Analyst Conference Summary

biotechnology

conference date: February 1, 2018 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2017 (fourth quarter, Q4)

Forward-looking statements

Overview: Revenue down 3% y/y, profits also down slightly while waiting for new revenues from the pipeline. Tax changes had a huge negative impact on GAAP net income. Repatha finally starting to be a good revenue generator.

Basic data (GAAP):

Revenue was $5.80 billion, up 0.5% sequentially from $5.77 billion, but down 3% from $5.97 billion in the year-earlier quarter.

Net income was negative $4.26 billion, down sequentially from $2.02 billion, and down from $1.94 billion year-earlier.

Earnings Per Share (diluted EPS) were negative $5.89, down sequentially from $2.76, and down from $2.59 year-earlier.

Guidance:

For the full year 2018:

Total revenue between $21.8 and $22.8 billion. GAAP EPS $11.18 to $12.36 with a 13% to 14% tax rate. Non-GAAP EPS $12.60 to $13.70 with a 14% to 15% tax rate (it was 18% in 2017). Capital expenditures about $750 million.

Q1 expected to be the lowest product sales quarter, which is typical seasonality.

Conference Highlights:

Robert A. Bradway, CEO said "With strong volume-driven growth for our recently launched products and a promising new product pipeline, we are well positioned for future growth. We expect several developments to provide an additional boost for these products, most notably the recent inclusion of cardiovascular outcomes data in the Repatha prescribing information." Making progress in the face of some loss of sales due to patent expirations.

Tax reform is creating profound changes for Amgen and the industry. Believes pressure will remain on prices globally, so increased revenue will need to come from increased volume.

Expects to grow dividends over time and authorized another $10 billion for share repurchases. Could eventually use some cash to pay down debt rather than renew it at a higher interest rate.

"The Company expects to invest approximately $3.5 billion in capital expenditures over the next five years, with approximately 75 percent of that investment in the U.S., up from about 50 percent in recent years. This investment includes committing up to $300 million to build a new manufacturing plant in the U.S." Also will add $300 million to the venture fund.

New products are rapidly approaching the market: Xgeva for multiple myeloma, Amgevita biosimilar to Humira, Evenity for osteoporosis, Aimovig for migraine, and Parsabiv for hyperthyroidism secondary to chronic kidney disease.

Whether Sensipar sees generic competition in 2018 depends on litigation & FDA outcomes.

Non-GAAP numbers: net income was $2.10 billion, down 12% sequentially from $2.40 billion, and down 3% from $2.16 billion year-earlier. EPS was $2.89, down 12% sequentially from $3.27 and flat from $2.89 year-earlier. Excludes acquisition related and tax-changes related and other charges.

Product sales were $5.57 billion, up 2% sequentially from $5.45 billion, and down 2% y/y from $5.66 billion, with $4.35 billion in the U.S. and $1.22 billion international. Non-product revenue was $233 million, down sequentially from $320 million and down from $302 million year-earlier.

Cash and equivalents balance ended at $41.7 billion, up slightly sequentially from $41.4 billion. Operating cash flow $3.0 billion. Free cash flow was $2.9 billion. At the end of quarter long-term debt was $35.3 billion. Capital expenditures $0.2 billion. $0.8 billion worth of shares were repurchased in the quarter. Dividend payments were $0.8 billion.

Enrollment in a Phase 3 study to evaluate the efficacy and safety of tezepelumab in adults and adolescents with severe uncontrolled asthma began in December. Partnered with AstraZeneca.

Aimovig (Erenumab) for migraines regulatory submissions were made in Q2. Believes partnership with Novartis will enhance sales. PDUFA action date is May 17, 2018. Phase 3b data presented in January met endpoints.

The FDA expanded the label for Xgeva to include the prevention of SREs (skeletal related events) in multiple myeloma.

ABP 980 (biosimilar trastuzumab or Herceptin) has an FDA action target date of May 28, 2018.

Mvasi (biosimilar bevacizumab, or Avastin) was approved in Europe in January.

Romosozumab (Evenity) for postmenopausal osteoporosis

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

Amgen has 12 Bite programs in progress.

See also the Amgen pipeline.

Cost of sales was $1.06 billion. Research and development expense was $1.04 billion; selling general and administrative expense $1.43 billion; and other expense $28 million, for total operating expenses of $3.56 billion. Operating income was $2.25 billion. Interest and other expense net was $332 million, income taxes $6.48 billion.

$79 million of costs related to Hurricane Maria were recognized in the quarter. Also increased expenses to prepare for new product launches. Partially offset by lower royalty expense.

Full year 2017 revenue was $22.85 billion. GAAP net income $1.98 billion, EPS $2.69. Non-GAAP net income $9.25 billion, EPS $12.58. $10.5 billion free cash flow. $3.4 billion paid out in dividends. $3.1 billion used to repurchase stock.

Q&A:

How much of the wide range in revenue guidance is due to biosimilars? A lot is due to Sensipar. It is about double the normal width of our annual guidance.

Value of pipeline vs. legacy products? We have a broad and deep capability, the best it has ever been. We expect good advancement of the pipeline over the next five years.

Enbrel and copay accumulators? It is correct we have made it clear we are against accumulators. Our copay assistance should help the patients, not the insurers. We see minimal impact to Enbrel business from the programs in Q1.

Cash flow and leverage vs. EBITDA? We think about the future balance sheet to get the lowest weighted average cost of capital. But we did not take offshore funds into account. Leverage ratios are likely to remain in historic range, but we could pay some debt in the interim.

Is 2018 tax guidance also expected long-term tax rate? Our preliminary analysis that it would be reasonable post 2018.

M&A thoughts? We are well positioned to address ongoing changes and consolidation. We are looking to add value in our area of focus.

BCMA bispecifics vs. CAR-T rivals? We need to demonstrate data that shows despite the differences in patient populations, taking a BiTE off the shelf and showing similar efficacy, it will cost less and be less dangerous than a CAR-T therapy.

PCSK9 patent dispute? Not able to give guidance on that.

Repatha, new label vs. payer access? We had not been able to talk to 98% of the physicians about the new label. We rapidly set up a large speaker program for cardiologists. NBRXs went up, and we have also seen an uptick in patients getting improved by about 8%. Physicians are fighting for their patients to get on the drug.

Manufacturing is a source of competitive advantage for Amgen, both for our novel drugs and for our biosimilars. While the new facilities will help, we already have a good cost basis.

We believe there is a particularly profound unmet need in asthma. So that is an area of interest for us. As is COPD. We are also exploring atopic dermatitis.

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