Allergan plc (AGN) CEO Brenton Saunders Presents at Citi Global Healthcare Conference (Transcript) – Seeking Alpha

Allergan plc (NYSE:AGN) Citi Global Healthcare Conference (Transcript) December 6, 2018 11:00 AM ET


Brenton Saunders – Chairman, President and Chief Executive Officer


Liav Abraham – Citigroup

Liav Abraham

Thank you, everyone. My name is Liav Abraham from Citi healthcare. And I am very pleased to present our next fireside chat this morning. Very pleased to have Brent Saunders, the President, Chairman and CEO of Allergan. Thanks for being with us, Brent.

Brenton Saunders

Thanks for having me, Liav.

Liav Abraham

So, this has been a busy year for Allergan. Perhaps you can just start off with some opening remarks and then we’ll start off with some questions.

Brenton Saunders

Sure. First, thank you, guys, for joining us. Thank you for Liav and Citi for hosting.

I will just open up. I tell you I have a cold and swollen and infected sinuses. So just bear with me as I talk.

Look, it’s been a very strong year operationally for Allergan. The team around the world is, I think, a very dedicated and focused and working hard. And I’m very proud of what they’ve accomplished so far this year.

The core business of Allergan, that’s the business minus the LOEs, is growing at approximately 8% or better. We have worked through about 1.3 billion-ish of LOEs this year. We still have RESTASIS to go. But I think we’ve come through that as a stronger commercial organization.

The pipeline and R&D, I think, have had more wins than losses. I think their batting average is pretty high versus the industry. We’re looking forward to a very productive 2019 with respect to our big R&D milestones. And then really towards end of 2019, and going into 2020, a launch of a lot of new product cycles.

So, by and large, things have gone well. Not everything has worked perfectly, but the team, I think, has done an outstanding job of leading through a transition here, in a way that I take a lot of pride in.

Liav Abraham

Great. Thanks for that. Perhaps we’ll start off with a few strategic questions before moving to financial and then some product-specific questions.

Earlier this year, you held a strategic review and you came out with an announcement saying that you are planning on potentially selling two of your units, women’s health and anti-infectives. Can you provide an update on where you started with these processes versus what you said at the Q3 results call?

Brenton Saunders

Yeah. So, not a lot has changed since then. But the way I think about it is these are two very good businesses. They’re both growing. They’re both doing well. They’re both profitable. They’re both are accretive to both sales, margin and EPS.

And so, when you sell a non-core business like that, price becomes very important. Otherwise, as we know from even selling our generics business, which arguably was a pretty good number, the investment community doesn’t like to see dilution, particularly top line, margin, net leverage ratio and EPS because that’s what you could see if you don’t get the right price for those businesses.

And so, we’re being very disciplined sellers. We have very robust processes working to sell both of those businesses. And, hopefully, over the next month or two, we’ll have an update in terms of whether we think we can accomplish that or not. But the bar is internally set appropriately high because we’re not in the value destruction business, we’re in the value creation business.

And I would say, for example, in women’s health, I think people don’t fully appreciate, but, arguably, in the top margin products at Allergan would be Lo Lo. Lo Lo grew, what, about 14% in the third quarter. It’s a big product. Big intellectual property. It’s still 2027. And so, yes, we’re very open to selling it, but it has to be at the price that recognizes the value of a product like that in our hands. And so, if we can find those things, absolutely, we’re open to doing it. But we’re near the end of the process and, hopefully, we’ll have an update over the next month or two.

Liav Abraham

So, would you say that if you reach the end of the process and you don’t find that you’ve received that, in your view, reflect what the businesses are worth, then just given the fact that they are, particularly women’s health, an extremely profitable business, it’s better just to hold on to it in your hands?

Brenton Saunders

Yeah. These are not businesses that require a lot of time and attention from Allergan. They’re not businesses that we intend to invest in in any significant way, and that’s the reason why we’re open to selling them at the right price.

But if we have to run them, we do that today and we do that well and we continue to run the he rest of the business well. So, I don’t see that argument as a reason not to sell them. I think it’s all about focus.

And so, to the extent we can achieve focus without having to dilute our shareholders on a variety of metrics because we didn’t get the right price, that’s the right answer for our shareholders, in my humble opinion.

If we get the right price, then the right answer for our shareholders is to sell them and stay focused on the four. And it’s just price. And if we get the right price, we’d do it. If we don’t, we don’t. And I think it’s really almost that simple.

Liav Abraham

Got it. So, in terms of the four remaining pillars of the company, aesthetics, ophthalmology, GI and CNS, based on the strategic review that you’ve conducted and, I guess, thoughts thereafter, is this the optimal structure for the company? Is there anything else that you’d be looking to potentially pare down or is there another therapeutic area that you have interest in bulking up in?

Brenton Saunders

Yeah. So, no, I think we look at medical aesthetics, CNS, eye care and GI as our core four therapeutic areas. And the reason we would like to be in those four is because we believe we have competitive advantages, whether that be in size and scale, whether that be in commercial capabilities, whether that be in R&D and science. And, ultimately, the goal is to be number one in each of those four areas and we believe that’s something that could be accomplished over the next five years. And so, that’s why we like those businesses.

I think for us to get into a new therapeutic area, the bar is incredibly high. There is so much white space in those four areas. There’s so much more we can invest in. There’s so much unmet medical need. There’s so much expansion opportunity, both domestically and around the world, in those were businesses that I think the runway is quite long in terms of growth potential and investment. So, very comfortable with what we have today.

If we had to go to our fifth, looking at the world today, I would love to find a cash pay business. But medical aesthetics is by far the crown jewel in terms of cash pay, high margin, lots of barriers to entry and lighter regulatory touch and, certainly, no payer legislation regulation or complexity. And so, that is a nice thing, but the bar being incredibly high there.

Liav Abraham

You alluded to growth and that takes me to my next point, which is your longer-term growth outlook. You’ve previously elucidated, I think, a five-year revenue CAGR of 2017 to 2022 of 5%. We’re now on 2019. Can you just talk about your confidence in that outlook, where you stand, how you plan to get there? I assume it’s with your current portfolio of marketed and pipeline products.

Brenton Saunders

Yeah. So, you know what, my confidence improves almost weekly on that. We issued a statement after the Q3 call that said that, based on what we know today, we believe that we will achieve our goal of 2019 net income per share being higher than 2017, which was the goal that we had.

We also said that we think the 5% growth rate was very achievable. And I’ll tell you how I think about it. When you think about the 5% growth rate, you have to look at what we call the core business, which is the products minus the LOEs. And that is growing at the, say, this year, approximately 7% give or take. And so, we’ll see how the fourth quarter ultimately materializes, but that’s a good target zone.

And so, when you look at that growth, that will be the company after we lose RESTASIS. So, the company is growing above that 5% growth rate. And the pipeline looks like it’s materializing. And so, as the pipeline advances, and that equals roughly 10% of the out-year growth that we need, I get more and more confident about our ability to deliver that not just for the five-year period, but perhaps for even a longer period of time.

Liav Abraham

So, you alluded to the pipeline, and one of the key drivers of growth in your business, particularly over the longer term, is the pipeline. You have had a number of important catalysts this year. Your migraine franchise, Ubrogepant and Atogepant, Abicipar for wet AMD, [indiscernible] Rapastinel early next year. But your pipeline is maturing. So, can you talk a little bit about how you’re going to plan on backfilling that. We haven’t seen much by way of you guys as it relates to R&D acquisitions over the past 12 months. Is that because you’re comfortable with where your pipeline is now? Is it because there aren’t assets out there, they’re too pricey? And how aggressive are you being in looking for new targets?

Brenton Saunders

So, you’re right, I think it’s a never-ending pursuit within Allergan, is to continue to look for new science and technology and innovation to sustain the four core therapeutic areas.

I would say medical aesthetics, we are in an incredibly strong position. And, in fact, we did do two pipeline deals this year. One was Elastagen to integrate the next generation of fillers, and that looks very positive so far. We have good data, and that is advancing very nicely. And the other was Bonti to get the on-demand or short-acting – fast-acting, short duration toxin for special occasions. And that is finished and being integrated into R&D and advancing.

So, we did do those. I think when we look at the other four therapeutic areas, the pipeline is very strong in the mid to early stage. We will do an R&D day in the spring summer to highlight some of that. We don’t talk about a lot of things that are going on.

Let’s just quickly take the other three therapeutic areas. If you take eye care, we talk a lot about Abicipar. We don’t talk as much about Bimatoprost SR. Probably one of the biggest sleepers. We’ll get the final Phase III study over the next several weeks, and that could be in – we talk a lot in the glaucoma community about new entrants that are going to be $200 million, $300 million products. Bimatoprost SR could be a game changer in glaucoma. Big product. Not a lot of discussion around it.

Brimonidine DDS, we presented Phase II data at AAO about a month or so ago. I was at the AAO. That was arguably the most talked about novel drug in development at AAO, and yet as an investment community we don’t spend a lot of time talking about it.

But in eyecare, particularly in retina, geographic atrophy is the highest unmet medical need, not AMD. And the first person to a GA or neuroprotective agent and the works and has a good safety profile, which Brimo DDS seems to look pretty good with Phase II, has a significant – arguably, could be the largest drug ever in retina. And so, that is the program.

Behind that, you just saw last week, we filed an IND with our partner Editas for Leber’s disease. We have our RP product, our optogenetics product for RP in development. We have products for presbyopia in development. We have a long list of pipeline and a lot of relationships where, for example, like Editas where they have to deliver us four more INDs to put into the clinic after we’re finished with the Leber’s disease.

So, they’re working on things that bring to us and we’re going to develop more and more of those types of relationships.

CNS, we talk about VRAYLAR. We have the bipolar indication, hopefully, getting approved this year. We have the two MDD studies fielded. We need one more positive to do that filing.

And then, we have Rapastinel. You already mentioned. But sitting behind that, we have the oral, what is it, 11751 [ph]. We have a name for it and we’ll advance that soon. We’ve finally got a name, so then I don’t have to remember numbers for the program.

But, look, if that is going to be a pipeline and a product, we are going to look at that in 2019, not just as a rapid, potentially differentiated antidepressant, but potentially across a variety of mood disorders where there is significant unmet medical need.

Remember, the way we got that was we acquired a company called Naurex for roughly $550 million about four years ago. And part of the deal was to set them up in an research-based company called Aptinyx, which is now a publicly-traded company, and we have rights in CNS to their next five – I think it’s five, maybe it’s four INDs and we have a very strong collaborative relationship. Aptinyx is an amazing group of people with terrific scientists and that’s how we’re going to continue to fuel innovations. We have a variety of other programs, earlier stage around Alzheimer’s, symptomatic relief around Alzheimer’s and a variety of other things there that we don’t talk about. And, clearly, we’re looking at gene and cell therapy technologies in CNS disorders as well.

Go to GI, our mid to late stage pipeline is probably the strongest of all the therapeutic areas, right? We, obviously, have talked a lot about the products, but we don’t get a lot of traction with the investment community. But Relamorelin could be – there has been no treatment for gastroparesis in 30 years. It’s probably the biggest unmet need in the GI community and Relamorelin is advancing very nicely in Phase III. We CDC as monotherapy. We have CDC in combination with Novartis’ FXR in Phase III.

We have brazikumab moving into Phase III for Crohn’s in UC. That will be a superiority against Humira type study. We’re not going to go for noninferiority. We’re going to go for a biomarker strategy and superiority as I think that is the way you get data in the future for innovation.

And we have a deal with a company called, like, Assembly where we’ll probably have our first IBD program, IND next year for IBD and microbiome. So, we have all these relationships out there that continue to feed the pipeline.

Do we need to add to them? Absolutely. Do we need to continue to invest in our internal capabilities? Absolutely. As I started, it’s a never-ending quest, right? The search for innovation, the search for capabilities, the search for technology, the search for smart scientists and people is a constant inside of Allergan and something we just have to do every day.

Liav Abraham

We can look forward to – you mentioned an R&D day in the spring/summer you mentioned?

Brenton Saunders

Yeah. Spring/summer. Absolutely.

Liav Abraham

So, that leads to, I guess, a broader question on capital allocation and maybe an obligatory question here. But can you just remind us what your priorities are in terms of debt pay down, share buyback and then acquisitions, which is what…?

Brenton Saunders

Yeah, sure. So, in this year, approximately, we’ve returned about $8 billion to shareholders in a combination of share repurchase, debt reduction and dividend.

Our goals going forward are pretty clear, first and foremost, is invest in the business, invest for growth. Two is debt reduction. We are on track and want to maintain our commitment to reduce our net leverage ratio to 2.5 times by the end of 2020. I want to make that clear because some people write 2020 and I don’t want them to look for it on January. We’ve always said the end of 2020. We could get there earlier, clearly, if we wanted to, and that may happen, but that’s the goalpost we set for ourselves.

Then, it is share repurchase on an opportunistic basis. And we have an authorization. We’re out there doing it opportunistically. And then, increasing the dividend on a regular basis is fourth. And that’s how I really think about them.

Liav Abraham

And then, acquisitions?

Brenton Saunders

Acquisitions goes to invest number one, right? Invest to grow the business. And we have some guardrails around that. We’re never going to use our stock as a currency. I’ll say it again because I get a lot of funds ask me about it. We will never use our stock as a currency at these levels. We’ll maintain our investment grade rating. That is strategic and critical for us. We will not jeopardize our investment-grade ratings and we will get our net leverage ratio down to 2.5 half times by the end of 2020.

So, within the context of that, we have frankly a lot of room to invest for growth that gives a lot of room to go out and buy R&D and technology. And to the extent you buy accretive deals, then you have more capacity because the accretion then goes towards larger EBITDA, which gives you room on your leverage ratios. So…

Liav Abraham

So, maybe just a couple of financial questions before we get to some product-specific questions. You mentioned a few minutes ago your commitment to 2019 EPS at least in line with 2017. I just want to make a clarification here. Is there anything that would cause that to – cause you to deviate from that? I’m assuming that is not under the scenario that you sell women’s health.

Brenton Saunders

Yeah. So, look, what we said is that, based on what we knew around the third quarter call, we still had conviction in that. And I think that I could say that today that stands as strong as it did then.

I think what we don’t know is do we sell women’s health and infectious disease. If those are massively dilutive deals, then that would impact it, and that’s why price for me is so important. Just another reason. In the crazy world we live in, could the euro go to 90. We’d have to account for that. I don’t think it is, but there are external factors well outside of our control that would impact the whole industry that we have to be mindful of.

But, no, I think outside of some significant thing, we feel very good it.

Liav Abraham

Any additional opportunities for cost rationalization that you see over the – I guess, over the near term. You did conduct a plan this past year. But anything else just to mitigate some of the RESTASIS’ loss of exclusivity…?

Brenton Saunders

Yeah. So, we took the full costs out in January. About $400 million of costs were taken out of the business in January in anticipation of the RESTASIS and other LOEs. We’re kind of in the best of both worlds right now because we took the costs out and we still have the product. And so, that I think went to some of Matt’s comments about the margins into the future.

That being said, we’re always looking at how do we spend our money and how do we get the best return on our money, but you have to remember we’re a growth-oriented business. As I said, the core business is growing roughly 7%. We want to see that continue. We have product launches, hopefully, coming with the new product flow.

We have invested significantly in our digital capabilities, frankly, right here in New York and in California. We have now well over 100 people working in our digital ventures, and that is going to bode well for us in medical aesthetics in the short term over the next couple of years.

But those skills that we’re developing there around medical aesthetics, and these are not pharma people that we’re hiring, are going to translate to our digital capabilities in CNS and eyecare and GI over the next year or two. And so, we’ve made a massive investment this year. It’s in the P&L this year that will continue into the future because I truly believe that is – we have no choice. We have to – not like other pharma companies, talk about we are truly moving into digital capabilities and we’re hiring people from that world.

The woman who runs that venture for us was the founder of Gilt Groupe and GlamSquad. She’s never worked in pharma before. She’s a serial digital entrepreneur. And the staff that she’s hired, I just met with them the other day, virtually none of them have pharmaceutical experience. They’re software engineers, hardware engineers, digital engineers, they’re social media people.

And the early payoff of the early things we’re doing there, it’s just tremendous. So, early days, but the payback, I think, is going to be very quick.

Liav Abraham

You’ve guided to a very healthy operating cash flow this year of around $5.2 billion, if I remember correctly. Can you just remind us, have you talked about a sustainable level of cash flow for the business post-RESTASIS loss of exclusivity? How should we be thinking about that? This is a – you have the cash pay element of your business.

Brenton Saunders

I think next year will look a lot like this year minus RESTASIS if it goes. I think RESTASIS, what, about $600 million – yeah, $600 million to $700 million of cash. So, depending on the time of year that happens, you just deduct that from the model. As the new products come in, that will start to replace it. but, yeah, that’s the only thing of significance that I see changing as of today. All the milestones and everything else for R&D are built-in. We assume the most conservative and we give you that in every quarter presentation. It’s in the appendix.

Liav Abraham

In our remaining time, I did want to touch on some of your key franchises. And I would be remiss if I didn’t start with your aesthetics franchise. And I wanted to touch on two key aspects. First, starting with Botox aesthetics and then moving on to fillers. So, at the recent aesthetics day in September, you provided a comprehensive view of the franchise. And maybe since then, I’d be interested in your thoughts on how you see the franchise evolving going forward, particularly taking into account two competitive dynamics? Firstly, the potential entry of a lower cost toxin early next year. And then, secondly, the potential for a longer-acting toxin to come into the market, given the data we saw from Revance’s RT002 a couple of days ago.

Brenton Saunders

Yeah. Sure. I’m happy to. Look, the way I think about the neurotoxin market is, it’s been highly competitive for a decade. We have two very important and strong competitors in Dysport and Xeomin in the US today. And they come from well-funded and fully-diversified medical aesthetic global companies. And so, I think that’s a good marker for what real competition looks like in this space. In Europe, Asia and Latin America, we have dozens of them. So, we understand how to compete. We are very competition experienced and we take all competition very seriously.

I think when we look at what’s coming in the US, first that has to come, the promise of these things is always greater than the reality of them. I don’t think that – I think you described them perhaps in the way that those companies would like them to be hyped. I don’t think that that’s the reality. I don’t think Evolus has any plans to be a deep discounter. And, in fact, Xeomin and Dysport, particularly Xeomin, is a deep discounter. So, we already face deep discounting. I don’t think they’ll be worse than or any lower than the other toxins that are in the market. So, we understand that. We know what that looks like.

I think Revance is not going to get an FDA label for a long-acting claim. So, they can continue to talk about it till it’s approved, and then it would be off-label promotion. And they’ve studied in an area of the face that’s most forgiving. And we’ve shown data that when you double the dose of Botox in that region, you get a similar effect in terms of duration. When you do that in the rest of the face, you’re going to have a lot of other issues.

And so, remember, we have three indications for Botox. None of the other toxins have anything, but glabella, the forehead, the 11 if you will. We have forehead. We have crow’s feet. We have masseter and platysma in final stage testing. So, we’ll have five indications versus everybody else’s one.

Why does that matter? You have to train on the injection. We’re the only ones that can train, but you can only train on what you have on label. And that’s why Botox does incredibly well. We train around 60,000 professionals every year. These are not interchangeable. Their units of measurement are different. The way you constitute them are different. The way you inject them are different.

And so, what office is going to train their entire staff on using four, five or six toxins. They’re going to train their office on perhaps two, maybe three. That’s a big deal to do that. They’re not going to one day use one and one day use the other. [indiscernible] in terms of the reconstitution. Botox will always be in the selection. The second choice will be one of the other toxins.

And so, the way I see it, the way I see it setting up is Botox and then four toxins in the United States fighting for that second and third position. And we’ll watch it very carefully. I think we’ve been incredibly well prepared. We’ve just finished an expansion of our field force. Our new DTC campaign launches in the January/February timeframe for Botox. We have invested significantly in our digital capabilities. We have the broadest and deepest portfolio. The brand has never been stronger. We train the most injectors.

So, the moat, if you will, that we have built around our capability has never been this strong. And so, do I think about competition? Yes, every day. And I worry that it’s going to somehow change the world? No. I think that is an investor story, not a reality.

Liav Abraham

So, if we translate that into numbers, you’re – of all aesthetics, growth has been impressive. But your Botox growth, in particular, has been very impressive both in the US and the ex-US. So, we’re looking at around double-digit growth. Correct me if I’m wrong. Is this sustainable? Do you see this as being sustainable over the next maybe 12 months and then beyond?

Brenton Saunders

Yeah. We talked about this before. Look, I think, at some level, what you have to understand is that Botox is somewhat one-dimensional in terms of it being a wrinkle product – a wrinkle reducing product. And fillers are a much more versatile product. And we’re seeing the versatility of fillers replace some of the utility of Botox.

The second thing I think you have to think about is the law of large numbers. As Botox continues to grow, getting large double-digit growth off a larger base becomes a little bit more difficult, not impossible, but that also comes into play. But, overall, the medical aesthetics franchise has never been stronger. And I think as you look at it as a grouping of our products or as a business, the future has never been brighter.

And so, where does Botox go? Does it go from 10% to 8% to 9%? That’s possible. Certainly.

Liav Abraham

So. the second topic I wanted to address in your aesthetics franchise is fillers. And the way that I think about this is the opportunity for expansion in this product line appears more meaningful just given the patient demographics, the versatility of the agent as you mentioned, the number of areas in the face that can be injected, the price point. So, can you just talk a little bit about your outlook for this particular product? It seems underappreciated to me. And does it really have the opportunity to equal Botox in size of US just over the next…?

Brenton Saunders

Yeah. So, I think you’re exactly right. This is an incredibly underappreciated part of the medical aesthetics family. The JUVÉDERM family is growing faster than Botox and it has been for a couple of years. It is the premier line of fillers or HA-based products in the world. It is the biggest brand. And as you know, we’re investing in branding, JUVÉDERM around the world. We have the JUVÉDERM IT campaign happening. We have fillers today for five uses on the face over the next few years. We’ll have 10 indications or 10 different products for different areas of the face. We will launch a third line of fillers technologies over the next few years that will be functional in nature. They won’t only lift, shape and volumize, though actually provide potentially, what we call, I guess, the aging benefits, so elastin and collagen production as well as the lifting, shaping and hydration that you get from HA. And that, technically, is incredibly difficult. That requires biologic capability along with medical device and HA capability. I think Allergan is uniquely positioned to do that in the medical aesthetics field. There’s no competitor that has that capability to do those types of advances in fillers.

And so, ultimately, my outlook is the fillers will not only equal Botox, but will far surpass – the JUVÉDERM brand will far surpass what we talk about Botox in terms of size and importance in medical aesthetics over the next several years.

Liav Abraham

And any initial feedback on the JUVÉDERM IT campaign that…

Brenton Saunders

Yeah. Early, but very positive. I won’t read too much into it, but I checked it yesterday. And we see about a 20% lift in new-to-brand. And so, for an early start of campaign, it’s one metric. It’s not the end-all be-all, but it looks very, very positive. Really good campaign. And anecdotally, the medical aesthetics physicians and providers love it. And that doesn’t mean a whole lot in terms of numbers, but the excitement around that campaign is real and tangible.

Liav Abraham

The third leg of your aesthetics franchise is CoolSculpting. Maybe you want to talk a little bit about growth there, especially given – there was some residual concerns at 3Q results. Growth seemed to – it was a bit softer. So, your comments on that.

Brenton Saunders

That’s fair. So, what happened in the third quarter was really a cause-and-effect of two primary things. One, a tough comp in the third quarter of the previous year where we launched a variety of new applicators and then, more importantly, some discounting that we did on capital equipment. And the reason we did the discounting on capital equipment was in large part a good thing because what we saw was a lot of practices wanting second or in multiple machines. And so, you can’t charge the same price for one machine that you are for 10. And the fact that people want two machines in every room and they want multiple rooms with two machines is a very positive outlook for the business. I think the consumer growth at 10% bodes well for what we’re trying to accomplish. Consumables is ultimately the name of the game because that’s the high margin. That’s pharmaceutical like margins. We saw that now become 60% of the business. And so, I think when you see the fourth quarter numbers, you’ll be reassured that this business is in good shape.

Liav Abraham

That’s helpful. We don’t have time to talk about all…

Brenton Saunders

And let me just say one other thing. You think about competition, just one anecdotal piece of data, RealSelf, which is the premier medical aesthetics website, came out with their top 10 products this morning with a press release. Did you see it?

Liav Abraham

No, I didn’t.

Brenton Saunders

All right. So, they listed their top 10 products in order. Botox, number one. CoolSculpting, number two. JUVÉDERM, number three. The only competitor on the list was at number nine, Restylane. So, Dysport, Xeomin didn’t even make the chart. So, just think about how the world outside of the financial world thinks about these competitors, right? We have Dysport, which is run by a fantastic company, Galderma, with a full presence, full sales force, training centers, global footprint, they’re not even in the top 10.

Why do you guys believe that a startup company with a novel toxin is going to even displace them, let alone us? Yes, they have to talk about us as their competitor because that’s how they size the market and raise money from you guys. But, honestly, how do you guys think that this competition is going to heat up. They’re not going to go after us. They have to go after Dysport and Xeomin and those guys, and they’re not even being mentioned in these surveys.

Liav Abraham

Just moving to your branded pharmaceutical portfolio and starting with Botox therapeutic, the comments on the recent Q3 earnings call were reassuring regarding the competitive dynamics in the migraine space, which are evolving with the launch of the anti-CGRP therapies. Any update on what you’re seeing there and the impact on Botox, if any?

Brenton Saunders

Yeah. I think we continue to be reassured, not what we had predicted in a positive way. And, look, I think Bill Meury and the neuro team at Allergan have done an amazing job. We’ve kept Botox for chronic migraine front and center. We haven’t really seen any drop off because of the new products. And I was frankly most worried about this period when there were a lot of free goods and we’re about halfway through that and we’ve done well.

When we look at chronic migraine, this past week, new to brand, Botox was back in the number one position in terms of scripts. And so, it’s one week. I wouldn’t make too much of it, but that’s, again, more reassuring data points, in terms of the stickiness, reliability and the quality of Botox on chronic migraine.

The flipside of that is [indiscernible] and the competitors are doing well, and that bodes well for the new entrants coming in because it’s an underserved market, which is what we’ve always been saying. I think that prediction is looking like it could come true based on what we see today. We still have some really critical months ahead of us. But, right now, I’d say our confidence level is going in a very strong, right direction around how this is going to play out.

Liav Abraham

Given that the other products, the anti-CGRPs that have been launched, are for the most part being given away for free at the moment or a zero copay. Do you have data suggesting that Botox is being co-administered?

Brenton Saunders

Yeah. Very little. So, right now, the data that we see is that the CGRP new patient starts are only, let’s say, 5%, 6% are coming from Botox. That’s one set of data. And only, I think, 2% or 3% are in combination. And so, very, very small – well, ultimately, one thing we should all remember, the chronic episodic migraine market has not been solved by Botox or the CGRPs. They are providing – both of them are providing roughly no cross comparative studies, no good data.

But in layman’s terms, roughly 50% reduction in headaches for about 50% of the people who take them. If you’re a migraine sufferer, you’re debilitated by your migraines. Anything short of a cure or a freedom of migraines isn’t acceptable to your doctor or you. And so, there’s still a lot of work to be done. Perhaps combination use could be a possibility, but we have to do the work and we have to generate the data to see if that really a meaningful advantage.

Liav Abraham

And any thoughts on – your Botox migraine franchise has been growing in the teens over recent years. Based on what you’re seeing, do you expect that to mitigate…?

Brenton Saunders

We’ve always thought it would mitigate a bit. I think when we give you guidance, we’ll give you a better sense of it. But, certainly, we feel better about it today than we ever have.

Liav Abraham

And then, maybe that’s a good segue into what you have in your pipeline as it relates to Ubrogepant and Atogepant. You mentioned the expansion of the market, which is clearly what we’ve been seeing with the data from the novel agents. Our conversations with KOLs suggest that doctors like giving pills, patients like taking pills.

Brenton Saunders

Everybody likes pills versus an injection, even though Botox is an injection. No, that’s true in every category. Look, I think you have to remember that I think it’s setting up perfectly for Atogepant, right? The data looks very strong. The risk-benefit looks very positive. The file will go into the FDA over the next few months. Hopefully, we’ll get it approved before the end of 2019. And the market, I think, is prime for a novel treatment for acute relief. And there hasn’t been an acute product in, what, 15 years in the migraine space. And so, patient – it’s a very large market. It’s much larger than the chronic episodic market. You’re going to need primary care and specialty capabilities. I think Allergan, if anything, the team at Allergan is among the best at launching those types of products that require both primary and neurology detail. DTC will require big, big payer negotiations. Like, that’s our sweet spot. And so, we’re setting up nicely for a market that will be primed a bit by the fact that patients are becoming more aware that there’s new treatment options. Even if it’s chronic, they don’t distinguish in their mind episodic and chronic, but that will set up well for us.

So, I think Atogepant will do very well going into this this market. I’m excited to get it approved.

Liav Abraham

We have just about a minute left. And I wanted to circle back to the theme of our conference, which is really drug pricing, access reimbursement. And, Brent, you were one of the first companies, if not the first company, to commit to being more socially responsible regarding your price increases. You talked about single-digit price increases on an annual basis. Any change to how you’re thinking about your commitment to price increases and how you see that evolving in terms of your portfolio?

Brenton Saunders

Sure. So, the headline was single-digit gross price increase cap. But if you read the social contract, the goal was to try to limit our price increases to two on a net basis to around inflation. And what we saw in 2018 is essentially 0% to 1% net price increase across our portfolio. I think that is just the new normal. And so, the only thing that can throw a wrench on that is a pressure on the discount rates that continue to create this pressure on gross to net.

I like the move that CVS made this morning for those that haven’t seen it, which essentially says they’re going to go at the Caremark level to net pricing. I think that is where we all should go. And then, I think the pricing issues can largely fade away.

We’ll still deal with high-priced new therapies and who pays for it. There’ll be other discussions. But this idea of we’re taking price increases to tread water, to maintain price will go away because the middlemen will create that transparency.

And for us, as an industry, to go from the perception of our prices being at gross to the perception of them being at net is a PR win for the industry. If the average rebate is 40%, let’s just say for argument, right, for the patient, picking up their drug at a pharmacy, that’s going to feel about 40% reduction and that’s a good thing for the public image of pharma. So, I’m all for it. No impact on us because we’re only getting the net anyway.

Question-and-Answer Session

Q -Liav Abraham

Brenton Saunders

Thank you for having me. I appreciate it.

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