Analyst Conference Summary

biotechnology

conference date: January 28, 2016 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2015 (fourth quarter 2015, Q4)

Forward-looking statements

Overview: Revenue growth y/y was not strong, but earnings growth was. No significant Repatha sales in the quarter.

Basic data (GAAP):

Revenue was $5.54 billion, down 3% sequentially from $5.72 billion, and up 8% from $5.33 billion in the year-earlier quarter.

Net income was $1.80 billion, down 3% sequentially from $1.86 billion, and up 35% from $1.29 billion year-earlier.

Earnings Per Share (EPS) were $2.37, down 3% sequentially from $2.44, and up 35% from $1.68 year-earlier.

Guidance:

For the full year 2016 revenue is expected between $22.0 and $22.5 billion with adjusted EPS of $10.60 to $11.00, which is an increase from prior guidance. Tax rate 19.5% to 20.5%. Capital expenditures around $700 million.

Conference Highlights:

2015 saw the groundwork laid for future revenue growth with six new product launches. Expects to continue to reduce operating expenses in 2016.

Repatha was approved in Japan earlier this month, but cost reimbursement is under negotiation. In the U.S. progress has been made on reimbursement, but strict criteria are limiting uptake. In Europe reimbursement negations are ongoing, with only Spain completed so far.

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.

Kyprolis is doing well following the label expansion last year to relapsed multiple myeloma.

Non-GAAP numbers: net income was $1.99 billion, down 4% sequentially from $2.08 billion, and up 19% from $1.67 billion year-earlier. EPS was $2.61, down 4% sequentially from $2.72 and up 19% from $2.16 year-earlier. Excludes acquisition related and stock-based compensation expenses and other charges. 44.4% operating margin, up from 39.3% year-earlier.

Product sales were $5.33 billion, down 3% sequentially from $5.52 billion, and up 3% y/y from $5.17 billion, with $4.22 billion in the U.S. and $1.11 billion international. Non-product revenue $207 million, flat sequentially from $207 million and up from $157 million year-earlier.

Preparing for biosimilar competition for several therapies; expects to continue significant sales for years. Enbrel has U.S. exclusivity until 2029.

The Neulasta delivery kit ramp is going well and helping keep revenue up. A biosimilar competitor in the U.S. is not expected until 2017.

Enbrel growth y/y mainly reflected price changes. Competition is intensifying.

Cash and equivalents balance ended at $31.4 billion. Free cash flow in Q4 was $1.9 billion. At the end of quarter outstanding debt was $31.6 billion, with an average interest rate of 3.6%. For the full year 2015 free cash flow was $8.5 billion. Capital expenditures $0.6 billion. $1.9 billion worth of shares were repurchased in the quarter. $4.9 billion remained on the repurchase program. Dividend payments were $2.4 billion.

Imlygic was approved in the EU for unresectable melanoma in the quarter.

AMG 334 for chronic migraines should have Phase 2b data available in 2016. A Phase 3 study for episodic migraines was started in Q3.

Blincyto (blinatumomab) for relapsed or refractory acute lymphoblastic leukemia that is Philadelphia chromosome negative was approved in the EU in the quarter. It will be tested in combination with Keytruda in DLBCL. AMG 820 will be tested with Keytruda in advanced solid tumors.

AMG 416 for secondary hyperparathyroidism is under review in the U.S. and E. U.

Phase 3 data for ABP 215 (Avastin biosimilar) for non-small cell lung cancer (NSCLC)

Romosozumab data for bone fractures of osteoporosis patients Phase 3 data is expected this quarter.

AMG 334 for migraine Phase 3 trial is enrolling well. Phase 2b data is expected in H2 2016.

Xgeva Phase 3 MM data is expected in Q4 2016.

See also the Amgen pipeline.

Cost of sales was $1.07 billion. Research and development expense was $1.09 billion; selling general and administrative expense $1.42 billion; and other expense benefit $77 million, for total operating expenses of $3.50 billion. Operating income was $2.03 billion. Interest and other expense net was $164 million, income taxes $113 million.

$1.00 dividend will be paid on March 8, 2016 to shareholders of record on February 16, 2016.

Q&A:

Romosozumab data, side effect worries? This is a genetically verified target. There are individuals with certain genetic disorders who are at risk, but we do not believe the typical patient is endangered.

Repatha share vs. number of overall prescriptions? We are seeing a robust level of prescriptions coming through our hub, the insurers are restricting the number of prescriptions that are approved. We are working on it. The outcomes data should help, especially when it is added to the data. In Europe and Japan the physicians should be able to make decisions based on benefits to patients.

Neupogen and Neulasta? We have had Neupogen competition for over a year and still have 76% market share. Neulasta device helps avoid an extra clinic visit, or skipping the second business. Feedback is very good, we believe it will be sticky.

Kyprolis? We believe it is driving deep remission. It is getting great PFS. A once a week dose helps with compliance and duration. Second line approval came in July, most second line therapies goes 7 or 8 months. It is two early to have duration data, but we will be looking for it.

Romosozumab data street concerns about compared to existing competition? You are right, this will not be straightforward. But the osteoporisis trials are large and have similar designs. Experts will interpret the data. The target is a very specific patient population.

Romosozumab data sufficient for regulatory approval, if successful? Yes, should be sufficient for global registration, if the data is good.

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