Jul 26, 2013
Executives
Rick Gonzalez – Chairman & Chief Executive Officer Bill Chase – Executive Vice President Finance & Chief Financial Officer Laura Schumacher – Executive Vice President Business Development, External Affairs & General Counsel Scott Brun – Vice President, Clinical Development Larry Peepo – Vice President, Investor Relations
Analysts
Jami Rubin – Goldman Sachs Greg Gilbert – Bank of America Merrill Lynch David Risinger – Morgan Stanley Steve Scala – Cowen and Co. Jeff Holford – Jefferies & Company Chris Shad – JPMC Marc Goodman – UBS Tony Butler – Barclays Alex Arfaei – BMO Capital Markets Damien Conover – Morningstar
Operator
Good morning and thank you for standing by. Welcome to the AbbVie Q2 2013 Earnings Conference Call.
(Operator instructions.) This call is being recorded by AbbVie.
With the exception of any participants’ questions asked during the question-and-answer session the entire call including the question-and-answer session is material copyrighted by AbbVie. It cannot be recorded or rebroadcast without AbbVie’s express written permission.
I would now like to introduce Mr. Larry Peepo, Vice President of Investor Relations.
Larry Peepo
Good morning and thanks for joining us. Also on the call with me today is Rick Gonzalez, Chairman of the Board and Chief Executive Officer, and Bill Chase, Executive Vice President of Finance and Chief Financial Officer.
Joining us for the question-and-answer portion of the call are Laura Schumacher, Executive Vice President of Business Development, External Affairs and General Counsel; and Scott Brun, Vice President of Clinical Development. Today Rick will discuss AbbVie’s results for Q2 as well as highlights from our commercial portfolio and pipeline.
Following Rick’s comments, Bill will give a more detailed review of our Q2 performance and then provide an overview of our outlook for 2013 and Q3. Following our comments we’ll take your questions.
Before we get started I remind you that some statements we make today may be considered forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements.
Additional information about the factors that may affect AbbVie’s operations is included in our 2012 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 at www.abbvieinvestor.com.
So with that I’ll now turn the call over to Rick.
Rick Gonzalez
Thank you, Larry. Good morning and thank you for joining us today.
We’re pleased to report strong Q2 results with adjusted earnings per share of $0.82, exceeding our guidance range for the quarter. This included strong operational sales growth of more than 5% ahead of our outlook for the quarter and adjusted gross margin ratios of more than 80%.
We delivered this performance with strong and balanced growth across our product portfolio despite the impact of generic competition. And today we raised our full-year EPS guidance for 2013, reflecting continued momentum from HUMIRA and better than expected results from our other pipeline products including our lipid franchise.
We’re now seven months into our first year as an independent company and we continue to make good progress executing our key business priorities including maximizing HUMIRA’s full growth potential and advancing our pipeline. Our Q2 performance was led by HUMIRA which drove nearly 13% global operational growth.
We continue to see strong underlying demand globally with particularly robust growth in dermatology and GI categories. As we’ve said previously there are several factors we expect will continue to drive momentum, including increased biologic penetration rates, further geographic expansion, and new indications.
HUMIRA offers the broadest label in the category. Our expanding list of uses includes nine approved indications in Europe and seven in the US, and we have several indications currently in late-stage trials.
All told we expect new indications including those approved in 2012 to add roughly $1.5 billion in incremental global (inaudible) sales. HUMIRA’s utility and label supporting use across the broadest spectrum of autoimmune conditions is one of the many attributes that sets it apart from other products in this category.
As we track new competitive entrants, performance continues to be in line with our expectations with HUMIRA continuing to gain or hold market share across indications. As I said, HUMIRA is off to a strong start in the first half of the year and as a result we now expect global HUMIRA sales growth of 14% to 15% on an operational basis in 2013.
This is an increase from our previous outlook of low double-digit growth. Beyond HUMIRA we also saw a strong performance from several other products including double-digit growth of CREON, Synthroid, Zemplar and Duodopa.
Bill will provide more color on HUMIRA’s performance as well as some of the other products in our portfolio. So today I’ll spend some time discussing a few of our pipeline programs.
Certainly pipeline development is critical to our long-term success and we’re very pleased with the progress we’ve seen across our mid- and late-stage pipeline programs so far this year. Over the past year and the past several months we’ve also presented important data that support our advancing pipeline and illustrate its potential to address some of the most pressing areas of medical need.
I’ll start with our late-stage HCV program where we recently completed enrollment in all six of our Phase III studies that will be included in our initial regulatory submissions. Over the past several months we presented additional data from our large Phase II-b Aviator study which enrolled as a reminder 571 non-cirrhotic patients.
Data presented at the EASL and DDW meetings showed patients with high SVR cure rates regardless of baseline characteristics associated with lower response to interferon therapies including baseline viral load and level of fibrosis. As I said before, our goal is to maximize SVR rates across various patient types, from naïve patients to the most difficult to treat with the simplest possible therapy, and large body of data that we’ve collected and presented thus far certainly support our objective.
Recently our direct-acting antiviral combination was designated as a breakthrough therapy by the FDA, underscoring its promise in the treatment of HCV. As I’ve said, we’re very pleased with the progress that we’re making in our Phase III program.
We expect registrational studies to begin to read out later this year and early into 2014 supporting regulatory submission in Q2 2014 and market entry in early 2015. In addition to our late-stage efforts we’re also advancing a compelling next-generation HCV program including a potent protease inhibitor, ABT-493, and a new NS5A inhibitor ABT-530.
In preclinical studies these promising assets have shown pan-genotypic activity and excellent activity against key resistant mutants. These next-generation assets also support once daily dosing as well as the ability to co-formulate.
Our development program is progressing well and we’re on track to begin Phase II studies this year. Suffice it to say we are very committed to this therapeutic category and will continue to work to evolve the treatment paradigm.
Now turning to our oncology pipeline which includes several mid- and late-stage assets in development for more than a dozen different cancers. At the recent ASCO and EHA meetings we presented additional data on ABT-199, our first-in-class Bcl-2 inhibitor in development in partnership with Roche Genentech.
These data showed strong single agent activity across a number of hematological malignancies including CLL, NHL, and mantel cell lymphoma. We recently started a large Phase II single agent single arm study in relapsed refractory CLL patients with 17P chromosome deletions.
We believe this study has the potential to be a registrational trial and plan to engage with the FDA to confirm our view. While these patients represent the most difficult to treat early data have been promising.
In collaboration with our partner we also expect to begin a Phase III comparative trial, a combination study in relapsed refractory CLL that will evaluate ABT-199 plus Rituxan versus Rituxan plus chemotherapy. We plan on starting that in the next six to nine months.
We believe that ABT-199 represents a potentially transformational approach to the treatment of CLL and other hematological malignancies and are working to quickly advance this asset. Now moving to our next oncology asset, ABT-888, our PARP inhibitor.
We believe this compound holds promise in enhancing the effectiveness of common chemotherapy and radiation. We have a number of mid-stage studies underway including trials evaluating 888 plus chemotherapy in breast cancer, ovarian cancer, non-small cell lung cancer as well as a study of 888 in combination with whole brain radiation in patients with brain metastases.
We’ll learn much more about the efficacy and utility of this compound as we expect a number of studies to complete over the next six to twelve months. It’s likely that we will initiate Phase III studies with ABT-888 in the same timeframe as well.
Moving on to ABT-126, our Alpha-7 NNR agonist in development for Alzheimer’s and cognitive impairment associated with schizophrenia or CIAS. Earlier this month results from our initial Phase II-a proof of concept study in patients with mild to moderate Alzheimer’s dementia were presented at the Alzheimer’s Association International Conference.
These data demonstrated evidence that ABT-126 treatment effect on measures of cognition were present as well as a safety and tolerability profile that supports continued development. We’re exploring a higher does range in our ongoing Phase II-b study where we’re evaluating ABT-126 both as monotherapy and in combination with standard of care.
The Phase II-b trial results are on track to complete later this year, and if successful we plan to start a Phase III development in 2014. We’re also actively evaluating ABT-126 in mid-stage trials for CIAS.
We’ll present Phase II-a proof of concept data for this indication in 2014 and the ongoing Phase II-b study will read out next year as well. Now moving on to Atrasentan, our internally discovered compound in development for diabetic kidney disease, a common complication of diabetes and the leading cause of chronic kidney disease in the developed world.
We presented results from our Phase II-b study at the European Renal Association Congress in May. The mid-stage trial showed treatment with Atrasentan showed significant and sustained reduction of albuminuria, the presence of protein in your urine – a symptom that is predictive of renal function.
We recently initiated a large, global Phase III program which will evaluate the impact of Atrasentan on renal outcomes such as onset of end-stage renal disease, transplant, or death due to renal failure progression. This study will serve as a single global registration trial for the compound.
While I won’t cover our entire pipeline today we have a number of other promising products in development which I’ll mention briefly here. Daclizumab, currently in Phase III development in partnership with Biogen for multiple sclerosis – our second pivotal study will read out next year and we’re planning global registration submissions in 2014 as well.
Elagolix is being evaluated in Phase III for endometriosis and in Phase II-b for uterine fibroids. We have mid-stage trials on ABT-719 for acute kidney injury which are ongoing.
We have two select JAK2 inhibitor programs in development for autoimmune diseases including our partnered asset with Galapagos as well as an internal candidate ABT-494, and we have a number of other exciting programs. I’ll conclude my remarks this morning with an update on our licensing activity where we continue to be very active.
We recently entered into a global collaboration with Alvine Pharmaceuticals to develop a novel, mid-stage oral compound for the treatment of celiac disease, a common autoimmune disorder. The compound ALV-003 is currently in Phase II development and has the potential to be the first therapy to treat celiac disease.
Currently there are no approved therapies for this condition and the only option for patients is to attempt to follow a strict lifelong gluten-free diet. Total exclusion of dietary gluten is difficult because gluten is one of the most common food ingredients.
Further despite a gluten-free diet up to 60% of celiac patients still have symptoms underscoring the acute need for non-dietary therapies. Alvine will begin a Phase II-b study for this promising compound in the coming months.
We also recently extended our clinical development collaboration with Galapagos to include Crohn’s Disease. Galapagos plans to begin a Phase II in this indication by early 2014.
The Phase II program in Crohn’s will be performed in parallel with the Phase II-b study in rheumatoid arthritis which was recently initiated. So in summary we’re pleased with our performance in the first half of 2013.
In Q2 we saw another strong performance across our portfolio including double-digit growth from HUMIRA, CREON, Duodopa, Zemplar and Synthroid. We delivered higher than expected gross margin ratios and we continued strong levels of investment spending across both our marketed products and our pipeline opportunities.
And we made significant progress in advancing our pipeline. We presented compelling data on a number of compounds, we moved a promising asset into Phase III development, and we augmented our mid-stage pipeline with two opportunities to build upon our expertise and our leadership in the GI field.
We expect continued pipeline advancement over the next 12 to 18 months including late-stage trial completions, regulatory filings, and new product approvals. With that I’ll turn the call over to Bill.
Bill Chase
Thank you, Rick. Today I’ll spend some time talking about our Q2 performance as well as our outlook for the remainder of 2013.
As Rick said, we feel very good about the strong quarter and year-to-date performance we delivered. Q2 adjusted earnings per share, excluding non-cash intangible amortization expense and specified items were $0.82, exceeding our previous guidance range.
On a GAAP basis earnings per share were $0.66. Total sales in the quarter increased 5.1% on an operational basis which excluded an unfavorable 0.7% impact from foreign exchange.
Excluding TriCor and Trilipix which are experiencing a loss of exclusivity, total sales increased 10.3% on an operational basis. Growth in the quarter was driven by HUMIRA which had global sales of more than $2.6 billion, up nearly 13% on an operational basis.
In the US HUMIRA sales increased 16% driven by continued market expansion and share gains in dermatology and gastroenterology. We’ve been particularly impressed with HUMIRA’s performance in the gastro segment following our strong UC launch where we’ve already gained significant share globally.
Internationally HUMIRA sales grew 10.1% on an operational basis. As expected we saw a modest negative impact from tender timing in some markets, particularly Brazil.
Looking ahead to Q3 we expect global HUMIRA sales to grow in line with our updated full-year outlook of 14% to 15%. AndroGel sales were $258 million in the quarter, down 6.5% versus the prior year.
AndroGel continues to maintain a roughly 60% share of the testosterone replacement market. Sales this quarter reflect the year-over-year impact of rebating actions implemented in mid-2012 and certain account losses.
We are now forecasting full-year AndroGel sales to be roughly flat versus 2012 levels. Moving on to our lipid franchise we saw stronger than expected performance in Q2, particularly with Niaspan and Trilipix.
US sales of Niaspan were $232 million, up 10% versus Q2 2012. Triplipix sales were $107 million, down 66% due to the entry of generic Fenofibrate in November of 2012.
We continue to forecast 2013 sales of less than $1 billion for our combined lipid franchise, reflecting a decline of roughly $1.2 billion. As we said previously this decline will be most pronounced in Q4 this year due to the expected entry of generic competition for Niaspan in September and the recently announced entry of generic Trilipix earlier this month.
Global sales of Lupron were nearly $200 million in Q2. Lupron continues to hold a leadership position and maintains significant share of the market.
For the full year 2013 we expect Lupron sales to be roughly in line with 2012. US sales of Synthroid were $153 million in the quarter, up strongly.
Snythroid maintains strong brand loyalty and market leadership despite the entry of generics into the market many years ago. For the full year we expect to see Synthroid sales growth in the mid-single digits.
US sales of CREON were $106 million in the quarter, up more than 20% compared to Q2 2012. Performance in the quarter was impacted by the launch of our new 36,000-lipage unit dose.
CREON maintains market leadership in the pancreatic enzyme market where we continue to capture the vast majority of new prescription starts. For the full year 2013 we expect CREON sales to grow at a double digit pace.
Duodopa, our therapy for advanced Parkinson’s disease which is currently approved in Europe and other international markets performed well in Q2 with growth of nearly 23% on an operational basis. We are pursuing regulatory approval for this product in the United State and expect a PDUFA date in the first half of 2014.
Moving on to our P&L profile, Q2 adjusted gross margin ratio was 80.7% excluding intangible asset amortization and other specified items. This was above our expectations for the quarter due to the impact of product mix across our portfolio including better than expected performance of our lipid franchise which as you know includes some of our highest margin products.
Adjusted R&D was 14.8% of sales in Q2 driven by increased funding of our mid- and late-stage pipeline assets and the continued pursuit of additional HUMIRA indications. Adjusted SG&A was 27.9% of sales in Q2 reflecting heightened investment across our growth brands.
Net interest expense was $75 million in the quarter and other income was $7 million. The adjusted tax rate was 22.3% in Q2.
Turning now to our full-year 2013 outlook we are raising our adjusted earnings per share guidance to between $3.07 and $3.13. This updated guidance contemplates sales of approximately $18.5 billion reflecting strong, balanced performance across our portfolio offsetting the decline in lipids from generic competition.
Included in our sales guidance is an estimated negative impact from exchange of approximately 1%. Given our performance year-to-date including the better than expected sales of our high-margin lipid franchise we are now forecasting a gross margin ratio of around 77.5% for the full year excluding non-cash amortization and specific items.
In addition to raising our EPS guidance our performance this year has also allowed us to increase the level of investment behind both our pipeline opportunities and marketed products. As a result we now expect R&D expense to be approximately 15% of sales reflecting funding actions in support of our pipeline.
And we now expect SG&A expense to be around 26.5% of sales in 2013 reflecting increased investment for continued growth of our key brands including HUMIRA where we’ve identified opportunities to further increase penetration rates across indications. We continue to forecast net interest expense of approximately $300 million for the full year and we expect an adjusted tax rate of approximately 22% in 2013.
Our adjusted earnings per share guidance range excludes $0.41 per share of non-cash intangible amortization expense, acquired in-process R&D, and certain specified items primarily associated with operations and ongoing restructuring activities. We expect that earnings per share will be $2.66 to $2.72 on a GAAP basis.
Regarding our Q3 outlook we expect adjusted earnings per share of $0.76 to $0.78. This excludes roughly $0.13 of specified items and non-cash amortization resulting in a Q3 GAAP EPS of $0.63 to $0.65.
Our Q3 outlook reflects sales growth in the low-single digits on a reported basis including a modest negative impact from exchange. Our sales guidance for Q3 includes the estimated impact of Trilipix going generic earlier this month and Niaspan going generic in September.
We expect the gross margin ratio for the quarter to be somewhat above our revised full-year guidance and we expect R&D and SG&A as a percent of sales to be in line with our revised full-year outlook. So in conclusion we’re very pleased with AbbVie’s performance in our first six months as an independent company as well as our outlook for the remainder of the year.
And with that I’ll turn it back over to Larry.
Larry Peepo
Thanks, Bill. We’ll now open the call up for questions.
Elan, we’ll take our first question.
Operator
Thank you. (Operator instructions.)
And our first question today is from Jami Rubin with Goldman Sachs.
Jami Rubin – Goldman Sachs
A couple questions for you, Scott – are you there Scott Brun? Great.
Okay, so a couple pipeline-related questions. Based on your now Q2 2014 filing timeframe for your all oral Hep C regiment, can you confirm that you are now neck-and-neck with Gilead in this horserace of bringing the all oral regiment to the market?
And really most importantly if you could help us to think about what the trajectory might look like, because clearly initially I think people think there’s a lot of low-hanging fruit and how are you and Gilead going to compete in the marketplace? I also think the market assumes that they’re going to get the lion’s share of the market.
And then secondly on ABT-199 the potential registrational trial, can you tell us if the FDA does accept that filing what is the timeframe for bringing ABT-199 to the market? And now since Pharamacyclics’ Exchange A have already filed CLL indication how do you see that marketplace shaking up?
It seems that it’s getting somewhat crowded. Thanks a lot.
Scott Brun
Sure thing, Jami. Why don’t I go ahead with the timing and such on the HCV and then I’ll get Rick to talk a little bit about the market potential.
So you know, as you said we’re on track for a Q2 ’14 filing. Acknowledging it’s a very tight race we’re feeling very, very good about our position.
We’re very pleased with the progress on the program and certainly it is a top priority for us to be able to move as quickly as possible on the filing. But things are going extremely well in that regard.
Rick Gonzalez
Jami, this is Rick. As far as the market launch obviously we’re planning that these two products will launch very close to one another and we do agree there will be a fair amount of pent-up demand so we’re certainly building up all of the assets we need to be in a position to be able to have an aggressive launch and feel good about our ability to be able to compete effectively in this market.
You want to go back to the 199 question?
Scott Brun
Yeah, sure. So with regard to 199, yes – we just started a large trial looking at ABT-199 as an agent in the treatment of relapsed refractory CLL in patients who have the 17p deletion mutation, which is certainly traditionally a very hard population to treat.
Indeed, if this trial is acceptable as a registration trial this could allow us to commercialize ABT-199 in the 2016 timeframe. Now Jami, as you said certainly there’s a lot of activity going on with regard to development in the CLL space.
We feel that with the exquisite activity of ABT-199, its ability to rapidly reduce tumor burden, it really provides us a number of opportunities to really transform the way that this disease is treated, looking at different paradigms in terms of raising the bar on response with measures such as minimal residual disease where you are clearing the body of tumor to a greater extent than we see with traditional response endpoints; and also looking at the potential to perhaps move away from chronic therapy into more limited-duration and bringing the concept of remission into CLL.
Jami Rubin – Goldman Sachs
Thank you.
Operator
Thank you. Our next question is from Greg Gilbert with Bank of America Merrill Lynch.
Greg Gilbert – Bank of America Merrill Lynch
Thanks, good morning, just a couple. I’m hoping you can quantify that modest tender timing effect on HUMIRA sales.
Secondly, sort of a bigger picture question on long-term growth for HUMIRA: as bio-similar versions of products that will compete with HUMIRA become available around the world I’m curious on your view as to whether we will see more or less therapeutic substitution relative to what we’ve seen in the small molecule world. And then I have one follow-up.
Bill Chase
So Greg, it’s Bill Chase. The tender effect internationally was about 4%, so if you normalized for that ex-US growth would have been about 14%.
Greg Gilbert – Bank of America Merrill Lynch
Thanks.
Rick Gonzalez
Greg, this is Rick. On the therapeutic substitution, I mean certainly as we’ve said all along we don’t believe that in the area of biologics we’ll see therapeutic substitution that’s similar to oral solids – that’s for sure.
And we still believe that based on the safety track record of a product like HUMIRA, the broad indications and all the other attributes of that product that we would see certainly more modest kinds of erosions compared to anything that you’d see in oral solid deals.
Greg Gilbert – Bank of America Merrill Lynch
So safe to say you don’t expect bio-similar versions of other products to create a negative growth scenario for HUMIRA, even if the HUMIRA bio-similar is years off?
Rick Gonzalez
Yeah, I don’t believe it will have a dramatic impact on HUMIRA as an indirect bio-similar competitor.
Scott Brun
Especially if it’s a bio-similar to Remicade for instance which is an infused product relative to an injectable. So we think that anything in that space would not have an impact on injectables like HUMIRA and/or Enbrel.
Greg Gilbert – Bank of America Merrill Lynch
And last is a question on the testosterone market – you’re obviously big there and may be for some time depending on what you do on biz dev and lifecycle management. What’s going on in that marketplace other than jockeying for contracting positions, formulator positions?
What’s up with the growth rate there and when can you get that turned around? Thanks.
Bill Chase
This is Bill Chase again. The growth rate has definitely slowed down versus what we saw last year.
The growth in the market year-to-date through May is around 9%. We are seeing some account losses due to competitive pricing but that said we’re maintaining over 60% share.
There’s a fair amount of churn in the market. We still think AndroGel is a very, very important brand and we’re confident that the sales will remain flat through the year.
Scott Brun
You know, the 1.62% version of the product now accounts for about two thirds of the overall AndroGel franchise as well.
Greg Gilbert – Bank of America Merrill Lynch
Thanks guys.
Operator
Thank you. Our next question is from David Risinger of Morgan Stanley.
David Risinger – Morgan Stanley
Yes, thanks very much. I have a couple questions.
First, in terms of our model the international HUMIRA sales were slightly above, the US were slightly below. I’m just hoping that you could provide a little bit more color on the US performance of up 16% year-over-year.
Was there any stocking or destocking in the year-ago quarter or in this quarter? And how should we think about second half US sales growth for HUMIRA?
And then my second question is with respect to Duodopa, could you just update us on the potential approval timing and whether to expect a panel? Thanks very much.
Bill Chase
So David, this is Bill Chase. On HUMIRA I think the clearest thing to look at is the scrip trends which in the quarter were about 10% to 11% up in HUMIRA.
We obviously did have an impact of price, so when you add it up that 16% was impacted somewhat by some channel changes in the quarter. We’re very, very pleased with that growth and we’re seeing no slowdown whatsoever in the United States.
For the full year we expect growth to be in the mid-single digits, roughly split between price and volume in the US and things are going very, very well.
Rick Gonzalez
Did you say mid-single digits?
Scott Brun
Well, the outlook for HUMIRA globally is 14% to 15% this year, and as Bill said in his remarks in Q3 we also expect global growth to be in the 14% to 15%. But US specifically, David, there really shouldn’t be a whole lot of deviation from scrips plus price.
And as Bill mentioned there’s obviously always a little bit of puts and takes with the channel as well.
Bill Chase
And David, the US growth was mid-double digits, not mid-single. I’m sorry.
David Risinger – Morgan Stanley
Got it.
Rick Gonzalez
Made you a little nervous for a second, huh?
Bill Chase
Sorry about that.
Scott Brun
And David, hi, it’s Scott Brun – I can take the Duodopa question. So as you know with Duodopa we’ve got a somewhat unique drug device combination system.
Consequently we did have some data formatting questions of an administrative nature from FDA. We worked through those, addressed them.
The NDA is filed. We’re on a 2014 timeline.
Right now we don’t have any sense that there is going to be a panel but certainly as the review progresses we’ll be able to update you on that front.
David Risinger – Morgan Stanley
And in terms of the 2014 timeline any more clarity – first half, second half?
Scott Brun
I think we can go ahead and say first half on that.
David Risinger – Morgan Stanley
Thank you.
Operator
Thank you. Our next question is from Steve Scala of Cowen.
Steve Scala – Cowen and Co.
Thank you. I have two questions on HUMIRA.
You mentioned that the company has identified opportunities to further penetrate existing markets. I’m wondering if you would elaborate and quantify the magnitude of those opportunities.
And secondly AbbVie has previously said that HUMIRA has a patent portfolio including over 250 granted or pending patents. Are there any patents in that estate that if investors knew their full nature and content then investors would have a substantially different view of the duration and potential of the franchise beyond 2016 and ’18?
So I’m not asking for you to identify the intellectual property or tell us what it is but since you know what it is I’m just wondering whether we would have a very different view if we were aware of that data. Thank you.
Rick Gonzalez
Okay, this is Rick, Steve. So first on the penetration, we’ve talked extensively about these markets still are penetrated at relatively modest levels.
So a lot of our activity that is really driving the growth of HUMIRA across most indications is driven to a great extent by increased penetration and new indications. So I don’t know that I can quantify it for you much more than that but I’d say it’s a substantial part of what we do see in growth as well as in certain markets we’re seeing some additional market share.
As far as the patents are concerned, obviously that’s a highly sensitive issue for us from a competitive standpoint. So I wouldn’t give you any more color other than to say obviously we’re looking at our patent estate in a very appropriate and aggressive way and we will ensure that no one violates those patents.
And I’m probably not willing to give you much more color than that.
Steve Scala – Cowen and Co.
Thank you.
Operator
Thank you. Our next question is from Jeff Holford from Jefferies.
Jeff Holford – Jefferies & Company
Good morning, thanks for taking my questions. So just first of all on HUMIRA, following the [Axio SPA] panel do you have any different view coming out of that on what the potential [bold form] indication, revenue potential is for HUMIRA?
Just secondly do you have in mind based on what you know about Phase III readouts of when you would actually present your Phase III registration set of data for Hep C? Would we expect EASL next year to be the most likely venue for that?
Thank you.
Rick Gonzalez
Why don’t you cover HCV first?
Scott Brun
Hi Jeff, Scott Brun. Why don’t I go ahead and take the HCV first.
So yeah, certainly – it is our plan to have some significant data disclosures of the Phase III Program at EASL for next year. Certainly our full data disclosure plan is still in the works.
Rick Gonzalez
And then Jeff, on [Axio SPA] is a relatively modest opportunity from our perspective in the US. We’d still like to get a label claim going forward but it’s something less than $100 million.
Really the big opportunity for [Axio SPA] is in Europe where it’s already approved, and so it doesn’t have any kind of significant magnitude of impact on the overall growth of HUMIRA.
Jeff Holford – Jefferies & Company
Thanks very much.
Scott Brun
Thanks, Jeff.
Operator
Thank you. Our next question is from Chris Shad from JPMC.
Chris Shad – JPMC
Great, thanks very much, just two questions here. First on ABT-126, can you talk a little bit about the doses you’re looking at in the Phase II-b relative to the data that was presented a few weeks ago?
And then secondly on that product, it seems like the use here most likely might be in combination with Aricept in Alzheimer’s. Can you just talk about your confidence that there’ll be an additive benefit on top of Aricept?
I think the data so far has been in a monotherapy setting. And then the final question coming back to bio-similar Remicade and the recommendation of full label there, were you surprised at all with the full label?
And what are the implications of that for HUMIRA as we think about potential bio-similar competitors, the amount of clinical work they’ll need to get a broad label as we look at the European market? Thanks very much.
Scott Brun
Scott Brun, Chris. On the ABT-126, as you referenced we recently presented proof of concept data looking at ABT-126 as monotherapy in the mild to moderate Alzheimer’s Disease segment.
And certainly what we saw there prompted us to move into our Phase II-b trials. I will say we are studying a higher dose range.
I don’t want to specifically disclose the doses that we’re looking at right now because this as you know is quite a competitive area. But the Phase II-b program has both monotherapy as well as add-on to Aricept trials.
Certainly with regard to the mechanism of a nicotinic neuronal agonist, we certainly think that there is a potential for add-on or synergy with regard to the cholinergic mechanism by which Aricept results in its activity.
Rick Gonzalez
Okay, and then Chris, this is Rick on the bio-similar. I’ll tell you we were surprised by the recommendation being broad without at least to our knowledge any clinical data to be able to support it.
I’d say our position is we don’t think that’s in the best interests of patients. I mean it’s clearly unprecedented to have a biologic that you’re going to get ultimately an indication for that you’ve never studied in humans.
And I’d say most of the feedback we get from physicians in Europe, particularly GI physicians I’d say is that they want to see data in here. So we’ll have to see how it plays out.
There’s a lot of time between now and the time HUMIRA will potentially face bio-similar competition so it’s a little early to speculate how that might impact HUMIRA one way or the other. I think we’ll have to see how it plays out.
Chris Shad – JPMC
Thank you.
Scott Brun
Thanks, Chris.
Operator
Thank you. Our next question is from Marc Goodman of UBS.
Marc Goodman – UBS
Yes, good morning. So you were talking about extra spending because you were doing better on the top line, so that spending, it looked like it was in the $100 million range in the quarter and it’s going to be several hundred million for the year.
So is it all HUMIRA or are you going to spend it on other things? Are you increasing sales forces there or is it just marketing?
And can you give us a sense is it US or is it overseas? The second question is on HUMIRA – can you just give us a sense of the GI part of it, the indication and how much that’s helping?
If you can quantify it that would be great. And then third on [Synergist], can you just help us understand how this product does quarter to quarter, what kind of timing we need to be thinking about just in modeling it quarter to quarter.
And what happened this quarter relative to last quarter? Thanks.
Bill Chase
Okay, Marc, it’s Bill Chase. On the spending you’re correct – in our guidance we are raising profile for both R&D and SG&A, and what you’re seeing there is really two different things.
First of all on the R&D front we’ve got a lot of programs that are very, very exciting. We’re moving to continue to develop those as rapidly as we possibly can and we think that’s the right thing to do for the long-term.
On the promotional front, on the SG&A front I think the strong performance of our growth brands has shown that that’s been a very, very effective use of investment and we are going to continue to invest heavily in those brands to make sure that we reach their full-year potential. So that’s what you’re seeing.
The expense is really on a global basis on the marketing side and certainly on the R&D side it’s across the entire pipeline. [Synergist], you had asked about the timing of the quarters.
What you’ll see with this product is typically the sales are more heavily weighted to the fourth and first quarters of the year. This quarter was obviously much lower based on that gating but typically the bulk of those sales fall in Q4 and Q1.
And then with GI again, the gastro segment winds up being probably the fastest growing segment of HUMIRA. We’ve been very, very pleased with both the market growth and our share growth where we’re actually capturing share, and that’s going to be a big part of the HUMIRA story as it develops over the next couple of years.
Rick Gonzalez
Yeah, you know the blended gastro share for us in the US is up about five points, and a lot of that has to do with not only the strength of the UC launch but just in general the marketplace around gastro. In ex-US markets, in Europe in particular we’ve probably gained about a 20% share already in the UC space.
So the launch of UC is off to a great start for us.
Operator
Our next question is from Tony Butler from Barclays.
Tony Butler – Barclays
Thanks very much. Scott, could I get you to outline for us the HCV program in Japan?
Rick, may I ask you a question around the market in HCV in the US – do you know the net number of patients that are actually treated today under the care of a physician? And then finally, Bill, one for you: the $70 million Alvine payment was not counted in the non-GAAP earnings – I think that obviously was cash.
And so I’m just curious would that be a consistent practice that you would do with respect to royalty payments and upfront payments for collaborations, not only in this quarter but in the future? Thanks very much.
Scott Brun
Tony, it’s Scott Brun, I’ll start with the HCV Japan question. So as you know the epidemiology of HCV in Japan is very specific, very highly weighted to genotype 1b and then genotype 2.
As a consequence our regiment under Phase II study there is a co-formulation of the protease inhibitor ABT-450 with the NS5A 267 and the Ritonavir boost resulting in a two pill once a day regiment. We’re far advanced in our Phase II program and in ongoing discussions with PMDA regarding the transition to Phase III.
Bill Chase
And on the Alvine payment you’re correct. IP R&D we treat as an item which we exclude from our non-GAAP estimates and that is our practice.
Rick Gonzalez
And Tony, as far as the number of patients being treated, the data obviously moves around a little bit but the latest data that we’ve looked at historically, if you look at 2011 roughly 175,000 patients in the G7 were treated. We expect that to grow with these next-generation products to somewhere in the neighborhood of 2x that based on the capacity that we see in the marketplace from a clinical standpoint.
Tony Butler – Barclays
Thank you very much.
Scott Brun
Thanks, Tony.
Operator
Thank you. Our next question is from Alex Arfaei from BMO Capital Markets.
Alex Arfaei – BMO Capital Markets
Good morning, thank you for taking the questions. First on ABT-199, based on what we saw at ASCO you seem to have a pretty compelling argument in the relapsed refractory CLL setting.
I’m just wondering if there’s been any progress on tumor lysis syndrome that’s concerned there. And then a follow-up on the Galapagos JAK1.
The Phase II-a in RA at [Euler] was a bit disappointing. I’m just wondering if you can just comment on the potential of that drug in RA from your perspective?
Thank you.
Scott Brun
Sure, Scott Brun. So let me start with the ABT-199.
Yeah, we agree that actually 199 has promise not only in relapsed refractory CLL but across a number of hematologic malignancy. With regard to tumor lysis syndrome which is a direct consequence of the explicit potency of 199 we have been enrolling CLL patients with a revised dosing schedule where we start at a lower dose and ramp up at a more slow rate, and so far so good with regard to the patients that we have been treating under that new protocol.
So again, we have a number of CLL studies that are actively enrolling right now and we will continue to accrue more data with this new approach. With regard to the Galapagos data, we’re certainly not disappointed in the results.
I think you need to be aware that the data that was generated included relatively small cohorts of 15 to 20 patients. And while yes, you can single out specific response metrics and bring up some questions with regard to what they mean, if you look in aggregate across all of the measures included in this study – the deaths, 28; the various ACRs – we feel that there is a very clear dose response relationship.
But again, we’re going to characterize much more clearly in the large Phase II-b study that includes a variety of doses.
Alex Arfaei – BMO Capital Markets
Thank you.
Rick Gonzalez
Thanks, Alex. Operator, I think we have time for one more question.
Operator
And our final question today is from Damien Conover with Morningstar.
Damien Conover – Morningstar
Great, good morning, thanks for taking the questions. I have two questions.
The first one, given the recent recommendation by the US Preventative Taskforce to provide Hepatitis C diagnostic testing, I was wondering if you thought there’d be an increase in the relatively low amount of patients that are currently diagnosed; and also whether or not you think Medicare will start to pay for the sort of diagnostic testing outside of folks that are currently higher risk patients. And then just one other quick question on the Patient-Centered Outcome Research Institute, one of their first head-to-head studies is looking at comparative effectiveness from an anti-TNF-alpha versus steroids for Crohn’s and UC.
And I just wanted to see how well you feel HUMIRA is positioned against steroids. And then also just generally speaking within this patient group, these patients have refractory to steroid treatment or do they generally move right on to HUMIRA?
Thank you.
Scott Brun
Scott Brun, why don’t I go ahead with the HUMIRA questions. So certainly I can’t speak to details of the comparative effectiveness trial that you’re referring to, but certainly we feel the data that we have generated to date demonstrates the very compelling activity that HUMIRA provides in these steroid refractory patients.
I think you need to be somewhat careful depending on the design of these comparative effectiveness trials. Certainly we’ve seen other type trials that again, with real world experience if you’re not carefully randomizing there can be biases with regard to how patients are included in certain treatments that could limit interpretation.
And again I apologize I can’t provide more specifics on this design since I’m not familiar with it.
Rich Gonzalez
Okay, and Damien this is Rick Gonzalez. As far as the HCV diagnosis, I mean it’s fairly well known that there are a large number of patients in the G7 that are still undiagnosed, in the US as well.
And so I think screening more patients to find out those patients that are infected are a good thing, both patients as well as the market itself. I think as far as the expansion, I mean clearly we could see greater numbers of patients being treated as more and more physician capacity comes online, and we’ll have to see how that plays out over time.
Even without that this is a very, very large market. So and your final point was as far as Medicare paying for it, I think that’s a little tough for us to call one way or another.
With the recommendation I think there’s certainly a higher likelihood of that but it’s a little hard to judge at this point.
Damien Conover – Morningstar
Great, thank you.
Rick Gonzalez
Thanks, Damien. And that concludes today’s conference call.
If you’d like to listen to a replay of the call after 11:00 AM Central Time today go to AbbVie’s Investor Relations website at www.abbvieinvestor.com, or call 888-568-0512, passcode 72613. The audio replay will be available until midnight on Friday, August 9th.
And thanks again for joining us today. If you have any follow-up questions feel free to give the IR Team a call.
Thanks!
Operator
Thank you and this does conclude today’s conference. You may disconnect at this time.