Good morning. Welcome to the AbbVie third quarter 2018 earnings conference call. All participants will be able to listen only until the question-and-answer portion of this call. 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 and Development and Chief Scientific Officer; Bill Chase, Executive Vice President of Finance and Administration; and Rob Michael, Senior Vice President and Chief Financial Officer. Before we get started, I would like to remind you that statements we make today are or may be considered forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Additional information about the factors that may affect AbbVie's operations is included in our 2017 Annual Report on Form 10-K and in our other SEC filings. AbbVie undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand AbbVie's ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today which can be found on our website. Following our prepared remarks we'll take your questions. So with that I'll now turn the call over to Rick.

Thank you, Liz. Good morning, everyone, and thank you for joining us today. I'll discuss our third quarter performance, our full-year 2018 guidance, and I'll provide some comments about our expectations for 2019. Mike will then provide an update on recent advancements across our R&D pipeline and Bill will discuss the quarter in more detail. Following our remarks, as usual, we will take your questions. We delivered another quarter of outstanding performance with results once again ahead of our expectations. We've driven strong commercial, operational, and R&D execution resulting in industry-leading top and bottom line growth. Adjusted earnings per share were $2.14, representing growth of more than 50% versus last year. Total adjusted operational sales growth of 18.5% was driven by a number of products in our portfolio including HUMIRA with global operational sales growth of nearly 10% and IMBRUVICA which grew more than 40% versus the prior year. HCV was a substantial contributor in the quarter with more than $860 million in sales, and we also saw strong performance from several other products including VENCLEXTA, CREON, DUODOPA and LUPON. Based on the continued strength of our business in the quarter and our progress year to date, we are raising our 2018 earnings guidance for the fourth time this year. We now expect full-year 2018 adjusted earnings per share of $7.90 to $7.92, reflecting growth of more than 41% at the midpoint. This represents exceptional earnings growth and puts us at the very top of our industry peer group. And while 2018 certainly sets a very high bar for performance, we expect strong earnings growth once again next year. Although it's too early to provide specific growth targets for 2019 as we're still in the midst of our annual planning process, based on our strong underlying business momentum, we are…

Thank you, Rick. This morning I'll highlight noteworthy pipeline updates from the quarter and discuss several of the key milestones we anticipate over the next 12 months. I'll start with oncology where we're making very good progress advancing our programs for IMBRUVICA and VENCLEXTA. As Rick mentioned, these two therapies have the potential to transform the treatment of CLL and other hematological malignancies by providing chemotherapy-free options that deliver better long-term disease control and improved outcomes for patients. IMBRUVICA has already changed the treatment paradigm in relapsed/refractory CLL and we're making significant progress in the front line setting. The current IMBRUVICA label in front line CLL is based on strong data from the RESONATE 2 study which evaluated IMBRUVICA versus chlorambucil in older CLL patients. We have several ongoing studies evaluating IMBRUVICA alone and in combination in additional patient populations and versus more widely used comparators. Our program includes studies in young and fit patients where we are evaluating IMBRUVICA versus regimens such as FCR, BR, and GAZYVA chlorambucil, often thought of as the gold standards in CLL treatment. We are also conducting studies in patients in the watch and wait population who are at increased risk of depression. Data from two important studies in our front line CLL program the iLLUMINATE study and the Alliance study will be presented at the upcoming ASH meeting. In the iLLUMINATE study, we evaluated IMBRUVICA plus GAZYVA compared to a combination of GAZYVA and chlorambucil or GC. In June, we reported that the IMBRUVICA arm in this study demonstrated significantly longer progression-free survival compared to GC. Based on these results in the third quarter, the FDA accepted our regulatory application for IMBRUVICA in combination with GAZYVA for first line treatment of CLL. At ASH, the Alliance Cooperative Group will be presenting results from…

Thanks, Mike. We are very pleased with our strong third quarter results. Total adjusted net revenues were $8.2 billion, up 18.5% operationally excluding a 70 basis point unfavorable impact from foreign exchange. We reported adjusted earnings per share of $2.14, up 51.8% compared to the third quarter of 2017. Adjusted EPS exceeded the midpoint of our prior guidance range by $0.13 due to favorable sales and operating margin profile dynamics. HUMIRA global sales were $5.1 billion in the quarter, up nearly 10% operationally. In the U.S., HUMIRA sales increased 12.5% compared to the prior year, with more than half driven by underlying volume growth plus a mid-single digit price contribution. The growth rate in the quarter also reflected a modest stocking benefit from the launch of our new citrate-free formulation. Wholesaler inventory levels remained roughly half a month in the quarter. International HUMIRA sales approached $1.6 billion in the quarter, up 4.2% on an operational basis and in line with our prior guidance. In oncology, global sales of heme products were nearly $1.1 billion in the third quarter led by the continued strong growth of both IMBRUVICA and VENCLEXTA. In the quarter, IMBRUVICA net revenues were $972 million, increasing more than 40% versus the prior year, primarily driven by market share gains across all lines of therapy in CLL. Venclexta revenues were $96 million in the quarter driven by uptake in the second-line plus setting as a result of our recent approval in the broad relapsed/refractory CLL segment. Global HCV sales in the quarter were $862 million. MAVYRET continues to perform very well, holding roughly 50% market share globally. As expected, we saw sequentially lower sales internationally as a result of fewer warehoused patients in certain markets. We also saw double-digit operational sales growth in both DUODOPA and CREON. Turning…

Thank you, Bill. Before we open the call for questions I wanted to say a few words about Bill so this is the part where I'm going to embarrass Bill. I guess you won't be able to tell that because you can't see him but Bill, as you know, recently announced his intention to retire in the summer of 2019. I can tell you that Bill has been my partner since we launched AbbVie, and he has played a very significant role in the tremendous success that we have been able to deliver. I've known Bill and worked with Bill in some form or fashion at least 25 years. Between Abbott and AbbVie, Bill has had a tremendous 30-year career. I can tell you that personally I will miss Bill when he retires. I told him the story about me flunking retirement, that didn't seem to faze him very much. But in all seriousness, I know that Bill and his family are extremely excited about moving to Europe next summer and starting this new chapter in their lives. So I can tell you that all of us here at AbbVie wish him and his family all the best, and I know he'll do extremely well and he's extremely excited about this move. As I mentioned, Bill will be with us until the middle of next year, so many of you will have an opportunity to congratulate him personally prior to his departure. With that, I'll turn the call back over to Liz.

Thanks, Rick. We'll now open the call for questions. Operator, first question, please.

Thank you. Our first question is from Steve Scala from Cohen. Steve Scala - Cowen & Co. LLC: Thank you, and congratulations on a phenomenal performance. AbbVie is a couple weeks into direct international biosimilar competition. What have you been seeing so far? And how does that feed into your thoughts for the year? And what will be the major pushes and pulls in 2019? AbbVie will have international HUMIRA headwinds but offset by a promising group of new products. And it does appear that AbbVie is expecting a strong contribution from new products next year to blunt the headwinds to some extent. Thank you.

Steve, this is Rick. Thanks for the question. Let me start with international biosimilars. I know there's a lot of interest, so I'm going to go through it in a little bit of detail. Now having said that, I think as most of you probably know, the healthcare systems internationally are somewhat heterogeneous, so it's not like you can explain one system and explain exactly how biosimilar competition will work across all of the marketplaces. But I think I can give you a pretty good feel for what we're seeing out there and how we dialed that impact in. We're only two weeks or so into the launch. Four biosimilars launched basically simultaneously: Amgen, Sandoz, Biogen Samsung and Mylan. I'd say that we have now seen pricing in every single market, so we have an idea of what pricing looks like in every single market. Doesn't mean it's stabilized in every single market yet, and I'll describe for you what that looks like in some level of detail here. The discounting has been on the higher end of the planning scenarios that we had laid out. It's still within the planning scenarios that we had laid out but a little bit on the higher end of that and on the higher end of the relevant analogs. And what I mean by that is we use REMICADE and ENBREL biosimilars as the analogs that we have planned against. We've seen discounting at ranges from as low as 10% to as high as around 80%. The higher discounting is seen in the Nordic tender countries. These are markets where it's winner takes all across the entire TMF category, so includes REMICADE and ENBREL as well. They have a policy of non-medical switching. I'd say they're a bit of an unusual market from…

Thanks, Steve.

The next question is from Jason Gerberry from Bank of America.

Good morning. Thanks for taking my questions and congrats to Bill on retirement. Best of luck in Europe, and it's been a pleasure. Just to follow up, Rick, on the biosimilar erosion commentary on ex-U.S., is that 26% to 27% blended across Europe and ROW markets which may not be impacted or may even be growing? I'm just trying to understand as we think about the impact on 2019, because I know that I think Canada – I don't think we expect biosimilars in Japan, and Brazil may not be impacted. So could you just provide some clarity there? And then on U.S. HUMIRA, your confidence and ability to continue to capture mid-single-digit pricing benefit where it seems like the broader industry is migrating to low single digit in the U.S.? Thank you.

Okay. On the biosimilar erosion, I think the best way for you to think about it is it's across the book of the $6.3 billion of business. So it does include countries that are not exposed, so it's a blended rate across those. So it would obviously be higher in the countries that do have biosimilar exposure. And the number – I don't know, have we ever publicly described what the number is of the protected versus the unprotected?

Not with any specificity, no.

Okay, then I guess I won't describe that. On HUMIRA's confidence on price in the U.S., if you look at our HUMIRA business, it's primarily a volume-driven business in the U.S. And I would expect that we will continue, based on all of the contracts that have been negotiated for 2019, that we'll continue with a very similar price fall-through to what we had in 2018. So on the lower end of that mid-single digits is probably a reasonable expectation. So not a tremendous amount of price, but no significant change from what we've had.

Great, thank you.

Thanks, Jason. Operator, next question, please.

Thank you. Our next question is from Josh Schimmer from Evercore ISI.

Thanks for taking the question. Maybe you can discuss your confidence in the outlook for approval of VENCLEXTA in the AML, despite not having a randomized data, as well as if you can quantify that part of the addressable market. Thanks.

Sure, this is Mike. I'll take that. So we've had Breakthrough Therapy Designation for AML in the U.S., which gives us good insight into the FDA's thinking on the standard for approval. And when you couple that with the very strong Phase 2 data that we've generated where the combination complete response in something that's called complete response with incomplete hematologic recovery, which is the way the data are looked at in that field, are on the order of about two to three times higher than historical comparators. It's the strength of that evidence based on – and that coupled with our understanding of what it's going to take to get approved in the U.S. that gives us confidence. We also have our Phase 3 studies up and running and well underway. And they're positioned to readout next year, so in 2019. So it's that full picture that gives us that confidence. In terms of how much of the addressable market that represents, it's a substantial portion. AML tends to have a peak incidence later in life, and up to about half of patients can't undergo intensive induction chemotherapy and then go on to stem cell transplant. And for those patients, there really are very, very limited treatment options. And it's in those very difficult to treat patients that VENCLEXTA has demonstrated the data that I described. So we think that there is a very real opportunity here that will be very important both medically and commercially.

And maybe to just give a little more color on VENCLEXTA, what we're seeing, because AML is obviously a portion of that, I mean, if you looked at the AML market in total, it's probably a couple of billion dollars. And as Mike said, roughly half of that is addressable, although I will say we are seeing some activity where physicians are pretreating patients prior to induction chemotherapy to get disease activity down. So it could be even larger than half of that population in AML. As I indicated in my remarks a few moments ago, we are seeing VENCLEXTA take a fairly significant inflection in growth since we released the MURANO data, and I think physicians have become more aware of the AML data. If you actually look at patient starts compared to the first quarter of 2018 and looking at them versus the third quarter of 2018, they're up 73%. So obviously the brand is starting to really grow at a fairly rapid pace. It's at about a $400 million running rate right now and growing rapidly. So I think you can expect that you'll continue to see very strong growth out of VENCLEXTA, and it will be an important contributor to our oncology growth going forward.

Thanks, Josh. Operator, next question, please.

Thank you. Our next question is from Vamil Divan from Credit Suisse. Vamil K. Divan - Credit Suisse Securities (USA) LLC: Hi. Great, thanks so much for taking the questions. Congrats to you, Bill, for the retirement. And just a couple actually on the margins I guess for you. One, the gross margins this quarter I thought were especially strong. Was there any sort of one-time impact that sort of drove anything there, or anything we should be aware of? And then the comments from Rick regarding your expectation on biosimilars and sort of that 26%, 27% number, I'm curious how to think about your prior commentary on operating margins. You said 50% operating margin by 2020. Does this sort of change in discounting, you're on the higher end of your planning scenarios, does that impact how you think about what your operating margins might be in that 2020 timeframe? Thanks so much.

Sure. So if you look at the quarter, this is only the first quarter that we've seen the full impact of the termination of HUMIRA royalty that were previously in place. So we're picking up about 160 basis points of favorability related to that royalty reduction. That was the big mover in the quarter. We also did see some favorable exchange, call that maybe a little under 0.5 point, and then offsetting that going the other way was about 120 basis points related to partnership accounting. As you know, we book the profit that we pass to our partner on IMBRUVICA as a cost of goods sold. So that actually has a dilutive impact on the gross margin line. So when you add that all up, that's how you get to the number that we saw in the quarter. In terms of progress towards 2020, look, certainly we're factoring in the biosimilar experience that we're seeing now into our 2019 plan, although I don't have a clear picture yet. Be what I can tell you is, if you look at this quarter, we had very, very strong operating margin growth. We've increased by over 400 basis points on the 47% range. I think that that is the base that you've got to think of us starting to build off of in our inherent run-rate. And then, next year we're going to pick up the benefit of royalty reductions, which ought to be about 170 to 180 basis points. So we're not going to be there in 2019. We never said we were going to be there in 2019. But when you look at the rapid growth we'd be expecting in 2020 with the pipeline products really moving into full gear, we still remain confident.

Thanks, Vamil. Operator, next question, please.

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

Thank you, a couple of questions, please. Could you give us some order of the magnitude of the royalties in relation to the settlements in Europe, whether they're meaningful or insignificant? Second, there have been some recent publications addressing the platelet impact of BTK inhibitors, suggesting that the bleeding that's seen with IMBRUVICA may be a BTK-specific phenomenon, rather than drug-specific (45:44) thinking about CALQUENCE, your competitor, and whether it may not be such a better mousetrap as initially envisaged. And then finally, any update on the Boehringer Ingelheim District Court case? Many thanks – on HUMIRA.

Andrew, this is Rick. I'll cover one and three. So the magnitude of the settlement royalties, those are all confidential agreements, so I can't speak to the magnitude of those even in a qualitative way. I would just say that they're typical royalties that are associated with the license of important IP. On the court case for BI, I can tell you we have confidence in our position. We don't fundamentally believe that the essence of what BI is describing is, if you get a large number of patents on a product, that in and of itself is a problem. I don't believe there is case law to support that, nor do I believe that there is evidence that would support that position. I'd also say the following. Look, we have five settlements now. We have very sophisticated companies who have made a decision based on our IP to do a settlement agreement with us. I think that speaks for itself about the magnitude and the power of our IP, and we remain confident in our position.

All right, this is Mike. I'll take the question with respect to BTK inhibitors. It's been our view for quite some time that the bleeding risks that are associated with BTK inhibition are on target, and that BTK specificity from follow-on compounds are therefore not a way to address those risks. The risks are manageable. They are part of the overall benefit/risk profile of a BTK inhibitor like IMBRUVICA, which is overall very strongly favorable. But that specificity isn't a way around that. And we say that based on our preclinical understanding, and we also say it based on clinical data. And if you look at a number of follow-on BTKs that have come forward with arguments around putative selectivity, you see the same picture, which is in very early, very small studies, it's very hard to detect these sorts of effects. But as one moves into larger, longer-term trials, a very similar risk/benefit profile emerges. And I think we've seen that with a number of follow-ons, including CALQUENCE. So again, we believe that the bleeding effects are part of the benefit/risk of a BTK inhibitor, that they can be managed effectively, and we believe we have managed them effectively with IMBRUVICA. Obviously, the overall benefit/risk is strongly positive, but we don't see any advantage in the follow-on BTK inhibitors in that respect.

And the only thing I'd add there is I think the market data would now support that. I mean, if you look at the relatively small indication that they have in MCL, I think they peaked at market share around 10% – 13%, and now they're declining to some extent. So clearly, the market uptake on the product does not appear to be representative of a product that has differentiation.

Thanks, Andrew. Operator, next question, please.

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

Great, thanks very much for the questions. Just coming back to the HUMIRA biosimilar erosion, how predictive do you see this higher 2019 erosion rate to be as we think about longer-term annual erosion for the drug OUS? So beyond 2019, do you think this higher 26% – 27% erosion rate is how we should think about this, or are you viewing 2019 more as an outsized one-time step down, and then a less severe annual impact as you think about 2020 and beyond? My second question was just on SG&A for 2019. AbbVie stepped up spending this year. Does that put the company's spending at levels that can support these significant upcoming launches, or should we think about another step-up in spending as we look out to 2019? Thank you.

Okay, Chris, this is Rick. I'll take the biosimilar question. I think what we've seen is as the biosimilars entered the market, and it's probably somewhat consistent with the fact that four of them entered basically simultaneously, the pricing has been more aggressive, which all along we've said we would see the biggest impact at launch in that first year, and then it would taper off as we got to the follow-on years. And I think what we've seen play out now only supports that further. So I think you can expect a much bigger impact in 2019 in the countries that had an impact. And then it will slow as we get into 2020-2021. Now there will be countries that come on in the later years, and they'll experience probably a similar kind of a curve as we enter those markets. So I think that's the way we think about it, and I think it's the best way for the investment community to think about it.

Chris, speaking in absolute dollar terms, we certainly will be putting more money into SG&A next year to support our launches. If you look at the quality of the assets and the importance of the assets to the overall AbbVie growth story, we are not going to do anything that would impede our ability to maximize their ultimate potential. So from a dollar standpoint, we will certainly be putting money in for both risa and upa. Obviously, a lot of the spend is already in the base for VENCLEXTA and to a degree ORILISSA. However, moving into AML, there will be additional spend there. And ORILISSA, we have not seen this year the startup of the full DTC campaign. So I think you should model increased spending on those assets.

Thanks, Chris. Operator, next question, please.

Thank you. Our next question is from David Risinger from Morgan Stanley. David R. Risinger - Morgan Stanley & Co. LLC: Yes. Thanks very much. So I have two questions. So Rick and Bill, I was hoping that you could talk a little bit more about your view on capital allocation. Obviously the company has been quite aggressive with respect to buying back stock and increasing dividend, but it appears that equity investors are more focused on the company's long-term revenue growth and seem to hope for more pipeline enhancement transactions rather than some of the other capital allocation opportunities for the company. So I was just hoping that you could comment on that and how you see that balance? And then separately, with respect to the 26% to 27% that you mentioned, Rick, could you just clarify? I had thought that the 18% to 20% was over the two-year period, i.e. between 2018 and 2020, so is the 26% to 27% over a two-year period such that you're talking about low teens ex-U.S. HUMIRA sales decline in 2019, and then again in 2020? Or are you talking about a 26% to 27% decline in ex-U.S. HUMIRA sales in 2019? Thanks so much.

Yeah, David. It's Rick. So let me answer number two first. So what I'm describing to you is the level of erosion that we would expect in 2019. It will moderate, but there will be some impact in 2020. You are correct that what we described to you was 18% to 20% over that two-year period of time. So, you're thinking about it the right way. So obviously there's higher levels of erosion. Now, I will say, as I mentioned a moment ago, I think we have seen a deeper discounting strategy out of the blocks. And that will moderate some as we go forward. But I think you should assume that you will see more erosion in 2020 which would obviously raise that number going forward. I don't think it will be dramatic, but I think you will see some impact. On capital allocation, I think our overall strategy is very similar to what we've operated with for quite some time, and that is that we view returning cash to shareholders as an important strategy. Our dividend we're committed to a growing dividend, and obviously we've demonstrated that again in this call. We view our dividend as our primary vehicle to do that, although we have done some substantial buybacks as we saw the stock at a value that we thought was undervalued. We thought that was an appropriate use of it. Our first priority is always building the business for the long-term. We're fortunate that we have a strong pipeline, and therefore we can drive significant growth. So we focused a lot of attention on assets that we could bring in that would have an impact in that 2023, 2024, 2025 timeframe which are typically earlier stage, smaller kinds of transactions. But we've been active in that area across the range of areas, oncology being a good example, immunology being a good example. We have done some transactions now in the area of fibrosis, and so we have a pretty active program in that area. We look at almost everything. We look at small opportunities, medium opportunities, larger opportunities, and we evaluate each of those. It goes through a filter of, first, does it strategically fit, and second, is the value at a point that ultimately we can get a good return on it for our shareholders? And so we evaluate all these opportunities versus that. I don't see a fundamental shift in how we've operated from a capital allocation standpoint though.

Thanks, David. Operator, we have time for one final question, please.

Our final question today is from John Boris from SunTrust.

Thanks for taking the questions. So, Rick, just on biotech valuations, we've obviously seen a significant contraction. I think at an investor conference you indicated that you were interested in possibly doing a transaction somewhere in the $20 billion to $30 billion range. Just your thoughts about the environment, at least currently, relative to biotech valuations contracting. Second question on the dissolution or the termination of the royalties, I think, Bill, a third of them went away in 2018. Two-thirds go away in 2019. Can you just give some commentary or quantitatively what the impact is on the 2019 gross margin? Thanks.

So I'll start with that one first, John. So you're exactly right in terms of the gating between 2018 and 2019. I think you should expect next year to pick up about somewhere between 170 to 180 basis points on the gross margin line as a result of those royalties being eliminated.

On biotech valuations, I guess I'll clarify the $20 billion to $30 billion comment. What I was trying to describe in that meeting was what we viewed as a larger bolt-on, not that we were actively pursuing a transaction in that range. But having said that, if you look regardless of value, if I look at biotech valuations now, although they've come down some, they're still valued pretty highly, and valued in a forward-looking way. And what I mean by that is if you get some early data, you tend to see valuations rise very rapidly in anticipation of future positive data. But when we look at a transaction, just like everybody else in the industry, you have to evaluate the risk of that data not playing out in a larger study, a later study. And so valuations are still – for the stage of the product, still have a tendency to get ahead of where the right balance is for the risk reward of a good return. Doesn't mean every single one of them is that way. But I'm talking in generalities now. And certainly all of us continue to look for those opportunities where there's the right value and an exciting opportunity. We have seen some of those that we've brought in, and we'll continue to look for those.

Thanks.

Thanks, John. 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 his time.