AbbVie Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 27, 2023

Key Takeaways

  • Beat and raise: Q3 adjusted EPS of $2.95 (up $0.14) and revenues of $13.9 B (up $225 M) exceeded guidance, prompting a $600 M full-year revenue raise and a $11 EPS floor for 2024.
  • HUMIRA erosion: Global HUMIRA sales fell 36.2% to $3.5 B amid U.S. biosimilar competition, with price declines driving most of the impact despite maintained volume.
  • Ex-HUMIRA growth platform, led by SKYRIZI and RINVOQ, is on pace for $11.6 B combined 2023 sales, with updated full-year outlooks reflecting continued share gains in immunology.
  • Pipeline momentum remains strong, highlighted by SEQUENCE Phase 3 data showing SKYRIZI’s superiority vs. STELARA in Crohn’s and positive late-stage toxin and aesthetics trial results.
  • Dividend increase: AbbVie raised its quarterly payout by 4.7%, marking over 285% total growth since inception and signaling confidence in future cash flow.
AI Generated. May Contain Errors.
Earnings Conference Call
AbbVie Q3 2023
00:00 / 00:00

There are 19 speakers on the call.

Operator

Morning and thank you for standing by. Welcome to the AbbVie Third Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode until the question and answer portion of this call. I I would now like to introduce Ms. Liz Shea, Senior Vice President, Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

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 Rob Michael, President and Chief Operating listen only mode. Jeff Stewart, Executive Vice President, Chief Commercial Officer Scott Rentz, Executive Vice President, Chief Financial Officer Carrie Strom, Senior Vice President, AbbVie and President, Global Allergan Aesthetics and Tom Hudson, Senior Vice President, R and D and Chief Scientific Officer.

Speaker 2

In a

Speaker 1

Joining us for the Q and A portion of the call is Rupal Thakkar, Senior Vice President, Development and Regulatory Affairs and Chief Medical Officer. In a listen only mode. AbbVie undertakes no obligation to update these forward looking statements except as required by law. Filed 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.

Speaker 1

So with that, I'll turn the call over to Rick.

Speaker 3

Thank you, Liz. Good morning, everyone, and thank you for joining us today. AbbVie continues to perform exceptionally well. We once again delivered an excellent quarter with results ahead of our expectations. We are now several quarters into the U.

Speaker 3

S. Biosimilar event for HUMIRA and continue to effectively manage erosion. We've been able to maintain significant volume with the majority of the impact to date driven by lower price. Importantly, our growth platform, the base business excluding HUMIRA, which includes a well diversified portfolio with multiple leading products in highly attractive markets across immunology, neuroscience, oncology and aesthetics led by SKYRIZI, WINVOTE, VAYLAR and BOTOX will continue to drive significant revenue growth going forward. At the same time, we have several promising R and D programs with the potential to contribute meaningfully in the latter part of this decade and into the 2030s.

Speaker 3

This includes next generation approaches in immunology, focused on bispecifics, ADCs and novel IO in oncology as well as innovative therapies to able to treat a range of neuropsychiatric and neurodegenerative disorders. In summary, Which Rob will share momentarily. And further underscoring our confidence in AbbVie's long term outlook, today we also announced an increase in a quarterly dividend, which we have grown by more than 2 85% since our inception. With that, I'll turn the call over to Rob for additional comments on our business performance. Rob?

Speaker 4

Thank you, Rick. Our results once again demonstrate the strength a of our broad portfolio and support AbbVie's long term growth outlook. We reported adjusted earnings per share of $2.95 Which is $0.14 above our guidance midpoint. Total net revenues were $13,900,000,000 roughly $225,000,000 ahead of our guidance. The performance of our ex HUMIRA growth platform in a SKYRIZIYA and RINVOC, our best in category immunology medicines.

Speaker 4

We continue to anticipate that these two products will collectively exceed in a HUMIRA peak revenues by 20 27 with robust growth expected into the next decade. Neuroscience also delivered strong performance with operational sales growth of more than 20% this quarter, driven by our leading portfolio for migraine and psychiatric conditions. And lastly, Aesthetics performance was highlighted by the return to growth of the U. S. Toxin market.

Speaker 4

This outstanding execution across our well diversified portfolio gives us the confidence to once again raise our near term financial outlook. We are increasing our full year revenue guidance by $600,000,000 And have now raised total revenue by $2,000,000,000 since our initial guidance in February, including more than $1,400,000,000 from our ex Given the strong momentum of our growth platform, which is significantly outperforming our expectations this year, We are now raising the floor guidance for 20.24 adjusted EPS to $11 which is $0.30 better than our previous expectations. This floor guidance continues to exclude any impact from IPRD expense. As is our typical practice, we'll provide our formal EPS guidance range for 2024 on the 4th quarter call. Finally, today we are announcing a 4.7% increase in our quarterly cash dividend from $1.48 We have grown our quarterly dividend by more than 2.85%.

Speaker 4

In summary, I'm very pleased with the strong execution across our portfolio. We remain confident in our long term outlook, including a to turn to robust revenue growth in 2025 with a high single digit CAGR to the end of the decade. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff?

Speaker 5

Thank you, Rob. We once again delivered strong results across our therapeutic portfolio this quarter. I'll start with immunology, which delivered total revenues of nearly $6,800,000,000 exceeding our expectations. SKYRIZI and RINVOC continue to demonstrate impressive growth and are now on pace to deliver approximately $11,600,000,000 in combined sales in a listen only mode this year. This performance is especially encouraging recognizing that we are still in the early launch phase for both assets in IBD, in an area of high unmet need where we are very competitively positioned with 2 complementary assets, each having generated strong response rates and durable remission across our development programs.

Speaker 5

YYRIZI total sales were $2,100,000,000 reflecting operational growth of more than 50%. This robust performance includes further share gains in psoriasis, And approximately 50% of in play patients who are either new to therapy or switching. Increasing momentum in psoriatic arthritis where SKYRIZI is now the leading in play biologic therapy in the U. S. Dermatology segment, as well as in a continued rapid uptake in Crohn's disease, where we are capturing roughly 1 out of every 4 in play patients.

Speaker 5

Importantly, we recently announced positive results from sequence, the 9th and perhaps the most impactful head to head study across our development program for SKYRIZI and RINVOC. Sequences of Phase 3 head to head study in Crohn's, which demonstrated SKYRIZI superiority versus STELARA across key efficacy parameters, including impressive statistically significant differences in both clinical and endoscopic remission. The detailed data from this trial were presented earlier this month And we plan to share the findings more broadly now via our medical personnel and representatives in the field. We anticipate these strong head to head results will clearly support SKYRIZI as the best in category therapy for Crohn's, Which is important for continued rapid share capture. So based on this very positive data as well as our continued momentum, we will be once again raising the full year sales outlook for SKYRIZI.

Speaker 5

Moving now to RINVOC, which delivered global sales of $1,100,000,000 reflecting operational growth of nearly 60% with increasing prescriptions across each of the approved indications. In particular, I'm very excited about RINVOQ's growth potential in gastroenterology, where uptake is exceeding our expectations. In ulcerative colitis, Renvoke is now capturing more than 25% total in play patient share in the U. S. Second line plus setting, nearly at parity to the current market leading therapy.

Speaker 5

And in Crohn's disease, RINVOC is ramping very significantly. The inflection we are seeing is even faster when compared to our time aligned launch in UC just last year. Given this impressive momentum in IBD, we will now be raising our full year sales outlook for RINVOC. Global HUMIRA sales were more than $3,500,000,000 down 36.2% due to biosimilar competition. The erosion impact in the U.

Speaker 5

S. Played out largely in line with our expectations this quarter, while performance across our international markets is trending better in a than expected. Turning now to oncology, where total revenues were $1,500,000,000 IMBRUVICA global revenues were 908 1,000,000 down 20% and consistent with our expectations. VENCLEXTA global sales were $590,000,000 up 14% on an operational basis with strong demand for both CLL and AML across our key countries. The U.

Speaker 5

S. Launch of Epkinley in 3rd line plus DLBCL is also tracking well with commercialization also now underway in Europe in Japan following the recent respective approvals. In neuroscience, total revenues were more than $2,000,000,000 up in a $751,000,000 were up 35.4 percent and we have seen a significant uplift in new prescriptions across all indications following the approval as an adjunctive treatment for major depressive disorder late last year. Our leading oral in a TGRP portfolio for migraine contributed $365,000,000 in combined sales this quarter, reflecting growth of nearly 65%, as we continue to see strong demand for both UBRELVI and CULIPTA. Etogepant was also recently approved as a new therapy in Europe, branded as EQuipta, where it is the only once daily oral CGRP for prevention of both episodic and chronic migraine, further strengthening our competitive product profile and long term growth opportunity.

Speaker 5

Lastly, total BOTOX Therapeutic global sales were $748,000,000 up 7.4% on an operational basis, Reflecting momentum in chronic migraine as well as other approved indications. So overall, I'm extremely pleased with commercial a position across the therapeutic portfolio, especially with our growth platform, which is demonstrating strong revenue growth. And with that, I'll turn the call over to Keri for additional comments on Aesthetics. Keri?

Speaker 6

Thank you, Jeff. 3rd quarter Global Aesthetics sales were in a $59,000,000 were roughly flat to last year as growth for BOTOX Cosmetic was offset by declines in other brands that continue to be impacted by lower consumer spending in a U. S. BOTOX Cosmetics sales were $388,000,000 an increase of 5%. We are beginning to see a recovery in the U.

Speaker 6

S. Toxin market, which posted positive year over year growth in the Q3 following 3 consecutive quarters of declines due to economic Sure. Botox continues to perform very well despite increasing competition. It remains the clear market leader with a strong and stable share And we have seen little to no share impact from new competitive entrants. U.

Speaker 6

S. Juvederm sales were $116,000,000 in the 3rd quarter, a decline of 6.4 in a versus prior year as recovery in the facial filler market continues to lag the cosmetic toxin market. The filler market is improving, however, as a higher priced, more deferrable procedure relative to toxins, this segment of the aesthetics market continues to be suppressed by lower consumer spending. In the Q3, the U. S.

Speaker 6

Facial filler market was down low teens percentage compared to the prior year. Juvederm remains the market leading facial filler in the U. S. In a while the U. S.

Speaker 6

Facial injectable markets continue to be impacted by lower consumer spending in this inflationary environment, We are seeing signs of stabilization and even a return to growth in the cosmetic toxins segment. This gives us confidence in a stable to improving outlook in the U. S. As we end this year and enter 2024. Internationally, 3rd quarter Aesthetics sales were $480,000,000 Representing an operational decline of 9.7%.

Speaker 6

As anticipated, year over year performance in the quarter was impacted by a shipment timing benefit we experienced in the Q3 of last year. Results were also impacted by softening economic conditions across major international aesthetic markets, Primarily China. Despite the economic pressures that are currently impacting our aesthetics portfolio, we remain very confident in its long term growth outlook. In September, we began launching SkinViv in the U. S.

Speaker 6

And in the next few years, we plan to launch new indications for BOTOX in the lower face segment in a and our novel fast onset short duration toxin, BONTAE. In addition to our R and D programs, we have a robust Ali technology pipeline, which will bring new tech products into the U. S. Market to help our customers acquire, retain and cross sell more Our strong leadership positions in both cosmetic toxins and facial fillers combined with the significant investments making to drive market acceleration will position us for strong growth going forward. With that, I'll turn the call over to Tom.

Speaker 7

Thank you, Carrie. In immunology, we had 2 important milestones in the Q3 for SKYRIZI in inflammatory bowel disease. Following completion of the Phase 3 maintenance trial in ulcerative colitis, we submitted our regulatory applications for SKYRIZI in this indication in the U. S. And Europe with approvals anticipated in 2024.

Speaker 7

We also recently presented results from the sequence head to head trial Comparing SKYRIZI to STELARA in patients with moderate to severe Crohn's disease. We're extremely pleased with how SKYRIZI performed in this study, which enrolled very difficult to treat patients who all failed anti TNF therapy. SKYRIZI met the primary and all secondary endpoints a trial demonstrating clear superiority to Stelara on all endpoints at week 48 With a more than doubling of effect in endoscopic remission at 32% of SKYRIZI versus 16% for STELARA and endoscopic response at 45% versus 22% for Stelara. Furthermore, steroid free clinical remission in a with 61% for SKYRIZI versus 40% for STELARA. So these compelling head to head Crohn's data combined with the additional durable, safe and well tolerated treatment option for patients with moderate to severe inflammatory bowel disease.

Speaker 7

We continue to make very good progress with the 2nd wave of Winvolk development programs as well, in addition in alopecia areata. We also recently announced positive top line results from a Phase 2 study for RINVOC in Vitiligo. In this study, RINVOC met the primary and all secondary endpoints at week 24, demonstrating a significant improvement in both facial and total body Vitiligo scoring measures compared to placebo. Importantly, These results continued to improve through week 52 of the study, illustrating RINVOC's potential to provide significant skin repigmentation patients suffering from vitiligo. Based on these results, we're advancing RINVOC to Phase 3 in this indication in a with studies expected to begin soon.

Speaker 7

Moving to oncology, where in the quarter we received approval in Europe and Japan for ekoritumab as a monotherapy treatment for patients with relapsed or refractory DLBCL in a these approvals represent important regulatory milestones for EPCO We also continue to make good progress with the development programs in earlier lines of DLBCL and follicular lymphoma in a and we look forward to providing updates on these programs as the data mature. In our VENCLEXTA multiple myeloma program, We recently announced top line results for the Phase 3 Canova trial evaluating VENCLEXTA plus dexamethasone compared to Palmdex in relapsedrefractory patients with a T1114 mutation. In this study, The primary endpoint of IR CSS PFS was longer with Vendex versus Palmdex, but did not meet statistical significance. The VENCLEXTA combination also resulted in numerically higher response rates and longer overall survival compared to Palmdex. While the differences in efficacy measures were not statistically significant, we believe the totality of the data show a benefit with the VENCLEXTA combination and we plan to discuss the results with regulatory agencies.

Speaker 7

We'll provide updates on the program as they become available. Behind VENCLEXTA, we have several exciting multiple myeloma programs emerging from our earlier stage pipeline. We continue to make good progress with our BCMA CD3 bispecific, ABBV383, where we're nearing completion of the dose optimization work on track to begin Phase 3 studies in the first half of next year. At an upcoming medical meeting, we plan to present updated Phase 1 efficacy in a and safety results as well as monthly administration dose data. We're also making good progress with our next generation BCL2 inhibitor ABBV453, which is currently in Phase 1 studies and will provide updates as the data become available.

Speaker 7

Now moving to neuroscience, where in the quarter we received approval for AQuipta in Europe, which is now the only oral CGRP antagonist approved in Europe for prevention of both episodic and chronic migraine. And lastly, in our aesthetics pipeline, we recently announced topline results from a second Phase 3 study evaluating BOTOX in platysma prominence. Similar to results from the 1st Phase 3 study, All primary and secondary endpoints were met, with BOTOX demonstrating a significant reduction in platysma prominence and vertical neck band. We anticipate a regulatory submission in the U. S.

Speaker 7

Near the end of the year. In addition to indication expansion for BOTOX, We continue to advance our novel toxin pipeline. We recently announced positive top line results from 2 Phase 3 trials evaluating BONTA, a rapid onset short acting novel toxin in glabellar lines. VONTI performed very well in both studies, meeting the primary and all secondary endpoints compared to placebo. VONTI was well tolerated and no safety concerns were identified.

Speaker 7

We're very pleased with these results, which demonstrate this toxin's rapid onset of action and short duration of effect. Patients treated with BONTI showed an improvement in glabellar lines as early as 8 hours following injection and a duration of effect of 2 to 3 weeks. This highly differentiated clinical profile could offer patients a novel option compared to currently available neurotoxins. We plan to complete the remaining development work over the course of the next few quarters and anticipate submitting our regulatory applications in the second half of next year. So in summary, we continue to make good progress across all stages and therapeutic areas of our pipeline And we look forward to several more important milestones in the remainder of this year, including Phase 2 data for TALISOVI in second line plus advanced non squamous non small cell lung cancer, which has the potential to support an accelerated approval.

Speaker 7

A Phase 2 proof of concept data for our anti IL-one alphabeta bispecific antibody, lutekizumab in hidradenitis suppurativa in regular to approval in Europe for ABBV-nine fifty one, our novel subcutaneous levodopa carbidopa delivery system in a for advanced Parkinson's disease. We also plan to submit updated 951 data in the U. S. Near the end of the year. With that, I'll turn the call over to Scott.

Speaker 7

Thank you, Tom. I'm very pleased with the momentum

Speaker 8

of our business. The strong performance we are demonstrating from our ex HUMIRA growth platform continues to support AbbVie's long term growth outlook. Starting with our Q3 results. We reported adjusted earnings per share of 2 point 95 from acquired IP R and D expense. Total net revenues were $13,900,000,000 roughly $225,000,000 ahead of our guidance and down 5.8% on an operational basis, excluding a 0.2% unfavorable impact from foreign exchange.

Speaker 8

Importantly, these results reflect double digit sales growth from our ex HUMIRA growth platform. The adjusted operating margin ratio was 46.7 percent of sales. This includes adjusted gross margin of 83.5 percent of sales, Adjusted R and D investment of 12.4 percent of sales, acquired IPR and D expense in a of 0.5 percent of sales and adjusted SG and A expense of 23.9 percent of sales. Net interest expense was $398,000,000 The adjusted tax rate was 15.7%. Turning to our financial outlook.

Speaker 8

We are raising the midpoint of our full year adjusted earnings per share guidance by $0.25 in a $11.23 This guidance does not include an estimate for acquired IPR and D expense that may be incurred in the Q4. We now expect total net revenues of approximately $54,000,000,000 an increase of $600,000,000 At current rates, we expect foreign exchange to have a 0.5% unfavorable impact on full year sales growth. The updated revenue forecast contemplates a full year sales increase of $300,000,000 roughly split evenly between SKYRIZI and RINVOQ, reflecting strong uptake in IBD. The remaining $300,000,000 full year sales increase is primarily attributed to better than expected performance of International Humira in androstasis. Moving to the P and L, we continue to forecast an adjusted operating margin ratio of approximately 46.5 percent of sales.

Speaker 8

We now expect adjusted net interest expense of roughly in a $1,700,000,000 and we forecast our non GAAP tax rate to be approximately 15.5%, reflecting IPR and D occurred through the Q3. Turning to the Q4. We anticipate net revenues of approximately $14,000,000,000 At current rates, we expect foreign exchange to have a modest unfavorable impact on sales growth. We expect adjusted earnings per share between $2.87 $2.91 Finally, AbbVie's strong business performance continues to support our capital allocation priorities. We generated more than $16,500,000,000 of adjusted free cash flow, which is net of approximately $1,100,000,000 of in a 4.7% increase in our quarterly cash dividend, beginning with the dividend payment in February of 2024.

Speaker 8

And we remain on track to achieve by the end of this year $34,000,000,000 of cumulative debt pay down since the Allergan transaction, maintaining a net leverage ratio around 1.8 times. In closing, AbbVie has once again delivered outstanding results And our financial outlook remains very strong. With that, I'll turn the call over to Liz.

Speaker 1

Thanks, Scott. We will now open the call for questions In the interest of hearing from as many analysts as possible over the remainder of the call, we ask that you please limit your questions to 1 or 2. Operator, we'll take the first question please.

Operator

Yes. Our first question comes from Chris Shibutani with Goldman Sachs. Your line is open.

Speaker 9

Thank you very much. Good morning. The 2024 earnings guidance, it seems as if you were quite confident heading in that $11 floor. Key push calls that actually gave you that conviction to go to 11 and where directionally we should be thinking about the source of further growth on the forward? Thank you.

Speaker 4

Hi, Chris. It's Rob. I'll take that question. So since we provided that guidance in February, recall we gave a 10.70 EPS floor to really help investors model earnings regardless whether trough occurred in 2023 or 2024. We've raised growth platform sales by $1,400,000,000 covering immunology, neuroscience and aesthetics.

Speaker 4

We're seeing the IBD indications for SKYRIZI and RUINVOC ramp very nicely and we continue to capture more share in their other indications. Both VRAYLAR and our migraine portfolio have outperformed our share forecast and the strong recovery of BOTOX has led us to raise guidance for aesthetics twice this year. So given the clear over performance of the growth platform, we decided to raise the floor to $11 ex IPR and D. We hope this provides investors with a view of the low end of

Speaker 2

the 2024 guidance range

Speaker 4

and also confirms that 2024 range and also confirms that 2024 will indeed be the trough year. And given that we expect to deliver a high single digit CAGR from 24 to the end of the decade, it should allow investors to value the company with a better growth multiple.

Speaker 1

Thanks, Chris. Operator, next question please.

Operator

Yes, our next question comes from Mohit Bansal with Wells Fargo. Your line is open.

Speaker 2

Great. Thank you very much for taking my question. And I have a question regarding aesthetic. So it seems like you are keeping the guidance here. So the first part of the question is it seems like across the board there is a 10 percent quarter over quarter decline on all the products.

Speaker 2

Can you help us understand what's happening sequentially? And then If you are keeping the guidance, it seems like there would be quite a bump in Q4. So how should we think about that?

Speaker 4

Maybe I'll start. This is Rob. I'll start with your question. So one thing to keep in mind is that we mentioned in the last call That we had some dynamics in the international market when you look at the growth rates where we had more difficult comparison because of some of the That's some stocking that occurred in the prior year. Is that something to keep in mind?

Speaker 4

We also do have a certain amount of seasonality that occurs in our business in the U. S. In particular. So those are things to keep in mind. I'd say as we look at it, we're very encouraged by the return to growth of the U.

Speaker 4

S. A So I'd say we're very pleased there. I'd say on fillers, what we're seeing is probably more of a lag in the recovery. And if we've studied this market Historically, we do tend to see a lag and that's really relative to the if you think about the price point, for fillers versus toxins, It's natural to assume that the recovery will take a little bit longer. So we are seeing that recovery take a little bit longer.

Speaker 4

We're still very, very encouraged by the trends we're seeing. We're very excited about the new fillers we've launched, both SkinViv and Volux. We're starting to see some We saw, as you recall, a very strong recovery in the first half of the year. We've seen it moderate and we're keeping a close eye on that. And so that's Something we're obviously paying a lot of attention to.

Speaker 4

Now we look at the rest of the international business, it's growing nicely. And so as I think about the guidance for this year, I'd say we're fairly close. We're not overly concerned. We don't adjust guidance for plus or minus $100,000,000 It was greater than that, we would consider it. So that's something to keep in mind.

Speaker 4

But as we look at this, the long term outlook for this business, We're very confident. I mean, think about the U. S. Toxins market, it's historically grown in the mid teens and it's still heavily underpenetrated in the low single digits and market growth is really the key to deliver on our long term outlook. We've seen this market rebound very strongly following a period of economic pressure We've demonstrated time and again that we can increase new patient starts to our promotional efforts.

Speaker 4

And something I think probably isn't appreciated is that we do have several innovations that can accelerate that growth. And we Think about the master and platysma indications for BOTOX, those can each add a few $100,000,000 Our novel short acting toxin, BONTI, has the potential able to activate new patients that could really drive an inflection in market growth. As you think about one of the biggest barriers for new patients is fear of an unnatural look And the short acting toxin opportunity is a great way to unlock that. And then if you look at our regenerative fillers pipeline, those are aimed at providing both short and long term treatment And as I mentioned, we're also very excited about the new fillers we launched both Skinbeef and Volek. So, with this business, see us go through some cycles with economic pressure, but over the long term, we feel very confident that we can certainly deliver very robust growth and deliver on that Very the $9,000,000,000 expectation for 2029.

Speaker 3

Mohit, this is Rick. The other thing that you're looking at sequentially, you have to keep in mind is we do BOTOX in the Q4. So that elevates revenue in the Q4 and that occurs every year. So if you're looking at Q3 to Q4 and trying to understand why is there a big step up, part of that step up is that.

Speaker 1

Thanks, Mohit. Operator, next question please.

Operator

Yes. Our next question comes from Chris Scott with JPMorgan. Your line is open.

Speaker 10

Great. Thanks so much. Just maybe a 2 parter really focused on immunology for 2024. So maybe first on SKYRIZI and RINVOC, I guess more of the 24 Formulae discussions complete versus seeing some great volume trends. But are you still comfortable that we should expect more normalized price erosion for those two products versus the high single digits we're seeing this year?

Speaker 10

And then the second one was on HUMIRA for 2024. I think, Rob, you might have commented last quarter of your comfort with where consensus sits. And again, maybe similar question with maybe more color about formulary for next year. Is that something you're still comfortable and just how should we think about dynamics there? Thank you.

Speaker 5

Yes. Thank you, Chris. It's Jeff. I'll take the first question. Yes.

Speaker 5

We're very comfortable as we see things start to evolve and close here as we move into 2024. I mean, if you think about all the indications that we've had, 7 over the last 18 months, I highlighted in my remarks, 9 head to head trials. We're just in a very, very nice position for SKYRIZI and RINVOC as we move into 2024 to continue some very strong momentum that we're seeing in the actual. Quite confident in terms of how we're looking at that. And to your key point there on the price, We continue to see that we're not going to have a repeat of what we saw this year.

Speaker 5

And remember the background there were Those 7 indications that came very fast all on top of each other. And so that was the root cause of that of those concessions that won't repeat. Next year, we have really one more big indication, not 7, and that's SKYRIZI UC that Tom highlighted. So we'll see the normalized price erosion more in line with industry forms versus what we saw this year.

Speaker 4

And then Chris, this is Rob on HUMIRA. I think if you think about the annualization of rebates that given the rebates that increase in the second half of this year, so you have annualization impact And the additional rebates to secure parity access next year, really price should be the main driver of the erosion in 2024. I mean volume will have an impact particularly in WACC sensitive accounts, price will make up the vast majority of the erosion next year. And while we're not giving 24 guidance today, as you've mentioned, Chris, I've highlighted the average, it was about 7,000,000,000 When I mentioned that was a reasonable expectation for U. S.

Speaker 4

HUMIRA next year. Now there are a few analysts who have forecasted U. S. HUMIRA above $8,000,000,000 next year, which is just not a reasonable

Speaker 2

a

Speaker 1

Thanks, Chris. Operator, next question please.

Operator

I guess, the next question comes from Terence Flynn with Morgan Stanley. Your line is open.

Speaker 11

Great. Thanks so much for taking the question. Obviously, you guys are very well positioned coming out of the HUMIRA LOE in terms of the growth franchise. But I think there's also a focus from investors on maybe bolstering the pipeline. So as you guys think about M and A and Business Development, maybe you could just walk us through your latest thoughts to and anything in terms of therapeutic areas of interest and stage of development.

Speaker 11

Thank you.

Speaker 3

Okay. Terrence, this is Rick. I'll cover it, that question for you. I think as we look at the business, as Rob indicated, We're extremely comfortable with how the growth platform is performing and I'd say how we're managing the biosimilar erosion, which gives us a lot of confidence that we can deliver in a high single digit going forward from 25 going forward through the end of the decade. So I'd say the bulk of what we're looking at And we're in a fortunate position from that standpoint.

Speaker 3

There are many companies in our sector who need to go out and do lots of BD to be able to drive the growth that they're trying to achieve. We're not in that position. But I'd say the bulk of what we're looking at is we're looking to add assets that could give us incremental pipeline and revenue growth towards the end of this decade and into the That's what the bulk of our focus is on. And I'd say if I look at AbbVie's track record, Certainly, BD has been a critical part of how we've grown this company over the last 11 years. And I'd say, for the most We have done a pretty good job.

Speaker 3

When we acquire assets and bring them in, we can make them perform quite well. Sky Ridge is a good example of that. Certainly, Allergan was another good example of that and there are many others. So I'd say we value BD as a very important tool in how we should grow the business and how we should position our leadership positions in these franchises. Our primary focus is within the franchises that we're operating in.

Speaker 3

In. So let's take immunology as an example. I would say our greatest focus in immunology is to continue to add additional in particular that could be used in combination in order to create deeper levels of So we continue to look for those. We have several already that are in development now like LUTI, like Rip K-1 and focused on combination therapy because we think that is the way to get much deeper clinical remission or responses in those patients who aren't responding to things like SKOVRIZI and REMVO, which obviously performed exceptionally well. So that's a big area.

Speaker 3

Oncology is another big area. We have a high level of interest in next generation CAR T technology. We High level of interest in T cell engagers beyond our BCMA product. I think as we look at that asset continue to develop, we are very convinced it has a best in class profile and it shows us that for the right indications T cell engagers can be extremely effective And they're much easier to use and can be much more broadly brought to patients than CAR Ts, at least the current version of CAR Ts. So I'd say that's an area that we have a high level of interest.

Speaker 3

In psychiatry, we're interested in in anxiety and mood and a variety of other assets, but that gives you some feel for it. And we obviously have the financial wherewithal to go out and do transactions. We need to make sure we find the right transaction. So it's a

Speaker 1

Thanks, Terrence. Operator, next question please.

Operator

Yes. The next question comes from Tim Anderson with Wolfe Research. Your line is open.

Speaker 12

Hi, thanks for taking our question. This is Alice Nesselton on for Tim Anderson. A question on obesity and its interface with INI and a lot of other drug in a Our view is that payers have to cover obesity medicines. And if that's correct, it's a big expense and payers will be looking for offsets. One offset would be for payers to squeeze other therapeutic areas as hard as they can.

Speaker 12

An example could be in I, where there's now a really good product, your own HUMIRA at a much lower price. So we're wondering how much payers might able to start to force a step edit for products like SKYRIZI. It's a relevant question because yesterday one of the issues Bristol noted with its ZYTIC 2 product is step edits and they cite biosimilar Humira as the reason. Thank you.

Speaker 5

Yes. Hi. It's thank you for the question. It's Jeff. And I think you've got to take a step back regardless of the obesity issues and Some of these head to head trials and there's 9 of them, right?

Speaker 5

So if you take SKYRIZI, just in psoriasis, we have gross superiority versus every mechanism in the category. So, a head to head of growth superiority versus HUMIRA versus the leading IL-seventeen Cosentyx or how they would think about that. There's a medical dynamic there and that distinctiveness that we have across our program It's very, very important to help manage, maybe the urge of the payers to think of formulary structures like that. If you think about your comments that you have that you heard yesterday or the day before, that's a very different dynamic. I mean, if you're not that different or you have the same efficacy as a HUMIRA, it's not going to go that well.

Speaker 5

On able to see as a HUMIRA, it's not going to go that well on some of these formularies. And so I think you got to take a step back and look at the fundamental distinctiveness that we have on both SKYRIZI and RINVOC. And I think my last comment would be, let's take RINVOC, which is growing very fast 60%, okay? All of that is in the 2nd line plus setting. So from a strategic standpoint, it's already stepped.

Speaker 5

And so when you take a look at those dynamics, we remain quite confident that as we rely on the power of raising the standard of care that will help us navigate any of these scenarios whether it's Related to obesity or not.

Speaker 1

Thanks, Alice. Operator, next question please.

Operator

The next question comes from Vamil Divan with Guggenheim Securities. Your line is open.

Speaker 2

Great. Thanks for taking my questions. I hope you can hear me. In a I mean, in transit right now. But the two questions I have actually, one is maybe building on Karen's question around business development base in the pipeline.

Speaker 2

I think we had a lot of other questions just around sort of maybe underappreciated assets within your pipeline. I don't know if you could maybe just comment on that. There's a couple of assets that you find out that you think people are overlooking or there might be some underappreciated upside. And then the second one is just on the Charge you took today or this quarter on IMBRUVICA regarding the Medicare drug pricing program. And obviously, I understand.

Speaker 2

So why you did, I'm curious on the amount and the timing. So why you did it now as opposed to maybe waiting to see how The losses play out or negotiation process plays out? And then in terms of the amount, but how you what your assumptions were, I bet you can to share, obviously, this competitive dynamics, if you sort of what you're assuming around the impact that this program would have in a

Speaker 3

Vamil, this is Rick. I'll take the first question and then Scott We'll take the second question. So on the pipeline, I think as I look at the pipeline and how we built the pipeline and how it's playing out, I think I don't know that I would call it underappreciated because you don't necessarily have access to all the data that we have for RINVOK and SKYRIZI and a lot of our focus had been built around that. But in parallel, we were advancing a number of other programs along the way. And I would say the investments that we made on SKYRIZI and RINVOW are pretty clear, the kind of return that we are getting for those assets.

Speaker 3

I mean they're growing At a phenomenal rate. In fact, in the not too distant future, the combination of those two products on a running rate basis will be larger than HUMIRA,

Speaker 7

But if I look

Speaker 3

at our pipeline, the real meaningful programs that we have in our pipeline that will be True needle movers for the company. There are several of them that are advancing now that I think we have a high level of confidence in. 400, our Topo Warhead platform with our CMAT version of that. We're seeing very encouraging data in CRC. We'll follow that with non small cell lung cancer.

Speaker 3

And that platform is demonstrating to us that it is a broad based platform that we can expand to a number of other areas and that should be a fairly significant opportunity for us going forward. Later sort of the 27, 28 times of timeframe, I think is when it will have meaningful benefit play through. And then I'd say the second one is 383, our BCMA bispecific. As we indicated earlier, We're seeing more and more data out of that program that clearly tells us this has a best in class profile, high levels of efficacy in a very good safety and very convenient dosing. We think it has that ideal profile to be able to enter this market.

Speaker 3

And as you know, Multiple myeloma is a very large market. There are very significant products in this market. So those are two opportunities. I would also say 916 And some of our tau programs are also exciting programs that are running in parallel to these. Will be getting more data on those next year and I think those have significant opportunities as well.

Speaker 3

The 3rd program I'd talk about is in our eye care business. It's our REGENX bio program for both wet AMD and diabetic retinopathy. We're seeing some very, very encouraging data out of that program and that could be a nice opportunity for us as well and it continues to advance So there are a number of important programs that you will start to see more and more data as we go through 2024 And in the 2025 that I think will give the market an opportunity to be able to better assess those.

Speaker 8

Tom, this is Scott. With respect to your question on the IMBRUVICA charge, so I think a couple of things. As we have signaled in some of our regulatory filings, Our last 10 Q for instance. We had indicated that if we were if BRUVIKA were to be selected in the negotiation process under the Inflation Reduction That there would likely trigger an impairment. And so we anticipate that this will be happening.

Speaker 8

So the timing really relates to the fact that under the rules, you have to look at the fair value of that intangible asset with respect to future cash flows. And so the accounting rules would require that we would make that analysis upon selection And I would say that when you look at that impairment, the magnitude of the impairment is driven by a number of factors. But really one of the biggest factors that you're seeing there is, It requires you to discount the future cash flow. So as we calculate the future cash flows, looked at what we had assumed was a reasonable assumption on the price, We discount those back. And so that creates, part of the magnitude of this adjustment.

Speaker 8

In terms of the negotiated price that We assume, I think we're in the middle of these negotiations, and it's really wouldn't be appropriate for us to talk about what that is. But we looked at a number of factors, We think that process is going to play out. Certainly, we will see on February 1 in a private conversation with CMS what they anticipate, at least an initial thought on price, but it won't be finalized until September 1 next year. And so we will see what that price is as the process plays out.

Speaker 1

Thanks, Vamil. Operator, next question please.

Operator

Yes. Our next question comes from Steve Scala with TD Cowen. Your line is open.

Speaker 13

Thank you very much. I have two questions and one clarification. First the clarification, is the base year for the high single digit revenue growth to the end of the decade. Is the base year 2023 or excuse me, 2024 or 2025? I think it's 2025, but maybe you can clarify that.

Speaker 13

2nd, given AbbVie's stated interest in building the oncology business, I assume that AbbVie took a hard look at the ADC deal that Merck signed with Daiichi. I'm just curious what about it didn't you like? Was it the profile of the products? Was it the price? Or date and why it doesn't impact AbbVie?

Speaker 13

Thank you.

Speaker 4

Steve, this is Rob. I'll take your first question. So the base year is 2024. And if you think about it, We signaled that we expect to return a robust growth in 2025. And so that high single digit CAGR really would pick up that 1st year a robust growth of 2025.

Speaker 4

If you start in 2025, you'd miss that year of growth. So our intention has always been 2024 is a base year and that high single digit CAGR

Speaker 3

Okay, Steve. This is Rick. I'll take the second question. Obviously, I'm not going to comment whether we looked at that same transaction. That probably wouldn't be appropriate.

Speaker 3

But what I can tell you is we knew it was there. So maybe that gives you some idea of our perspective on it. But the reality is we believe we have what we need with 400. We believe that platform and we own that platform, we developed it internally. Give us everything that we need in that area.

Speaker 3

And so it wasn't something that we were looking at.

Speaker 2

Scott?

Speaker 8

Yes. Hi, it's Scott. So with respect to the tax legislation, I certainly We only talk can talk about what our facts are. But when we've looked at certainly this results out of tax reform legislation a few years ago. The tax rules, there's always a little bit of uncertainty.

Speaker 8

And what happened this quarter, there was guidance that came out that I would say clarified a certain approach in treatment. Prior to that guidance, so there was a little bit of a diversity of opinion amongst advisors as to and ourselves as to how we might implement. So I would tell you that we were already implementing consistent with how that guidance ultimately came out and that's why you're not seeing any impact to us on our tax rate.

Speaker 1

Thanks, Steve. Operator, next question please.

Operator

Next question comes from Gary Nachman with Raymond James. Your line is open.

Speaker 14

Great. So first, back to the trough raise in 2024, how are you thinking about spending levels for both SG and A and R and D Into the trough here next year to set up for growth in 2025 and beyond. And do you have a better sense of where the operating margin might end up next year? And then secondly, SKYRIZI and RINVOC have been doing very well in the IBD indications. Talk about how much headroom you see those products in UC and Crohn's with that landscape likely getting more competitive in the coming years and any updated thoughts on 2025 guidance for those products.

Speaker 14

Thank you.

Speaker 8

Hi, Gary. It's Scott. I'll start with your question regarding operating margin. So when we've looked at the operating margins we talked about in the past for 2023 and 2024, we had talked about those being very, very similar. So when you think about The operating margin that we've talked about for this year and next year, it's really in that 46% to 47% range.

Speaker 8

This year, our guidance is 46.5%, We would expect operating margin in 2024 to be very similar to what we're seeing this year. And then I think as a result, roughly the gross margin is going to be in line in 2024 with what we're in this year as well as the expense profile. So very consistent with this year. And of course, we'll refine that when we come out with guidance.

Speaker 5

Yes. This is Jeff. I'll highlight the your comment on the headspace in IBD. I mean the IBD market is very, very attractive. If we think back historically, we were always frankly a little surprised at how fast HUMIRA back in the day grew when we started able to achieve the UC and the Crohn's indications.

Speaker 5

And again, I would say we're very, very pleasantly encouraged about the momentum. The momentum is very, very significant. So there is significant headroom. And what we see in the market dynamic is that, Unlike what you might think that patients would always want to rotate off of their medications because of the severity of the disease, Actually physicians haven't been able to really move the market very much over the years simply because it's very dangerous to try to go to another drug that hasn't provided any increasing in benefit for those patients. It puts those patients at risk.

Speaker 5

So when you look at what Tom had highlighted, our ability with 2 complementary assets, For example, in the U. S, SKYRIZI position in the early lines, RINVOC position in later lines, both of which have exceptional performance criteria versus the market. That gives us a lot of confidence. The other thing that gives us a lot of confidence because there will be more competitive entries in the future is we think our profiles are going to hold up Basically, we'll carry 2 products with 4 big indications. So our ability to compete in the market for share Even as it gets a little more competitive over time, it's still going to be very, very strong.

Speaker 5

So lots of headroom in the market, lots of unmet need in the market and We believe we have the best position in the market for the foreseeable future.

Speaker 4

And Gary, this is Rob. On your question regarding 20 a 25 guidance. We do periodically update the long term guidance for our portfolio. We're obviously very pleased with the momentum we're seeing both from SKYRIZI and RINVA, particularly in IBD. If you recall, we provided last time we provided guidance for SKYRIZI, we had about $2,500,000,000 of revenue in IBD in 2025 and it was a $1,800,000,000 for RINVOC and those are obviously ramping very nicely.

Speaker 4

We have a lot of confidence. We periodically update that guidance. We'll find the right time to provide a holistic update to our long term guide, but clearly the momentum is there. And The Street reflects that too. I mean, if I look at consensus now for SKYRIZI, I it's around $11,000,000,000 so it's $1,000,000,000 higher than our 2025 guide.

Speaker 4

So I think the market is recognizing the strong momentum and we'll update that long

Operator

next question comes from Louisa Hector with Berenberg. Your line is open.

Speaker 15

Hello. Thank you for taking my question. To continue with IVD, I just wonder if you could talk a little bit more about the ADN pipeline emerging behind Ryzhium and Ryzhium and how we think about that and maybe potential combinations with SKYRIZI. And with the recent competitor Launch in psoriasis with a label where the FDA has asked for mention At CNS, safety warnings. I wondered whether the FDA has mentioned anything to you about the review In that regard.

Speaker 15

Thank you.

Speaker 4

Hi, it's Rupl. I'll take the IBD question. So You've heard already some mention of lutikizumab. That's our IL-one alpha beta bispecific antibody. That's an in house antibody.

Speaker 4

And we have observed data where there's in a with patients with a one beta signal. So we'll be entering into ulcerative colitis looking at a potential biomarker approach. But in addition to that, we will also be looking at a set of combinations as was already mentioned. For example, with SKYRIZI, we have ludikizumab. We have other agents as well.

Speaker 4

RIPK1 was also mentioned. There's also some partnerships that we have. GLP-two is another mechanism we're interested in and another one I'll mention is an IL-two mutine. All of these are under assessment and we do believe either you find a biomarker approach where you can see the high efficacy Or if you want to see real transformational efficacy, you're going to have to go with a combination approach. So those are the assets we'll be looking at.

Speaker 4

Now, moving on to the question, I think it was around depression and suicidal ideation, if I heard it correctly. This was in an IL-seventeen class agent that was recently approved. We've also observed a similar warning and precaution previously also in the IL-seventeen class. In fact, that previous asset, in fact had a REMS in place. Remember SKYRIZI is anti IL-twenty three, very different class And to date with all the data that's been generated across numerous indications, we don't see that type of signal at all, Nor do we have any of that in our label.

Speaker 4

And as we look at psoriasis Therapy, that particular agent that's been mentioned has been available in Europe and our physicians really don't tell us that there's much of an uptake there. So SKYRIZI continues to perform well. Also, our label does not have the high rate of fungal infections That has been observed with the new one in the 17 class.

Speaker 7

And also we've talked

Speaker 4

a lot about IBD. SKYRIZI doesn't also lead to IBD, which is another risk for the IL-seventeen class. And also with our dosing regimen, You get it at 0 in week 4 and then it's quarterly after that. With the new one, I think there's 5 doses that are required and Potentially every 8 weeks or in heavier patients every 4 weeks. So we're very confident in SKYRIZI's position across indications, in a especially in psoriasis.

Speaker 1

Thanks, Louisa. Operator, next question please.

Operator

The next question comes from David Risinger with Leerink

Speaker 5

Yes. Thanks very much.

Speaker 7

So I want

Speaker 16

to expand upon Your vision for oncology, clearly the company has compelling assets. But in light of an increasingly complex a competitive oncology landscape. Could you just paint a picture of how you see your portfolio evolving in opportunities to acquire assets when it may be difficult to see what's around the corner from, let's say, an emerging oncology competitor in 3 to 4 years? Thanks very much.

Speaker 7

Hi, this is Tom Hudson. We've been we certainly when we talk about 400, we're also talking about going in different space than lung and breast where There's a lot of competition like colon cancer, gastric cancer, pancreas. So c med is a target that's expressed in many other tumors and that's why we've developed this with topo warhead, so we can go to a broader set of tumors and that's where we're seeing a very good data with 8,400 Even unselected patient population, 3rd line plus, we saw 22% response versus 2% to 3%. What's also interesting about this is, It's not just for colon cancer, but most chemos, most treatments and GI tumors have a lot of toxicity, a lot of diarrhea. And one of the things that excited clinicians about this program is It's actually a very low rate of diarrhea.

Speaker 7

So what makes that not only can we see some efficacy in third line, but it sees We can move to earlier lines and combine with other therapies and have a higher efficacy. So there's a lot of unmet need in GI tumors. And so this data, again, we're going to have more data in our next cohort at the end of this year. In CRC, we'll have different doses And we'll also have potential cut offs of biomarkers. So moving very well, but we're actually in a big space in GI tumors, As I mentioned, even our GARP program also where we've shown the best data is in liver cancer, where c Met is also expressed.

Speaker 7

We have opportunities to go explore places where there's a big unmet need and the competition is not the same. Now The other targets because we talked about Tuple platform. We have others, 706 which is already in the clinic with SES6. Next year we'll be going to 2 other indications For which there's less competition in terms of ADC space. So our strategy is actually to go and bring this And offering to a lot more cancer patients.

Speaker 4

I'll start there. I'll stop there. Maybe Naheem. It's Rupal. Thank you.

Speaker 4

Let me add on a little bit. I think you may be also reflecting on some of the ESMO data that came out. I will mention lung a little bit, we still see an opportunity with TALISSEOV. We're going to get data later this year. But what we've already observed is 50% ORRs in a biomarker selected population in the EGFR wild type.

Speaker 4

If you look at some of the data that has come out, the ORRs are probably right around 20% to 30%. We don't have all the breakdown of all the different lung subtypes, but one approach is to use a biomarker and then select the patient population rather than going So broadly that was observed at ESMO. The other thing I would say reflecting on the data that came out, if you looked at EGFR mutants in lung, you see some higher levels of efficacy either in the front line or second line in that space, But that comes at a cost and that's a chemo like adverse event profile. And those are things like nausea, vomiting, stomatitis, alopecia, fatigue. These are things that you may see slight increases in efficacy, but clearly patients don't want that.

Speaker 4

And Like as Tom was mentioning with our platform and including TULISOV, we have an opportunity there in the mutant side to combine with osimertinib, which has a nice profile. And those mutant patients when they progress, half of them have Highly expressed c MET. So that's where a combo looks good. And then we're also seeing 50% ORR in that segment as well. And we have a plan to get into Phase 3 into that next year.

Speaker 4

And then as we think about heme, We spoke about 383, which we feel has best in class potential. And one of the things that we're observing with that one is the high level of So that enables a potential where you may not need hospitalization and what you see now with the BCMA dual engagers is not just a And what we would add to that is dose spacing potentially every other month. So that one is a very nice profile and we're moving into Phase 3 with that one and we continue to conduct a variety of combinations there, so we can move into earlier lines of therapy in multiple myeloma. We are still moving into earlier lines in Phase 3s with Ephemele and Heme, which is another dual engager. We have an asset called 45 a 3, which is our next gen BCL2 blocker.

Speaker 4

And then we have a BTK degrader called 101 that's also in clinic. So quite a comprehensive approach across oncology.

Speaker 1

Thanks, David. Operator, next question please.

Operator

Yes, our next question comes from Geoff Meacham with Bank of America. Your line is open.

Speaker 17

Hi, guys. Good morning. Thanks for the question. Just have a couple of quick ones. One in immunology.

Speaker 17

So you guys have evaluated the impact from HUMIRA biosimilars beyond even 25. Is it your view that tail revenues are likely to be better than you initially modeled? And what if anything do STELARA, the delay in STELARA biosimilars able to impact this. And the second question, just on capital deployment. Just given your higher guidance, I know you guys just raised the dividend, but would you also say that The deal capacity is higher.

Speaker 17

I know you recently raised kind of a M and A range and wondering if that's even going higher. Thank you.

Speaker 5

Yes. Hi, it's Jeff. It's Jeff here. And we continue to study The tail, I mean, it's something that we're we look very closely at. We continue to think that the HUMIRA tail will Emerge sometime in 2025 or 2026 and that's looking at some of the international analogs, how we think we see pricing may move.

Speaker 5

I mean the one thing that we do believe is that you're not going to have a small molecule like tail, which is virtually nothing. There able to there's going to be a sub segment of patients that are going to stay on HUMIRA. It's going to be modest, whether it's high low price low volume, but it will be there, even in an interchangeable world. We don't necessarily believe that since we've outperformed here in volume in 23 that that's going to fundamentally change our view on the tail at this point. And again, we're still highlighting that.

Speaker 5

In terms of STELARA, Obviously, we think in the U. S. That will not come until and I think it was recently confirmed this week until sometime in 2025. And so overall, we think that's a modest net positive for AbbVie in terms of how that may play out. But that's not the primary driver of our strategy.

Speaker 5

Our primary driver of the strategy is how distinctive we are across indications with SKYRIZI versus TLARA, which I've already highlighted. So hope that helps. And Jeff, this is Rob. You're right. We did lift in

Speaker 4

the the cap we had put that $2,000,000,000 BD cap in place while we were rapidly paying down debt. And we lifted that in the beginning of this year because we essentially by the end of this year, we're going to have paid All the incremental financing from the Allergan transaction. As Scott mentioned, our net leverage ratio is around 1.8 times. And I have said previously that as long as we have a back to 2 times net leverage in 2 to 3 years. That's the way we're thinking about balance sheet capacity.

Speaker 4

So As we look at it, there's nothing from a balance sheet capacity standpoint that would limit us today from pursuing the opportunities we'd be interested in. So that's not a limiting factor. And to the extent that we continue to raise guidance and perform more strongly. That just means there's even more capacity, but there's at this point, That's not a rate limiter for the types of opportunities we'd be interested in.

Speaker 1

Thanks, Jeff. Operator, next question please.

Operator

Our next question comes from Evan Seigerman with BMO Capital Markets. Your line is open.

Speaker 2

Hi, all. Thank you so much for the question. So I just wanted to touch on the dividend growth. So at first glance, it seems that your dividend growth, while impressive. It's slowing a bit relative to other recent periods.

Speaker 2

Maybe you could help us understand kind of what's driving this dynamic at play? Is it concerns around near term performance of key products, Humira erosion continuing next year. Are you preserving capital for use elsewhere? Maybe some color on that would be very helpful. Thank you.

Speaker 4

So Evan, it's Rob. If you think about it, we're delivering dividend growth both in 2023 2024 While earnings are not growing, right? So then you look at the payout ratio we're at, we're going to be in the mid-50s. And we have said that over the long term, if Which would mean that during this period where you see your payout ratio go up in the future, we're very committed to growing the dividend. We'll continue to grow the dividend, but we would expect then Earnings will grow faster than dividend increases.

Speaker 4

So I would say we've gone through this period for a couple of years where we are still delivering a very nice dividend growth Despite earnings declining, but given our commitment to that dividend, we're going to continue growing it. We'll likely see it step up from here, But not at the same rate as earnings growth because that payout ratio right now will be sitting in the mid-50s. So that's the way we think about it. Over the long term, we want to deliver a healthy, sustainable growing dividend. And so we have a long view on this and we are committed to delivering that growth to investors.

Speaker 4

And so the way we're thinking about. We're going through a period of a couple of years here where earnings aren't growing and then we see us return to robust growth. We'll Step up that dividend again, but it's that's a dynamic that we're balancing here.

Speaker 1

Thanks, Evan. Operator, we have time for one final question.

Operator

Yes, our last question comes from Trung Hung with UBS. Your line is open.

Speaker 18

Hi, guys. Thanks for squeezing me in. I've got 2. Just one, a confirmation on the trough and then one on aesthetics. So on the trough in 2024, you mentioned that costs, You'll have the same margin in 2024 as 2023.

Speaker 18

So is it going to be a trough year on sales rather than the trough being driven by costs? And then second, again, just lots of noise on GLP-1s impacting aesthetics. You've commented before on fillers and a Ozempic faced in the past, but there's potential impact on body sculpting. Is this actually anything that you're seeing coming through yet in the sales? And overall, is this trend a net positive or a net negative for you?

Speaker 18

Thanks very much.

Speaker 4

Trung, this is Rob. So clearly, we've communicated a floor for earnings and Scott previously mentioned that expect a similar level of operating margin Year over year. And so you can model the sales accordingly. It should be fairly clear. Operating margin profile.

Speaker 4

A Operating margin profile, yes. So we've said the 46% to 47% is the way to think about operating margin profile in 2023 and 2024. We've given you the $11 EPS a XiPRD has a floor for next year. So, I was just using those parameters to model revenue.

Speaker 7

Carrie?

Speaker 6

Hi, this is Carrie. For your question around the weight loss products and the impact on the aesthetics business, I mean, as we look at the long term view of this market, we continue to think that anything that gets a subset of patients Anything that gets a subset of patients engaged in their appearance, which these weight loss products can do, That is a positive tailwind for our business. And we hear that from our customers. And many of our customers are bringing these TLP-1s into their practice. And they see it as a natural opportunity to cross sell.

Speaker 6

Now that said, in the short term, especially in an environment where discretionary spending is pressured and there could be trade offs for higher priced products such as fillers or body contouring. Now We're not necessarily seeing that as a driver. Right now, what we're seeing is the broader macroeconomic dynamics. But in the short term that could be a trade off in terms of share of wallet, but absolutely in the long term this is something that is going to help patients get engaged in aesthetics be an opportunity for cross selling.

Speaker 1

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

Operator

Thank you. That concludes today's conference. You may all disconnect at this time.

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