AbbVie Expects 9% Tax Rate, Thanks To US Tax Reform Law

The tax reform windfall makes an already strong fourth quarter and full year 2017 financial report more impressive for AbbVie, which reported continuing growth for Humira and Imbruvica, and a big uptick in HCV.

AbbVie Inc. was going to report solid fourth quarter and full-year 2017 business anyway, but its projection that US tax reform would give it an industry-best effective tax rate of 9% in 2018 astonished market analysts. On top of sales growth led by Humira, Imbruvica and better-than-anticipated hepatitis C performance, AbbVie's quarterly report on Jan. 26 got glowing remarks across the board.

On the basis of its tax rate projections, the Chicago-area pharma offered revised 2018 sales and earnings-per-share guidance that likewise brought plaudits from the analyst community. It expects full-year 2018 revenue of about $32bn, up 13% from 2017, and an EPS projection up 32% at the midpoint of the range, which it attributes almost equally to business performance and benefits from US tax reform (see box).

AbbVie's 2018 EPS Guidance At A Glance

AbbVie reported adjusted earnings-per-share of $5.60 for 2017, a 16.2% uptick from 2016. But the company increased its projected EPS for 2018 to a range of $7.33-$7.43, up substantially from prior guidance of $6.37-$6.57 per share. If its EPS guidance proves correct, that would amount to a 32% increase at the midpoint.

Of the $1.78-per-share growth AbbVie projects, it attributes slightly more than half ($0.95) to underlying business growth and $0.83 to tax reform impact. And, far from producing an eye-rolling response from analysts, BMO Capital Markets analyst Alex Arfaei called the 2018 guidance "conservative" given the pharma's expected 9% tax rate for the year, which it anticipates will increase to 13% in 2022.

CEO Rick Gonzalez, perhaps anticipating some blowback from this windfall, said AbbVie now plans $2.5bn in unspecified capital improvement projects in the US over the next five years. In addition, the company will make $350m in charitable contributions, with Gonzalez specifically citing rebuilding efforts in Puerto Rico and children's health care access programs. The firm will also commit to $750m in accelerated pension funding and increases in non-executive employee compensation.

"For AbbVie, the recent passage of US tax reform enables more efficient access to our foreign cash and the ability to deploy it in the United States," Gonzalez noted. The capital expenditures might involve expansion of AbbVie's US facilities, the exec added, while also promising a significant commitment to returning capital to shareholders, with greater specifics on these efforts to follow in the near future.

In a same-day note, Jefferies analyst Jeffrey Holford said he had anticipated increased guidance for 2018 from AbbVie, "but not of this magnitude." The company's prediction of a 13% tax rate five years out is considerably lower than Jefferies' estimate of 17%, he added.

Morningstar analyst Damien Conover said the 13% tax rate projected by 2022 likely would remain "the lowest tax rate in the big pharma industry" even as it grows steadily from this year's projected 9%. BMO Capital Markets analyst Alex Arfaei, writing before the investor call, predicted that most of AbbVie's excess cash from tax reform was likely to be returned to shareholders. "We expect some level of public/political backlash in response to the news, and AbbVie will likely try to alleviate this by highlighting increased US investment, employee benefits, etc.," he said.

An Open-Minded Approach To Business Development

During the call, another analyst asked if AbbVie's "pile of cash" might be used in business development, possibly even M&A, perhaps to address the widely expected future impact of biosimilar competition to the pharma's top-seller, Humira (adalimumab).

Repeating a common refrain, Gonzalez first spoke of his confidence that AbbVie would drive growth with newer products, including expansion efforts for cancer drugs Imbruvica (ibrutinib) and Venclexta (venetoclax), and the promise of late-stage pipeline assets, including Humira successors risankizumab and upadacitinib, the endometriosis drug elagolix and lung cancer candidate Rova-T (rovalpituzumab tesirine).

But the CEO also referred to a wide-ranging approach to business development. (Also see "A Different Approach To Corporate Venture: An Interview With AbbVie Ventures' Scott Brun" - Scrip, 10 Jan, 2018.)

"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," he said. "I would say our primary focus is looking for opportunities that can drive strong growth in that 2023, 2024, 2025 timeframe [because] we feel confident that we can drive growth with our late-stage pipeline ahead of that."

AbbVie's 2017 Early-Stage Deal-Making

AbbVie signed a half-dozen early-stage R&D alliances in 2017, three in oncology, two in inflammatory disease and one in neurodegenerative disease, according to Strategic Transactions. They are:

Partnership with Pure MHC LLC in the discovery and validation of peptide targets for use with T-cell receptor therapies aimed at various cancers. [See Deal]

Collaboration with Zebra Biologics Inc. in the discovery of agonist antibody therapies for inflammatory diseases. [See Deal]

A research and preclinical development partnership with Principia Biopharma Inc. looking into oral immunoproteasome inhibitors for immunology indications. [See Deal]

A research and early R&D pact with Alector LLC into neurodegenerative disorders, including Alzheimer's disease. [See Deal]

An immuno-oncology collaboration incorporating Harpoon Therapeutics' TriTAC (Tri-specific T-cell Activating Construct) technology with AbbVie's research-phase immuno-oncology targets. [See Deal]

An exclusive option to license worldwide development and commercialization rights to up to three of its next-generation oncolytic viral immunotherapies with Turnstone Biologics Inc.[See Deal]

This search could include early-stage assets, Gonzalez added, pointing out that AbbVie has signed recent deals around such assets in oncology and neuroscience. "I would say those are the areas that we have focused a tremendous amount of attention on," he continued. "[Those are] not the only places that we're looking, but it certainly is an area that's a high priority. And we'll obviously look at other kinds of transactions as well."

Hepatitis C Growth Surprises

The top-selling and highest-growth franchises for AbbVie, both during the fourth quarter and all of 2017, were the autoimmune titan Humira, the Bruton's tyrosine kinase (BTK) inhibitor Imbruvica (partnered with Johnson & Johnson) and the HCV franchise, including Mavyret (glecaprevir/pibrentasvir) launched in 2017 and its predecessor, combination therapy Viekira Pak (dasabuvir, ombitasvir, paritaprevir and ritonavir). (Also see "AbbVie's Mavyret Is First 8-Week Pan-Genotypic Combination For HCV" - Scrip, 3 Aug, 2017.)

The HCV franchise was up 85% over the previous quarter, indicating a significant boost from the Mavyret approval in August.

AbbVie does not break out separate totals for Mavyret and Viekira, but the firm reported the HCV franchise brought in $510m globally during the fourth quarter, up 62.7% year-over-year. This included $296m internationally and $214m in the US. Leerink Partners' analyst Geoffrey Porges noted that the quarterly total was up 85% sequentially and significantly above consensus projections of $289m. For the full year, HCV yielded revenue of $1.27bn globally, down 16.2%, suggesting the Mavyret approval in August provided a significant boost to the franchise.

Gonzalez said it is early days for Mavyret but AbbVie is very pleased with the combo's strong uptake domestically and ex-US. The product ended 2017 with 32% market share in the US, "confirming our expectations that the product will be a highly competitively positioned product within the HCV market," he said.

Gonzalez later noted that Mavyret has earned the number-one position for HCV therapy in Germany, Spain and Italy, is strongly positioned in the UK and just getting underway commercially in Japan. Reimbursement is not yet finalized in France, however.

BMO analyst Arfaei called the product's performance "significantly better than expected, [but] not too surprising given superior regimen." Vamil Divan of Credit Suisse suggested in a Jan. 26 note that AbbVie's recent HCV success is coming at the expense of Merck & Co. Inc., but with Mavyret able to claim it is the first pan-genotypic regimen with eight-week dosing, it may be gaining on HCV leader Gilead Sciences Inc.'s suite of single-tablet combination pills as well.

Imbruvica brought in $708m worldwide during the fourth quarter, including $585m in US sales and $123m in ex-US partnership revenue. For the year, Imbruvica brought in more than $2.57bn for AbbVie, up 40.5% from 2016. During the quarter, Imbruvica revenue increased 38.7% year-over-year. J&J, which is responsible for ex-US commercialization, reported Imbruvica sales of $522m for Q4 and $1.9bn for all of 2017. (Also see "J&J Shows Grace Under Pressure From Biosimilars And Other Threats" - Scrip, 23 Jan, 2018.)

Meanwhile, the growth story continued for Humira, which yielded $4.89bn globally during the quarter, up 14%. The US total of $3.31bn rose 15.1%, while ex-US sales of $1.58bn increased 57.8% in Q4. For the full year, Humira totaled $18.4bn worldwide, up 14.6%. This total included $12.4bn domestically, up 18.5%, and $6.1bn outside the US, a 6.7% uptick.

Gonzalez noted that Humira's growth was primarily volume-driven. Humira sales have grown dramatically during the past three-to-four years, he added. "The percent growth rate has come down somewhat as the brand has grown," the exec pointed out. "But if you look at the absolute dollar growth, it's been fairly consistent and extremely healthy."

AbbVie's total revenues came to $28.2bn for the year, a 10.1% improvement over 2016, and $7.74bn for the fourth quarter, up 14.1% year-over-year. (Also see "New AbbVie Guidance Sets High Bar For Post-Humira Pipeline" - Scrip, 28 Oct, 2017.)