Analyst Conference Summary



conference date: January 28, 2014 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2013 (fourth quarter 2013, Q4)

Forward-looking statements

Overview: Excellent quarter for revenue and y/y EPS advance.

Basic data (GAAP):

Revenue was $5.01 billion, up 5% sequentially from $4.75 billion and up 13% from $4.42 billion in the year-earlier quarter.

Net income was $1.02 billion, down 26% sequentially from $1.368 billion, but up 30% from $788 million year-earlier.

Earnings Per Share (EPS) were $1.33, down 26% sequentially from $1.79, but up 32% from $1.01 year-earlier.


For the full year 2014: revenue between $19.2 and $19.6 billion. Non-GAAP EPS $7.90 to $8.20. "This includes an $800 million incremental operating income contribution due to the end of the ENBREL profit share." Non-GAAP tax rate 15% to 16%, assuming R&D tax credit extended to 2014. Capital expense about $800 million.

Conference Highlights:

"Confidence is the best way to describe how we feel about our growth prospects." Operating costs grew well below revenues. Dividend will continue to increase over time.

EPS growth was due to higher revenue and the end of profit sharing for Enbrel and a lower tax rate, partly offset by higher R&D expense. Includes results from Onyx Pharmaceuticals, (Kyprolis revenue, plus expenses) which was acquired on the first day of the quarter.

Non-GAAP numbers: net income $1.39 billion, down 6% sequentially from $1.48 billion, but up 28% from $1.09 billion year-earlier. EPS $1.82, down 6% sequentially from $1.94, but up 30% from $1.40 year-earlier. Excludes acquisition related and stock-based compensation expenses and other charges.

Product sales were $3.69 billion, up 11% y/y. Other revenue was $212 million.

Neulasta sales were $1.1 billion, up 10% y/y.

Neupogen sales were $309 million, down 1% y/y. $155 million order from U.S. government in Q3 was not repeated (nor was it expected to be).

Enbrel sales increased 3% y/y to $1.2 billion. Expects to grow by $800 million in 2014 now that Biogen owns all rights. Direct to consumer advertising is working well.

Aranesp sales decreased 4% y/y to $470 million due to price pressure in Europe.

Epogen sales were up 10% y/y at $525 million. Unit demand increased as competition decreased.

Sensipar/Mimpara sales increased 20% y/y to $307 million.

Vectibix sales were $102 million, up 19% y/y. Excited about growth prospect in Europe.

Nplate sales increased 19% y/y to $120 million.

Xgeva sales increased 33% y/y to $286 million. Grew market share in U.S. by 3 percentage points, and is now available throughout Europe.

Prolia sales increase 53% y/y to $236 million. Now launched in all major European countries, and direct-to-consumer campaign in U.S. has done well.

Kyprolis sales were $73 million, up 11% sequentially (not available year-earlier). Preparing to launch in China. Believes next inflection point will follow second line inclusion in label.

Other sales were $73 million, down 14%.

Cash and equivalents balance ended at $22.8 billion. Operating cash flow was $1.8 billion. Free cash flow was $1.6 billion. Capital expenditures $200 million. No shares were repurchased in the quarter. Dividend payments were $400 million. At the end of Q4 outstanding debt was $32.1 billion.

Expects 10 of the pipeline molecules to produce registration enabling data by 2016. Six products should produce Phase III data in 2014: Evolocumab (145) for Dyslipidemia, Kyprolis for multiple myeloma, talimogene laherparepvec for metastatic melanoma, Trebananib for ovarian cancer, velcalcetide for secondary hyperparathyroidism, and brodalumab for psoriasis. Ivabradine for chronic heart failure should be filed with the FDA in the first half.

See also the Amgen pipeline.

Amgen did well in Europe and made progress in Japan and China.

Cost of sales was $1.03 billion. Research and development expense was $1.25 billion; selling general and administrative expense $1.52 billion; and other expense $25 million, for total operating expenses of $3.82 billion. Operating income was $1.19 billion. Interest expense was $261 million, other income was $88 million, provision for income taxes $7 million.

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

Amgen does not expect to repurchase shares in 2014 or 2015, so share count will increase during this period of time, due to non-cash stock-based compensation.


AMG 416 place in market? Sensipar has been very successful, with good patient compliance. Co-administration during dialysis will make life much easier.

AMG 145 filing in 2014? This is first announcement of definite global filing timeline. Precise timing depends on jurisdiction.

2014 guidance seems to assume slower growth rate? Product mix changes include new competition against Epogen. We would also emphasize the strong operating income growth from the increased contribution from Enbrel. With that should come strong cash flow.

PCFK9 delivery device? We don't want to give out our regulatory strategy. It is a huge unmet medical need even for people on statins, so we will price around that, and it is a biologic.

Guidance below analyst consensus? We ended the quarter with momentum. We outlined the uncertainties. We expect strong results in 2014 and to invest in long-term growth drivers. Note also our tax rate is higher than analysts assumed; it was unusually low in 2013. We believe our guidance brackets the consensus estimates.

AMG 324, data timeline and difference from Lilly's drug? We may see data from the first study by the end of the calendar year. The difference is fundamental: theirs is attacking CGRP directly, we are blocking the synaptic receptor. Early data indicates our approach may be more effective.

Kyprolis competitive landscape? In the multiple myeloma market there continues to be a huge unmet medical need. Average survival is now only 6 years. On scientific evaluation is that Kyprolis could be the best in class among the proteasome inhibitors. Combination therapies will play out over time, but proteasome inhibitors will remain the backbone.

Evolocumab data is too short term to show any actual effects on cardiovascular events or disease, just fixes LDL cholesterol levels.

Geographies that were negative in Q3? Q4 was up 135% from Middle East and Russia.

Geographic expansion plans? International expansion is a source of long term growth, particularly Japan, China, and selected emerging markets. We have used partnerships and acquisitions; we are now well-positioned, but will look for further supplementation. So mostly organic going forward.

Our first biosimilar launches are in 2017, and will be an attractive source of growth, especially in international markets. We have 6 programs underway, with 3 in pivotal trials. We seek to be among the first to launch as patents expire. While it is a new program with the FDA, we would not do pivotal trials if we did not believe there is a roadmap.


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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 2014 William P. Meyers