Analyst Conference Summary

biotechnology

conference date: April 21, 2015 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2015 (first quarter 2015, Q1)

Forward-looking statements

Overview: Revenue seasonally down sequentially, but up 11% y/y. GAAP net income up 51% y/y!

Basic data (GAAP):

Revenue was $5.03 billion, down 6% sequentially from $5.33 billion, but up 11% from $4.52 billion in the year-earlier quarter.

Net income was $1.62 billion, up 25.6% sequentially from $1.29 billion, and up 51% from $1.07 billion year-earlier.

Earnings Per Share (EPS) were $2.11, up 25.6% sequentially from $1.68, and up 51% from $1.40 year-earlier.

Guidance:

Full year 2015 revenues are expected between $20.9 and $21.3 billion. Adjusted EPS expected between $9.35 and $9.65. That is an increase in prior guidance for both, and is despite foreign currency headwinds.

Non-GAAP tax rate expected to be between 18% and 19%, excluding R&D tax credit. Capital expenditures target is $800 million.

Conference Highlights:

It was a strong quarter, so 2015 guidance has been raised. 2015 will be characterized by regulatory submissions and three important product launches. Sequential revenue decline reflects normal seasonal patterns.

Corlanor (ivabradine) for chronic heart failure received FDA approval last week. On the down side, Brodalumab for asthma development was terminated due to futility. However positive Phase 3 data is being submitted for Brodalumab for plaque psoriasis midyear. Progress is being made in biosimilars.

Non-GAAP numbers: net income was $1.91 billion, up 14% sequentially from $1.67 billion, and up 33% from $1.44 billion year-earlier. EPS was $2.48, up 15% sequentially from $2.16 but up 33% from $1.87 year-earlier. Excludes acquisition related and stock-based compensation expenses and other charges.

Product sales were $4.87 billion, down 6% sequentially from $5.17 billion, and up 12% y/y, with $3.77 billion in the U.S. and $1.10 billion international. Other revenue $159 million, down sequentially from $157 million and down from $165 million year-earlier.

Enbrel growth was mainly driven by price; competition is intense. There was an inventory reduction in Q1, but growth is expected for the full year. Prolia for osteoporosis was a growth leader. Kyprolis received priority review for second line multiple myeloma.

Cash and equivalents balance ended at $27.1 billion. Operating cash flow was $1.3 billion. Free cash flow was $1.2 billion. Capital expenditures $0.1 billion. $500 million worth of shares were repurchased in the quarter. Dividend payments were $0.6 billion. At the end of quarter outstanding debt was $30.3 billion.

Intends to step up the level of share repurchases in 2015.

Operation margins improved because SG&A was held steady during the year, and R&D expense was reduced through efficiency. However, going forward op ex is expected to increase in line with revenue. Taxes were up do to a change in mix.

When Neulasta injector launch is going well. It should allow for its use at home the day following chemotherapy. Neupogen decline was due to branded competition, and biosimilar competition is likely to start this year.

Hoping for commercialization of Repatha for dyslipidemia later this year; it is under regulatory review, including in Japan.

Omecamtiv mecarbil for heart failure Phase 2 should be available in the later half of 2015.

An FDA advisory committee meeting will be held on April 29 for T-vec (Talimogene laherparepvec) for melanoma.

AMG 416 for secondary hyperparathyroidism BLA will be submitted to the FDA later this year.

Phase 3 data for ABP 215 for non-small cell lung cancer should be available before the end of 2015.

Humira biosimilar had positive Phase 3 data, which should allow it to be approved as a biosimilar.

See also the Amgen pipeline.

Cost of sales was $1.03 billion. Research and development expense was $894 million; selling general and administrative expense $1.03 billion; and other expense $58 million, for total operating expenses of $3.01 billion. Operating income was $2.20 billion. Interest and other expense net was $146 million, income taxes $253 million.

Q&A:

Partnership to support launch of Repatha? We own the rights globally, we have a partnership in Japan with Astellas, we are looking forward to commercializing it globally.

Launch of Neulasta injector? We are exceeding our internal projections, and the feedback from patients, nurses and institutions has been very positive.

Repatha patent infringement case? We are focused on having the matter reviewed on its merits, early next year. We feel we have strong IP for the product.

Margin dynamics this year? In Q1 we had great performance and expense management. We expect about $400 million of incremental savings in 2015, part of which we saw in Q1. We expect rising operating costs now because of the big launches coming up.

Your ivabradine (Corlanor) estimates are higher than independent estimates? We believe there are a million patients and will get to as many of them as possible.

2017 biosimilar Humira launch confidence, despite patent dispute? Our understanding of the legislation and our own progress, we still expect in 2017. The Appeal courts should hear the matter later this year. We intend to submit the Humira biosimilar to the FDA for approval later this year, with a broad label.

Timing on Neulasta biosimilar competition? They could enter the market towards the end of 2105 as our patent expires.

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