Analyst Conference Summary

biotechnology

conference date: July 25, 2017 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2017 (second quarter, Q2)

Forward-looking statements

Overview: Slow y/y revenue growth, better profit growth. Repatha sales improved significantly. Raised EPS guidance for full year 2017.

Basic data (GAAP):

Revenue was $5.81 billion, up 6% sequentially from $5.46 billion, and up 2% from $5.69 billion in the year-earlier quarter.

Net income was $2.15 billion, up 4% sequentially from $2.07 billion, and up 15% from $1.87 billion year-earlier.

Earnings Per Share (diluted EPS) were $2.91, up 4% sequentially from $2.79, and up 18% from $2.47 year-earlier.

Guidance:

Revised full year 2017 guidance is revenue between $22.5 and $23.0 billion, narrowing the prior range. EPS $10.79 to $11.37 GAAP, $12.15 to $12.65 non-GAAP. Capital expenditures $700 million.

Conference Highlights:

Robert A. Bradway, CEO said "Our newer products are registering strong volume-driven growth globally and we expect their contribution to continue to increase over time, offsetting declines in mature products." Remains on track to achieve 2017 and long-term objectives. Repatha is now expected to be an important contributor to long-term growth.

Three new products are rapidly approaching the market: Evenity (romosozumab) for osteoporosis, Erenumab for migraine, and Parsabiv for hyperthyroidism secondary to chronic kidney disease. Biosimilars are also coming closer to market.

Non-GAAP numbers: net income was $2.41 billion, up 3% sequentially from $2.33 billion, and up 12% from $2.14 billion year-earlier. EPS was $3.27, up 4% sequentially from $3.15 and up 15% from $2.84 year-earlier. Excludes acquisition related and stock-based compensation expenses and other charges. 55.2% operating margin.

Product sales were $5.57 billion, up 7% sequentially from $5.20 billion, and up 2% y/y from $5.47 billion, with $4.39 billion in the U.S. and $1.19 billion international. Non-product revenue was $236 million, down 11% sequentially from $265 million but up 10% from $214 million year-earlier.

Cash and equivalents balance ended at $39.2 billion, up slightly sequentially from $38.4 billion. Operating cash flow $2.33 billion. Free cash flow was $2.14 billion. At the end of quarter long-term debt was $33.6 billion. Capital expenditures $185 million. $1 billion worth of shares were repurchased in the quarter. Dividend payments were not stated, but probably $0.8 billion.

New Blincyto and Kyprolis data and possible label expansions should contribute to future growth.

Aimovig (Erenumab) for migraines regulatory submissions were made in Q2. Believes partnership with Novartis will enhance sales. PDUFA action date is May 17, 2018.

Xgeva for prevention of SREs (skeletal related events) in multiple myeloma has been assigned a February 3, 2018 PDUFA date by the FDA.

ABP 215 (Avastin biosimilar) for non-small cell lung cancer (NSCLC) completed global regulatory submissions. Received the recommendation of the FDA advisory board.

ABP 980 (biosimilar trastuzumab or Herceptin) marketing authorization application was submitted in Europe in March, with a submission to the FDA expected.

Amgevia (biosimilar adalimumab, or Humira) was granted commercial approval in March for sale in Europe.

Biosimilar to Rituximab, ABP 798 continued enrolling its Phase 3 trial. ABP 710, Infliximab also continued Phase 3.

Romosozumab (Evenity) for postmenopausal osteoporosis received a complete response letter (CRL) from the FDA in July. There was a new (negative) safety signal for some patients. Biogen plans to submit additional data.

CNP520 is in a Phase 3 study for Alzheimer's disease for patients with a strong genetic predisposition to it. Partnered with Novartis.

Parsabiv was granted marketing authorization in February for secondary hyperparathyroidism (sHPT) for patients on hemodialysis.

See also the Amgen pipeline.

Cost of sales was $1.02 billion. Research and development expense was $873 million; selling general and administrative expense $1.21 billion; and other expense $6 million, for total operating expenses of $3.11 billion. Operating income was $2.70 billion. Interest and other expense net was $156 million, income taxes $391 million.

Q&A:

Enbrel inventory pattern? At the end of the quarter we calculate the end user inventory. In April there was a build, in June a draw down, believes ended with $140 million excess inventory.

Decision pathways effects on payers? The guidelines are complex, done by international experts. This is an unusual pathway update outside the normal schedule. It will be based on the PCSK9 outcomes trials. It is hard to predict the immediate impact, but the evidence has accumulated in favor of Repatha. Which could impact payer practices.

$39 billion in cash, use for it? We are generating significant cash flow and have a record of using it to buy back stock and pay dividends, as well as expand the business. We plan to return 60% of net income to shareholders. Most of the cash is offshore, and we do not want to repatriate it under the current U.S. tax laws.

Lowered top end of revenue guidance? We provided broad guidance when the year began because of uncertainty about Repatha. The top end of guidance would have required an early, positive Repatha IP decision.

Margins vs. biosimilar competition? Improving margins from the old 38% was a major achievement. We are investing in our first neurology launch and spent to further build the company. We are not yet ready to provide new margin guidance.

Aimovig pricing? We don't guide on pricing prior to launch. There are about 3.4 million patients on treatment for migraines. Our discussions with payers have been on a clinical basis. It is a competitive market.

The prescriber base for Repatha is growing by about 350 per month. We are working with the payers, challenging some of the road blocks. We believe that once the FDA ratifies the data and puts it in the label, the payers will open up access.

Defended pricing of Repatha.

Do you have manufacturing capacity for future biosmilar approvals? We are in good shape.

We don't need to develop a PDL1 candidate; there are plenty already that we can work with.

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