Elizabeth Shea - AbbVie, Inc. Richard A. Gonzalez - AbbVie, Inc. Michael E. Severino - AbbVie, Inc. William J. Chase - AbbVie, Inc..

Jami Rubin - Goldman Sachs & Co. Jeffrey Holford - Jefferies LLC Christopher Schott - JPMorgan Securities LLC Marc Goodman - UBS Securities LLC Bradley P. Canino - Leerink Partners LLC Gregg Gilbert - Deutsche Bank Securities, Inc. Paul Choi - Barclays Capital, Inc. David R. Risinger - Morgan Stanley & Co. LLC John T.

Boris - SunTrust Robinson Humphrey, Inc. Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker).

Good morning, and thank you for standing by. Welcome to the AbbVie First Quarter 2017 Earnings Conference Call. All participants will be able to listen only until the question-and-answer portion of this call. [Operation Instructions] I would now like to introduce Ms. Liz Shea, Vice President of Investor Relations..

Good morning, and thank you for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Michael Severino, Executive Vice President of Research & Development and Chief Scientific Officer; and Bill Chase, Executive Vice President of Finance and Chief Financial Officer.

Before we get started, I wanted to remind you that some statements made today are or may be considered forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995.

AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements.

Additional information about the factors that may affect AbbVie's operations is included in our 2016 Annual Report on Form 10-K and in our other SEC filings. AbbVie undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law.

On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand AbbVie's ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website.

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

Thank you, Liz. Good morning, everyone, and thank you for joining us for our first quarter 2017 earnings call. AbbVie delivered strong performance with double-digit top- and bottom-line growth exceeding our guidance for the quarter.

Adjusted earnings per share of $1.28 were up more than 11% versus the first quarter of 2016, and global operational sales growth was 10.1%, demonstrating the continued strength of our business. Humira continues to deliver exceptional performance with 15.8% global operational growth in the quarter. In the U.S.

Humira grew 22.8%, driven by robust underlying demand, including prescription volume growth of 12%. Humira holds the number-one market share position across all three categories. Internationally, operational sales growth was 4.6%, driven by market growth across, again, all three categories.

We continue to expect mid-single-digit operational sales growth for the full year internationally, despite the impact from new competitive entrants and indirect biosimilar competition which has been in the European markets now for several years.

We continue to see strong momentum and growth from Imbruvica with global sales in the first quarter of $551 million, an increase of nearly 45% over the prior year. This performance was driven by continued uptake in first-line CLL, where we continue to see strong performance since our approval.

In fact, the most recent market share data indicates that we now hold the leading position in new patient starts in the front-line segment, with more than 21% of patients starting Imbruvica as frontline CLL therapy. And given Imbruvica's duration of therapy, more than 30% of total treated front-line patients now use Imbruvica.

We're also seeing continued strong market leadership in the second-line-plus setting across all indications. In addition to our commercial progress, we've advanced our efforts to expand the list of Imbruvica approved indications.

This includes recent approval in relapsed/refractory marginal zone lymphoma and our recent regulatory submission for chronic graft-versus-host-disease. We also continue to see good progress with the launch of Venclexta in our narrow initial indication of relapsed/refractory CLL patients with the 17p deletion.

Our second-line-plus market share is now approximately 20% in the U.S. Internationally, Venclexta is off to a good start, and as we've now launched into the two of the larger markets, Germany and France. We also saw a continued strong performance from several other products, including Creon and Duodopa.

So overall, we're extremely pleased with our commercial performance and financial results for the quarter, and we're off to another strong start in 2017. Now moving on to our pipeline.

As we disclosed last week, the Phase 3 studies evaluating veliparib in squamous non-small cell lung cancer and early stage triple-negative breast cancer did not achieve their primary endpoints, and therefore we won't be moving forward with these indications.

This program carried a higher degree of risk, because we were testing a new hypothesis, that hypothesis being whether PARP inhibition enhances chemotherapy-induced DNA damage. While the outcome was not what we hoped for, we have not considered veliparib one of our nearer-term growth drivers.

We have a number of late-stage de-risked assets in our pipeline. As we look forward to the remainder of 2017, we're exciting about the forthcoming clinical development and regulatory milestones. Mike will discuss our R&D pipeline in a more detail in just a few moments, but I'll briefly give you some highlights of the noteworthy events.

Before the end of the year, you will see data from a dozen pivotal trials, including data readouts for our two late-stage immunology programs.

Specifically, you'll see data from the first three of six registrational studies for our selective JAK1 inhibitor, ABT-494, with results from two of these studies coming in the next few months, and we'll see data from our three pivotal studies in risankizumab in psoriasis later this year.

In Oncology, we'll see data from Venclexta Phase 3 MURANO trial, which will support our regulatory application for broader use in the relapsed/refractory CLL population. We'll also see potential registrational data from a study of ABT-414 in second-line glioblastoma multiforme.

We're also expecting several additional Imbruvica data readouts based on interim or final analysis across the number of studies. And we'll see results from the TRINITY study, where Rova-T is being evaluated as third-line treatment in small cell lung cancer.

In the area of women's health, we'll begin to see late-stage data from our Elagolix program in uterine fibroids, with results from the pivotal study expected late in the year.

We also expect regulatory action on several programs, including U.S., EU and Japan approvals for our next-generation HCV offering, and we are nearing the completion of our Phase 3 program for Elagolix in endometriosis and are on track for regulatory submission next quarter.

There are so many significant pipeline advancements expected this year, 2017 is shaping up to be an important year for AbbVie, and one that will further reinforce the strength of our pipeline. So as I said a moment ago, we are encouraged with our strong commercial execution and financial performance.

We've built a compelling de-risked pipeline, which continues to progress well and is poised to fuel growth over the long term, and we're off to an exceptional start this year and are well-positioned to continue to deliver top-tier financial performance in 2017 and well beyond.

With that, I'll turn the call over to Mike for additional comments on our R&D programs.

Mike?.

Thank you, Rick. Today I'll highlight recent pipeline updates and discuss some of the key milestones we anticipate for the remainder of 2017. I'll start with our hem-onc programs, where we continue to make significant progress with both Imbruvica and Venclexta.

Starting with Imbruvica, as we've outlined, expanding into new indications is an important driver of future growth. Earlier this year we added relapsed/refractory marginal zone lymphoma to our growing list of approved uses, and we continue to make progress with other indications as well.

During the quarter, we submitted a supplemental new drug application for the use of Imbruvica in patients with chronic graft-versus-host-disease who failed prior systemic therapy. GVHD is a severe and potentially life-threatening complication that can occur in patients who have undergone an allogeneic stem cell or bone marrow transplant.

There are currently limited treatment options for this disease, and if approved, Imbruvica would be the first and only therapy specifically indicated for chronic GVHD.

In Phase 2 data presented at the end of last year, 67% of patients who failed steroid therapy responded to treatment with Imbruvica, with one-third of the responders achieving a complete response and almost two-thirds substantially reducing steroid use. Based on these data, we expect a regulatory decision in the second half of the year.

Later this year, we anticipate several key data readouts for Imbruvica, including data from an interim analysis in front-line mantle cell lymphoma, as well as additional potential interim analyses in other forms of non-Hodgkin's lymphoma. Moving now to Venclexta.

We're expecting data from the MURANO study evaluating the combination of Venclexta and Rituxan later this year, which we believe will support a broader label in relapsed/refractory CLL and help establish Venclexta as a foundational therapy in this patient population.

The Phase 3 program evaluating Venclexta in front-line CLL is also ongoing, with studies been run in younger, more fit patients as well as older patients with comorbidities. These studies, as well as other combination studies with Imbruvica, are important parts of the Venclexta strategy to drive toward chemo-free regimens in CLL.

We anticipate key data from the CLL14 study in older patients with comorbid medical conditions to be available in 2018. Beyond our core strategy in CLL, we are making great progress with our development programs to expand Venclexta across multiple hematologic malignancies.

We have Phase 3 studies ongoing in multiple myeloma as well as AML, where we have received Breakthrough Therapy Designation. And these studies are progressing well, with key data becoming available in the 2019 timeframe.

Later this year, we are also expecting additional data readouts from Phase 2 studies in indolent non-Hodgkin's lymphoma and diffuse large B-cell lymphoma, which will inform decisions regarding advancement in these indications.

I'll now turn to our solid tumor programs, where we continue to make good progress with our late-stage programs, Rova-T and ABT-414, as well as with our early-stage oncology pipeline.

Starting with Rova-T, our registrational trial in third-line-plus small cell lung cancer, the TRINITY study, continues to progress nicely, and we expect data later this year. Our submission will follow soon thereafter, enabling a commercial launch in 2018.

In addition to TRINITY, we have a comprehensive development program in place for Rova-T to evaluate this promising therapy in earlier lines of treatment in small cell lung cancer, as well as in other tumor types that express DLL3.

The Rova-T program includes additional studies currently underway in small cell lung cancer, including MARU, a Phase 3 study evaluating standard chemotherapy followed by Rova-T in the front-line setting, and a mid-stage combination study evaluating Rova-T with Opdivo and – with Opdivo and Yervoy in small cell lung cancer.

And this quarter, we will also start the TAHOE study, a Phase 3 trial in second-line small cell lung cancer. Beyond small cell lung cancer, the neuroendocrine tumor basket study is progressing nicely, and we anticipate beginning to see early data from this study towards the end of this year.

As we've discussed, the acquisition of Stemcentrx not only provided AbbVie a late-stage asset in Rova-T, but brought a highly attractive discovery and early development platform as well.

In addition to Rova-T, we have four Stemcentrx assets in the clinic, and we are on track to transition several additional programs into human trials this year, adding to our growing oncology pipeline, which includes more than 35 late preclinical or early clinical stage assets.

Beyond Rova-T and our other Stemcentrx assets, we're continuing to make progress with our solid tumor programs, including our antibody drug conjugate for glioblastoma multiforme, ABT-414, which was granted Fast Track Designation earlier this month.

At the upcoming ASCO meeting, we plan to present full data from the Phase 1 study of ABT-414 in glioblastoma, including overall survival and progression-free survival data. And later this year, we'll see data from the Phase 2 study in second line GBM that, if positive, would support regulatory submission.

In our early-stage oncology pipeline, we continue to build capabilities and explore new technologies that will extend our reach in the solid tumor market.

We're making good progress with our next-generation immuno-oncology programs and other novel approaches such as our bispecific technology, with a number of assets having recently entered the clinic and more study starts expected through the remainder of 2017.

Moving now to our HCV program, where we recently received priority review from the FDA for our pan-genotypic next-generation HCV therapy. In the quarter we also received EMA accelerated assessment and priority review in Japan.

Last week at the International Liver Congress we presented new results from our Phase 3 program, including data from the EXPEDITION-1 and ENDURANCE-3 studies, which together with previously reported data reinforce our next-generation therapies' potential to provide high cure rates and a shorter treatment duration for the majority of patients across all genotypes, including patients with compensated cirrhosis and those with genotype 3 infection.

Results from EXPEDITION-1 demonstrated that 99% of patients with compensated cirrhosis achieved SVR12 with 12 weeks of treatment across genotypes 1, 2, 4, 5, and 6. We also presented data from ENDURANCE-3 in patients with genotype 3, the second most common (16:22-16:33) genotype globally and the most challenging to treat.

These results showed that with just eight weeks of treatment, 95% of genotype 3 patients without cirrhosis and who are new to treatment achieved SVR12 with our next-generation therapy.

We're excited about the high cure rates across all major genotypes and the results in difficult-to-treat patients that we've seen in our Phase 3 program, and remain confident that our pan-genotypic once-daily ribavirin-free HCV therapy will be competitively positioned within this market.

We remain on track for regulatory approval in the U.S., EU, and Japan later this year. Moving now to our immunology programs, where we have two very promising late-stage assets, risankizumab and ABT-494, each with the potential to significantly advance standard of care in a number of immune-mediated conditions.

Risankizumab, our anti-IL-23 monoclonal antibody licensed from Boehringer Ingelheim, has the potential to provide best-in-class efficacy and increased dosing convenience with quarterly administration. Results from the Phase 2 study of risankizumab in psoriasis were recently published in the New England Journal of Medicine.

These data show that selective blockade of IL-23 with risankizumab was associated with a superior clinical response compared to Stelara. In this study, approximately 2.5 times as many patients achieved PASI 100 with risankizumab compared with those receiving Stelara.

The Phase 3 program in psoriasis is well underway, and we look forward to seeing data from three of the pivotal studies later this year, with commercialization expected in 2019. Earlier this month, we also published results from a proof-of-concept Phase 2 study of risankizumab in Crohn's disease.

Results from this study show that patients receiving risankizumab achieved higher clinical and endoscopic remission rates than placebo, suggesting that blocking IL-23 could be a very promising therapeutic approach in Crohn's disease.

52-week data from the open-label maintenance portion of this trial will be shared in a late-breaking oral presentation at the upcoming DDW meeting in May. Phase 3 studies in Crohn's disease will be starting soon. This year we'll also see Phase 2 data in psoriatic arthritis, with Phase 3 studies expected to begin in the first half of 2018.

Additionally, we are expecting to begin a Phase 2 for risankizumab in ulcerative colitis in the second half of the year. Moving now to our selective JAK1 inhibitor, ABT-494, where we continue to make significant progress with our development programs in RA and inflammatory bowel diseases.

At the upcoming DDW meeting, we'll be presenting data from the Phase 2 CELEST study in Crohn's disease, showing that treatment with ABT-494 demonstrated endoscopic improvement and clinical benefit as induction therapy in patients with moderate to severe refractory Crohn's disease.

Based on these strong Phase 2 results, we'll be initiating a Phase 3 program later this year. We have two additional mid-stage programs for ABT-494, including an ongoing Phase 2 study in atopic dermatitis and a soon-to-begin Phase 2 study in ulcerative colitis.

Turning our attention to rheumatoid arthritis, we expect to begin seeing data from the first of six Phase 3 RA studies in the coming months, with top-line data from the SELECT-NEXT trial in patients who have failed conventional DMARDs expected in June, and data from the SELECT-BEYOND study in biologic inadequate responders expected later in the summer.

We plan to present full data from both of these studies at a medical meeting later this year.

We believe ABT-494 has the potential to be best-in-class with an optimized benefit risk profile, and we are particularly excited about this asset's potential in the difficult-to-treat anti-TNF inadequate responder population, a growing segment of the RA market representing roughly 35% of the biologic treated population.

And finally, in the area of women's health, we are nearing completion of the Phase 3 program for elagolix in endometriosis and are on track for regulatory submission next quarter. In addition to the endometriosis program, we have Phase 3 studies underway in uterine fibroids.

This program is investigating the effect of elagolix on heavy bleeding related to this highly prevalent condition. We anticipate beginning to see data from this Phase 3 program late in the year.

Earlier this month we presented detailed results from the Phase 2 study in uterine fibroids at the meeting of the Society of Endometriosis and Uterine Disorders.

These data demonstrated that treatment with elagolix provided superior efficacy and rapid control of heavy menstrual bleeding associated with uterine fibroids compared to placebo, as well as improved quality of life.

Treatment with elagolix was well tolerated, with hormonal add-back therapy substantially attenuating the side effects of elagolix on bone mineral density and hot flashes. Importantly, there were no abnormal endometrial findings, demonstrating that elagolix has potential as a chronic, uninterrupted treatment for this condition.

We remain excited about this potential new medicine for women with both of these highly prevalent conditions, where there are few effective treatment options.

So in summary, we've continued to see significant evolution of our mid- and late-stage pipelines, and we look forward to many important data readouts, phase transitions, regulatory submissions, and approvals later this year. With that, I'll turn the call over to Bill for additional comments on our first quarter performance.

Bill?.

rheum, gastro, and derm. In rheumatology, Humira remains the number one prescribed biologic. In the gastro segment, we continued to see double-digit prescription growth in the quarter despite new competition.

Humira holds the market leadership position in treatment-naïve patients for both Crohn's disease and UC, where nearly half of new patients start on Humira. And in dermatology, double-digit volume growth was driven by our market leadership in psoriasis as well as strong adoption rates for HS, which was launched in late 2015.

International Humira sales were $1.4 billion in the quarter, up 4.6% on an operational basis and in line with our expectations. We continue to see good growth despite the entry of new competitors and indirect biosimilar competition, which continues to track in line with our expectations.

Global Imbruvica net revenues for the first quarter were $551 million, up nearly 45% over the first quarter of last year, driven by penetration into first-line CLL and continued strong performance in other approved indications.

We remain on track to achieve our full-year expectation for global reported revenues of greater than $2.4 billion, with sales in the U.S. of more than $2 billion. Global Viekira sales in the first quarter were $263 million, down versus the prior year.

As we've previously communicated, we have seen market share loss and price erosion due to competitive dynamics within the HCV market. Global sales of Duodopa, our therapy for advanced Parkinson's disease, grew 19.8% on an operational basis in the quarter, and we also saw strong operational sales growth in the quarter from Creon, which was up 22.8%.

Turning to the P&L profile for the quarter, adjusted gross margin was 79.9% of sales compared to 81.3% in the prior year. On a year-over-year basis, gross margin as a percentage of sales was negatively impacted by partnership accounting and exchange.

Due to the seasonality of certain products, our gross margin ratio in the first and fourth quarters is typically lower than the second and third quarters. We continue to forecast a full-year gross margin ratio of approximately 81%.

Adjusted R&D was 16.9% of sales, in support of our ongoing pipeline programs in oncology, immunology, HCV and other areas. On a year-over-year basis, R&D as a percentage of sales increased due to the spend related to the Stemcentrx and risankizumab deals, both of which closed in the second quarter of last year.

Adjusted SG&A was 20.7% of sales in the first quarter, down 190 basis points versus the prior year, driven by sales leverage and operational efficiencies. The operating margin profile was impacted by R&D investment related to Stemcentrx and risankizumab, as well as the adverse impact of foreign currency.

Adjusting for these items, the adjusted operating margin profile grew by 120 basis points versus the prior year. We continue to forecast a full-year operating margin ratio of approximately 43%. Net interest expense was $247 million and the adjusted tax rate was 18.2% in the quarter.

The first quarter tax rate benefited from the adoption of new accounting rules for the treatment of taxes on equity compensation. This impact is most pronounced in the first quarter, given the timing of equity grants, and was contemplated in our guidance.

First quarter adjusted earnings per share, excluding intangible amortization expense and other specified items, was $1.28, up 11.3% year-over-year. As we look ahead to the second quarter, we expect adjusted earnings per share between $1.39 and $1.41.

Our second quarter adjusted EPS guidance excludes roughly $0.19 of non-cash amortization and other specified items. We are forecasting reported revenue growth in the second quarter of between 7% and 8%.

Holding exchange rates constant at a current level, we would expect foreign exchange to have an unfavorable impact on sales growth of approximately 1% in the second quarter. For U.S. Humira, we expect sales growth in the second quarter in the mid-teens to high teens.

Internationally, we expect mid-single-digit operational growth for Humira, with approximately 3% unfavorable impact from foreign exchange, resulting in low-single-digit reported growth. For Imbruvica, we expect U.S. sales growth in the second quarter to approach 35%. And with respect to the tax rate, future quarters should be modeled at above 19%.

We remain on track to achieve our full-year guidance, including operational revenue growth of approximately 10% and adjusted earnings per share between $5.44 and $5.54. So in closing, we are very pleased with AbbVie's strong performance in the quarter.

We've driven top-tier revenue and EPS growth, while also advancing our strategic priorities and our pipeline. And with that, I'll turn the call back over to Liz..

Thanks, Bill. We'll now open the call for Q&A. Operator, we'll take the first question..

Thank you. Our first question is from Jami Rubin from Goldman Sachs. Jami, your line is open..

Thank you very much. Rick, I have a theoretical question for you. We have written about AbbVie separating into two separate businesses for reporting purposes in order to close what we see as a substantial value gap, a Humira company and a growth company.

The idea is to set up Humira as an earn-out company from which to pay a recurring special dividend to shareholders to alleviate persistent fears from biosimilar competition, while drawing attention to your substantial pipeline story.

Assuming some form of corporate tax reform is passed, and I know that's far from a certain thing, how realistic is this scenario, and what is your appetite internally to do something like this? Do you have other priorities for cash, like M&A, stock buyback, or debt pay-down? Are those more important than a special dividend, does that even make sense? Because it seems to me that investors still see Humira is just a huge risk versus a monster cash flow generator.

Just curious for your thoughts are? Thanks..

Hi, Jami, yes. Well, first thanks for the question. Maybe let me come at it from a broader perspective first, and then I'll specifically talk about how we think about it as it relates to Humira and AbbVie.

If you listen to the framework of tax reform that came out yesterday, I'd say generally speaking, I find that incredibly encouraging for companies like ours, U.S.-based companies.

It certainly would put us in a position where we'd be far more competitive to our foreign competitors, which make up a significant part of our peer competitive company base and it would certainly give us a lot more encouragement to invest in the U.S. and create U.S. jobs.

So I find the discussion encouraging and I think it would be extremely beneficial for companies, certainly our industry and across other industries. Specifically as it relates to AbbVie, I'd say first I've read your report.

I thought it was extremely well done and I'll tell you that I agree wholeheartedly with the thesis that you laid out in the report. And as you point out, we have a business that generates tremendous cash flow, and we anticipate that that cash flow is sustainable over the long term.

That cash flow certainly, as it is generated, far outweighs what we would envision as what is required for us to reinvest back in the business. We're certainly going to reinvest back in the business, as we have historically, but I'd say as we project forward, we would be building cash offshore.

And so, certainly it is in excess of what we would anticipate we would need for strategic reinvestment back in the business. I'd also say that as you point out in your report, we're significantly undervalued.

We're undervalued from the standpoint of Humira and the benefit that it drives in the business, and certainly that's driven by the concentration that we have in Humira, and oddly enough, as we continue to drive Humira and show the success with it, I think that increases that pressure.

Secondly, I'd say we're tremendously undervalued as you look at the pipeline that we have. As I mentioned in my comments, you're going to see a dozen pivotal trial results that are going to read out over the course of 2017. There aren't many companies in our industry that have those kind of catalysts going forward.

And so as we look at it, if we were to get tax reform where we could get better access or more cost-effective access to our offshore cash, we're certainly going to be looking at ways to be able to appropriately deploy that cash. Dividend has always been important for us, and I can tell you we're committed to a growing dividend.

The idea of a special dividend, I think, is a very unique idea and one that I think has strong merit. Certainly share buyback is another way to do that, but returning cash to shareholders to reward them for the tremendous success that Humira has had and will continue to have going forward is a high priority for us.

So I'm encouraged, I hope we can move tax reform going forward in 2017 or early 2018, and once there is clarity around that, then we'll be looking at what is the appropriate approach to make sure that investors are rewarded for the benefit of the cash flow that Humira is going to generate..

Just if I can follow up, Rick, in terms of priorities for cash, I mean many investors would look at the Humira concentration and say the only way to offset that is through further bolt-on acquisitions.

Do you agree with that, or are you pleased with what you have and you would – in terms of usage of cash, just curious how you would prioritize? I mean, is it returning cash to shareholders, is that a higher priority right now than paying down debt, deploying cash to further acquisitions, how do you think about that?.

Well, as far as debt is concerned, I'd say it is not our intent to significantly pay down debt in the current environment. In the event that interest wasn't deductible, then I'd say that priority obviously would change going forward, but I'd say that's not a high priority for us.

We believe we'll grow into the appropriate ratios; our credit rating is obviously important to us, and – but when you look at the growth of our business, we clearly think we can grow into that. As far as bolt-on acquisitions, what really we focus on is, we have a strategic roadmap of how we're trying to operate within the franchises.

For the most part, I'd say we have the major platforms that we need. So we don't envision the need for large platforms. We did that work with both Pharmacyclics and with Stemcentrx, and we think we're well-positioned for that.

There are certainly additional assets that we'd look for, but I'd say they look more like the BI kind of transaction or individual kinds of products or smaller groups of products would be a higher priority for us going forward.

And so, as I said, I think there'll be significant excess cash that will build up over time, and I would say returning that cash to shareholders in some appropriate way will be a high priority for us..

Great. Thank you..

Thanks, Jami. Operator, we'll take the next question..

Thank you. Our next question is from Jeff Holford from Jefferies. Jeff, your line is open..

Hi, thanks very much for taking my questions. I just have two for you. First of all, on ABT-494, I wonder if you could talk about your confidence in the safety and efficacy of this asset.

Basically, in light of the setback that we've seen with baricitinib and any color you could give us on potentially why your asset might avoid some of the issues that they may have seen that's triggered the CRL? And then secondly, we do have an upcoming catalyst in terms of Humira patents with the IPR decision on the '135 patent.

Wonder if you could give us a sense of your level of confidence around the outcome of that decision, and then also just the negative and positive implications in either case of the outcome? Thank you..

Jeff, this is Mike. I'll take the first part of that question. So obviously we've been following the situation very, very closely. Of course, we don't have access to the complete response letter or knowledge of Lilly's conversation with regulators.

But we do have a very clear understanding of our own program, our own data, and our own extensive conversations with regulators here in the U.S. and in major jurisdictions around the world. And based on that, we remain confident in our program and don't see any read-through from the Lilly situation.

We've designed a very comprehensive and robust Phase 3 program that will thoroughly characterize the efficacy and safety profile of both of the doses of ABT-494 that are being studied in Phase 3. And we remain confident in the data that we've seen, our Phase 2 data, we're very strong not only from an efficacy, but also from a safety perspective.

An important issue here is dose selection, and we designed a very robust Phase 2b program that explored a wide range of doses across different patient populations, because dose response is not necessarily the same in an earlier population or an TNF-inadequate responder population, for example.

And we ran Phase 2 studies in both of those patient populations. That allowed us to select doses that we think optimize benefit/risk, and as I said, we've designed a Phase 3 program that will fully demonstrate that benefit/risk and support regulatory decisions.

So our level of confidence or enthusiasm on ABT-494 remains high and hasn't changed a bit this past week..

Okay. Jeff, this is Rick. On the IPR, as we've said in previous calls, I mean we're in active litigation now, so we're not going to talk a lot about specifics around this. What I would say to you is, if you look at our level of confidence in what we've described to the market about our ability to protect Humira, it remains the same.

And that confidence was built around a large portfolio of IP, it was never contingent upon any one set of IP or any single set of patents or individual patents. We have a large portfolio of formulation patents that have come under challenge and have been successful and successfully navigated through those challenges.

We have now the beginning of these dosing patents, we have a large portfolio of dosing patents. We have dosing patents beyond '135 in RA, so beyond the ones being challenged. And so I'd say our level of confidence in the outcome, the overall outcome that we anticipated remains the same, and it remains high.

Having said that, if I look at the pure statistics around IPR decisions, I would say the statistics are against you, right? More times than not, they're not upheld at an individual level. So – and I'm not going to speculate on what we think is going to happen in this one, we're going to get that answer fairly soon.

I'm sure that if it's a positive reaction, we'll get a positive result, and it's not going to – if it's a negative reaction, we'll get a negative result.

I think investors, what they need to focus on is the longer-term perspective, and I think what we have described to the market has played out consistently with what we described, both from a litigation timeframe standpoint and the broadness of our IP.

And whoever – whatever biosimilars want to enter this market, they're going to have to navigate their way through that IP. And I still feel as confident as I did when we communicated that to you back in 2015..

Thanks very much..

Thanks, Jeff. Operator, we'll take the next question..

Thank you. Next question is form Chris Schott from JPMC. Chris, your line is open..

Great, thanks very much for the questions. Just had two regarding the TNF market. So first, can you just elaborate a little bit more on the U.S. kind of immunology market dynamics you're seeing right now? I think some of your competitors were highlighting a slowdown in the category in Q1; you obviously had very strong numbers.

So just a little bit more about what you're seeing in terms of overall market dynamics, something about category growth versus the share that you're able to achieve here? My second question was on the contracting cycle we're entering into.

Just any more granularity on what portion of your business is already contracted out through 2018, versus how much is up for renewal, as we enter this next contracting season? I think you mentioned in the 3Q call that a good portion of the business was contracted for both 2017 and 2018, but just trying to get a little bit more granularity as we think about some of the news flow over the next few quarters? Thanks so much..

Okay. I mean, as far as the TNF market dynamics, they're obviously being affected by two major factors. One is what we've discussed in I guess the last two calls now, the impact that is happening as it relates to Enbrel in the marketplace.

And then the second is really an IMS reporting issue, where IMS, a fairly significant account had blinded their data back in the summer of last year I believe. It is an account that we have very high share in, so we're over-indexed in that particular account.

And although we're trying to make adjustments, or they're trying to make adjustments to the data, it obviously is depressing both the category and depressing what IMS reports as it relates to Humira. And so, that's just an anomaly in the data.

It's going to correct itself as we lap it, and I think actually IMS is going to try to correct it at some point here going forward.

They are publishing some correction factors now, and we obviously do the correction internally, because we have our own data that we know what is represented in this particular account, so we can add back that data into the overall market. And I'd say generally speaking, Humira continues to perform just like it has historically.

In fact, if you look at – it's interesting, if you look at the last nine quarters in the U.S., I think on average, those nine quarters, we've delivered 22.4%. So Q1 is not any kind of an anomaly. It's right in line with what we would've expected. The majority of that growth is volume driven.

You have to remember that in our case, as we look at the market from a quarter standpoint, we know exactly the units that we've shipped, we obviously know exactly the revenue that we've generated. We have very high specificity around what the inventory levels are in the wholesaler channel, and we obviously know what the calculations are for price.

So we can dissect this performance very accurately, and I'd tell you that Humira continues to perform extremely well. Overall market share in Q1 is stable, I'd say slightly down in psoriasis, just down a tiny bit, and slightly up in RA. So those two are netting themselves out with stable market share.

One of things that we look at very carefully is the capture rate of new patients, and that is stable to slightly up. And then obviously if you look at the performance of the brand in the U.S., and it's tremendous. So, I think we're still very, very comfortable with how the U.S.

is performing, and we expect that performance to continue going forward, despite the fact that we are seeing new entrants into the marketplace. Internationally, we continue to perform as we have last year. I'd say first quarter looks a lot like last year. If you look at our overall revenue growth it's 4.5%, 4.6%.

If you adjust for Venezuela, you're talking about high-single-digit volume growth. And you have to remember, that's despite the fact that there have been biosimilars now in the marketplace, indirect biosimilars in the marketplace, for an extended period of time.

Remicade biosimilars have been in for a long time, and now Enbrel biosimilars have been in the market for a substantial period of time as well. So that gives you some idea of how we're competing in that indirect market, but I'd say we're pleased with what we see in that marketplace going forward. It's tracking as we'd anticipated.

As far as contracting, I don't believe we have actually ever communicated what the split is between those that are 2017 and 2018 contracts. But I'd say, generally speaking we feel good about our contract position going forward into 2018.

So I don't anticipate any change in our position as it relates to our formulary positions in the United States in 2018..

Thank you, Chris. Operator, we'll take the next question..

Thank you. Next question is from Marc Goodman from UBS. Marc, your line is open..

Morning. Two questions. First, can you just give us the latest thoughts on what's going on in the ACV market in the three different regions, and how you think that's going to play out over the next year or two? And then second, can you just remind us for elagolix, what's the hook for that product and why we're excited about it? Thanks..

Okay. So, Marc, this is Rick. I guess I'll cover both of those questions. So maybe just repeat what you said about the three different regions.

What were you referring to?.

Well, I was just saying that in hepatitis C, if you could just kind of go into what's happening in the three regions, what you're seeing, what are the dynamics, and how you think that'll change over the next year or two?.

And regions, you mean the U.S., Europe and Japan, is that what you mean?.

Yeah, correct..

Okay. I'm sorry. Yeah. Well, I'll tell you the dynamics. There's certainly differences between those markets, but I'd say there's general themes that are also similar. So maybe I'll talk to the themes. We're seeing essentially two different dynamics that are playing out in the market.

One is, we continue to see price pressure in the market; the third entry in the market has certainly played a stronger price strategy than we would have initially anticipated, but I'd say that is continuing as we see them roll out into many of the international markets.

And so, there is pressure on price, and I'd say fairly significant pressure on price in those markets, and they're using price to many cases to try to get early access into the marketplace from a pricing or reimbursement standpoint.

The second phenomenon that we're seeing is we're seeing that patient volumes are still trending down, although at a slower pace, so I think we are reaching some point of stability going forward. I think that's driven by a couple of different dynamics. One is, like in the U.S.

as an example, many of the patients who were F3s and F4s have been treated, so now you have earlier stage patients. Some of those earlier stage patients are not as motivated to get treated. Some are still obviously undiagnosed in the marketplace, but I think it's primarily their motivation to be treated now, earlier on in their disease process.

And then some who are still in the later stages are in environments that are far more difficult to be able to access. They might be IV drug abusers, they might be in the prison system, et cetera, and so that's part of what's driving the dynamics in the U.S. market.

Outside of the U.S., you have funding cycles within those countries, and many of those countries funded for mostly F3s and F4s, didn't fund for earlier stage patients.

And so, now we're going through the cycle of them dedicating funding for the number of people that they want to treat, and that clearly is coming down somewhat from what it had been in previous years.

Having said all of that, I'd say this is still a very big market, and at the end of the day it's a market that's sustainable at a substantial level going forward, and I think our GP product, our next-generation product, will compete very nicely in that market.

And you have to remember that up to this point, we've only competed basically in genotype 1. And so there's a big opportunity for us to be able to compete in the other genotypes going forward. And we're certainly excited about what we think this next generation product can do in the marketplace.

It will be more of a 2018 impact than a 2017 impact, although we'll get approved in 2017. So I think it's an exciting asset for us. As it relates to elagolix, I'd say elagolix has the ideal profile for a new medicine in this particular area. Essentially – let's take the U.S. as an example.

You have about 2.5 million women in the United States who suffer from endometriosis.

Many people think that that number is low, that it could be as high as 4 million, because many of these patients are not diagnosed and physicians are hesitant to label them as having endometriosis when there's really no real benefit to doing that because there are no significant therapies. Many of these women suffer from significant pain.

In fact, I would tell you that the opioid use in this population is relatively high. In the neighborhood of 35% to 40% of these patients use opioids to try to manage their pain level.

And if you look at the profile of elagolix and the clinical data that supports that, it would tell you that elagolix has the opportunity to change the profile of the treatment of that disease significantly. These women are typically of an age where they're interested in at some point becoming pregnant.

And so what they're looking for is an oral agent that's fast-on and fast-off. Ideally, you want a therapy that could basically treat these women for in the neighborhood of a year or longer. We think this profile has the ability to do be able to do that for the vast majority of patients.

And so we think that's a profile that is very, very consistent with what the market would desire and what patients would desire going forward. It will be a market that you have to build over time, because we even saw in the clinical programs that you had to build awareness around this.

So there will be an education process that is necessary in order to both educate physicians on the availability of this medicine when it becomes available, but also educate women to become activated and seek treatment when there weren't previous alternatives that could treat this disease.

But if you look at the opportunity, this is clearly a multibillion-dollar product from an opportunity standpoint. And so we're excited about it. It'll move forward into registration next quarter, and we anticipate being able to get that product approved and on the marketplace and starting to build that market.

So I can tell you, I'm very excited about what the opportunity looks like. This is a market we know well, because of our experience with Lupron in this segment, and certainly Lupron does not have the ideal profile for these women. So I think it's a market that we'll be able to have a significant impact with this product..

Thanks, Marc. Operator, we'll take the next question..

Thank you. Next question is from Geoffrey Porges from Leerink Partners. Geoffrey, your line is open..

Thanks. This is Brad Canino on for Geoff. Another question on HCV also. With the launch of the G/P regimen looming, do you expect an initial pan-genotypic labeling given the latest data, and are the eight-week data for GT3 and GT1 also likely to be in the initial label at launch? Thanks..

So, this is Mike. I'll take that question. We feel very good about the data that we've generated across the program and across genotypes. If you look at our response rates, they're very high across both the common and uncommon genotypes, and in particular in some of the most difficult to treat patient populations, like genotype 3.

And so, while it's difficult to speculate about a label, we think that the evidence that we've generated strongly supports pan-genotypic use of the product. And with respect to the eight-week data, I would make similar statements.

The eight-week data have been very strong across genotypes, including in very difficult to treat patients like genotype 3 patients. There, it's been studied in genotype 3 patients at eight weeks who don't have cirrhosis and are new to therapy, but that's a very, very significant portion of the market, not only in the U.S. but around the world.

And our results are very strong, and again, while it's difficult to speculate about a label this early in the process, we think the data supports the use of the regimen in that manner..

Thanks, Brad. Operator, we will take the next question..

Thank you. Our next question is from Gregg Gilbert from Deutsche Bank. Gregg, your line is open..

Thank you. First, following up on your comments, Rick, on HCV, is AbbVie a believer in NASH as a large opportunity, and what are your plans there? Second, for Mike, how would you set the bar for what you hope to see in TRINITY, and can you express your confidence in whether that data is sufficient to file with? You sound very confident there.

And third, Bill, can you comment a bit more on gross margin in the first quarter? I know there are timing issues and lumpiness, but it was the lowest level we've seen in quite some time. So can you provide a little more color on that? Thanks..

Yeah. So, Gregg, this is Rick. I'll take the first one, Mike will cover TRINITY, and Bill can cover the gross margin question. So on NASH, I mean certainly as you look at the prevalence of NASH, you look at the implications of it, this is a disease that certainly, if you could find the right therapy would be a significant opportunity.

Again, it will be a market development kind of opportunity. Many of those patients are – the earlier stage patients are certainly in GPs and in internal medicine right now, with elevated LFTs as their only real symptom. So it would require some fairly significant market development work.

I think if you found the right drug with the right profile, it's clearly a significant opportunity. It's one of the things that's on our target list. As I said, what we do from a business development or a licensing acquisition standpoint is we have a strategic roadmap within each franchise of what we're looking for.

I can tell you NASH is on that roadmap. We haven't – we obviously have not found anything yet that has met the criteria that we're looking for, that gives us enough confidence for us to pursue an asset. We've looked at a number of different things, and we'll continue to look.

We have some internal efforts at an early discovery level looking at some different mechanisms as well. But those are fairly early on. So, yeah, it's a nice opportunity for the right kind of drug, if we can find that drug with that profile..

Okay, this is Mike, I'll take the question about Rova-T and TRINITY. So what we know about small cell lung cancer is that treatment options are severely limited for these patients. We know that in the front-line setting, we can drive good response rates with traditional chemotherapy, but those responses aren't durable and patients relapse.

And when they relapse, they're very, very difficult to treat. Second and subsequent lines of therapy have much lower response rates and very poor durability of those responses. In the third-line setting, where we're conducting the TRINITY study, for example, one-year survival is at best 12%, and many experts would put that number lower.

So what we're looking for in TRINITY is something that really changes that picture, something that shows response rates that are different from the chemotherapy options and clearly differentiated – chemotherapy drugs response rates in the teens here – and responses that have the promise of being durable, and increasing that long-term survival to the greatest extent possible.

And you asked about our confidence. We remain confident in Rova-T and TRINITY. Rova-T is supported by a very, very strong package of preclinical biology and early clinical data. And this is a situation where the early clinical data are predictive of TRINITY. We're essentially looking at the same endpoints in TRINITY that we did in the early studies.

So we feel good about that asset and about the overall Stemcentrx pipeline..

Gregg, it's Bill. So as you brought up, obviously our gross margin was a little lighter than last year, yeah, it was down 1.4 points.

If you look at the impact of partnership accounting, and just to refresh your memory on that, the profit that we transferred to J&J related to Imbruvica, and actually the profit on Venclexta as well, ultimately gets booked up in COGS. So it actually dilutes our gross margin; that had about a 70 basis point impact.

And then exchange had about a 30 basis point impact, and obviously exchange rates are going to move around. So it's difficult to call how that is in the future. So, if you back those out, we're really 0.4 points below last year; that's primarily product mix, I think you can hang a lot of that on HCV.

We do typically see lower gross margins in Q1 and Q4, and that's all tied to the seasonality of Synagis, which is a very, very low margin product. So that certainly played into that number as well. We feel good about our 81% forecast on the year. I would tell you, you should expect to see a number in Q2 above 81%..

Thanks..

Thanks, Gregg. Operator, we'll take the next question..

Thank you. Our next question is from Geoff Meacham from Barclays. Geoff, your line is open..

Hi, good morning. It's Paul Choi. Thanks for taking our questions.

First on the pipeline with regard to risankizumab, data that's coming out here, can you maybe comment on what other – what sort of metrics you'd be looking for in the psoriasis indication with regard to superiority versus some of the recently launched IL-17 agents that are out there in the market? And secondly, on the Crohn's trials that you're running, with regard to the data that you'll present at DDW, is this something that you think would potentially accelerate the Phase 3 trials that you're planning to start here in the near term? Thanks..

Okay. This is Mike, I'll take those take questions. With respect to the risankizumab data, if we look at the Phase 2b data for risankizumab, it shows the strongest observed results in the category, which would include the IL-17s and the IL-23s.

We had very high PASI 90 response numbers and very high PASI 100s, so complete clearance of skin disease in that program. And there were other features about the data that were very striking. First, we had very good durability response, and there's a very good administration, with the ability to drive quarterly administration in our Phase 3 program.

So basically what we're looking for is a result in Phase 3 that is consistent with those Phase 2 data. The other thing I'd point out, with respect to other agents, is we run active comparators in our Phase 2b, now that's against Stelara not against the IL-17s, but we saw very high PASI 100 rates there.

And as I pointed in out in my prepared remarks, PASI 100 was about 2.5 times higher for risankizumab as compared to Stelara in that Phase 2, and the results of PASI 90 were similar, that there were substantially higher PASI 90 response rates, about double that of Stelara.

So we feel good about the competitive profile and the ability to drive that through Phase 3 and into the market. With respect to Crohn's disease, the data that we've seen are very encouraging. We're moving very fast already.

So I'm not sure if the data at DDW accelerate that, but we're poised to move into Phase 3 and we feel that there's a lot of potential for this pathway in inflammatory bowel diseases as well..

Thanks, Paul. Operator, we'll take the next question..

Thank you. Our next question David Risinger from Morgan Stanley. David, your line is open..

Thanks very much. I have two questions, please. First, I was just hoping that you could frame how much total cash AbbVie had at the end of last year. I'm guessing you don't have your 10-Q out yet. And also, what percentage of that was offshore, so we can better understand how much you would plan to repatriate based upon current cash ex-U.S.

And maybe you can also speak to the opportunity for borrowing ex-U.S. in the event that repatriation is allowed, to bring back more than the cash on your books.

And then second, with respect to Imbruvica, would you please talk a little bit about new indication opportunities over the next few years, the market potential, and the timing of specific e-trial readouts for Imbruvica over the next year or two? Thank you..

Hi, David, it's Bill. So, cash on hand at the end of the year was about $8.2 billion, and as you said, we don't have our 10-Q up, but obviously the number is at least $8.2 billion this quarter, and you'll see that soon.

Look what I would tell you in terms of geographic distribution of cash, obviously under the current tax paradigm, there is a penalty for bringing back cash, back into the United States. So what we try to do is only bring back that cash that is needed to cover our U.S.

cash needs, and that's typically things like interest, the dividend obviously, and then our U.S. operations. To bring back cash above and beyond that is fundamentally inefficient from a tax perspective, so we tend to try to keep our cash, the majority of it, offshore.

In terms of our ability to borrow in the event that there was some type of repatriation, that would be a one-time event. Look, what I would tell you is first of all, as Rick said, we're incredibly encouraged that there is talk now about possibly allowing repatriation of cash in a tax efficient manner.

We think that's absolutely the right thing to do, just not only for AbbVie and the industry, but the country. We would certainly hope that that is on a permanent basis as opposed to a one-time basis.

In the event that it was one-time and without specific limits, we would certainly look to take advantage of that to the greatest extent that we possibly could, and I think borrowing would be in the cards, given that following the closure of that window, we would have the ability to continue to generate robust offshore cash and quickly pay down that debt.

So in the event that it went that way and we were permitted to do that, that is certainly something we would look at. That said, it's a little early right now to know definitively how this is going to play out, but we remain optimistic..

Okay. On your Imbruvica question, David, maybe we'll – Mike and I will sort of try to cover the question. Let me just talk about the opportunity first, and then Mike can talk about the timing of the readouts.

So I'd say before you jump into new indications, one of the things I think to think through is, a big part of our strategy with Imbruvica, and with the Pharmacyclics acquisition when we talked about it, was the need to be able to move up in the first line, and CLL all by itself is a very, very large indication.

And the reason that is so important is because, remember the duration of treatment on Imbruvica is much longer than other therapies now. And the fundamental benefit that patients get from a PFS and an OS standpoint is driven by those patients staying on therapy for long periods of time.

And so, as you move in the front-line, you get your greatest benefit for the patient by doing that, and obviously you get your greatest benefit from a business standpoint by moving up into those first-line patients.

So even within the indications we're in today, driving towards first line, CLL is a very big opportunity, but the other indications moving into first line is a critical priority.

Now, having said that – and I'd say the bulk of our LRP is driven off of that – having said that though, I'd say then if you look at two – three other large categories, they have different risks associated with them from a probability of success.

But NHL, I'd say we have a significant amount of data, but NHL as a category is a very significant opportunity for us, and Mike can talk about the different trials that are in that particular area to support our efforts there.

Relapsed/refractory multiple myeloma patients I think is another significant opportunity for us, just because of the size of that patient population. And those will all play out over the course of this LRP from the standpoint of timing of those trials and readouts of those trials and potential regulatory approvals in those areas.

And then I'd say a very high risk, but obviously high reward if it were to play out, is the pancreatic study. That is one that we've heavily risk-adjusted, and so it's not something that we're counting on, certainly isn't something that investors should be counting on at this point.

But if it were to play out in a positive way, obviously that would be a very big opportunity. So those, as we look forward, I think are the most significant opportunities to describe..

And this is Mike. So with respect to the framework that Rick laid out, we have a number of opportunities to move forward in lines of therapy.

And one that we would expect to see data on later this year is mantle cell lymphoma, an aggressive form of non-Hodgkin lymphoma, where we're anticipating interim data from a pivotal study in front-line, which would be an important step towards moving to front-line therapy there.

In mantle cell, we also have combination work ongoing with Venclexta, and that combination has shown very strong results. And so those data would continue to mature over the course of the timeframe that you described.

We're also going to see data in other forms of non-Hodgkin lymphoma over the course of the next 18 or 24 months, including data in diffuse large B-cell lymphoma, where we've seen good results in patients who have the ABC or activated B-cell phenotype of that disease, and also additional work in follicular lymphoma, which is the largest form of indolent non-Hodgkin lymphoma.

Outside of NHL, we're making good progress with GVHD. As I mentioned in my prepared remarks, we have the initial submission in but we have ongoing data generation in GVHD. So all of those data will mature over the course of the timeframe that you described.

And then, at the back end of that two-year period, we'll start to see more data on multiple myeloma and other opportunities as well..

Great. Thanks very much..

Thanks, David. Operator, we'll take the next question..

Thank you. Next question is from John Boris from SunTrust. John, your line is open..

Thanks for taking the questions.

Just on the – circling back to capital allocation on share repo, can you just give some transparency on what you purchased in the quarter and your thoughts about additional repurchases going forward, especially related to your comments earlier? And then the second question just has to do with the line extension behind Humira.

I believe you launched a lower – low-concentration, less burning formulation in the EU.

What's your planning and timing for launch of that in the U.S.? Any thoughts around the appetite for formulary uptake in the U.S.? Also your ability to do direct-to-consumer advertising? And lastly, just on how Roche's launch in the MS space and Lilly's launch into the diabetes space, that price discounts played a role, at least in terms of gaining access to formulary there.

So, appreciate you taking the question..

So, John. It's Bill. On share buyback in the quarter, we bought back $500 million of shares. When you see our 10-Q you're going to see a higher number. We were also buying at the end of the year. About $300 million carried over between the years. So in the 10-Q it'll look like $800 million, but actually this year we bought back $500 million.

It's not our intent at this point to buy back significantly more. That said, as I said earlier, to the extent that we find ourselves with an excess of U.S. cash, we do from time to time deploy that in the market and buy back shares, given that we've already incurred the tax inefficiency of bringing it back home, and we did do some of that last year.

So yeah, some of this will wind up looking – we'll have to look to see what our U.S. cash balance looks like as we progress through the year. But right now, I think $500 million is all we have in our current sights..

And then, as it relates to the new formulation, we have rolled out a new formulation outside the U.S. in a number of countries. We essentially have a country-by-country framework that we've laid out, of rolling that out.

With a brand of the magnitude of Humira, obviously, we're being careful about how we roll that out to make sure there's no market disruptions. And in fact, because it is a new formulation, we have to change the footprint of our manufacturing to be able to deal with it, because it's a different manufacturing process for the API.

And so we have to basically – it's like changing the engine on a 747 while you're still flying at 40,000 feet. We're being careful about how we're doing that, as we flex the manufacturing capacity that we have to make the shift over.

And so over time we would anticipate that that formulation will be in all the major markets around the world, but it will take some time in order for that to happen. Your question on DTC, I'm not sure I quite understand. I mean, we obviously have an active DTC campaign now for Humira.

We wouldn't anticipate a change in that as it relates to the new formulation, if that's what you were referring to. It's not that kind of a strategy that we've built here, although there is a benefit for patients from the standpoint of pain upon injection, but that's not part of the strategy that we built in place.

And then as it relates to the launches of Roche and Lilly, I think every single market has a different set of dynamics. I'm certainly not an expert when it comes to diabetes, so I'm not going to speculate on what the right strategy is there.

I would tell you in the markets that Humira competes in, essentially we've had many competitors come at a low list-price strategy, and that hasn't necessarily been as ineffective, because you have to remember that list price in this market is not reflective of what the actual patient or the individual employer pays for the drug.

And so at the end of the day, that strategy doesn't seem to work well in this market, especially in a brand like Humira that has the attributes that Humira has. It can serve broadly a significant part of the patient population, both within a category and across multiple categories.

It's really the strength of this brand and the clinical efficacy and safety of this brand that has driven its performance..

So, Rick....

Thanks, John..

Okay..

Go ahead..

Yeah.

Just on direct-to-consumer, will you be able to make a claim on TV that it's less painful and causes less burning?.

I don't believe so, but regardless of whether we could or we couldn't, it's not our strategy to do that..

Okay. Thanks..

Thanks, John. Obviously we're cognizant that there are a number of peer companies reporting today, so we've got time for just one more question. Operator, we'll take the last question..

Thank you. Our last question is from Vamil Divan from Credit Suisse. Vamil, your line is open..

Yeah, hi. Thanks so much for taking the question and squeezing me in here.

So just two if I could quickly, one on veliparib, you mentioned obviously the news from the two trials, it's obviously not a key growth driver in the near-term, but just if you can just talk about what you see as the future role for that asset, and why is – why you're still continuing to develop it in the trials that are still ongoing? And then if you can just provide a little more color in terms of the impact you're seeing on biosimilars to Humira outside of the U.S., both in terms of the infused product and the injectables, that'd be helpful.

Thanks so much..

Okay. So maybe I'll cover the second question first. Because I'd say the trend outside the U.S. on biosimilars is very similar to what we've seen, relatively low overall market share, discounting that's within the range of what we predicted historically or slightly lower – slightly less discounting than what we had predicted.

And so we've essentially seen the indirect competition pretty much stabilize out in these marketplaces. There has been some impact on price in certain markets outside the U.S., but that has pretty much played through at this point.

And so I don't expect any significant changes in the activity in the rest of 2017, from a biosimilars standpoint, outside of the U.S..

So with respect Veliparib, as we've said on other occasions, we were exploring a different hypothesis with Veliparib. We know that Veliparib – or we know that PARP inhibitors play a role in treating patients with inherited mutations in DNA repair, germline BRCA mutation and similar mutations.

But we didn't view it as a substantial opportunity for a company like AbbVie to come third or fourth to market in that population. Essentially, the medical need was met for those patients.

So we were testing a different hypothesis, and that hypothesis specifically was whether PARP inhibition would augment DNA-damaging chemotherapy; that the first hit, if you will, didn't have to be genetic, that it could from that DNA-damaging chemotherapy.

We've now seen across a couple of studies that that hasn't played out in the way we had initially envisioned. We see that in the triple-negative breast cancer neoadjuvant study and in the squamous non-small cell lung cancer study.

And so, while that's not the result we had hoped for, we knew going in that this was a higher-risk, higher-reward sort of approach, and that the evidence while reasonable, from a preclinical and early clinical perspective, isn't entirely predictive in this setting. And so we knew that it was going to take Phase 3 data to answer the question.

We've seen the first two readouts, and those studies did not meet their primary endpoint. With respect to ongoing work, we have ongoing studies, some of which will read out very soon. So we can't speculate about what those results might be, but we will complete the ongoing studies and update you on the progress as soon as possible..

Okay. Thank you..

Thanks, Vamil..

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

That concludes today's conference. Thank you for your participation. You may now disconnect..