Analyst Conference Summary



conference date: October 22, 2013 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2013 (third quarter 2013, Q3)

Forward-looking statements

Overview: Impressive quarter. Increased full-year 2013 guidance.

Basic data (GAAP):

Revenue was $4.75 billion, up 1.5% sequentially from $4.68 billion, and up 10% from $4.32 billion in the year-earlier quarter.

Net income was $1.368 billion, up 9% sequentially from $1.258 billion, and up 24% from $$1.107 billion year-earlier.

Earnings Per Share (EPS) were $1.79, up 8% sequentially from $1.65, and up 27% from $1.41 year-earlier.


Raised guidance for the full year 2013, revenue expected between $18.3 and $18.5 billion. Non-GAAP EPS $7.35 to $7.45. Capital expenditures $700 million.

Those figures include Onyx Pharmaceuticals, from October 1.

Conference Highlights:

Sales of products were strong across the portfolio, but particularly from Neulasta, Enbrel, Prolia, Xgeva, and Neupogen. A lower tax rate also helped, offset by higher R&D expense. The acquisition of Onyx Pharmaceuticals closed after the quarter ended, on October 1, 2013. Sales included a $155 million Neupogen order from the U.S. government.

Non-GAAP numbers: net income $1.48 billion, 13% y/y; EPS $1.94, up 16% y/y.

Kyprolis sales by Onyx increased 6% sequentially to $65 million. Amgen plans to launch Kyprolis outside the U.S. and to eventually expand the label.

U.S. commercial rights to ivabradine for heart failure and angina were acquired. An alliance with Astellas in Japan began on October 1 to launch 5 Phase III therapies. A Chinese joint venture with Betta Pharma for the commercialization of Vectibix there also began. Amgen repurchased rights to Neulasta and Neupogen from Roche for emerging growth markets, effective January 1, with estimated sales of $200 million.

Product sales were up 11% y/y and 1% sequentially.

Neulasta and Neupogen sales combined increased 18% y/y to $1.60 billion.

Enbrel sales increased 7% y/y to $1.16 billion.

Aranesp sales decreased 10% y/y to $449 million.

Epogen sales were flat y/y at $491 million.

Sensipar/Mimpara sales increased 7% y/y to $259 million.

Vectibix and Nplate combined sales increased 19% y/y to $213 million.

Xgeva sales increased 30% y/y to $261 million.

Prolia sales increase 62% y/y $178 million.

Other sales were $40 million.

Cash and equivalents balance ended at $22.6 billion. $3.1 billion in bank loans were taken to fund the acquisition of Onyx Pharmaceuticals, and an additional $5 billion was taken after the quarter ended on October 1. Free cash flow was $1.6 billion. No shares were repurchased in the quarter. Dividend payments were $400 million. At the end of Q4 outstanding debt is expected to be $32.2 billion.

Operating expenses were up 10% y/y due to enrolling so many trials, which should produce data in 2014. About 45,000 patients were enrolled in late-stage programs at the end of the quarter, up 50% y/y. Enbrel profit sharing payments caused an increase in SG&A, but will soon be replaced by a royalty, which should lead to an $800 million benefit in operating income in full 2014.

Expects 10 of the pipeline products to produce registration enabling data by 2016. Eight products should reach significant milestones in 2014.

Evolocumab (AMG 145) for lowering lipids pivotal studies completed enrollment, with data expected in 2014. Tebananib closed enrollment of its Phase 3 recurrent ovarian cancer study due to ongoing supply issues. In a different Phase 3 study event-driven survival endpoint is projected to occur in the second half of 2014. Brodalumab Phase 3 psoriasis studies have completed enrollment with data expected in 2014. Humira biosimilar psoriasis study commenced a pivotal trial.

Cost of sales was $788 million. Research and development expense was $989 million; selling general and administrative expense $1.25 billion; and other expense $34 million, for total operating expenses of $3.06 billion. Operating income was $1.69 billion. Interest expense was $257 million, other income was $72 million, provision for income taxes $135 million.

Teva withdrew their application for FDA approval of a generic drug after Amgen brought a patent infringement suit against them.

Because of the Onyx acquisition, no significant share repurchases are expected in 2014 or 2015.


Impacts of new global businesses on margins? We have been making progress laying groundwork for future international expansion. We have a decent presence in the Middle East, North Africa, and South America. The prices of our products in these markets provide margins similar to those we get in Europe.

Kyprolis development? Aspire should have an interim analysis next year, and Focus should have a full readout. They have different goals, Focus for Europe and Aspire for label expansion both in the U.S. and Europe.

Humira, is the trial for worldwide sales? We have a global strategy for Humira.

Teva dispute, patent expiration? Our IP on pegalated filgramstim extends through the end of 2015. You would have to ask Teva why they withdrew their application.

CMS proposed cuts on rates to dialysis providers? The time to comment on the bundle to CMS has expired. Before the government shutdown we expected a ruling in early November. We don't know how much the proposed reduction would be or the timing. We are just waiting.

Neupogen order? Cannot predict if it is a one-time order or if it will be repeated.

We expect Teva to get a Neupogen-like product to market in November.

Biosimilars? As they enter pivotal trials we will call them out. Our ability to bring to market a high supply of reliable product will create an opportunity.

Kyprolis? We were impressed with the well-thought out Onyx development program. It is always possible that we would add studies for oprozimib. We can't give any guarantees about safety, but the data we have seen is reassuring and exceeds safety concerns.

Onyx operating expense? There are opportunities for cost synergies, we are early in, we will discuss this more with investors later.

AMG 145? It is difficult to speak for the FDA in terms of whether reducing LDL will lead to cardiovascular improvement. But it is looked upon as a being a surrogate. The assumption is the initial launch would be on high-risk patients treated by cardiologists.

Tebananib, change of goals for program? We are still interested in Tebananib's potential. We have found it is extremely difficult to achieve overall survival in a first line setting. We think the success in the recurrent study would allow for global registrations.

Oprozomib strategy? It is just too early to speculate. The agent is at the threshold between phase 1b and 2 at the moment. We want to do it right, it isn't always a good idea to be aggressive and skip steps.


More Analyst Conference Pages:



Disclaimer: My analyst call summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2013 William P. Meyers