. BTK inhibition, Bcl‐2 inhibition and PI3 kinase inhibition. We intend to move quickly to explore combination therapies that have the potential to significantly elevate the standard of care and approve efficacy in hematological cancers.

The combinations have the potential to reduce or eliminate the toxic chemotherapeutic age being used in the management of these conditions.

Our oncology pipeline also includes veliparib our PARP inhibitor being investigated for a wide range of solid tumors and ABT‐414 our antibody-drug conjugate for Glioblastoma Multiforme, both of which have demonstrated promising signals of efficacy.

We’re also partnering with Bristol-Myers Squibb on elotuzumab in late stage development for front-line and relapsed/refractory multiple myeloma.

We'll see data from a number of our oncology programs as the year progresses including data from genetic labs and lapsed refractory CLL patients with 17p deletion as well as mid-stage data on veliparib in non-small-cell lung cancer, and Phase 3 data on elotuzumab and relapsed/refractory multiple myeloma.

We also anticipate numerous readouts on Imbruvica, including data from RESONATE-2 study in CLL Phase 3 monotherapy data and relapsed/refractory mantle cell lymphoma and additional details from the Phase 3 trial on the last refractory CLL.

Our combined late stage oncology franchise will represent a significant source of growth for AbbVie in the coming years with peak year sales estimated to exceed $15 billion. Our virology franchise will also be a growth driver for AbbVie going forward.

With the launch of Viekira we've established a meaningful position in HCV, another large and growing category. Our global launch of Viekira which is been underway roughly three months continues to perform within our expectations.

As a reminder the tracking services do not capture all the sources of prescription data for Viekira, including certain managed care organizations and number of government entities. When all sources are considered Viekira weekly prescriptions are tracking well ahead of reported levels. Our international launch is progressing faster than anticipated.

And discussions with government payers in various countries are on the way and advancing rapidly. We are pleased with the pace of our progress internationally which is tracking ahead of our planning assumptions, this will lead to a higher level of international sales this year than we originally expected.

Viekira will be a significant product for us and we continue to expect an annualized run rate of more than $3 billion in global sales by the end of 2015. Our current position will serve as a strong base from which we will launch further enhancements and innovations. Our next generation HCV program continues to progress well.

It is our goal with this program to bring to market our ribavirin 3 once daily pan-genotypic combinations. Our next generation HCV program is generating promising early SVR data. Earlier this month we disclosed preliminary results from a 79 patient Phase 2b study of our next protease inhibitor ABT‐493 and our next generation NS5A inhibitor ABT-530.

The interim data showed that treatment with the two compounds in non-cirrhotic genotype 1a and 1b patients receiving the ribavirin-free therapy for 12 weeks, resulted in SVR4 range of 99%. Full data from the Phase 2 studies will be presented at future medical meetings. Evaluation and another genotypes continues to progress with encouraging results.

But also evaluating shorter durations of therapy with this combination the data expected later this year and we remain on track to advance our next generation HCV program into Phase 3 later this year with commercialization expected in 2017.

The HCV market is significant and we expect it will remain a large and attractive opportunity for many years to come. Our immunology franchise represents another compelling growth platform for AbbVie, clearly we have established a strong leadership position in the immunology market with HUMIRA, the world’s leading anti-TNF.

Behind HUMIRA, we have a rich pipeline of mid and late stage immunology assets in clinical development. This includes our two selective JAK-1 inhibitors currently in mid-stage development.

As I mentioned our partner Galapagos recently announced promising top-line 12-week data from the first of two Phase 2b studies in RA supporting our thesis for JAK-1 specificity and drive high levels of efficacy while maintaining an appropriate safety profile.

We look forward to seeing additional data from the ongoing trials as well as results from a mid-stage study of our internal JAK-1 inhibitor ABT-494 as the year progresses. We’re also working to advance several other mid-stage immunology programs including ABT-122, our anti-IL-17 TNF combination and an anti-IL-6 nanobody among others.

All of our R&D efforts are focused on advancing the standard of care in each of our areas of immunology leadership. As we have said, we expect HUMIRA to continue to drive strong growth and significant cash flow generation for many years.

We have a multi-faceted strategy in place which we believe will allow us to protect and grow our immunology position. We had two new indications in late stage development, as well as a new formulation currently under regulatory review in U.S. and in Europe.

We have a robust portfolio of intellectual property protecting HUMIRA which we intent to enforce if infringe by a bio-similar applicant. We have hundreds of patents globally covering the formulation, manufacturing and indications for which HUMIRA is approved.

As a first fully human monoclonal antibody approved, the extensive clinical trial work, development and investment we undertook led us to many important inventions with HUMIRA. We have important intellectual property covering these innovations and we intend to enforce this intellectual property.

And we recently received a commission decision in Europe regarding compliance with the pediatric investigation plan for HUMIRA. With this decision, we’ll now apply for a six-month extension through our composition of matter patent extending the date for this key European patent from April 2018 to October 2018.

Beyond the pipeline assets I’ve already mentioned, we have a number of other compelling pipeline programs that have potential to deliver significant peak year sales. All told we have more than 40 active development programs underway, spanning large and growing specialty categories.

And our late stage pipeline has been significantly de-risked as a result of our ongoing clinical work are demonstrating safety and efficacy. This includes Zinbryta which as I mentioned is currently under U.S. and EMA regulatory review for relapsing, remitting multiple sclerosis.

Elagolix, which is our compound in Phase 3 development for endometriosis and Phase 2b for uterine fibroids. Atrasentan, our internally discovered compound in late stage development for diabetic kidney disease and a number of other attractive assets in mid to late stage clinical trials.

We have a number of attractive growth platforms which set within the context of a company that consistently generate strong financial results and consistently meets financial commitments. We believe AbbVie has a unique investment identity, as we are promising pipeline prospects along a strong growth and compelling shareholder returns.

Our business generates significant cash flow which we expect will grow in 2015 and beyond with new product introductions. To that end earlier this year, we increased our quarterly dividend to $0.51 beginning with the dividend payable May.

This increase follows an increase of nearly 17% late last year, since our inception as an independent company in 2013 we’ve increased the dividend nearly 28%. We intend to maintain our strong commitment to a growing dividend going forward.

Additionally, we’ve utilized our strong cash flow to enhance our pipeline through licensing and partnering activities. We view these activities as an important component of our R&D strategy and we expect to continue to augment our pipeline from the coming years. And finally, operating margin expansion is a key priority for AbbVie.

We have initiatives in place to improve efficiency across our operations and we've delivered significant improvements in our operating margin profile since we launched in January 2013 to the current level today of just over 40%.

We’re forecasting additional improvements in operating margin profile in 2015 reflecting these efforts as well as favorable leverage across our income statement, and we remain committed to improving this metric across our long range plan.

In closing since AbbVie became an independent company we've been focused on executing our key strategic priorities. We've established a strong track record consistently exceeding our financial commitments, generating strong shareholders returns and driving leading performance of HUMIRA and other products in our portfolio.

We have also built a promising late stage pipeline which will fuel our future growth and we gained regulatory approval on several important products and advanced many more. We set a strong foundation for the company.

The addition of Pharmacyclics significantly strengthens our long-term growth prospects, positioning AbbVie for top tier growth through the rest of the decade and beyond. With that I will turn the call over to Bill for some additional comments on the first quarter performance as well as our second quarter outlook.

Bill?.

Thank Rick. This morning I will review our first quarter performance and provide an update on our outlook for the remainder of 2015. As Rick said we’re very pleased with the strong quarter we delivered. Reported sales were up 10.5% despite a challenging foreign exchange environment. Operational growth on the top line was a very strong 17.8%.

HUMIRA delivered global sales of more than $3.1 billion up 26% on an operational basis. We continue to see strong momentum from HUMIRA with robust growth across categories driving all-time high market share for the brand. U.S. HUMIRA sales increased 39.6% driven primarily by prescription volume increases in excess of 20% and favorable pricing impacts.

Wholesale inventory remain constant at fourth quarter 2014 level of less than half a month. International HUMIRA sales grew 14.8% on an operational basis excluding a 14.6% unfavorable impact from foreign exchange. As occurs periodically the first quarter was favorably impacted by the timing of shipments in select markets.

For the full year 2015 we continue to expect global HUMIRA sales growth in the mid-teens on an operational basis. International sales of Synagis were $335 million in the quarter up 8% 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 quarters and fourth quarters. We continue to expect 2015 Synagis sales growth to be similar to 2014 performance. Global VIEKIRA sales in the first quarter were $231 million. In the U.S.

many of our contracts have start dates in the April and May timeframe and we expect those to begin to ramp in the second quarter and third quarters and build for the remainder of the year. Our commercial efforts are focused on driving strong penetration in the AbbVie exclusive accounts.

We've been successful in this regard with our largest contract which is been in place since the beginning of the year. Internationally we've been able to secure reimbursement in many markets faster than we had originally anticipated. As a result as Rick indicated we expect a higher mix of international sales this year than originally forecasted.

Globally we continue to expect an annualized run rate of more than $3 billion in sales by the end of 2015. Global Lupron sales were $192 million in the quarter up 3.8% on an operational basis. For the full year 2015 we expect Lupron sales to be roughly in line with 2014 sales. U.S.

sales of Synthroid were $186 million up 18.8% versus the prior year quarter. For the full year 2015 we expect Synthroid sales to be roughly flat from 2014 level in line with market trends. AndroGel sales were $153 million down significantly due to continued market declines in the entry of generic competition for the 1% formulation.

As we said previously we expect AndroGel sales of less than $500 million for the full year 2015. U.S. Creon sales were $127 million in the quarter up 18.8%. We continue to capture the vast majority of new prescription starts in the pancreatic enzyme market, and we expect double-digit sales growth for Creon in 2015.

Sales of Duodopa our therapy for advanced Parkinson's disease grew 19.5% on an operational basis in the quarter. We expect continued double-digit growth for Duodopa with a modest level of U.S. sales in 2015. Our U.S.

launch will be getting underway in the second quarter and third quarters and as we said previously we anticipate a gradual ramp for product sales in the U.S. this year as physicians grow familiar with the product.

The foreign exchange environment has clearly been challenging for our industry over the last few quarters and like our peers we saw a negative impact on our top-line in the quarter as a result.

While we are not completely immune from currency swings, our global business structure and hedging actions we’ve taken will allow us to deliver our bottom-line commitments despite foreign exchange headwinds and protect shareholders from the negative impact. As a result of this mitigation, we will see a favorable effect on our margin profile.

We showed continued improvement in gross margin as a percentage of sales in the first quarter. The adjusted gross margin ratio was 82.9%, up 450 basis points from the prior year quarter driven by the effects of exchange, product mix and operational efficiencies.

Adjusted R&D was 16.1% of sales, reflecting funding actions in support of our mid and late stage pipeline assets. Adjusted SG&A was 26.7% of sales in the first quarter, down from the prior year contributing to continued improvement in operating margin leverage.

The adjusted operating margin in the first quarter was 40.1% of sales, up 620 basis points to prior year quarter. The majority of this improvement was driven by product mix and efficiencies. We are on track to deliver an operating margin profile in excess of 40% in 2015.

Adjusted net interest expense was $67 million and the adjusted tax rate was 22.3% in the quarter. First quarter adjusted earnings per share excluding non-cash amortization expense in specified items were $0.94, up 32.4% year-over-year and exceeding our previous guidance range. On a GAAP basis, earnings per share were $0.63.

As Rick communicated, this morning we increased our adjusted earnings per share guidance range for 2015 by $0.05. Our adjusted EPS guidance range is now $4.10 to $4.30. This range reflects EPS growth of 23% to nearly 30%. The increase in guidance is reflective of the strong underlying performance of the business that we see playing out this year.

And we have raised our outlook despite the increasingly negative impact from foreign exchange. We are now forecasting roughly 7% negative top-line impact from currency this year which we have covered in our guidance increase. Our 2015 adjusted guidance range includes the previous communicated $0.20 dilutive impact of the Pharmacyclics acquisition.

It excludes $0.53 of amortization in specified costs including Pharmacyclics transaction costs booked in the first quarter. We plan to communicate specific profile guidance for the combined company as well as 2015 accounting impacts of the transaction on our second quarter call in July.

Regarding the second quarter, we expect adjusted earnings per share of $1.04 to $1.06. This excludes roughly $0.09 of specified items and non-cash amortization and includes the modest amount of Pharmacyclics dilution based on a partial quarter impact.

So in conclusion, we are very pleased with our out-performance in the first quarter and its impact on our full year projection. We’ve driven strong top and bottom-line growth and delivered operating margin expansion, while also advancing on our strategic priorities. This puts us in a strong position to deliver industry leading growth this year.

And with that, I’ll turn it back over to Larry..

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

Thank you. [Operator Instructions]. Our first question today is from Mark Schoenebaum from Evercore ISI..

Congratulations on fantastic P&L management this quarter. Rick I heard during your opening comments you talked a little bit about your long range plan kind of qualitatively about operating margin improvement as part of your long range plan.

What I'd like to know perhaps is can you -- are you willing or can you yet quantify where you see operating margins going over the medium to long-term? And if you can’t do that today, well it should be understandable view that plans to maybe said on analyst meeting or some other venue at which you might communicate a long range plan with investors? And then also can you comment on whether or not your assumption for operating margin improvement over the medium to long-term is or is not dependent on revenue, in other words can you commit to your investor base that AbbVie can and will expand its operating margin even if the top-line were to come in below your internal expectations and obviously there the focus will be the HUMIRA bio similar erosion curve?.

This is Rick. I think probably the best way to answer your question is to maybe talk for a few moments about the philosophy by which we manage the business and how we think about investment, and how we think about revenue, and ultimately how we try to deal with changes in those dynamics.

So let me share by saying, I am sure you understand that our business strategy is really designed to maximize both short and long-term profitability to business.

Getting sure the strong returns and strong value over that long period of time, that philosophy really plays out in how we look at investment decisions, whether we’re increasing investment or decreasing investment.

And what I’d say is this management team at AbbVie, they came out of Abbott has always been disciplined in our approach to resourcing opportunities as well as overall P&L management.

We managed the business with the objective of driving robust growth in both revenue and EPS but at the same time improving operational efficiencies and I think you have seen some of that and I will talk more about that in a moment. In cost, in order to maximize shareholder returns but again short-term and long-term.

And the examples I will give you is this. Just take a look at what we you have seen play out since we launched a new company. For example our gross margin profiles improved from 76.2% in the first quarter of 2014 to 82.9% this quarter.

Additionally if you look at despite building the infrastructure that was necessary to be an independent public company operating margin profile was improved from 33.7% in first quarter of 2014 to 40.1% in the most current quarter. So we've delivered significant improvement in both of those metrics and we’re committed to continue to do that.

And importantly we delivered six points of operating margin profile improvement in the last four quarters. The other thing I would say is we've seen a number of comparisons to various peers group as it relates to AbbVie.

And I think it's important to recognize that no two companies are identical when it comes to product mix, geographic coverage, the size of the market that they operate in, the brands responsiveness to investment and many other factors.

And I realized it is tempting to do these macro comparisons and I would even agree to some extent that is instructive at some level. But I'll also tell you there are limitations and flaws in doing it.

I can tell you that we benchmark and compare ourselves to many companies and we believe that we compare favorably to most of our peers and we will give you a couple of examples here. When you compare AbbVie to the other large cap pharma peers, Bristol, Lilly, Merck, Pfizer, what you would see is the following.

Our gross margin profile is on average approximately six points higher. Our R&D profile on average is five points lower. Our SG&A profile on average is three points lower. And our operating margin profile is about 13 points higher. Our geographic footprint is similar to many of those peers but our product mix is different. They have more primary care.

And when you compare AbbVie to the pure biotech peers specifically Amgen, Biogen, Celgene, what you see is that our gross margin profile is on average six points lower and as due to differences in the product mix. Our R&D profile is approximately four points lower.

Our SG&S profile is approximately five points higher and that’s driven by geographic distribution of our revenues especially the percentage of revenues that come from international sales as you probably know is about 45% for us and many biotech companies have 70% of their revenues coming from the U.S.

And there are other anomalies that you have to be careful, such as some biotech companies have a definition adjusted SG&A that excludes the impact of equity-based compensation which we include and there are other accounting differences as well.

So finally when you compare to this group and you look at our operating margin profile it's approximately seven points lower as it exists today. But the conclusion of assuming that that’s related to investments spending is not accurate. In fact I would tell you it's misleading.

If you look at our total investments spending R&D and SG&A our investment spending on a profile basis is slightly below those peer companies. The entire difference is in the gross margin profile because of the product mix.

And we've shown significant improvement there with more to come we’re committed to deliver more but that’s the fundamental difference between those peers groups.

And again as we look at this data it is instructive and on balance I would tell you that based on the geographic footprint that we have it's larger than any biotech companies, the product mix and investment in R&D and SG&A the analysis shows us that we’re favorable to both of those peer groups.

But in the end what really matters is what investment decisions do you make in the business and what’s the return that you ultimately get from.

So you maximize the short-term and long-term value for the shareholder, and our philosophy is we invest in businesses and the brands to maximize that value, meaning we increase investment when we can drive a strong return and we reduce investment when we can't or a product gets to the end of its lifecycle.

And I would tell you that I believe we do both very well. And we give you an example of each. If you think about the last two years, we've protected shareholder profitability for the last two years as our $2.5 billion Lupron franchise went generic. We did it by drastically reducing costs in that brand and other parts of the business.

We’re doing the same thing right now on AndroGel, it's the obvious decision for us. I would just tell you it's the culture that we have here. Now let’s take the opposite example of that, HUMIRA. HUMIRA is a complex business model.

HUMIRA sales and profit contributions come from a broad geographic footprint with about 40% of its sales coming from outside the United States. HUMIRA has an unparallel breath of indications and we use the unique selling model for HUMIRA. We utilize specialized and dedicated sales organizations for all major indications.

We manage and invest in HUMIRA to maximize in short-term and its long-term value to the company and to our shareholders. And I think it’s pretty hard to argue with our success when we took the company public a little over two years ago, HUMIRA was $9 billion product.

Today in 2015 HUMIRA is a $14 billion product, $5 billion of growth in 2.5 years despite the foreign exchange headwinds, the brand’s 55% larger. If you take Enbrel and Remicade together over that same period of time HUMIRA grew almost twice as much. So we think the performance speaks for itself.

And I can tell you that based on the performance the strong potential for future continued growth, accelerating strip trends in the U.S. and strong international growth cutting HUMIRA, spending today is not a prudent long-term strategy for us.

And finally, I’d make two last points, we’ve been very clear that we’re committed to driving strong continued improvement in operating margin profile, you saw that this quarter and we’re going to drive further improvements in 2015 and across the long range plan.

Our goal is to drive strong growth and operate as efficiently as we possibly can to maximize profitability. We’re not going to make a prediction right now because we just made a significant acquisition and we need to start to integrate that acquisition and we will be in a position to be able to communicate things after that.

Second, I get to the final part of your question because I think what you're really trying to ask me is if there was some unforeseen surprise around HUMIRA how we would react to that? So let me begin by saying the following; we do not in any way expect that type of event to happen. In fact I yell you quite the contrary.

We anticipate HUMIRA will be a growth driver for us for many years and our investment and new indications like HS and Uveitis speak volumes for our confidence.

However to answer your questions, it's a bare scenario played out and threaten to materially impact the profit contributions of HUMIRA we would apply our investment philosophy in an appropriate manner. We will take prompt and appropriate action to reduce our expense base accordingly with an eye to minimize the impact for the investors.

To us as I said before, that’s the obvious strategy, it's part of our responsibility to shareholders as management. As a new company, we have met or exceeded expectations in every quarter of our existence including this quarter. We take our responsibility to deliver on our commitments and our performance to shareholders very seriously.

If we saw any unforeseen event impact the business, we'd aggressively pursue actions to preserve profitability. As part of the culture and the commitment that we have and in fact I tell you we’re doing that right now.

We’re protecting shareholders against significant foreign exchange impact and so that’s the philosophy we run the business and hopefully that answers the question that you asked..

I really appreciate it Rick. Look forward to more communication after PCYC closes..

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

And I don’t want to be the dead horse obviously there has been a lot of focus on operating margins, but Rick or Bill maybe just comment on our math here.

I mean clearly we see the improvements in gross margins and much about will come from royalties going away on HUMIRA as R&D seems to be in line with other large biotech peers that SG&A seems to be where things appear to be a bit out of kilter.

If I do a bottoms-up analysis on HUMIRA it would seem that it will be difficult to spend more than 1 billion maybe a 1.5 billion if you really stretch it, so that leads about 4 billion to 4.5 billion for the rest of the portfolio and when I look at the rest of the portfolio, I mean Synagis, Lupron, Synthroid these are drugs that I don’t think require active promotion and I can’t imagine requires the multi-billion dollars and expenses.

Obviously there is other stuff thrown in there, but when I sort of bring it all back to really start it out here, it seems that there is about $2 billion in excess spending.

Can you comment on this? And is there anything structural that would prevent you from eliminating that without really touching taking HUMIRA spend? And just maybe another way to go about this is that is there anything structural that would impede you from achieving large cap biotech operating margins which in the next couple of years are forecasted to be in the low 50% range?.

Well, first Jami I disagree with your analysis on the investment expense, because if they take your own report and I had to gather the SG&A and the R&D spend for those three companies that I mentioned were slightly below total investment, when you include SG&A and R&D.

So it's a question of how you distribute your investments, I would say the second thing is in any cases, we have a broader portfolio of products and broader geographic spread of our products within some of those companies still.

Is there anything structural? No, there is nothing structural, I mean obviously we have a geographic footprint it's much larger than many of those other company companies. We believe that’s a competitive advantage.

As far as HUMIRA spending is concerned, we obviously do bottoms up budgeting every single year, we justify what we’re going to spend, I would tell you that the selling model that we have is somewhat unique in the industry, but it also tell you that the performance that it's delivering is unique as well.

And products don’t sell themselves and so at the end of the day we believe we’re getting a good return out of the investment that we’re making. And we’re balancing our ability to be able to perform in best long-term as well as short-term significant return, and we may increase all the time.

I would also say that when you look at some of those brands the broad conclusion that they don't require promotion is not an accurate conclusion. Lupron has promotional activities associated as an example with it.

And so generally speaking what I would say is that there is nothing structural that would cause us not to be able to make significant changes. And as I mentioned in my comments to Mark if we were in a situation where ultimately that was something that we believe it was in the best long-term interest of shareholders then we will make that change.

But we’re certainly not in that position now. If you look at our performance this quarter we’re growing rapidly, we expect to continue to grow.

We have a number of pipelined drugs, as we believe will be approved over the course of the next two years we’re certainly going to put ourselves in a position to be able to launch those drugs and be effective and we’re going to balance the investment we’re making in other areas against that investment to try to be as efficient as possible.

And we believe that is the appropriate way to run the business. And we don't believe it is appropriate to try to hit some margin target whatever the number is by cutting R&D or productive SG&A. We don't think that is in the long-term interest of the shareholders..

Our next question is from Jeff Holford from Jefferies..

Three questions. The first is just a very short one, just wanted if you can comment a bit more in terms of the gross margin uplift you've had there.

Just give us a bit more breakdown in terms of what was mix, what was efficiency and what was FX? Second I wonder if you could maybe comment around there are quite a few experts speaking about patents on HUMIRA, really focusing on dosing and formulation and specifically potential weakness is there.

Would you say that that’s the key area of the IP portfolio to focus on? Or are there potentially other stronger areas that are being discussed? And then lastly also on IP, I wonder if you can talk to any of the IP that have in the areas of Alzheimer's, it is antibody, and just tell us a little bit more around that?.

So Jeff its Bill Chase I'll start with your gross margin question. I am actually going to expand it to operating margin as well, because exchange impact those profile metrics differently. So on the gross margin basis exchange made up a little bit over half of the improvement in the quarter, the remainder was product mix and efficiency.

And I would say you can split those remainder two-thirds, one-third. On the operating margin line where exchange has less an effect, what we saw was about a one-third impact of exchange and the rest being leverage on the P&L product mix and efficiencies..

This is Laura, I'll take the question on IP. As we said before we've a robust portfolio of IP that covers a wide variety of patents including manufacturing patients, formulation patents, process patents and patents that cover virtually every indication for which HUMIRA is currently approved.

We think these patents have a very broad applicability to any bio-similar application and the earliest of these patents expires in 2022.

When thinking about these patents it's important to note that HUMIRA was the first fully human monoclonal antibody as such little was known about how to use fully human monoclonal antibodies, and the work that we did in the area was foundational.

Collectively we think these patents were the subject of extensive prosecution in the patent and trademark office over nearly a decade and we think given the innovative nature of our work and the rigorous prosecution that the patents are strong and will withstand challenge..

Who wants to talk about the Alzheimer's IP?.

With respect to IP, this is Mike Severino. With respect IP in Alzheimer's disease, we’re active from a research perspective in a wide range variance and we’re active in Neuroscience as well and that work generates IP it's done so in the past and we will continue to do so in the future.

So I think you will see us continue to pursue research activities in this area over time..

Yes, we just haven't provided a lot of detail there yet Jeff. .

Our next question is from Marc Goodman from UBS..

On the VIEKIRA overseas can you give us a sense of what countries the growth came from? And what new countries are coming on, so we can get a sense of just the geographical mix there? And then you mentioned at your -- can you just give us an update on that product we haven't talked about that in a long.

Where is it? When do we get to see data? And then third questions is why are there still such significant separation cost that you are excluding from the numbers given that we’re couple of years out from the separation form Abbott. .

This is Rick. I will talk a little bit about the international roll-out. Obviously we've launched in a number of European countries and in a number of other select countries outside of Europe, Germany is a good example of one that has gotten significant uptake.

But you will see Italy coming online, Spain has come online and a number of other ones have come on line. So it's the major European countries that you would expect to be the greatest value. And then assume -- we’re assuming Japan we will see in the fourth quarter as well..

This is Mike Severino. With respect to offsetting status that’s our molecule that's been studied in diabetic neuropathy that is progressing well, it's in the Phase 3 study, that’s an outcome study and it's invent driven.

So it's hard to make exact predictions about when it will read out, but I think those data will continue to mature over the next few years and so I think you can expect to hear more from it in that timeframe..

I think it is fair to say that because it's an outcome driven trial this trial will take a significant period of time to hit the number of events based on the endpoint that we’ve assumed..

That’s correct..

Several years..

And then Mark on separation expenses, when we separated from Abbott, we operated under a number of transition service agreements. It generally had a two to three year timeline.

The majority of those were off with the exception of two large ones and that has to do with the rollout of the existing back office in Abbott and how quickly we could create a new back office and we’ve made great progress on that rolling out a very efficient shared outsource model, but we’re not completely done with that, we’ll be done at midpoint of this year.

The other major initiative as you can imagine is just entangling the IT environment and infrastructure in general is extremely complex and that will be done by the third quarter and those are the majority of the costs you're still seeing coming through..

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

Rick or Laura, the intellectual property, the HUMIRA intellectual property that you referred to, will that protect you against biosimilars manufactured outside the U.S.? In other words are there ways for biosimilar companies to circumvent those patents with ex-U.S. manufacturing? And second question on HUMIRA, the U.S.

growth is truly impressive, you mentioned I think old time take market-share could you put some numbers around those market-shares in major indications? And then finally on Hep C why did you exclude cirrhotic in your Phase 2 and will you how cirrhotic data that is this year?.

I’ll take the IP question first, with respect to the IP the patents that I am talking about broadly are global patents. So we have global patents covering manufacturing and process. The specific indication patents that I referenced are U.S. patents. We have patents pending outside the U.S. right now.

Those patents have not issued yet, but we think the portfolio we have is very broad and we think that we will have some protection outside the United States as far as -- certainly right now manufacturing process and formulations..

In terms of market-share Alex, let me give you just a quick snapshot, rheumatology we’ve got about a roughly 25% share right now and dermatology it's approaching a 40% share and in the gastro space it's kind of around 45% market share for us, so very strong market share..

So this is Mike Severino, with respect to our next generation HCV program, I think you're referring to comments we made about a 99% SVR4 response rate in genotype 1 non-cirrhotic patients. Those are simply the first data that we have available. We have not excluded cirrhotic patients on our Phase 2 program.

You’ll see our Phase 2 program continue to mature a little course of this year and we'll be providing update as appropriate..

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

So just couple more on the Hep C side; one, can you just share your kind of internal sense of the market share breakdown right now, it's obviously a tougher market than usual for us, you kind of see from the outside between Merck and Gilead any color there in terms of the breakdown would be helpful.

And then in terms of the next gen we’re seeing some good day over here at ESOL from competitors.

How do you think about duration there, does there need to be any regimen? Are you looking maybe then potentially shorter than that? How do you think about they are giving what the competitors are showing over here?.

This is Rick, I’ll cover the market-share piece.

So we’re obviously still pretty early on in the launch with three, four months into the launch and maybe the easiest way to characterize it is this, if you actually look I am going to give you a slightly different number than we’ve given you in the past because it will relate better to the overall market-share.

So if you look at what we have under contract now and preferred or exclusive contracts total in other words there is still a percentage of covered lives that have not contracted yet and that percentage actually has stayed pretty constant for the last 30 or 45 days. So that’s why I am going to give you a total market-share.

You say that we have about 21% of the market that’s under contract as a preferred, well we have preferred agent within those accounts.

The vast majority of those have come online roughly in the March timeframe and there actually spread for March, April, May, obviously ESI came on early on and we’ve now demonstrated within the exclusives that we’ve been in for 90 days that we’re able to achieve high share. But ultimately we will deliver the overall share in the U.S.

market will be ramping up in these other preferred or exclusive accounts and we’re not going to be able to see that data probably for another 90 days or so as they come online and we ramp. So, I think the best way I need the best way to think about the U.S.

just qualitatively would be that you will see this essentially this lighter ramp in the first half of the year for the U.S. and a faster ramp in the second half of the year. Then the parody accounts obviously we've had a number of those under contract and we’re ramping there, they are not ramping as high as the exclusive accounts did.

And so the blended share will be determined it's really too early I think to give you a prediction yet, but within 90 days or so I think we will be in a better position to be able to predict that.

But it will be a blended share between what we’re able to drive in these preferred accounts, a level we get in parody accounts and then obviously in the areas where our volumes are indicated, we’re getting some share out of their exclusive accounts and it will be the blend of all of those.

But now I would say you should be thinking about it in the teens right now, on a low end of the teens but should ramp from there..

This is Mike Severino. With respect to data coming out of ESOL and short course therapy in the future for Hep C. I think it's still a bit early to say where various regiments around the industry are going to sort out with respect to treatment duration.

We've seen hints that six weeks maybe possible but those have sort of come and gone in the past and I think we’re going to need more data to know where treatment durations will really sort out over the next few years.

What we do know is that it's very important to have high response rates to very high cure rates and I don't personally believe that people will be willing to sacrifice a lot on secured rates to say for example two weeks of the treatment duration and that’s certainly the philosophy that we’re taking.

So I think those data will continue to evolve and we'll keep a close eye and with respect to our next generation program we’re going to study eight weeks and we will go where the data take us. We will go as short as we think the data support. Again while maintaining those very high cure rates.

So I think when I look at all the data coming out of ESOL I still see our regimen is very, very competitive and I think treatment durations that we’re exploring are going to be appropriate with the landscape that we see out there in three to five years and beyond..

Our next question is from Steve Scala from Cowen..

I have a few questions. On the January call AbbVie said it would provide more specific guidance on 2015 VIEKIRA sales expectations as the year unfolds. What uncertainties still exists such that a single point full year guidance number is not being provided now? So that’s the first question.

Second question is I thought both the ABT-199, 17p deletion and elotuzumab readouts were supposed to be in early 2015.

What does it imply that the data is not yet available? And then lastly what has been the tone and the substance of your conversations with partners J&J, with ibrutinib and Roche with ABT-199 post the news of the Pharmacyclics acquisition. It would seem that there could be some issues and our concerns and I am just wondering if that’s the case..

This is Rick, I'll take the guidance question. It's specifically two things, it's what I just mentioned a moment ago that many of these exclusive accounts are just now coming on and if we look at our experience in the earlier ones that has taken us about 90 days to get to peak share.

And so we need to make sure that we can demonstrate that level of share in those accounts to be able to give you an accurate prediction because obviously that drives a significant part of the share and the volume.

And then the second thing is it's this issue that we described before and that is clearly we’re having greater success than we had planned in the international markets. And so the mix is different than what we expected in our original planning process.

And so we need more time to see that rollout and that’s gated based on how you get reimbursement in those countries. So we don't want to give you an inaccurate number and we want to see it play out a little bit longer. But what we do know is we feel confident that we should be able to hit the greater than $3 billion run rate by the end of the year.

And we've looked at that carefully and we've really communicated that. When we’re at a point that we feel comfortable we can give you a full year estimate we will provide that to you..

This is Mike Severino. With respect elotuzumab and ABT-199 specifically the 17p del data. The question if I can paraphrase is, are we on track? And when we can see more data from these programs? We’re on track with both programs. Elotuzumab you will see an update at ASCO so that’s in a very near future.

With ABT-199, and 17p del, we’re on track where we’re working with the data recall that this is an open label study so we’re working with the data. And what we see is consistent with our expectations. We'll look for an appropriate venue and timeframe to share details for those data externally.

But we continue to have confidence in that molecule and have a view towards the regulatory submission later on this year..

The partner aspect of it, first let me start with J&J.

Obviously Pharmacyclics is an independent company right now and the relationship that they have with J&J is that something we can interfere with or be directly involved and we've had communication with J&J it's been very, very positive, I think we’ve worked with J&J in other aspects relationships that we've very had and our prior experience with Abbott and they are fine company, I think the relationship will work extremely well.

I make similar comments about Roche, I think Roche, Genentech we’ve had very good relationships with and we don’t anticipate any challenges and managing our way through this relationship between the two partners..

Thank you. Our next question is from Robyn Karnauskas from Deutsche Bank..

Just two questions I guess for Rick, so first of all I guess are you opposed to an Analyst Day just to help us understand in greater depths your rationale behind the confidence in HUMIRA, how you run your business? And the second question is and I appreciate that your confidence in HUMIRA business, but when you talk about disaster scenario what is that for you, is that a launch of a biosimilar or is that massive share loss? And do you run your business like that is the possibility or do you run your business like we are so confident in HUMIRA that is something we were not really worried about, just trying to understand how you're run your business versus your confidence?.

Two big questions. So the Analyst Day, we had kick around the idea of an Analyst Day, we may do something post closing Pharmacyclics so we -- that was just something we need to plan for and not only we’ll be able to talk about the other aspects of the business that talk about our oncology strategy in more detail.

So I would stay tuned on that and we think there a number of things if we could communicate kind of the summer, fall kind of timeframe. I think would be the most appropriate time and now there is a suggested similar suggestion to us about doing an Analyst Day. So that is something we’re considering.

What I would tell you on the HUMIRA situation, it is not the launch of a biosimilar, obviously we had a strategy in place that we believe will allow us to continue to drive strong performance out of HUMIRA a post launch of a biosimilar.

But what I would tell you is we obviously have contingency plans that we have in place that we will pull the trigger on. Remember it's going to be not just one single launch, right, because HUMIRA is sold all around the world. So there will be different countries, obviously the U.S.

is significant part of that and the major European countries are another significant part of it.

But we would be evaluating every single country on an ongoing basis and we would make a determination and I’d say the disaster scenario for us would be that ultimately we were significantly unable to achieve the objective that we built into our long range plan.

Obviously built into the plan expectations, how we would deal with any price erosion that might occur, any share erosion that might occur and then we have a contingency plan that basically will be built around missing that particular set of assumptions, and you wouldn’t pull it all at once, you basically start to titrate if you are missing in a way to be able to offset or mitigate any financial impact versus what you had planned for.

And so I think that’s the way to think about it..

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

First of all just on HUMIRA, was just interested in your perspective and how you're thinking about the biosimilar Remicade launch in Europe this year.

I guess what you're expecting there in terms of uptake? And how should we think about this launch as a comp that if a biosimilar HUMIRA was to enter the market in Europe let's say in late 2018, is the Remicade biosimilar ramp something that we should think about as a reasonable comparison there? Second question was on leverage and business development priorities post PCYC.

What is the sense of urgency at this point you add or build upon existing growth verticals with further end market product acquisitions post this deal, is that short of priority or should we think about AbbVie kind of coming back to focusing on some of these earlier stage more R&D focus transaction is going forward?.

So on HUMIRA and the biosimilar launch in -- the Remicade biosimilar launch expanding beyond the countries that has been in now for a couple of years. What it says we’ve been watching these launches carefully in the countries that they have been in for some period of time.

If you look at those countries relatively modest share has been achieved by the biosimilar product in most of those countries and its well within the expectations of what we would have assumed. We’re watching the competitive response and learning from how that competitive response works.

And I’d say so far that’s been consistent with what we would have expected from a pricing standpoint and a strategy standpoint. And so within the countries we’re in now, where we’re seeing these launches I can tell you HUMIRA is not impacted.

We’re continuing to grow patient share within those countries and so there certainly isn’t any direct impact on HUMIRA within those countries what where we see it today.

Is it a good metric in order to measure what we could expect with HUMIRA? I think that’s probably a little bit difficult to judge because again it all bodes boils to your position in the marketplace and I’d also say that the European market and international markets are different than the U.S. market for a number of different reasons.

And so if you were to assume that a HUMIRA biosimilar would be in the U.S. prior to the international markets then I would say it's not a good surrogate at all to look at because I think U.S. will be a very different kind of competitive situation.

And I think even in the European markets each product is positioned a little bit differently within the market and it bodes down to how to stay competitive response handle the launch of that product. So that one is a little tougher for me to answer. But I would say for right now it's tracking the way we would expected it to be.

On the BD priorities post deal, if I understand the question correctly, are we looking to go out and find another large growth platform? The answer is no. We've obviously made a significant commitment here with the acquisition of Pharmacyclics and it positions us well in this sector.

And ultimately it was platform play for us and it's a platform play that we would assume that we needed or wanted going forward. So now I think you will see us go back to a similar kind of strategy that we had before which is more looking for individual products that we build out.

The areas that we had specific therapeutic interest in like immunology, like virology, like oncology and continuing to add on to that potentially some tuck in kinds of acquisitions, smaller acquisitions to add to it, but more of what you've seen from us in the past..

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

Just to piggyback on Vamil's question, we’re seeing a new dates that Merck and Gilead ESOL I was just curious how do you see VIEKIRA PAK competitive position as we move into 2016 given the sentence upon competitive landscape? And there is another one on Hep C, there has been some discussion in the Hep C community that new world realize cure rates for VIEKIRA PAK could be a greater delta to those in clinical trial versus Harvoni given the complex measurement.

I would like to get your feedback here based on your experience so far. And then just one quick one Imbruvica.

Your peers recently entered in a partnership with the BTK inhibitor for autoimmune conditions including RA, is it something you planned to perceive with Imbruvica?.

So with respect to ESOL, we continue to feel confident that VIEKIRA PAK will provide competitive efficacy in the timeframe that’s you are describing in the 2065 timeframe and beyond.

Recall that cure rates of VIEKIRA are very high and that duration is been well tolerated and we don't see major shifts for example in duration of therapy in the timeframe that you are describing that would change that picture in any meaningful way.

Of course over the longer-term we have our own next generation program which I talked about a little bit earlier in this call, which will continue to drive innovation in this space. And so we feel good about our presence in Hep C today. And we'll continue to do so over the years to follow.

With respect real world cure rates with VIEKIRA PAK that doesn't match our experience. And so I really can't comment on that report. Our real world experience is actually a quite good with respect to adherence to the regimen and therefore realizing the cure rates that have been demonstrated in clinical trials.

With respect to Imbruvica, we're each obtaining inhibition in autoimmune disorders, obviously that’s something that has been a focus of research for a number of companies including ourselves. It's something we'll continue to investigate.

I think we will be positioned very well to pursue that aggressively given our extensive experience in immunology and post close given PCYC's experience in BTK inhibition. So it's certainly something that we will keep a close eye on something that we would pursue..

And that concludes today's earnings conference call. If you like to listen to a replay of the call please visit our Web site at abbvieinvestor.com. And thanks again for joining us today..

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