conference date: July 26, 2007 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2007 (2nd quarter)
Overview: Company is undergoing a period of slow revenue growth.
Revenues were $3.73 billion, flat sequentially from $3.7 billion and up 3% from $3.6 billion in Q2 2006.
GAAP net income was $1.02 billion, down 7% sequentially from $1.1 billion and well up from $14 million in Q2 2006.
Non-GAAP net income was $1.265 billion, up 2% from $1.235 billion in Q2 2006.
GAAP EPS $0.90, down 4% sequentially from $0.94 but up from $0.01 per share in Q2 2006.
Non-GAAP EPS was given as $1.12, up 7% from Q2 2006.
Full year non-GAAP EPS target is $4.28, including the recent acquisitions of Alantos and Ilypsa.
Product sales increased to $3.60 billion from $3.49 billion in Q2 2006. Challenging times for anemia franchise. Looking to guide FDA to a good but fair outcome. Cutting expenses to align with slower growth rates.
$725 million international sales, 9% annual growth if adjusted for currency rates.
Aranesp (darbepetin alfa) sales were $949 million, down 10% y/y mainly on U.S. demand decline due to label and reimbursement changes. U.S. portion was down 19%. Oncologists are clearly in a wait-and-see mode.
EPOGEN sales were $624 million, up 2% y/y. Reimbursement changes are being discussed.
Neulasta and Neupogen combined sales were $1.04 billion, up 4% y/y mainly due to increased international demand. International growth rate was 22%.
Enbrel revenues were $823 million, up 14% y/y due to combined increase demand and pricing.
Sensipar revenues were $108 million, up 37% y/y.
Vectibix revenues were $45 million. It had no revenues year-earlier, but was down 12% sequentially due to unfavorable PACCE study results release.
Cost of sales increased 11% to $546 million mainly due to product mix changes. R&D expense was $777 million, SG&A expense $840 million, up because of Enbrel profit sharing increasing. 19.5% tax rate.
Adjusted (non-GAAP) operating income of $1.565 billion was down 1% from $1.584 billion year-earlier.
EPS growth was driven mainly by reduced share count and lower tax rate.
$4.5 billion of stock was repurchased. A new stock repurchase program for $5 billion has been authorized.
Capital expenditures were $402 million. Cash and equivalents ended at $5.3 billion. Debt ended at $11.3 billion (up $2.3 billion from year-earlier).
The outcome of the National Coverage Determination (NCD) and Cardiovascular and Renal Drugs Advisory Committee (CRDAC) meetings may affect the outlook for the rest of 2007.
Arenesp TREAT trial interim analysis was inconclusive per the DSMC (Data Safety Monitoring Committee), so the trial will continue until completion.
Denosumab met all Phase III endpoints with high statistical significance bone mass maintenance for breast cancer patients with hormone ablation therapy.
Alantos acquisitions bring new DPP4 inhibitor for diabetes plus MM4 inhibitor platform. Ilypsa brings novel phosphate binder.
NCD results, what does current guidance assume? Do not think speculation is constructive since we will have the results in 2 weeks. Guidance is based on current trends.
What are physicians doing for dosing? Parsed their anemia cancer patients. Went to a lower initiation hemoglobin level. Overall more conservative dosing.
European reaction? Probably backing off dose when they get towards 12 when the label allowed 13 because of hearing about American situation.
Arenesp volatility? Too early to tell if really a change in underlying trend.
Denosumab color? SRE breast cancer study size increased to be sure statistics are comparable. Phase III study results were terrific, but only 250 patients and has no fracture endpoint, so may not be predictive of 216 study for fracture.
Ability to further cut costs? Pleased with cost management so far. Not in a position to give guidance for 2008.
Payer reaction? Mostly wait and see. Blue Cross did a cut, patient feedback forced them to reverse it.
R&D spending going forward? Being careful about spending, will make plans based on key events.
Dialysis purchasing changes? Epogen typically has end-of-quarter buy in. But there was not much at end of Q2 this year.
Elipsa program delay? Logistical issues in getting Phase III study started. Will present Phase II data when Phase III plan is ready.
Sustainability of improved tax rate? Still figuring only that it will be less than it was in 2006.
Neulasta discounts? Don't see decreased discounts except a possible one-time Medicaid event.
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