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conference date: January 27, 2007
for quarter ending: December 31, 2006 (4th quarter)
Overview: Continued rapid revenue growth, but 2007 guidance for slower growth rate.
Basic data:
Revenues were $3.835 billion, up 17% from Q4 2005.
GAAP EPS was $0.71, up 8% over Q4 2005. Non-GAAP was $0.90, up 22%.
GAAP Net Income was $833 million, up only 1 percent from Q4 2005.
Cash and marketable securities ended at $6.3 billion. Debt was $9.0 billion.
Guidance:
Total revenues for all of 2007 expected at $15.4 to $16.0 billion. EPS $4.30 to $4.50 excluding stock option and acquisition-related expenses. Stock option expense impact to be $0.10 to $0.12 compared to $0.14 for 2006.
Capital expenditures are expected to increase to finish the Irish and Puerto Rican facilities and expand R&D. Cost of sales comparable to % of sales in 2006. Tax rate a bit lower than 2006.
Conference Highlights:
GAAP results were impacted by $130 million of acquired R&D write-offs from Avidia and Abgenix. $54 million went to stock-based compensation expense.
U.S. sales were $3.1 billion, up 18% over Q4 2005. International sales were $636 million, up 17%. There was a $26 million positive impact from foreign exchange.
Aranesp sales were $1.1 billion, up 27% year-over-year. Epogen sales were $661 million, up 6%. Neulasta and Neupogen totalled $1.0 billion, up 10%. Enbrel revenues were $792 million, up 18%. Sensipar sales of $98 million were up 98%. Vectibix had $39 million; it was the launch quarter and the outlook is good.
Operating expenses grew 23% year-over-year. Cost of sales $551 million, up 8%, helped by decreased royalty expenses. R&D $1.0 billion, up 52% due to running 9 late stage, large population trials. SG&A (sales, general & admin) expense increased 10% to $1.0 billion. Capital expenditures were $384 million. Adjusted tax rate was 19.7%, down due to retroactive R&D tax credit.
3.3 million shares were repurchased for $245 million. New stock repurchase program of $5 billion authorized, for total of $6.5 billion remaining.
Deficit Reduction Act may increase Medicaid rebates in 2007; included in guidance. Epogen may be effected in Roche launches peg-EPO.
Early Vectibix results exceeded expectations.
Reviewed late-stage clinical programs for Vectibix, AMG 706, aranesp, Sensipar, denosumab and AMG 531. It also noted that 12 new molecules were put into clinical development in 2006. 48 total molecules are in pipeline. Preliminary Phase 3 results on Aranesp for anemia with cancer were negative. Sensipar also ran into problems. AMG 706 (motesanib diphosphate) had some good results so they are doing more with it.
For 2007 are trying to balance R&D expenses against delivering results for shareholders.
Invetories were in normal range except for Neupogen, which was slightly high.
For the year 2006 revenue growth was 15%. EPS (non-GAAP) grew 22% 2006 v. 2005. This was partly achieved with share repurchases of 70 million shares in 2006.
Q&A:
Vectibix for Erbitux failures? Mostly monotherapy 3rd line, some 4th line. On label use and seeing some results after 2 or 3 months on safety profile. Some switching from Erbitux.
8 to 12% revenue growth guidance for 2007? Other than an uptick in Enbrel, everything else is straight-lining.
peg-EPO? Does not think will have a big effect in 2007, will not launch until at least May.
Vectibix reimbursement issue? Is not 95% AWP right now, it is WAHC plus 6%. That lasts 6 months, then it goes to ASP based for Medicare. Obviously private pay varies greatly. Channel build so far is pretty low, in the low single digit millions.
How do you get 8-12% growth with Epogen dose declines? May see a small dose decline, but a lot more patients will go sub-11, which is a higher risk. Revenue guidance is solid.
Arenesp penetration in AOC market? Are concerned (with negative results for cancer with anemia) and will handle with total transparency. But AOC is not a label indication or what we promote. Best estimate is AOC is 10 to 12% of sales, but only a subset may be represented by the negative results. Patients studied were gravely ill.
Do you know what the molecular structure of peg-EPO is? Highly confident in knowledge of structure of peg-EPO and its manufacture and the patent issues involved.
Vectibix studies? It is early to read too much into data. Will wait for the rest of the data.
Anemia of Cancer (AOC) study? Don't know the cause of death; they were severly ill patients. No specific adverse events were seen. Did see an increase in hemoglobin.
Vectibix head and neck cancer Phase 3 delays? For locally advanced cancer, many physician inquiries, so decided to launch two new Phase 2 studies to get data for registration trials. For Phase 3 study in metastatic or recurrent disease there it is just operational sequencing to get it right. No safety concerns; very bullish on how Vectibix is performing.
PACE data of Vectibix? Mostly gives information about safety, not effectiveness.
AMG 531 filing? Interesting data with respect to other indications. But aiming for IPP label approval.
Arenesp keeps having trials with increased mortality? Complicated issue. In dialysis the data has gotten some interest, but that is for hemoglobin levels above recommendations. So might have a slightly downward effect on dose. In oncology market are many patients who can benefit from Arenesp who are not now getting it. Are for the first time facing some competition in Europe in anemia. Can't reason across highly variable populations.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We 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 2007 William P. Meyers
