Analyst Conference Summary

biotechnology

conference date: January 27, 2015 @ 2:00 PM Pacific Tim
for quarter ending: December 30, 2014 (fourth quarter 2014, Q4)

Forward-looking statements

Overview: Strong quarter and guidance.

Basic data (GAAP):

Revenue was $5.33 billion, up 6% sequentially from $5.03 billion, and up 6% from $5.01 billion in the year-earlier quarter.

Net income was $1.29 billion, up 4% sequentially from $1.24 billion, and up 26% from $1.02 billion year-earlier.

Earnings Per Share (EPS) were $1.68, up 4% sequentially from $1.61, and up 26% from $1.33 year-earlier.

Guidance:

Full year 2015 revenue range expected between $20.8 and $21.3 billion, with non-GAAP EPS between $9.05 and $9.40. Capital expenditures expected around $800 million. Goal is to further improve operating margins despite launching new therapies.

This is despite foreign exchange headwinds, and excludes the renewal of the R&D tax credit.

Conference Highlights:

While 2014 was characterized by an extraordinary clinical data flow, 2015 will be characterized by regulatory submissions and three important product launches. Sales outside the U.S. expanded at double-digit rates in 2014, including 11% y/y in Q4.

There was a tax benefit in the quarter from the extension of the R&D tax credit, but there was an unfavorable impact from the mix of earnings jurisdictions.

Non-GAAP numbers: net income was $1.67 billion, down 6% sequentially from $1.77 billion, but up 20% from $1.39 billion year-earlier. EPS was $2.16, down 6% sequentially from $2.30 but up 19% from $1.82 year-earlier. Excludes acquisition related and stock-based compensation expenses and other charges.

Product sales were $5.17 billion, up 8% y/y, with $4.00 billion in the U.S. and $1.17 billion international. Other revenue $157 million, down sequentially from $183 million and down from $212 million year-earlier.

Kyprolis sequential decrease was due to inventory draw down.

Cash and equivalents balance ended at $27 billion. Operating cash flow was $2.4 billion. Free cash flow was $2.2 billion. Capital expenditures $200 million. $200 million worth of shares were repurchased in the quarter. Dividend payments were $0.5 billion. At the end of quarter outstanding debt was $30.7 billion.

Expects 10 of the pipeline molecules to produce registration enabling data by 2016.

Blincyto (blinatumomab) for Philadelphia chromosome-negative relapsed/refractory B-precursor acute lymphoblastic leukemia was approved by the FDA in December. Approval was also given for the Neulasta Delivery Kit. The Kyprolis for relapsed multiple myeloma supplemental application in the U.S. and Europe was announced today.

Corlanor (ivabradine) had its PDUFA date extended 3 months for additional data to be submitted, as did talimogen laherparepvec (t-vec). Amgen plans a Phase 3 study to begin in 2015 for AMG 334 for migraines. Brodalumab for moderate to severe plaque psoriasis will be submitted for approval in 2015.

Biosimilar Phase 3 data for adalimumab (Humira) and bevacizumab (Avastin) are expected this quarter.

See also the Amgen pipeline.

Cost of sales was $1.18 billion. Research and development expense was $1,23 billion; selling general and administrative expense $1.33 billion; and other expense $128 million, for total operating expenses of $3.87 billion. Operating income was $1.46 billion. Interest and other expense net was $173 million, benefit income taxes $8 million.

Resuming share repurchase program in 2015.

2018 non-GAAP operating margin target range is 52% to 54%.

The dividend of $0.79 for stockholders of record on February 12, 2015 will be paid on March 6, 2015. The dividend is 30% higher than for quarters in 2014.

Q&A:

Is Neupogen losing market share? There was no dramatic change in Q4.

Foreign exchange rate effects? We have about 75% sales in U.S., 25% outside, so we have limited exposure. We have a 3 year rolling hedge program. If exchange rates remain steady for the rest of 2015 it would have a negative $200 million impact on revenue.

AMG 334 migraine drug dosing vs. competitors? The science is clear in terms of the relative potency of the therapies. We expect to have the most favorable profile. Has not had end of Phase 2 FDA discussions yet, the data came in very recently.

Pricing and managed care issues? We say payers and providers as essential parts of our customer base. Payers often request data on upcoming launches. We respond in a science-based manner in compliance with FDA guidance.

Biosimilars? It is going to take longer to achieve interchangeability status than biosimilar status. Extrapolation across indications is usually reasonably scientific, but sometimes additional data may be required.

PCS K9 included in guidance? Yes. It will be prices appropriately.

Enbrel sales inventory impact? We think there was about $40 million additional in Q4, which will work its way out in Q1. But we are positive for Enbrel in 2015.

IP Humira vs. AbbVie? We will be compliant with statutes. We are guiding to launching our first biosimilar in 2017.

2015 guidance includes Neupogen competition? Yes, across the product portfolio.

Tax rate guidance, Q4 windfalls? The R&D annual impact is about 1% on an annual basis, which if taken in one quarter is about 4%. For guidance the tax rate would be a point less if the credit is approved again.

Enbrel market share in dermatology and rheumatology? The market is growing double digits, with Enbrel losing market share, but still growing overall. Enbrel has been on the market for 13 years, and we see it having a place despite the new competition, as long-term patients tend to switch back and forth?

Brodalumab competition? Experts say it has the best efficacy in its class. We have to wait and see what label we get.

Corlanor is meant to be added to the existing of standard of care, regardless of what that is. We are segmenting the market as we speak.

Kyprolis beyond the relapsed market? Our view is Kyprolis is the best in class proteosome inhibitor and look forward to seeing more data from studies.

Earlier you had predicted a higher run rate in 2015 for Prolia, what changed? It took us longer to get pricing in. Our market share in new patients is about 30%. There continues to be room to growth. Long-term safety and efficacy data is good, which should help.

Biosimilar defense methods, both against you and for you? We are learning from our biosimilars program. We are recognized as an innovator and as helping with biosimilars. We think we are in good shape for our first biosimilar submission to regulators.

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