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conference date: April 19, 2007 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2007 (1st quarter)
Overview: 15% increase in revenues and earnings per share (EPS) over prior year, but slight sequential decrease in revenues. Guidance is reduced due to possible problems with ESA agents (Aranesp and EPOGEN).
Basic data:
Revenues were $3.7 billion, down 3% sequentially from $3.8 billion, but up 15% from $3.2 billion in Q1 2006.
Net income was $1.1 billion, up 11% from Q1 2006. Non-GAAP net income was $1.27 billion.
Earnings per share (EPS) were $0.94, up 15% from Q1 2006. Non-GAAP EPS was $1.08, up 19% over Q1 2006.
Cash and marketable securities were $4.8 billion, but debt was $7.3 billion.
Guidance:
Revenue guidance is under review. 2007 non-GAAP EPS is now expected at the low end of previous range of $4.30 to $4.50.
Conference Highlights:
Aranesp and EPOGEN sales may change due to label changes; makes guidance difficult, but should have data at end of Q2. Adjusting expenses downward in light of this.
Stock option expenses impacted EPS by $0.03. Other impacts included acquisition expenses and charges related to convertible debt repayments ($51 million).
"We project adjusted EPS will be at the low end of our earnings guidance range."
Product sales were $3.565 billion, up 14% from prior year. U.S. sales were $2.9 billion, up 12%. International sales were $681 million, up 22%. There was a positive impact from foreign exchange of $42 million. International sales were up 15% excluding the fx impact.
Aranesp (darbepetin alfa) sales were $1.02 billion, up 14% from Q1 2006, driven by U.S. demand.
EPOGEN sales were $625 million, up 3%. Spillover effect is discussed in 10-K.
Neulasta and Neupogen combined sales hit $1.02 billion, up 14%. There was more first-cycle use and a price hike.
Enbrel revenues were $730 million, increased 11% despite increased competitive activity.
Sensipar revenues were $105 million, up 72%.
Vectibix revenues were $51 million. It had no revenues year-earlier, but was up 31% sequentially.
[non-GAAP] Cost of sales was $559 million. R&D $803 million. SG&A $748 million. Total operating expense was $2.1 billion. Capital expenditures $325 million. Tax rate was 21.7%.
8.8 million shares of stock were repurchased for $537 million. $6.0 billion allocated for this has not been used.
The product pipeline was reviewed. AMG 531 phase III results met endpoints and had a good safety profile; will file for approval in 2007. Denosumab for Postmenopausal Osteoporosis Phase III data were also good.
Patient safety a priority. 145 study shows safety for ESA (Aranesp and EPOGEN) when used on-label. Possible negative results were for off-label use. But label revisions likely to reduce sales. About 25% of doctors are reassessing when to initiate therapy. Lost Medicare coverage for AOC (Anemia of Cancer) patients.
Q&A:
Denosumab versus competitors? Does better with cortical bone. Fracture reduction data is critical, but won't have that data until next year.
TREAT trial, stopping? No, it is important to have the answers TREAT was meant to find out.
ESA issue with respect to progression is with head and neck cancer. But data is not there.
Revenue guidance? Waiting for data. Can't say if it will be within old range of guidance.
Expense plan? More of a reduction of expense growth rather than an actual reduction in expense. Trying to reduce SG&A, not R&D.
ODAC meeting change FDA may modify label? Our conviction is our products are safe when used on label, but we cannot predict what the FDA will do.
April results so far? Are seeing a softening of sales, but not ready to quantify yet.
Can you use patients between 11 and 12 on hemoglobin to predict fall in sales? To early. Often 11s and 12s are just good responders.
Use Q4 2006 or Q1 2007 for ESAs going forward? News did proceed label change.
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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
