Analyst Conference Summary


conference date: January 10, 2007
for quarter ending: December 31, 2006 (4th quarter)

Forward-looking statements

Overview: A great quarter, beyond guidance and expectations. Guidance for 2007 is 25 to 30% EPS growth (non-GAAP).

Basic data:

Revenues of $2.714 billion, up 43% over year-earlier. US sales were $2.05 billion.

GAAP net income of $594 million, up 75% over year-earlier. Non-GAAP net income was $659 million.

GAAP earnings of $0.55 per share, up 77% over year-earlier. Non-GAAP earnings were $0.61 per share.

$4.4 billion in unrestricted cash at end of quarter, up from $3.9 billion end of 2005.


Expects free cash flow to grow significantly in 2007.

Difficult to predict revenues, but expect non-GAAP EPS growth of 25 to 30% in 2007. That could be reduced if they find "attractive incremental investment opportunities.

Conference Highlights:

The difference between GAAP and non-GAAP earnings was attributed to stock-based compensation ($0.04) and Roche redemption and other special items ($0.02).

Sales summary by drug (all pharmaceutical names are trademarked):

 Sales (millions)  Q4 2006  Q4 2005  % change








































Cost of sales for all 2006 and for Q4 was 15% of sales, down from 18% for all of 2005. Expects to increase to 16% in 2007. R&D expense for 2006 increased 29% to $1,773 million GAAP; for Q4 they were $517 million non-GAAP. 2007 R&D to 18 to 19% of revenues. MG&A (marketing, general and admin) expense rose 40% to $2,014 for the full year ($1.84 billion non-GAAP), or 20% of revenues, but expects to drop to 18 to 19% in 2007. $270 million in collaborator expense for quarter. Tax rate was 40% for Q4 due to R&D tax rules adjustment; expect 37% in 2007. Non-GAAP operating margin increased to 38% for Q4. Expects to increase to 40% in 2007. Other income was $59 million, but expects to be significantly lower in 2007.

Stock based compensation expense was $83 million in Q4 ($0.04 per share).

Cash from operations for all 2006 was $2.1 billion. $1.2 billion was used for capital expenditures. Free cash flow was over $900 million. $1 billion was spent on share repurchases, and will continue repurchases in 2007.

Q4 clinical developments included beginning Phase III study of anti-CD20 for rheumatoid arthritis. An supplemental BLA was submitted for Herceptin in node-negative patients.

On January 9th the Supreme court decided that MedImmune could go forward with its patent claims against Cabilly without having to first breach a license agreement. It did not address the merit of MedImmune's patent claims. The Cabilly patent contributed $0.06 per share to 2006 bottom line.

Lucentis for wet, age related macular degeneration was launched in 2006 and had $380 million in sales before the end of the year (just over 6 months on market). Three potential drivers for future business, including dosing frequency, share of new patients (now about 55%), patient pool size.

Reiterated clinical results announcements. All manufacturing milestones were met in 2006. Tanox acquisition scheduled to close Q1 2007, pending approvals.

Product licensing and merger opportunities is very competitive market, so internal pipeline will provide majority of long-term growth. 60 new molecules under investigation with 30 projects in late stage research.

Premium pricing is necessary to maintain their R&D model.

Avastin sales increase due mainly to new indication approved, but continues to educate doctors and see adoption. More Avastin studies on way. Herceptin approved for node-positive breast cancer, promoting use in eligible patients; applying for more indications in 2007. Tarceva penetration remains steady. Rituxan inventories may have added $10 million to sales; adoption rate remains steady; launch in rheumatoid arthritis going well. Enrollment in trials completed.

Disputed CD20 issues with Biogen-Idec submitted to arbitration.

$191 million in sales to collaborators for Q4 2006, primarily due to sales of cancer drugs to Roche. Expect sale to double in 2007. $389 million Q4 royalty revenues, driven by higher Roche royalties. Expects 25% royalty growth in 2007. Contract revenues were $81 million; expected to decrease 15% in 2007.


Avastin's approval for lung cancer effects? Reimbursement challenge goes away when they get to promote the drug on label.

Avastin $9 million deferred? $499 is real sales, but question of price of government reimbursement. Represents best estimate for existing patients who will exceed the cap. Impact of $55,000 cap on growth rate is uncertain, but it may increase number of patients by lowering costs.

Lucentis plateau predicted? Does expect existing patients to go to lower dose frequency. But patients switching away from existing therapies. Speculates this will result in a degree of equilibrium in early part of 2007. Looking more for a slowing than for continued explosive growth.

Is 18% R&D investment enough going forward? Based on pipeline needs and talent available. Not limited by amount of dollars. Represents a big absolute increase because sales have increased so rapidly.

Manufacturing cost improvements? Takes a while for increased capacity to come online. Sales costs will be lowered over time.

Herceptin penetration in breast cancer? About 62% penetration. Only got approval November 2006; hoping to extend label. Has side effects, so won't see 100% adoption. Potential for medium rather than staggering upside.

Move outside oncology and immunology? Thinks long before entering into new therapeutic areas. Depends on progress of science before commercialization becomes viable. Looks at new areas, but not clamoring to start. Has good cancer drugs but they are not cures so there is plenty of room for improvement in cancer. Is developing an Alzheimers drug.

Herceptin 2nd line defense sales? Does not have figures. Most sales are in adjutant setting; second is in first line setting.

New deals? SGN40 (CD40) target is different from CD20 and is present on multiple myeloma cells. Clinical development plan is under development. Excelisis (sp?) is a good collaborator.

Colorectal market? Data on Avastin strong and compelling.

OpenIcon Analyst Conference Summaries Main Page

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