美國安進 (AMGN) 2014 Q3 法說會逐字稿

My name is Marvin, and I will be your conference facilitator today, for Amgen's third-quarter earnings conference call.

(Operator Instructions)

I would now like to introduce Arvind Sood, Vice President of Investor Relations.

Mr. Sood, you may now begin.

Thank you, Marvin.

Good afternoon, everybody.

I would like to welcome you to our third-quarter conference call.

Unlike past quarters, our format today will be a bit different.

As we are conducting a comprehensive business review tomorrow morning, we will limit our comments to reviewing our solid performance during the third quarter, and keep this call brief, to about 30 minutes, including taking some of your questions.

Joining me today are Bob Bradway, our Chairman and CEO, and our CFO, David Meline, who will both make some prepared comments outlining our operating performance during the quarter.

Tony Hooper, who as you know is our Head of Global Commercial Operations, and Sean Harper, our Head of our R&D, are also here with us to address any questions you might have for them.

To further help with the understanding of product sales drivers, we have posted some slides on our website.

Our comments today will be governed by our Safe Harbor statement, which in summary, says that through the course of our presentation and discussion today, we may make certain forward-looking statements, and actual results may vary materially.

So with that, I would like to turn the call over to Bob.

Bob?

Thanks, Arvind.

Good afternoon, everyone, and thank you for joining us to discuss our strong third-quarter results.

As Arvind indicated, David Meline and I will offer some brief commentary in context of the quarter, and then we will take some questions together with Tony and Sean.

Again, just to reiterate, since we're meeting tomorrow morning for a comprehensive business review, we will really try to keep the focus for this call on our quarterly results.

Our third-quarter results just announced reflect strong sales performance across the portfolio, which, when combined with our ongoing expense discipline, generated 22% growth in operating income, and 19% growth in earnings per share.

Given the strategic emphasis we've placed on growing our international presence, we were particularly pleased with the 14% growth in international sales during the quarter.

Consistent with the strong underlying prescription trends that we've seen through the first three quarters of the year, our product sales performance for the third quarter was up 4% year-over-year.

If you recall, however, last year, we recognized a $155 million government order for Neupogen that was reflected in our Q3 2013 results.

Sales grew 8% year-over-year, excluding that one-time order from last year.

Overall, then, the Q3 performance was strong across-the-board, and on a year-to-date basis, revenues have increased 8%, with operating income increasing 24%, reflecting our improving margin structure.

In a moment, David will review the drivers of our key products and the financials in more detail, but as you know, R&D is the engine that will drive future growth at Amgen, and we continue to make good progress in advancing our registration programs, so I'll say a few words about those.

We reported positive Phase III results from three innovative programs in the quarter, the second positive study for AMG 416, which is our intravenous calcimimetic, which performed well in a study versus placebo.

The Kyprolis ASPIRE study, which generated exceptional progression-free survival data in the relapsed myeloma setting, as well as Evolocumab data in Japan, which is also an important opportunity for us.

We submitted marketing authorizations for four programs in the quarter, with Ivabradine in the US, Evolocumab, Blinatumomab, and T-Vec in the US and EU, with both Ivabradine and Blinatumomab currently under priority review by the FDA.

We also announced the first positive Phase III results for one of our biosimilar programs, that being ABP 501 in psoriasis, as we prepare to begin launching our biosimilar portfolio beginning in 2017.

We'll talk about strategy tomorrow, and we look forward to providing more granularity on our progressing pipeline, our commercial plans for launching new products, our capital allocation plans, our business transformation initiatives and progress, as well as an update on our biosimilar and manufacturing activities.

Now, let me turn to David, who will walk you through the financials, and then we will open it up for questions.

Okay.

Thanks, Bob.

I want to take a moment to first briefly discuss the key drivers of product sales performance, during the quarter.

Enbrel units grew 3% year-over-year, and 5% quarter-over-quarter, reflecting strong underlying demand, as is reflected in the prescription data.

I'd also like to point out that Enbrel continues to see strong segment growth in both rheumatology and dermatology, at 21% and 24% respectively.

Recall last quarter that we called out $60 million of Enbrel inventory build in Q2, that we expected to burn off in Q3, masking the strength in demand.

Prolia sales increased 43% in the quarter, due to strong unit demand.

As you are aware, we normally see some seasonality in Prolia in Q3, and we saw the expected sales ramp up as we exited the quarter.

We continue to capture share in a growing market with XGEVA, and despite generic competition over the past year, XGEVA sales increased 22%.

Our newest product, Kyprolis, realized sequential sales growth of 21% to $94 million, much of which was driven by strong unit demand.

We remain confident that Kyprolis will become the proteasome inhibitor of choice, and you will have the opportunity to hear from Pablo Cagnoni, who leads our Onyx business, tomorrow.

Finally, I would also like to highlight Vectibix, which grew 29% year-over-year, on the strength of our new first-line label in the US, as well as growth in the EU.

Let me now make a few brief comments on our operating performance.

Our operating expenses declined 5%, due to Enbrel's improved profitability from the expired profit-share agreement, as well as due to efforts to manage cost.

This led to a 47% operating margin, a 7-point increase, compared to the third quarter of 2013.

Based on our progress through the first nine months of the year, and our confidence in the underlying trends of the business, we are again raising our 2014 revenue guidance to $19.8 billion to $20 billion, and our 2014 adjusted EPS guidance to $8.45 to $8.55 per share.

I would also like to provide a brief update on our transformation actions.

At the time of our announcement in July, we estimated a headcount reduction of 12% to 15% of our global work force, or 2,400 to 2,900 staff.

We have now completed and largely implemented the adjustment, with a confirmed total in excess of 2,900 reductions.

On a US GAAP basis, restructuring charges totaled $376 million in the third quarter.

We now expect the total cost of this action to be $835 million to $885 million through 2015, including an estimated $150 million charge in Q4 of 2014.

We are also updating our guidance for the 2014 tax rate today.

Based on uncertainty concerning the timing for the extension of the R&D tax credit within the 2014 calendar year, we have chosen to remove the benefit from our projected 2014 adjusted tax rate, resulting in guidance of 16% to 17% for this year, versus our previous guidance of 15% to 16%.

We also saw in the quarter a $1 billion increase in free cash flow to $2.6 billion, reflecting the benefit of higher product sales and ongoing improvements in working capital.

Our cash balance increased $1.6 billion over the previous year, now totaling $28.1 billion.

Our debt balance of $33 billion is $5.8 billion higher versus Q3 of 2013, due to debt related to the Onyx acquisition.

That completes our review of the quarter.

I will now turn the call back to Arvind for Q&A.

Excellent, thank you David.

Marvin, let's go ahead and open up Q&A and let's do that for about the next 15 to 20 minutes, if you want to start out by reviewing the procedure again for asking questions?

(Operator Instructions) Eric Schmidt, Cowen and Company.

Thanks a lot for taking my question, and congrats on a really strong performance in Q3.

I guess the question is for David, on the guidance.

Even with the bumped up tax rate in 2014 if you hit your revenue guidance for the fourth quarter, it implies a pretty big decrease in operating margins.

Just wondering what might be behind that?

Yes, Eric.

So generally, what we see in the fourth quarter is a pick up of expenses.

It's a seasonal trend that occurseach year.

And so what we're expecting is a similar pick up here in Q4.

So I think, nothing unusual, but there's certainly some additional costs in Q4.

Eric, as you know, we're gearing up for some potential launches next year, including launches that could take place early in the year.

So that will be reflected as well, when get into the fourth quarter OpEx.

Matt Roden, UBS.

Great, thanks very much for taking my questions as well, and congrats on the nice results.

So you pointed out the expanding margin here in the second quarter and third quarter.

Certainly better than it's been in recent years, and we understand that Enbrel profitability is part of that.

But these numbers are also ahead of future year estimates, consensus estimates.

I want to get a sense for, with the caveat of an uptick of expenses in 4Q, and realizing you can't really give guidance for 2015, at least, today, just want to get a sense for how sustainable you can keep this operating margin level, and to what extent you think you can grow from that new level?

Thank you.

Thanks for the question, Matt.

This is Bob.

That's an important question for us to address tomorrow, and we look forward to addressing it head-on.

As you point out, we benefited from an improved profitability at Enbrel, but also from ongoing across the rest of the business, and we'll have lots more to say about that when we get together tomorrow.

Matthew Harrison, Morgan Stanley.

Great, thanks for taking my question.

I just wanted to ask a two-parter on Enbrel.

First, in the slides, you gave price and inventory, and if you look at inventory, I know you called out the $60 million headwind that you face this quarter.

It looks like it was about, by your slide, about $110 million, so you expect some inventory to reverse in the fourth quarter.

And then the second, you've taken two 7% price increases this year, yet you only shared about 1% year-over-year price bump.

Is that because you give most of the price back in terms of the contract, or could you just talk a little bit about that, too?

Thanks.

Sure, Matt.

Why don't we ask Tony to address those two questions?

Go ahead, Tony.

Matt, the two questions -- you are correct, we actually entered the quarter carrying about $60 million.

Inventory is fairly normal during the week, but months and quarters tend to land in different places in that week, which causes some shifting up-and-down.

So in addition to the $60 million we carried into the quarter that we had to burn off, we actually closed the quarter at an unusually low level of inventory, with about $40 million reduced inventory.

So that $100 million will correctly flow into the fourth quarter.

I think the price number that you are seeing for the third quarter, there's a lot of ins and outs in this calculation, and I don't think you can take this as a true reflection of the net impact of price that we are applying in the marketplace.

Marvin, let's take the next question, please.

Robyn Karnauskas, Deutsche Bank.

Great, congratulations.

This is Mohit Bansal for Robyn Karnauskas.

Thanks for taking my question, and congratulations on a good quarter.

My question is regarding Enbrel.

So given that the decent launch of Otezla in psoriasis and psoriatic arthritis, are you seeing any impact on Enbrel's space?

And then you talked about geographical mix bringing up the tax rate.

So just wanted to get some sense of how should we think about it in the future?

Thanks.

I think there are two separate questions there, we will have David obviously, to address the second.

Tony, do you want to tackle the first?

Okay.

So the product you are talking about was launched into psoriasis in late September, so the actual data we have available is fairly light at the moment.

I would assume that the fourth quarter will be a bit more robust data around prescriptions.

Net-net for the third quarter, we don't see any reduction in the number of new naive patients going on to injectable biologics for psoriasis, and we also don't see any dramatic change in the trend of our market share.

David?

In terms of tax rate, so as I mentioned, I think you understood why we took the rate up here in the quarter, and what's going to happen now is, we'll look out and I think best address tomorrow, we have got a piece where I will talk about how to think about taxes going forward, and what are the key drivers of that.

So if you don't mind, I'm going to take it up with you in the morning.

Okay.

Thanks.

Mark Schoenebaum, ISI Group.

Thanks for taking the question.

Looking forward to the update tomorrow.

I have a question for Tony, on Neupogen, would it be possible to in the US, for you to please give us the unit share that Neupogen still enjoys of the short-acting GCSF market, and I noticed on that slide, the impact of price on a year-on-year basis is not in the slide.

What happened to price on a year-on-year basis?

Thank you.

Mark, price on Neupogen year-on-year is negligible.

That's why it was not actually listed.

In regard to market share, from a total Filgrastim portfolio, we still hold just over 98% of the market.

In short acting?

I'll have to get you that number, but actual market share hasn't changed dramatically versus the second quarter.

All right.

See you tomorrow.

Thank you.

Michael Yee, RBC Capital Markets.

Yes, follow-up question on Neupogen as it relates to Neulasta.

I guess, as you are seeing some competitive impacts, you noted that in your slides in the short acting.

How would that be different, if at all, for Neulasta, and what actually happens in terms of losing share?

Is it a price issue, does that just continue?

What exactly is going on there, and how does that relate to any risk for Neulasta in the future?

Thanks.

I'm not quite sure of the detail of your question, but obviously, we're seeing Neulasta continue the trend it's had for the last couple of quarters.

We see little to no impact from the recently-launched short-acting Granix.

As you know, we do have long-acting competitor in Europe, and we've seen a fairly small impact from them over the last year or so.

Ying Huang, Bank of America Merrill Lynch.

Thank you for taking my questions.

I have a couple.

First one is, you had decent quarterly sales for Epogen, and its growth was primarily driven by price.

So I was wondering if you can talk about the pricing trend in that market, and then, do you expect any competition to come in 2015 in the US or not?

Then I have a second question for maybe Sean.

Have you looked at any post-hoc analysis of cardiovascular events in the DESCARTES trial?

Okay, so let me respond to your questions.

As regard to price, obviously we don't give any forward guidance on price.

We did take a 4.9% price increase on Epogen in May this year, and based on the contracts we have, some of that flowed through.

As regards to competition, as you know, Mircera has the rights to enter the market effective July 2014, and we do lose patent in May of 2015.

And regarding the analyses of the cardiovascular events in the Phase III studies, these analyses are performed on some of the longer-term exposure studies, and those are actually published in the literature.

There's a paper in circulation where you see about half the rate of cardiovascular events in the Evolocumab arm versus the placebo control arm.

I just caution interpretation around these very small numbers of events.

It's extremely difficult to know if these are play of chance or a real drug effect.

I'll just remind you that the numbers of events that are necessarily generally to evaluate this thing is in the thousands of events, versus double-digit numbers of events.

Thank you.

Yaron Werber, Citigroup.

Great, nice quarter, and also thanks for taking my question.

So Sean, it's a question for you, or I don't know if Tony wants to pick it up.

Relating to Evolocumab, so your Phase III actually hit the endpoint using the EMA definition of statin intolerance.

Regeneron's compound missed using the US definition, but at this point, you haven't completed your Phase III using the FDA definition of statin intolerance.

And so my question really has to do with, do you think you can get approved in the US, before that data is generated?

Thank you.

Yes, I think first of all, there has been discussion by companies in this space, both European and the US regulators, but I would not want you to think that there are clear guidances or definitions around this coming from the regulatory agencies.

In fact, they are expressing to us the clear sense that they don't know exactly how to define this population, how to study it, what the study designs would be necessary to actually get specific language around statin intolerance, and it's unclear whether such language is necessary.

For example, one could define high risk individuals who have not reached LDL treatment goals, despite the use of available therapy, that would cover statin intolerant patients and non-statin intolerant patients, so it's a very difficult area.

We obviously are exploring different ways of studying this problem, so that we can eventually describe those data, hopefully, in our labeling.

But it's not as clear a set of guidelines from the regulators as it might appear on first blush.

Terence Flynn, Goldman Sachs.

Thanks for taking the question.

So we know Sandoz filed for approval of a biosimilar version of Neupogen this summer.

Our team has done some work that suggests additional patents beyond the composition of matter patent could be fairly significant impediments here in the US, for the first biosimilars, just given potential delays or litigation appeals.

So just want to know if you could remind us if you have any additional patents beyond composition for Neupogen and Neulasta, and if we should place any weight on those patents to potentially delay biosimilar entrants?

Thanks.

I know there's been a lot of discussion of that recently in the investment community, and again, it's something that we'll talk about tomorrow.

But I think as you are aware, we and Sandoz are litigating one intellectual property issue now that relates to your question, and so we'll have an answer from the courts at some point on an important piece of the question that you are asking.

And generally, we expect that we will face competition for Neupogen through time on the biosimilar pathway in the US, and we also expect that we'll start to see some challenges for the long-acting Neulasta product as well in the US, probably at some point in 2016.

Marvin, before you move on to the next question, I just wanted to respond to Michael Yee's question about the market share, or about the segment share for Neulasta.

On a sequential basis, we actively gained about a percentage point, and also on a year-over-year basis, we gained about a percentage point in terms of unit share on Neulasta.

Let's take the next question, please.

Eun Yang, Jefferies.

Thank you.

Question on Kyprolis.

Based on our discussions with the physicians, Kyprolis is being used off-label beyond relapsed and refractory multiple myeloma, so with positive interim ASPIRE data, do you expect to see increases in sales in the next couple of quarters, or do you think the medical community is waiting for all of the data?

Thank you.

This is Tony.

As you know, the data is quite sparse, so what we do is we do about 1,000 chart audits, and then we do an extrapolation each quarter to determine the market shares.

As I look at quarter three, we saw a distinctive increase in our market share in third-line.

We also saw an increase in our market share in fourth-line plus.

We have not seen a dramatic change in any second-line usage at this particular stage.

We will be presenting the data at ASH, I think the publication will be -- the ASH data will be public on about November 6, and that study, we'll see what happens.

But we haven't seen any dramatic change in the marketplace today.

None.

Josh Schimmer, Piper Jaffray.

Thanks for taking my question.

Hoping you can help elucidate the extent to which in relevant territories your own internal projections been able to accurately project biosimilar impact, and then how confident are you that your internal projections, whatever they may be going forward for biosimilar erosion of your mature franchise is really to capture the likely effect?

So let me respond.

Obviously, there's never been a historical situation in the US that we can actually model anything on.

The competition we have at the moment against Neupogen is of course not a biosimilar competition.

We have, however, in Europe looked over the last five to seven years, a large amount of biosimilar competition.

And we have modeled Europe, and it worked successfully to defend our business in Europe for the last five, seven years, so we've done a combination of modeling Europe as a totality, we're taking countries inside Europe that as best as possible would potentially emulate practices or behaviors in the US, and we have use those models to create our long-range plans.

Obviously, these are our best assumptions at present.

Only time will tell, in terms of where the market will actually go.

I think as well Josh, what I would add, if you look at the big picture, we have said that reliably, safely supplying biosimilars is not something that can be taken for granted, and if you look at the experience in Europe, you see several suppliers who struggle to fulfill the different tenders that they have won through time.

So even the barriers to entry, the challenges of safely supplying the marketplace in biosimilars has proven a challenge, and that's reflected in how we see marketplace competition evolving.

I suspect that as we get into more biologics going off patent and more complex molecules, we'll continue to see that be an issue.

But generally, now with the benefit of more than a handful of competitors over more than a handful of years in a number of markets in Europe, the competition has been fairly predictable.

Both from a pricing and share standpoint.

Got it.

Thank you.

Howard Liang, Leerink.

Thanks very much.

So, Neulasta, you had a very strong quarter, but also mentioned slight impact by competition.

Does that mean that there some inventory buildup?

Can you talk about in general whether there's some meaningful or significant inventory changes quarter-over-quarter for all the products?

So for Neulasta there was a slight decline in inventory, in fact, in the quarter.

As you know, Neulasta is clearly aligned to the number of myelosuppressive chemo regimens that take place in a quarter.

We have not seen a dramatic increase or decrease of those regimens that take place, Howard, at the moment.

So I don't think there's much inventory flow, maybe $20 million, $30 million, that will flow into next quarter.

But the usage has not been impacted by Granix, and we continue to get long-acting usage in all the accounts we have.

So Marvin, what I am thinking is so we can get back to preparing for our business review and have a more fulsome discussion tomorrow, why don't we just take two last questions?

Geoffrey Porges, Bernstein.

Thanks very much for letting me jump in with a question.

Just wanted to follow-up with Tony and perhaps for David.

Tony, could you break out price by US and ex-US?

You gave us the net which was very helpful, but just give us the trends there?

And then, David, could you just talk about currency effects during the quarter and what we should be expecting for the next couple of quarters, presuming that things stay were they are?

Thanks.

Pricing total, price specific on the product?

Just in aggregate, for Europe -- or ex-US versus the US would be helpful.

So we deal only with price decreases outside the United States, so there are continuous challenges around price in Europe and in Japan, even though we don't have exclusivity yet.

But the price increases are predominately in the US, and not outside the US.

Okay.

Thank you, and then currency, David?

Sure, on currency, well, first of all, as you would know, we have a fairly limited exposure right now as a Company to currency movements, given the profile of the business.

Secondly, the Company has a rolling hedge program, so we have quite an extensive portfolio against any of the traded currencies, where there is a forward market.

And as a consequence, you don't see any impact this quarter in our results due to foreign exchange movements, because they were offset by the hedge portfolio.

And then if you look into next quarter, it's around $0.02 of share negative, which is incorporated in the updated guidance.

Terrific.

Thanks very much.

Chris Raymond, Robert Baird.

Thanks a lot.

Just a question back on Kyprolis.

So noticing even if you back out inventory and the other effects, the unit growth, it looks like you had really the strongest sequential growth since right around the beginning of the launch.

I know ASPIRE was just top lined, but just what do you ascribe that reacceleration to generally, if you could maybe give a little more color on that, that would be great?

Let me take a few minutes.

The quote unquote growth was about $16 million.

$10 million of that is US, and $6 million is outside the US.

As you know, outside the US, we are getting some preapproval sales in Europe and in Turkey, and we have the product approved in both Israel and Argentina.

So $10 million growth in the US, and $6 million outside the US.

The $10 million in the US is about 13% growth, and as I said, predominately growing in third-line and fourth-line plus.

Thanks for that, Tony.

I also want to thank all of you for your participation in our call this afternoon, and look forward to seeing you tomorrow morning.

Ladies and gentlemen this concludes today's Amgen's third-quarter earnings conference call.

We thank you for your participation.

You may all disconnect.