Analyst Conference Summary

biotechnology

conference date: April 28, 2016 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2016 (first quarter, Q1)

Forward-looking statements

Overview: Moderate y/y revenue growth, better earnings growth. Repatha launch failure continued. Slightly increased 2016 guidance.

Basic data (GAAP):

Revenue was $5.53 billion, flat sequentially from $5.54 billion, and up 10% from $5.03 billion in the year-earlier quarter.

Net income was $1.9 billion, up 6% sequentially from $1.80 billion, and up 17% from $1.62 billion year-earlier.

Earnings Per Share (diluted EPS) were $2.50, up 5% sequentially from $2.37, and up 18% from $2.11 year-earlier.

Guidance:

Updated full 2016 revenue expected between $22.2 and $22.6 billion. Non-GAAP EPS $10.85 to $11.20. Both are up slightly from prior guidance. Capital expenditures near $700 million.

Conference Highlights:

Enbrel and Kyprolis led revenue growth. "Off to a great start for the year." The products that launched in 2015 in the U.S. are now launching in Europe and globally. Margins continued to improve.

Repatha progress has been made on reimbursement in the U.S., but strict criteria are limiting uptake. In Europe reimbursement negotiations and initial launches are ongoing. Still believes it is a large opportunity. A monthly dosing option will launch later in 2016 [it is an injection]. Outcomes study should release data later this year. In a Phase 3 study showed Repatha could treat patients who had muscle destruction with statins.

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. New data released in January should also help drive future growth.

Non-GAAP numbers: net income was $2.20 billion, up 11% sequentially from $1.99 billion, and up 15% from $1.91 billion year-earlier. EPS was $2.90, up 11% sequentially from $2.61 and up 17% from $2.48 year-earlier. Excludes acquisition related and stock-based compensation expenses and other charges. 54.6% operating margin, up from 50.2% year-earlier. Approximately $0.09 of EPS was from an accounting change related to taxes on stock based compensation.

Product sales were $5.24 billion, down 2% sequentially from $5.33 billion, and up 7% y/y from $4.87 billion, with $4.12 billion in the U.S. and $1.12 billion international. Non-product revenue $288 million, up 39% sequentially from $207 million and up 81% from $159 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 including rebates. Competition is intensifying.

Epogen and Neupogen are diminishing from competition, but Arenesp is picking up some of their share. Xgeva may have seen stocking in the quarter, and so could be down in Q2.

Cash and equivalents balance ended at $34.7 billion. Operating cash flow $1.9 billion. Free cash flow was $1.8 billion. At the end of quarter outstanding debt was $34.3 billion, with an average interest rate of 3.7%. Capital expenditures $0.2 billion. $0.7 billion worth of shares were repurchased in the quarter. Dividend payments were $0.8 billion.

Imlygic was approved in the EU for unresectable melanoma in the quarter. Imlygic (T-vec) with Keytruda started a Phase 3 study in unresectable metastatic melanoma.

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

Blincyto (blinatumomab) for relapsed or refractory acute lymphoblastic leukemia that is Philadelphia chromosome negative was approved in the EU in the fourth quarter. In February an interim analysis met the primary endpoint. It will also be tested in combination with Keytruda in DLBCL. Also submitted a sBLA for pediatric and adolescent Ph- R/R B-precursor ALL.

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 women Phase 3 data released in February met the primary and secondary endpoints. Results in March from a Phase 3 study in men met the primary endpoint of increasing bone density.

AMG 334 for migraine Phase 3 trial is enrolling well with data this year. Phase 2b data is expected in mid 2016.

Xgeva Phase 3 MM data is expected in Q4 2016.

See also the Amgen pipeline.

Cost of sales was $1.02 billion. Research and development expense was $872 million; selling general and administrative expense $1.20 billion; and other expense benefit $32 million, for total operating expenses of $3.13 billion. Operating income was $2.40 billion. Interest and other expense net was $144 million, income taxes $358 million.

$1.00 dividend will be paid on June 8, 2016 to shareholders of record as of May 17, 2016.

Q&A:

Repatha bans, how could that change? It has had a 77% rejection rate for prescriptions written, which is frustrating cardiologists. We are working on payers. We hope people will see the importance of getting patients on drug. When we get the proof that it lowers heart attacks and strokes we should get better access.

Romosozumab competitive advantages? We believe the data will support registration in Europe. We need to present the data at the scientific congresses so the experts can evaluate them. They are 3 year trials vs. typical one-year trials. We had quite a significant effect. We believe the data will be well-received.

Treasury notice and inter-company debt? We are not inverted, we are a U.S. based company. All our debt is received from third parties. We do not expect any impact.

Kyprolis vs. new competition? The addition of the Endeavor data to our label has put us in a good position for second-line disease. It has continued to grow market share in 3rd line while growing in 2nd line. So far the new entrants seem to be getting just 4th line patients.

Will you need to renegotiate with payers once the Repatha data is presented? We can't talk to payers about the data until the FDA has approved it for the label. The key would be cardiologists taking in the data.

Hostile acquisitions? Valuations in some areas are more attractive than last year and we have a strong balance sheet we could use for acquisitions or licensing.

Are you looking at price to open up sales of Repatha? We set the price based on the value of the drug to patients. It is an acceptable value proposition to treat patients at high risk.

AMG 334 migraine price proposition? It is a huge unmet medical need where current therapies have side effects that can be worse than the disease itself. Patients are well-informed and have already been on therapy.

We believe once pricing is set in Europe access to Repatha will become a medical decision.

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