Analyst Conference Summary

biotechnology

conference date: October 27, 2016 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2016 (third quarter, Q3)

Forward-looking statements

Overview: y/y revenue increase only 2%, but EPS growth stronger. Repatha revenue still weak. Slight increase in guidance.

Basic data (GAAP):

Revenue was $5.81 billion, up 2% sequentially from $5.69 billion, and up 2% from $5.72 billion in the year-earlier quarter.

Net income was $2.02 billion, up 8% sequentially from $1.87 billion, and up 8% from $1.86 billion year-earlier.

Earnings Per Share (diluted EPS) were $2.68, up 9% sequentially from $2.47, and up 10% from $2.44 year-earlier.

Guidance:

Edged up full year 2016 guidance to revenue between $22.6 and $22.8 billion, GAAP EPS $9.94 to $10.11, and non-GAAP EPS range of $11.40 to $11.55. Op ex will increase sequentially, which is typical seasonality for the business.

Conference Highlights:

"We are focused on growing several newly launched products and advancing the pipeline globally" said Robert A. Bradway, CEO. Has "considerable operating leverage." [WPM: With some older product sales slumping, new product ramps are needed.] "The long-term prospects of our business are bright."

Unit volumes grew 12% outside the U.S., showing strong demand for Amgen's new medicines.

Repatha Phase 3 trial on coronary artery disease met its endpoints. Data will be presented on November 15. Sales increased but were still anemic. In Q1 2016 data on cardiovascular outcomes should become available. "High hurdles remain."

Flat Enbrel revenue despite higher prices due to competition, which is expected to intensify. Looking to improve self-administration devices. Sees net selling price flat in 2017.

Biosimilar project first therapy, Amjevita, is now in litigation, so no launch until at least 2018. Received approval for biosimilar to Humira, Amjevita, in the U.S.

Neulasta revenue decline is being countered with the Onpro compliance kit.

Kyprolis gain is mainly from launches in Europe. Data for second line multiple myeloma treatment is very strong.

Non-GAAP numbers: net income was $2.28 billion, up 6% sequentially from $2.15 billion, and up 9% from $2.08 billion year-earlier. EPS was $3.02, up 6% sequentially from $2.84 and up 11% from $2.72 year-earlier. Excludes acquisition related and stock-based compensation expenses and other charges.

Product sales were $5.52 billion, up 1% sequentially from $5.47 billion, and flat y/y from $5.52 billion, with $4.38 billion in the U.S. and $1.13 billion international. Non-product revenue $295 million, up sequentially from $214 million and up from $207 million year-earlier.

Foreign exchange rates had a less than 1% negative impact y/y.

Cash and equivalents balance ended at $38.0 billion. Operating cash flow $2.7 billion. Free cash flow was $2.5 billion. At the end of quarter outstanding debt was $35.3 billion at an average of 3.7% interest. Capital expenditures $0.2 billion. $0.7 billion worth of shares were repurchased in the quarter. Dividend payments were $0.7 billion.

AMG 334, or Erenumab for migraines reported positive results and a second study is expected to report in Q4. [partnered with Novartis]

Phase 3 data for ABP 215 (Avastin biosimilar) for non-small cell lung cancer (NSCLC) is being readied for global regulatory submissions. Received approval for biosimilar to Humira, Amjevita. Two other biosimilars, and ABP 980 (trastuzumab) are also under review or being submitted. Biosimilar to Rituximab, ABP 798 began enrolling its Phase 3 trial. ABP 710, Infliximab also began Phase 3.

Xgeva (denosumab) Phase 3 MM reported positve results for delay of bone complications.

Romosozumab for postmenopausal osteoporosis has a PDUFA date on July 19, 2017.

Amgen began a collaboration with Arrowhead Pharmaceuticals on RNAi cardiovascular therapies.

Acquired AMG 420, in Phase 1 for MM, a BCMA targetted therapy.

See also the Amgen pipeline.

Cost of sales was $1.03 billion. Research and development expense was $990 million; selling general and administrative expense $1.24 billion; and other expense $23 million, for total operating expenses of $3.28 billion. Operating income was $2.53 billion. Interest and other expense net was $109 million, income taxes $401 million.

Much of the earnings leverage over revenue were from reduced R&D expense, with overall non-GAAP op ex decreasing 5% y/y. But tax rate was 18.9% (non-GAAP), an increase from year-earlier.

Q&A:

If repatriation agreement, potential offshore cash use? We are supportive of corporate tax reform. We continue to generate solid cash flow. Business requirements are funded without repatriation of cash. We would consider repatriating cash, perhaps to repay debt, or for strategic opportunities.

Enbrel pricing details for 2017? We will be driving the business on volume, not net selling price, next year.

Are you saying you have contracted for higher volume? No, volume is demand driven.

AMG 820, Merck collaboration, tumor types? It is an antibody regulating tumor macrophages. Could be synergistic with checkpoint inhibition. Some tumors have higher macrophage infiltration than others. No specifics yet.

Romosozumab regulatory decision? There is no requirement for the extra study. In some parts of the world we are filing with both studies. No one has done a powered fracture study like this before, it can help demonstrate superiority to competitors and to encourage payers.

Enbrel list price was up over 20% in 2016, is that given up in the 2017 contracts? Details of contracts are confidential. We will be circumspect about list prices for 2017. We have to put large rebates on the table to protect our position.

We are signing contracts with payers for Repatha that are value-based, and expect to see more of that in the future.

Omecamtiv mecarbil opportunity? Chronic help failure is a global epidemic with huge unmet need. There would be no competition for this mechanism in this space. Increasing the efficiency of the squeeze without side effects would be big deal.

Importance of inorganic growth? We have a strong balance sheet and continue to look at opportunities, but are disciplined about price. We have seen some interesting early-stage opportunities.

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