Analyst Conference Summary

biotechnology

conference date: July 27, 2016 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2016 (second quarter, Q2)

Forward-looking statements

Overview: Solid quarter on Enbrel sales. Increased 2016 guidance.

Basic data (GAAP):

Revenue was $5.69 billion, up 3% sequentially from $5.53 billion, and up 6% from $5.37 billion in the year-earlier quarter.

Net income was $1.87 billion, down 2% sequentially from $1.9 billion, but up 13% from $1.65 billion year-earlier.

Earnings Per Share (diluted EPS) were $2.47, down 1% sequentially from $2.50, and up 15% from $2.15 year-earlier.

Guidance:

2016 total revenues guidance increased to $22.5-$22.8 billion; EPS guidance increased to $9.55-$9.90 on a GAAP basis and $11.10-$11.40 on a non-GAAP basis.

Previously, the Company expected non-GAAP EPS in the range of $10.85 to $11.20.

Conference Highlights:

"We delivered another strong quarter and are on track to meet or exceed our long-term objectives," said Robert A. Bradway, CEO. "We are in the early stages of a new product launch cycle and have several additional pipeline opportunities rapidly nearing regulatory milestones." Managing the lifecycle of legacy products while launching new products.

Repatha had progress, doubling revenue from Q1's disappointing result, but still tiny compared to prior expectations. Payers still throw up restrictions. Data from a Phase 3 atherosclerotic study is expected before the end of 2016, then cardiovascular outcomes data is expected in Q1 2017. Now offering a monthly injection. Launching in some European countries this quarter.

Enbrel revenue increase was driven by a price increase, "offset partially by the impact of competition." Epogen decline is being offset by growth in Arenesp.

Amgen remains open to acquiring new drug candidates.

Biosimilar project is making good progress. ABP 215 and 501 global submissions and reviews are expected in 2016, with 980 (Herceptin biosimilar) Phase 3 data out in 2016.

Non-GAAP numbers: net income was $2.15 billion, down 2% sequentially from $2.20 billion, and up 9% from $1.98 billion year-earlier. EPS was $2.84, down 2% sequentially from $2.90 and up 11% from $2.57 year-earlier. Excludes acquisition related and stock-based compensation expenses and other charges. % operating margin, up from % year-earlier.

Product sales were $5.47 billion, up 4% sequentially from $5.24 billion, and up 5% y/y from $5.23 billion, with $4.32 billion in the U.S. and $1.16 billion international. Non-product revenue $214 million, down 26% sequentially from $288 million and up 48% from $145 million year-earlier.

Cash and equivalents balance ended at $35.0 billion. Operating cash flow $2.7 billion. Free cash flow was $2.5 billion. At the end of quarter outstanding debt was $33.2 billion at an average of 3.6% interest. Capital expenditures $0.2 billion. $0.6 billion worth of shares were repurchased in the quarter., with $3.6 billion remaining authorized. Dividend payments were $0.8 billion.

AMG 334 should have Phase 3 data available in 2016 for episodic migraines. 334, or Erenumab phase 2 study for chronic migraine prevention met its primary endpoint in June.

Phase 3 data for ABP 215 (Avastin biosimilar) for non-small cell lung cancer (NSCLC) is being readied for global regulatory submissions. Two other biosimilars, ABP 501 (adalimumab) and ABP 980 (trastuzumab) are also under review or being submitted.

Xgeva Phase 3 MM data is expected in Q4 2016.

Kyprolis Phase 3 data for newly diagnosed multiple myeloma is expected before the end of the year.

Parsabiv is expected to be added as a treatment for secondary hyperthyroidism soon, as the PDUFA date is in August.

Romosozumab for postmenopausal osteoporosis is under U.S. regulatory review.

Blincyto for pediatric and adolescent patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia FDA decision deadline is September 1, 2016.

See also the Amgen pipeline.

Cost of sales was $1.05 billion. Research and development expense was $900 million; selling general and administrative expense $1.29 billion; and other expense $66 million, for total operating expenses of $3.31 billion. Operating income was $2.38 billion. Interest and other expense net was $176 million, income taxes $334 million.

$1.00 dividend will be paid on September 8, 2016 to shareholders of record as of August 17, 2016.

Q&A:

Cost of goods sold, is the new lower level sustainable? We have been working on manufacturing efficiency for a long time. It is a source of competitive advantage. We will try to maintain the cost of sales at about this level, but there will be some upward pressure as we introduce new therapies.

Repatha studies? The thought is that the relationship between lower LDL and outcomes will continue, as will LDL's relationship to plaque.

Competition impact on Kyprolis? The MM market is complicated. We see Darzalex mainly in fourth line setting, but believe it might be good in combination with Kyprolis.

Biosimilars, thoughts on timelines and legal hurdles? We have 9 biosimilar programs. On the 3 in advanced regulatory stages, we hope the first regulatory approval will be later this year.

Erenumab data? The Phase 2 study data appears to be of a very representative population. The treatment effect is robust and reproducible in both episodic and chronic migraine. There is a large placebo effect, which is durable.

Migraine competition? Doses are used to saturate the systems, across companies, with consistent results. So the question is: what is the minimal effective dose? And how easy is the administration? A monthly injector would be a great solution. A good marketing strategy will be needed, despite the huge unmet market.

Repatha has had little usage on the monthly dose. But we are talking to doctors and believe there will be demand for it.

M&A competition? We have a broad set of interest around six therapeutic areas. And from preclinical to late stage products. We are financially able to compete. We are bringing scientific insight and disciplined in terms of financial returns for Amgen. We have some pretty interesting projects that could close this year.

Ctap (sp?)? Folks are waiting to see the Merck readout. The Lilly data did cause some pause in belief in the mechanism. We have suspended investment in the area, at least until we see the Merck data.

Launch of yet another oral in the RA market? The first launch was obviously not that successful. The market has grown, and their may be patients who would want an oral therapy.

Outcomes based pricing? We are partnering with patients to insure access and manageable costs.

Sustainability of price increases, notably Enbrel, in this environment? We price based on value in the marketplace. Enbrel is in a highly competitive market. There are large negotiated rebates, so price increases have become part of the competitive dynamic.

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