conference date: July 30, 2013
for quarter ending: June 30, 2013 (second quarter 2013)
Overview: Revenue up, but GAAP net income down, y/y.
Basic data (GAAP):
Revenue was $4.68 billion, up 4.5% from $4.48 billion in the year-earlier quarter.
Net Income was $1.258 billion, down 1% from $1.266 billion year-earlier.
Earnings Per Share (EPS) were $1.65, up 2% from $1.61 year-earlier.
For the full year 2013 total revenues are expected between $17.8 billion and $18.2 billion, with adjusted EPS between $7.30 and $7.45. Capital expenditures expected near $700 million.
Solid performance outlook is reflected in increased guidance of 2013.
Increased GAAP EPS despite decrease in GAAP net income results from share count reduction to 764 million from 785 million year-earlier.
Product sales grew faster than overall revenue because of a $185 million adjustment for Medicare rebates, while other revenue was $193 million higher in Q2 2012 due to a payment from Takeda. Product sales were $4.595 billion, with $84 million in other revenue.
Sales growth was driven by Enbrel and the ongoing global launches of Xgeva, and Prolia.
The Enbrel revenue increase was driven by a price increase. Neulasta sales increased 10% driven by price increases and increased wholesaler inventories. Sensipar/Mimpara revenue was up 12% y/y on higher unit demand. Xgeva sales grew 39% y/y on market share gains. Prolia sales grew 57% on market share. But Aranesp, Neupogen and Epogen showed small y/y declines.
Non-GAAP numbers: net income $1.444 billion, up 1% y/y; EPS $1.89, up 3% y/y.
Cash and equivalents balance ended at $22.0 billion, but debt was $23.9 billion. Free cash flow was $1.4 billion. No shares were repurchased in the quarter. Capital expenditures were $200 million. $400 million was paid in dividends.
Progress continues with pipeline products. Multiple data readouts are expected in 2014, including pivotal Phase III data for AMG 145 for cholesterol control in Q1 2014. Talimogene Lasherparepvec for melanoma should have Phase III data overall survival data in the first half of 2014. Trebananib for ovarian cancer Phase III data for overall survival should be available in the second half of 2014. Amgen decided to advance brodalumab for psoriatic arthritis to Phase III. AMG 139 for Crohn's disease entered Phase II. But the AMG 747 for schizophrenia program was terminated because of unexpected severe skin reactions.
Expects 8 of the pipeline products to produce registration enabling data by 2016.
Plans to acquire the U.S. commercial rights to Servier's Procoralan (ivabradine) already approved in the EU for chronic heart failure. Formed a partnership to commercialize Vectibix in China. Work with Decode Genetics is going better than expected.
Cost of sales was $785 million. Research and development expense was 967 million; selling general and administrative expense $1.26 billion; and other expense $121 million, for total operating expenses of $3.13 billion. Operating income was $1.55 billion. Interest expense was $241 million, other income was $96 million, provision for income taxes $147 million.
Non-GAAP R&D expense increased 17% y/y to support clinical trials, but should flatten for the remainder of the year. Enbrel profit sharing expense caused SG&A to increase 3%.
While looking for growth opportunities, Amgen remains committed to growing its dividend meaningfully over time. Committed to returning over 60% of net income to shareholders.
All regions of the world showed revenue growth.
Neulasta unit declines, could they be due to Teva competition? We looked closely at the business and saw nothing specific impacting it. It is too early for competition to impact Neupogen.
There are about 7 generics competing with Xgeva, which has maintained a 40% of units market share. There was a slight decline in new bio-naive patients in the first couple of months, but that picked back up to past rates.
Medicaid accrual issue trigger? We have tracked this against reserves for years. Claims were coming in lower than reserves, so revenues were higher.
Financing of a larger, Onyx-like transaction? Our M&A strategy is to acquire assets that bring growth and a long-term return to our shareholders. With respect to size, we have a strong balance sheet and investment grade debt rating. We prefer to use onshore cash for onshore acquisitions and international cash for those acquisitions.
Astellas agreement is for development and profit sharing of five assets in Japan. We will create an Amgen affiliate and take full ownership by 2020.
Tax rate after 2013? A lot of R&D expense is in the U.S. and is fully deductible [under the R&D tax credit law].
Enbrel and Neulasta franchises, extent subject to price negotiations? We have specific rebates built into some reimbursement agreements.
Epogen franchis now that there is no competitor? We look to bring value to patients and build the efficacy and safety profile for when someone else tries to enter the market. Reimbursements rate cuts for dialysis patients have been proposed. We are in the comment period on that and will emphasize to CMS the risks that cuts could compromise patient access to appropriate quality care. It will be months before we know the outcome.
Reason for no share repurchase in quarter? We said at the beginning of year share repurchases more modest. When the share price was lower we were more willing to buy shares.
Biosimilar risks, affect on P/E? The market understands the difference between generics and biosimilars. In Europe we built a history of safety and efficacy, which creates high hurdles for competition. The same will be true versus competition in the U.S. market.
PCSK9 discussions with payers? We can't engage in pricing discussions prior to registration.