Analyst Conference Summary

biotechnology

conference date: April 30, 2020 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2020 (first quarter, Q1)

Forward-looking statements

Overview: Improved y/y revenue growth on Otezla acquisition from Celgene.

Basic data (GAAP):

Revenue was $6.16 billion, down 1% sequentially from $6.20 billion and up 11% from $5.56 billion in the year-earlier quarter.

Net income was $1.83 billion, up 8% sequentially from $l.70 billion, and down 8% from $1.99 billion year-earlier.

Earnings Per Share (diluted EPS) were $3.07, up 8% sequentially from $2.85, and down 3% from $3.18 year-earlier.

Guidance:

2020 total revenues guidance reaffirmed at $25.0 to $25.6 billion; EPS guidance revised to $10.65 to $11.45 GAAP, reaffirmed at $14.85 to $15.60 non-GAAP. Cap ex $600 million. Expenses to grow y/y in the high single digit percentage range mainly due to Otezla.

Conference Highlights:

Robert A. Bradway, CEO said "It has been an extraordinary quarter... We are managing through the COVID pandemic quite well... Our balance sheet is strong... In a few markets conditions have improved to the point our staff could return to work... Timing of key programs remains on track... [But] April has shown some signs of disruption."

Volume grew 15% y/y, partly offset by price declines.

In April, Amgen announced a collaboration with Adaptive Biotechnologies to discover and develop fully antibodies targeting SARS-CoV-2 to potentially prevent or treat COVID-19.

Amortization costs of Otezla acquisition had a negative impact on GAAP EPS.

Expects more biosimilar competition in 2020, including against Amgen's biosimilar offerings. In December 2019, the FDA approved Avsola for all approved indications of the reference product, Remicade (infliximab). In December 2019, a BLA was submitted to the FDA for ABP 798, a biosimilar candidate to Rituxan (rituximab); the target action date has been set to Dec. 19, 2020.

Otezla launch is going well. A supplemental NDA to expand the label to include data from the Phase 3 scalp psoriasis study is under review by the FDA with a PDUFA target action date in April 2020. Otezla will be investigated to see if it helps with COVID-19, starting a trial in the coming weeks.

Non-GAAP numbers: net income was $2.48 billion, up 14% sequentially from $2.17 billion, and up 11% from $2.23 billion year-earlier. EPS was $4.17, up 15% sequentially from $3.64 and up 17% from $3.56 year-earlier.

Product sales were $5.88 billion, up 8% sequentially from $5.46 billion, and down 2% y/y from $6.00 billion, with $4.37 billion in the U.S. and $1.5 billion international. Non-product revenue was $316 million, up from $229 million year-earlier.

Cash and equivalents balance ended at $8.01 billion, down sequentially from $8.91 billion. Operating cash flow $2.1 billion. Free cash flow was $2.0 billion. At the end of quarter debt was $31.8 billion. Capital expenditures $0.1 billion. $0.93 billion worth of shares were repurchased in the quarter. Dividend payments were $0.9 billion. Issued $5 billion in debt in Q1 2020 in anticipation of a $1.75 billion Q2 2020 debt payment and later maturing debt.

In December 2019, the European Commission (EC) granted marketing authorization for Evenity for the treatment of severe osteoporosis in postmenopausal women at high risk of fracture

Updated Phase 1 data for AMG 510, a small molecule KRAS G12C inhibitor, in patients with solid tumors, will be presented at ASCO in late May 2020. A potentially pivotal Phase 2 monotherapy study in advanced non-small cell lung cancer (NSCLC) completed enrollment and data are expected in 2020. A Phase 2 monotherapy study is enrolling advanced colorectal cancer patients. A Phase 1b study in combination with MEK inhibition is enrolling advanced colorectal and non-small cell lung cancer patients.

Amgen has 13 Bite programs in progress, including AMG 562, AMB 427, AMG 420, AMG 673, AMG 701, AMG 757, and AMG 330. A Phase 2 study of AMG 570, a bispecific inhibitor of ICOSL and BAFF, is enrolling patients with systemic lupus erythematosus. In the second half of 2020 Amgen expects Phase 1 dose escalation data from AMG 160, 701, and 757. AMG 300 bispecific CD33 in AML Phase 1 dose escalation data expected at ASCO in late May 2020.

A Phase 3 Study evaluating the efficacy and safety of tezepelumab in adults and adolescents with severe uncontrolled asthma has completed enrollment, with the primary analysis expected in late 2020. A Phase 2 study evaluating the efficacy and safety of tezepelumab in adults with moderate to very severe chronic obstructive pulmonary disease is enrolling patients.

See also the Amgen pipeline.

GAAP cost of sales was $1.51 billion. Research and development expense was $0.95 billion; selling general and administrative expense $1.32 billion; and other expense $25 million, for total operating expenses of $3.81 billion. Operating income was $2.36 billion. Interest and other expense net was $335 million, income taxes $195 million.

Q&A summary:

Non-GAAP operating margin in 2020? For the full year op ex will grow high single digit. We are confident in our cost structure. We would have liked to spend more in Q1, but were disrupted towards the end of the quarter.

Enbrel patent challenge? We are confident in our intellectual property.

Antibody competition for COVID? We may be unique with Adaptive's immunoprofiling plus our genetics work, so we hope our product will be very high quality. We will guide more on the clinical timeline as we know more. We also have the manufacturing capability to supply a large number of patients.

Business development thoughts? The environment is fluid, we are in a strong position.

AMG 510 subsets? Colorectal continues to enroll, we will see if there is a monotherapy path forward for that. At ASCO we should also be able to provide updates on some of the smaller tumor types.

Size of AMG 510 Phase 3 trial? Driven by desire for robust OS results.

Transition of patients to government medical plans? We currently have less than 10% on Medicaid, 40% Medicare, 50% commercial. We don't know the transition rate. Furloughed employees often retain private insurance. So the impact could be delayed, but last into 2021.

We are developing a PD1 therapy mainly to combine with our other agents.

Amgen is seen as a high quality biologics manufacturer, which helps us sell our biosimilars. The market is functioning well in the U.S. We also have strong account relationships. We plan to launch our Remicade biosimilar this year.

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