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

Good morning and thanks for joining us. Also on the call with me today are Rick Gonzalez, Chairman of the Board and Chief Executive Officer; Michael Severino, 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 would like to remind you that some statements we make today are or may be considered forward-looking statements for the 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 now with that, I'll now turn the call over to Rick.

Thank you, Liz. Good morning, everyone, and thank you for joining us. This morning, I'll briefly discuss our fourth quarter performance and 2017 highlights. Mike will then provide an update on recent advancements across our R&D pipeline, and Bill will discuss the quarter and our 2018 guidance in more detail. As always, following our remarks, we will take your questions. We delivered another impressive quarter and year with results ahead of our expectations. Our adjusted earnings per share in the fourth quarter were $1.48 representing growth of more than 23% versus the fourth quarter of 2016. Our quarterly results also included strong topline performance with global operational sales growth of more than 12%. We continue to see strong momentum from our business with three major drivers contributing to our growth; HUMIRA, IMBRUVICA, and MAVYRET. Since our inception as a public company five years ago, AbbVie has demonstrated an exceptional track record of consistently delivering top-tier financial performance. In 2017 was another clear example of that performance. We continue to drive strong commercial and operational execution resulting in full-year 2017 global operational sales growth of 10% and adjusted earnings per share growth of 16%. We have also made tremendous progress advancing our pipeline with impressive data from several assets that are poised to fuel our growth in the years to come. HUMIRA continues to deliver outstanding performance with global operational growth of more than 14% for the full-year 2017. This performance was driven by continued robust market demand despite the introduction of new mechanisms of action and competition from indirect biosimilars. We continued to see strong momentum with HUMIRA in the fourth quarter. U.S. growth was more than 15% versus the prior year. IMBRUVICA also delivered strong momentum and growth with full-year 2017 sales approaching $2.6 billion, an increase of 41%…

Thank you, Rick. Today, I'll highlight recent pipeline updates and discuss some of the milestones we anticipate for the year ahead. 2017 was a very productive year with a dozen pivotal trial readouts, several regulatory submissions and approvals, and several important phase transitions across our key programs. And we expect 2018 to be another catalyst rich year. In immunology, we continue to make great progress with our late-stage assets, risankizumab and upadacitinib, as well as with our early immunology pipeline. We are nearing completion of the registrational program for risankizumab and for upadacitinib and their lead indications psoriasis and RA respectively. Last month, we reported the topline results from the fourth and final Phase III study in the pivotal program evaluating risankizumab in psoriasis. In this study, the enhanced trial 73% of risankizumab patients achieved PASI 90 and nearly half achieved PASI 100 compared to just 2% and 1% of patients on placebo at the PASI 90 and PASI 100 levels respectively. And consistent with the previous Phase III results, we saw very durable rates of skin clearance. We are pleased with the strong Phase III results we have reported across all four pivotal trials and we look forward to submitting our regulatory application in the first half of this year. Based on the data we've generated to date, we believe risankizumab has the potential to significantly improve upon current treatment options for both bio-naive and TNF and adequate responder patients with moderate to severe psoriasis by offering unmatched levels of efficacy and durable effect with the convenience of quarterly dosing. Beyond psoriasis, risankizumab is also in mid to late stage development for several other indications, including Crohn's disease, ulcerative colitis, and psoriatic arthritis. We recently initiated, Phase III studies in Crohn's disease and expect to begin registrational studies later…

Thanks, Mike. Today, I'll review the highlights of our performance for the fourth quarter and full-year 2017 and provide an overview of our 2018 outlook. I will also walk through the impact of U.S. tax reform on our results as well as our expectations for the tax rate going forward. As Rick mentioned, we had another year of outstanding performance in 2017, generating top and bottom line growth that ranks AbbVie among the very top of our industry peers. We reported adjusted earnings per share of $5.60, up more than 16% compared to 2016 and ahead of our expectations for the year. For the full-year, net revenues were $28.2 billion, up 10.1% on an operational basis, excluding a modest favorable impact from foreign exchange. For the fourth quarter, total adjusted net revenues were $7.7 billion, an increase of 12.6% on an operational basis, excluding a 1.5% favorable impact from foreign exchange. Fourth quarter global sales of HUMIRA were $4.9 billion, up 12.3% operationally driven by strong demand. HUMIRA sales in the U.S. were up 15.1% year-over-year reflecting volume of approximately 10% plus price. International HUMIRA sales were $1.6 billion in the quarter, an increase of 6.5% operationally or 11.7% on a reported basis. Sales growth in the quarter benefited from the timing of tenders in select markets which contributed approximately 2.5% to the growth rate. Global HUMIRA sales for the full-year 2017 were $18.4 billion reflecting operational sales growth of 14.4%. HUMIRA remains the undisputed market leader across the broadest range of therapeutic indications, reflecting its strong position with physicians, unique product profile, and strong commercial execution. Global IMBRUVICA net revenues were $708 million in the quarter, up 39% compared with the same period a year ago. Full-year IMBRUVICA sales were $2.6 billion, driven by continued uptake in the front-line…

Thanks Bill. We will now open the call for question. Operator, well take the first question please.

Thank you. [Operator Instructions] Our first question today is from Jami Rubin from Goldman Sachs.

Thank you. And I do normally say, congratulations Rick and team on spectacular performance. I want to talk about – ask about you're sitting on a pile of cash that's just going to continue to grow and even more or so with your lower tax rate, you talked about wanting to return that cash to shareholders, and one of those forms is through an increased dividend. Going back it seems that your current dividend payout is about 42% has come down as your earnings has grown, it has been as high as 50%. Would you be comfortable returning to a 50% dividend payout range over time? I know you said that the announcement will be forthcoming, but if you could give us some color as to how you're thinking about that? And then secondly at the same time, given that your stock has completely related that gives you additional strategic options that maybe you didn't have before when you were trading at a significant discount. Can you talk about your desire to use cash to acquire assets that might give you best-in-class growth post 2022? How are you thinking about M&A? I think that you have said thus far that you don't need it by anything big now, you've got a lot of growth obviously, but beyond 2022, 2023 when biosimilar has entered the U.S. market that that sort of changes? So anyway those are my questions. Thanks.

Jami, this is Rick. So first thank you for the complement, we're certainly pleased with how the business has been performing as well. But I think if you look at our business, we're on fortunate position on two perspectives, and I’ll talk specifically about cash and how we think about capital deployment as well. But we have a business to generate a tremendous amount of cash flow as you have highlighted and we have a business that is performing at a very high level and is capable of driving strong organic growth for the foreseeable future. So as we look at capital deployment, I can tell you our philosophy is always that the first priority for us is continuing to invest back in the business in order to make sure that we can drive long-term sustainable top-tier growth. That's the commitment that we’ve made to investors, the commitment that we've made to the organization. And so we are always looking at what we can do to be able to do that. Now if you look at our late-stage pipeline, we clearly have confidence that we can do that, but we are constantly looking at what is out there that fits our strategy both within the franchises that we operate in as well as we have a program internally, we call new horizons, where we look at other verticals that might fit what we’re good at. I would say our primary focus is looking for opportunities that can drive strong growth in that 2023, 2024, 2025 time frame that's we feel confident that we can drive growth with our late-stage pipeline ahead of that. So we're constantly looking for assets in that time frame that could help further accelerate our growth in that window. And we're looking at both early-stage assets…

Thanks very much.

Thanks Jami. Operator, we will take the next question please.

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

Thanks very much. And just first recounting it, while congratulations as well deserved and really nice move on the [indiscernible], particularly into Puerto Rico. So just thanks for that. First question for you, on 2018 outlook, I mean obviously this does not as I understand include any impact from share repurchases, you got tremendous momentum on your earnings I think that needs to be pushed through here. So your thoughts around accelerated share repurchase. This is something more of a progressive program, I wonder if you can comment around that because it would just seem that timing would be in your favor to do something on accelerated basis? Second, really any thoughts here on the long-term guide, it's clear it's not just tax, the underlying fundamentals keep improving as well. Is it fair to say that there's potential headroom particularly on margins and revenue for your longer term guidance when you recently put out. And then just that – just because I still get a lot of pushback on it, I wonder if you might let – care to express a level of confidence around ability to file and launch Rova-T this year, any reason why it shouldn't be 100%? Thank you.

Okay. So I'll take most of those and may have Mike chime in on that, on the third one, the Rova-T one, but I will give you some color on that as well. So if I look at 2018, what we have built in is a typical level of share repurchase that we normally have, so we have not built in the incremental share repurchase that we would do. And I would say, we're not at a point right now were we will make a decision as to whether or not it would be an accelerated kind of an approach or would be more typical of how we buyback shares on more of a ratable consistent basis. And that's something I'd prefer to wait until after our board meeting is done to describe to you, but we will have some commentary after that. On the long-term guidance fundamentals, I mean clearly when you look at our business, our business added space fundamentals excluding the positive impact that we've seen from tax reform is very strong. And what we have projected on our long-term guidance, I think is certainly in the top tier of our peer group. I would say our fundamentals continue to improve. The point I made in my comments, I mean we are on the front end of what would be tremendous growth for AbbVie. I think MAVYRET is a good example of the kinds of products that we're bringing to the marketplace and the impact that they can have on patients most importantly, but the impact that they can have financially on the business. And those two in our business, the nice thing about it is they tend to go hand in hand when you bring products that truly make an impact on patients lives, the financial rewards tend to follow. So we feel good about the fundamentals and I'm not going to give you a new numbers, but I would tell you, I sleep well at night knowing how we're performing and where we're going in the future. So I think that probably gives us some feel for it. Our confidence on Rova-T has not changed. I mean we went into the Stemcentrx acquisition with a level of enthusiasm around the Stemcentrx platform. But we have to see what the data looks like and we have to have interactions with the regulatory authorities, and so I would say nothing has changed. But I don't know that we can predict more than that. Mike, is there anything you want to add?

No, I think you covered it, Rick. Certainly there's a huge unmet medical need and the data that we've shown publicly with Rova-T from the early-stage studies show clear activity. So our plans remain unchanged for making good progress with the TRINITY study in third-line or greater. We'll see those data in the second quarter and we will progression there, and our plan remains to file following those data, and the remainder of the program continues to progress as well. Phase III randomized studies in earlier lines of therapy, the I-O combo studies we're doing in partnership with BMS and the BASKET study in particular.

Thanks very much guys.

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

Thank you. Our next question is from Steve Scala from Cowen.

Thank you so much. I have two questions. First Bill, you said the tax rate post 2018 would increase gradually to 13%. Can you provide some perspective as to the pace of the increase from the 9% that you're guiding to in 2018? And then on ABT-494, the SELECT-COMPARE trial had a primary completion in October of 2017. It's an important trial given that it's the largest of the SELECT trials. Can you say anything on the safety profile that you've seen in SELECT-COMPARE? Thank you very much.

Steve, this is Bill. I think you should just model that pretty much a straight line linear. It really does not impact any one-year more than others. So for modeling purposes, I just pretty much straight line it linearly.

Thank you.

And so with respect to SELECT-COMPARE, that study remains blinded. I think what might be causing some confusion about an October 2017 data is that study has two components, traditional response based on ACR and DAS measures, and then a longer term structural component of that program, looking for innovation of structural progression, and the study remains blinded until that structural component is complete. And so those data will be coming in the first half of this year and that's when we would unblind the study and that's when we would talk about the safety profile of that study in individual. Overall across the program, we continue to feel good about the safety profile we've observed. We see a profile that's very consistent with our expectations both for this molecule and for a molecule that we treat, the sorts of diseases where upadacitinib is being developed.

Thank you.

Thanks Steve. Operator, next question please.

Thank you. Our next question is from Chris Schott from JPMorgan.

Great, thanks very much. Just two questions on HUMIRA, maybe the first, a U.S. specific question, help us understand a little bit of the volume versus price components as we think about your 2018 outlook. I guess specifically we're hearing from some your competitors it seems like the dermatology market might be an area that's a bit more competitive on the pricing front in 2018. Actually, just any comments on dynamics there? My second question was HUMIRA on the international side. I think you mentioned in the comments you are making some proactive actions ahead of biosimilars competition. I wish you could say a little bit what you're doing there and more broadly just updated thoughts about how you see managing the HUMIRA franchise as we think about biosimilars entering the market later this year? Thanks so much.

Okay, thanks Chris. This is Rick. I think I'll answer the HUMIRA question maybe a bit more broadly because I think every single quarter, as some competitor has a hiccup or claims some level of victory, we have nervousness investors as it relates to HUMIRA. And look I can understand why it's obviously a flagship product of our Company. But I think it would be helpful to maybe more broadly layout for you how we see HUMIRA in the U.S., and then Bill can answer the specifics around volume and price. Certainly it’s a volume driven business primarily, but Bill can give you more specifics around that. So if you step back and if you look at what are the key parameters that you want to understand of the performance of HUMIRA and the longer-term performance of the brand and its ability to be able to continue to grow. This is a brand, if you look at the last three or four years, it has grown dramatically. The percent growth rate has come down somewhat as the brand has grown, but if you look at the absolute dollar growth, it's been fairly consistent and extremely healthy. So it starts with what is your position in managed care. And I would say we're now done with all of our negotiations in 2018. Our position is the same. We maintain a very, very strong managed care position in the United States. The pricing hasn't fundamentally changed for the brand, so there's not any dramatic moves one way or another from that perspective. You look at the overall growth we're projecting. What Bill had described and you can see 2017, 15% growth, and then what we're describing for 2018. The markets themselves – these are big markets, but they're very attractive markets from…

Chris, on price volume, as I said in my comments for the quarter, the 15% growth, I think you just think of 10% volume, the remainder being priced. As you look at 2018, where we got a projection of 13% to 14% growth in the U.S. year-over-year that we still expect that mid single-digit price range to stick, which would then imply a volume of high single-digits.

Thank you so much for all the color.

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

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

Good morning, guys, and thanks for the question. Just had a few products specific ones. On the hep C front, outside the U.S., I may have missed it, but was there stocking for MAVYRET? And are there any getting factors for getting full reimbursement across Europe and Japan, and then how do you guys think about price U.S. versus OUS? Is it different today versus how you think initially with VIEKIRA? And then for Mike, on upadacitinib and atopic dermatitis, I want to just get a sense from you about the scope of the Phase III. I'm curious whether the breakthrough designation really alters at all your thinking in terms of design like for example our shorter duration study things like that? Thanks guys.

Yes, so I'll take the HCV question. There was no stocking for MAVYRET inside the U.S. or outside the U.S. As far as price OUS, price outside the United States is basically negotiated country-by-country. It's done usually against some benchmark. And how you compare against that benchmark and so each country is different. We have gotten reimbursement in many of the larger European countries and we've done quite well. So Germany is an example. We have the number one position in Germany. We have the number one position in Spain. We won the tender in the UK. We have the number one position now in Italy. We have launched in Japan. So Japan has approval and we are ramping rapidly in Japan. The one large country that we have not gotten reimbursement yet is France. That is forthcoming. But I'd say the bulk of the countries were in the process or either have reimbursement and have launched or in the process of getting reimbursement and we'll launch once we have that reimbursement.

Okay, this is Mike. With respect to upadacitinib and atopic dermatitis, we feel very good about those data. And we think that the Breakthrough Therapy Designation reflects clearly the degree of activity that we've shown today and so we are currently actively designing that Phase III program. The Breakthrough Therapy Designation program has in our mind has been very successful and is very helpful because what it gives you is a lot of direct interaction with the FDA, including very senior members of the FDA that you wouldn't typically have access to at the current stage of development program. So we're having those conversations now. I think it is very reasonable to assume that those conversations are going to inform, the Phase III program for upadacitinib in atopic dermatitis. That is very helpful to us in designing the program that will lead to registration in the U.S. Of course, we are also going to design a program that leads to registration in other jurisdictions around the world and all that work is currently underway. So we'll start those studies as we said in the first half of this year and as we get a little bit closer to study start, we'll be able to talk to you a bit more about what that program is going to look like.

Okay, thanks.

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

Thank you. Our next question is from Geoff Porges from Leerink.

Thank you very much, and again, congratulations on the results. So a few quick questions, first on HCV, your competitors suggested that they expect the U.S. market to stabilize sometime in the middle of the year both in terms of volume and also in terms of the price or the treatment cost for patient, wondering if that’s your expectation and what you're seeing. Secondly on VENCLEXTA, could you give us any indication of what the path might be to first-line, is obviously is very encouraging data for VENCLEXTA in combination with IMBRUVICA in CLL and wondering if it's feasible that you might do a first-line study. And then lastly, Bill if you just talk a little bit about leverage and that’s naturally de-levering the company, and of course, you’ve got all of this cash flow. So how are you thinking about how you might alter the leverage of the company in the future and does that affect your appetite for M&A? Thanks.

Okay. So I’ll take HCV, and then Mike can take the second, and Bill can take the third. So HCV, if we look at the market in the U.S., looking at the two parameters we are describing, one is treatment volumes. We continue to see treatment volumes ebb and flow a bit, but I'd say generally we are assuming treatment volumes tail off a bit. We saw some of that over the holidays. It's a little difficult to predict whether or not it was more holiday driven, but I’d say it's down 5% to 8% from where it was prior. And this has been something that has moved around a little bit over time. I would agree that it is our expectation that the volume should stabilize going forward. But I'd also say that there could be some single-digit kind of pressure, downward pressure. We obviously priced the product where we described it in the public channel market at the level that the current pricing was and we have maintained that pricing going forward. We have been seeking parity contracts – non-exclusive contracts with the payers. And therefore, pricing has not been a big issue for us. So I would expect and hope price stability going forward.

Great.

Regarding the question with respect to VENCLEXTA and past to front-line. So we have actually two studies already underway in the front-line setting. One in the younger, more fit patient population, one in an older patient population with more comorbid illnesses on average. Those studies all look at combinations, combinations with CD20s like GAZYVA or RITUXAN. And there are, in some of those studies, VENCLEXTA and IMBRUVICA combination arms as well. So we're exploring multiple combinations in the front-line already.

And Geoff on the balance sheet, look we are pretty comfortable with our balance sheet, right now we've got as Rick said robust cash flow. We're blessed with a LRP that has very, very robust growth on the topline and obviously the bottom line. So we will have a natural deleveraging just by virtue of the fact that the business is growing very rapidly. Therefore, our number one priority would not be to take down the absolute amount of leverage we have. You may see us as we have a maturity, take that maturity out obviously to the extent that it's wise to do, but our number one priority would not be to take the overall leverage down. We think we have adequate capacity to pursue any M&A of the magnitude that we'd be looking at in the near-term. And as Rick said, our cash balances are going to grow pretty fast on top of that, so I think we're in pretty good shape from a balance sheet standpoint.

All right. Operator, we will take the next question please.

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

Hey, good morning, and thanks for taking my question. First question just on the tax guidance out the five years, just curious is it sort of – the only reason you gave out the five years, it’s hard to know what will happen in five years time or should we read into anything with regards to your portfolio composition changing in HUMIRA in five years time, potentially changing as a proportion of your profit mix? And then my second question on VENCLEXTA, can you just give us a little color on how you'd envision in the relapsed/refractory setting the pace of reaching peak market share. I know I think in the last quarterly update, I think IMBRUVICA had about 70% of the second-line setting, so just sort of can you walk through the mechanics and the timeframe you anticipate getting the peak penetration in the relapsed/refractory setting? Thanks.

Sure. So the purpose of giving some long range guidance on that tax rate. Look, I think it was important for us to put out the right rate for you guys to model from a non-GAAP perspective on tax. That for 2018 is that approximately the 9% number we gave. That said, our business mix will change over the coming years most notably with products driving increased U.S. revenue and income. I think you should look at products like IMBRUVICA, VENCLEXTA et cetera. And that will have the impact of taking the rate up. And that's why I say gradually as those businesses grow, it will have an impact of lifting the tax rate?

Okay. On VENCLEXTA, I think what you’re describing is an important phenomenon. So IMBRUVICA does have roughly about 70% of the treated population in relapsed/refractory today. We would not expect the patients will be – well maintained patients will be taken off of IMBRUVICA. So as those patients were to fail or progress then they would be given other treatment options and we would expect based on the data that VENCLEXTA will get a significant piece of that business and of that patient population. So by definition it means that it will be a bit more gradual as it grows because there'll be this trade-off between IMBRUVICA's current position. Obviously, roughly 30% of those patients that are on some other kind of treatment today. There are some of those patients that are on treatment at all, which aren’t represented in that number. Some of those will progress. So it's a mix of all those things. But I would expect VENCLEXTA will ramp based on the available population within that population will ramp within that fairly quickly, but then over time it will be the progression of those patients going forward that become available.

Got it. Thank you.

Thanks, Jason. Operator, we have time for one more question. Thank you.

Thank you. Our final question today is from Gregg Gilbert from Deutsche Bank.

Thanks. Bill, back on tax this year, the non-GAAP rate for this year and up through the 13% rate, will the cash rate approximate those levels as well? And secondly, Rick I know you're not changing long-term guidance, but conceptually would it be fair to assume that the tax benefits that you now know about sort of flow through fully or would you reassess sort of reinvestment rates, and Mike lastly anything new on what's next for 414? Thanks.

Yes. So I think from a business perspective over that five-year period you should think of the cash rate looking very similar to that rate. Obviously, the one discrepancy or exception to that would be the fact that we will be paying off our $4.5 billion payable over eight years and some of that’s backend loaded and given that we've taken that charge at 2017. The cash flow will be hitting in the next five years, so that’s one area that would be a little different. But other than that over the five-year period [indiscernible] pretty close.

Yes. On the long-term guidance and the tax benefit, obviously we would expect the tax benefit to be able to flow through over time. Now there's an interrelationship between what you would do from an M&A standpoint. So if you were to acquire something, that had a significant R&D burn going forward just like we did as an example with Stemcentrx and risankizumab, obviously you would dial in those R&D expenses. But I would say generally speaking, you should view the tax benefit as an incremental benefit that we flow through.

And with respect to 414, that's our antibody drug conjugate in glioblastoma multiforme, so primary brain cancer. That's in our front-line study right now. That study has overall survival as a primary endpoint. So we would be sufficient to support approval, obviously based on the results. That study is an event driven trial. So we can't predict the exact time when that would read out, but we'd expect to have more information from that front-line study sometime next year. End of Q&A

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

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