Amgen Inc. (AMGN) Earnings Call Transcript & Summary

Okay. Well, good morning, everybody. And once again, thank you so much for joining us for Cowen's 40th Annual Healthcare Conference here at Boston. My name is Yaron Werber. I'm one of the biotech analysts here at Cowen, and it's a great pleasure to moderate the fireside chat with Amgen. Note that we're not going to have a breakout, we're going to have a fireside chat instead. So it's terrific to welcome Peter Griffith, who is Executive Vice President and CFO, on the right; and then to his left is Murdo Gordon, who's EVP of Global Commercial Operations; and to his left, Arvind Sood, Vice President of Investor Relations. Gentlemen, thank you so much for joining us. We appreciate it. So as we discussed ahead of time, I'm going to direct all clinical questions to Peter and then all science questions are going to go to Murdo.

There we go. You can give them all to Arvind. Arvind is trying to win the Cal Ripken of Cowen for being here 35 years in a row.

Exactly. Why not? Yes. I think you've been here about 18?

No, not quite, 15.

Not quite, 15.

Okay. So maybe I'm going to start. And I think it's a question to both. But Peter, let me start with you. In terms of the growth strategy for Amgen, looking at both core versus growth, right, what's the strategy to really boosting revenues and EPS? And then Murdo, I'm going to ask you the same one.

It's a great question. Thank you, Yaron. So at Amgen, first of all, when we think about growth, we start by thinking about patients. So we're here as a company to discover, develop, manufacture and deliver innovative medicines, first-in-class and best-in-class, to patients with serious illnesses all over the world. So that's where we start with our growth strategy. In terms of our businesses, I would note that last year, we allocated $13.4 billion of shareholder capital to acquire Otezla. And it was our patience on an external business development basis that allowed us to secure that from the BMS-Celgene situation and get it into our inflammation portfolio, which I would suggest is a very strong area for us. From a growth perspective, we expect it to do really, really well. And we combine that, of course, with a post-topical that gives us a post-topical and a prebiological. We've got our product Enbrel. And behind us, a biological, we've got [ Aimovig ] in there. We've got AVSOLA that was approved in December in our inflammation portfolio, a couple biosimilars. And then we've got a readout coming on tezepelumab, for example. So in answering your question, Yaron, we're going to continue to, first and foremost, in our growth strategy, allocate capital internally. We indicated we'd be well over $4 billion of internal research and development in 2020. And we'll continue to look for external business development opportunity, where we're going to focus first on the 3 discovery research areas we're in: inflammation, cardiovascular and oncology. And then also, to a lesser degree, if we see something in nephrology or bone or neuroscience, certainly, we've got Aimovig there. We'll pay attention to those and -- on to a lesser degree than we would in the 3 core discovery research areas. So that's our growth strategy from my perspective. I would also just add from a growth perspective that we are very focused on integrating Otezla this year. And we understand, we indicated that, that would grow low double digits over the first 5 years that we own it. And we don't take integration for granted. The company is focused on that. And we want to do a really good, really effective, really timely job of getting that integrated in so it does contribute to those growth levels. With that, maybe I'll turn it over to Murdo.

Yes. So Murdo, maybe I want to ask you about Otezla, just to pick up on Peter's point, the low double-digit growth. What are you assuming over the next few years in terms of where's the growth coming from, new indications versus existing? And then I'm going to ask you about what did you assume for the TYK2 in terms of their data readout.

Okay. So picking up on what Peter said, the Otezla transaction was a very important strategic one for us. It augments an already very strong presence in inflammation. I think we were the logical, rational owner and we went after it and we're very pleased that we have it. All integration efforts are going exceptionally well. Our legacy Celgene, now new Amgen colleagues are doing a great job helping us integrate that business into our portfolio. We recently took the decision to deploy a primary care sales force, which Celgene was not able to do we are. So we are now promoting Otezla in the primary care community in the U.S. And as for looking forward at sources of additional value with Otezla, we're primarily focused on the expansion geographically of Otezla. I think Celgene did a really nice job in some core markets. But there are still opportunities to secure reimbursement in the near term in some markets, like Australia, perhaps even improve reimbursement in places like Europe. And then of course, to expand and secure market authorizations in other markets, including Latin America, potentially China, among other international markets. And now with Amgen's broad international footprint, we're able to do that. Lastly, as you mentioned, Yaron, there are other indications that are pending. We have a mild-to-moderate clinical trial that's running. And we should see data this year, towards the back of the first half of the year. We think that, that's a sweet spot indication for the profile of Otezla. These are patients that would have progressed on topicals and not seeing full remediation of their symptoms. And so having an oral available for a large surface area of mild-to-moderate psoriasis, I think, is an important option for patients and one that we're excited about. So hopefully, those data will come through in a positive way. And then all the other indications, while uniquely small in and of themselves, they add up to a fairly nice catalyst for continued growth, things like Behçet's and scalp psoriasis and stuff like that. So there's a good news flow for new data and new patients that could benefit. The last thing I will say about Otezla that I like is the positioning of the product in the market. As Peter mentioned, post-topical, prebiologic allows us to compete effectively without going head-to-head against other topicals that are emerging or other biologics that have come into the market. But it does mean we have to be prepared for oral competition. And you mentioned one that I'm familiar with. And I think that while the data remain to be seen, we have a very clear, established safety and efficacy profile with Otezla. And I think that with the cumulative clinical experience and patient experience, we're going to be a very competitive product even if there's another oral in the market.

And so the low double-digit growth assume competition?

Yes.

And competition on the oral side that look the same or better or worse?

A range of profiles that we've put in our assumption, but I'm not going to say what our base case is.

Okay. And then for Otezla specifically, can you give us a sense of what percentage of sales roughly are in the derm versus psoriatic arthritis?

Yes. It's predominantly derm. I think we're 70% derm. We have some psoriatic arthritis, but the biologics are largely more effective there. And you're also looking in psoriatic arthritis for really strong joint data. And I think that's where perhaps there's a preference to the biologics side. But we get some.

Okay. And which segment is growing faster? Is it derm it's going to be driving the growth or...

Similar growth rates. I think over time, derm should grow faster with the advent of the mild-to-moderate indication.

Okay. And that low double-digit growth, I imagine, assumes positive mild-to-moderate psoriasis data?

It does.

It does. Okay. Any sense what's the share right now in that segment for Otezla?

Share of?

Share -- market share in the mild to moderate.

Really, we don't measure it. So it's hard to say. But we are getting some off-label usage, if that's kind of where you're going, yes. I would say, largely underpenetrated, just given that the prior authorization criteria are pretty clear on the patient type. But there are some patients in that category that perhaps a physician isn't quite definitive in understanding, is it mild to moderate? Is it moderate to severe? I think that's the challenge. I think what it does though is it kind of affirms the Otezla option in that post-topical world because a lot of people persist on topicals for a long time without a lot of relief or they're putting a lot of topical cream on large body surface areas. And that's kind of suboptimal from a patient experience perspective.

Okay. And what about -- I was going to ask, in terms of formulary status for Otezla, we've heard cases where the discounting of HUMIRA has gotten so steep that even biologics have kind of moved up before Otezla. What are you seeing?

Yes. I'm not seeing that.

You're not seeing that?

I think we've got a very strong position from a payer perspective. And almost enforcing a step-through Otezla prebiologic, we have some knowledge of the biologic rebates, given that we have Enbrel. So I still think your Otezla net is a competitive one. I also think that just from an ease-of-use kind of physician preference, given the safety profile of Otezla, I think it's definitely preferred to try that prior to going to a biologic.

Yes. Okay. Maybe while we're on anti-TNFs, let's kind of stay there and talk about Enbrel. If you look at kind of '16, '17, '18 -- '16, '17 kind of had down years. Last 2 years have kind of firmed up. And actually, last year grew nicely. What was that driven by?

Yes. So primarily last year, Enbrel benefited from net price improvement as a function of contract dynamics that really were onetime effects in 2019 that we don't anticipate repeating now. There are also accounting adjustments that happen in each period that reflect what the payer mix was in a prior period. So those may still continue and could add to the natural unit trends on Enbrel. But those are hard to forecast. So we generally don't forecast those, and we mention them as the quarter closes. But I think, overall in Enbrel, what we've also done is we've increased investment in Otezla. At the end of 2018, we increased our direct-to-consumer spend on Enbrel. And we increased focus from a field force execution perspective. And I think we saw some nice promotional sensitivity. Now it's small because the continuing base of patients is so large that the dynamic portion for Enbrel is quite small. And it's hard to move that big, stable, continuing base and show different growth performance. But if you can slow the rate of decline in that unit volume, then it can be meaningful over a strategic period of time. And that's really what we're trying to do. The other thing with respect to Enbrel that I should mention is now with Otezla, Enbrel, AVSOLA, a REMICADE biosimilar and at some point in the future, our biosimilar to HUMIRA, along with tezepelumab, our inflammation portfolio is getting to be quite broad. And being able to go to a rheumatologist and allergist, a dermatologist, maybe even a pulmonologist, respirologist, with that portfolio offers us a lot of options. And going to a payer with some of those products that have overlapping indications also gives us some strategic options for what we might be able to do to help Enbrel unit volume. But largely for 2020, we see Enbrel unit volume continuing.

Okay. But you said that the onetime contract dynamics will not continue. Was that relating to better clarity and timing for generic biosimilars to HUMIRA or...

No, I think what payers did in the last couple of years is rather than have narrow formularies for different biologic mechanisms, they tried to open up their formularies to new competition. And when they wanted to add more products, we paid less rebate to be on those formularies. So it was a step change in '19.

Okay. Okay, got it. Peter, maybe just to shift to you, when -- the guidance for 2020 had several puts and takes on the base business versus the growth component. Can you give us a little bit of a sense what are the important puts and takes there?

Yes. The important thing, as we indicated on the base business that was -- we expected a solid kind of year-over-year performance. We've got Otezla coming in, as we mentioned earlier and you just spoke about with Murdo, kind of low double-digit rate. I think it's important to begin to kind of unpack the revenue line and think about unit volume versus price. And last year, for example, we were up 19% volume outside the United States. Our company, we feel very strongly in Amgen. We're prepared to do really well in a volume game. And we understand that's where the industry is going towards. So we're certainly prepared to do that. So I think unpacking that, thinking about it that way, Yaron, is really, really important. And just to follow up on that, I mean we've got the strength in our biomanufacturing facilities and our ability to get things done efficiently, I think, is really, really important. We've got a plant being built up in Providence, Rhode Island, AR30, which is our new, next-gen biomanufacturing 2.0. Half the cost, half the time, it will be half the OpEx, environmentally friendly. So we're excited about that. And that kind of follows on next-gen biomanufacturing 1.0 in Singapore. So when you go to the puts and the takes and you unpack it and you see the volume that we feel strong we're going to win at, and we're coming up with new growth, innovative products that we feel good are going to grow and contribute from that side, we're looking forward to 2020. And of course, we're going to get some readout this year on some of our pipeline, which certainly Murdo and Arvind can dive into in some greater depth. But we're looking forward to interrogating that data and see what happens there and how that works our profile also.

And when does AR30 come onto line?

It will be 2022. Early 2022 is when we anticipate it.

Early 2022.

Correct.

Okay. And which products are going to run through that plant? Is it going to be the new products, the new biosims or...

All the next-gen biomanufacturing plants are able to really handle all of our products if they're appropriately licensed for that.

Okay. But I would imagine you're going to use the new capacity as backup for some of the older products and where you need new supply might go through that plant. Or not necessarily?

Yes. I think the way to think about our supplies manufacturing system is that we balance it with a thought around risk and distribution globally. So we're able to do things in Puerto Rico in our flagship, in Rhode Island, in Singapore, Ireland and so forth. So it's a good balance. And that's the way Esteban really runs the factories.

Okay. And maybe a question to both of you. COVID-19, what impact are you seeing so far in terms of, I would say, global enrollment logistics to clinical material supply to commercial supply?

Do you want to start?

Sure. On COVID-19, the way we're thinking about that is we feel confident in the sense of framing it. So we know we've got to think about it in terms of where our revenue is generated from a country perspective and the countries in which have been significantly affected, thus far. We've got fairly modest sales. We expect great growth in Asia. But right now, it's fairly modest. That's number one. Number two would be, from a supply chain perspective, we don't have anything significant or material yet we're seeing. We're extremely vigilant about monitoring that. And three, of course, we kind of have framed it around our clinicals, clinical trials. And so we're watching that. And we don't have anything yet that we can see affected by that. But of course, this is all subject to making sure that patients involved in trials and patients can continue to get to their doctors and so forth and get treated. So a lot more to come there. And just pausing for a minute, I mean, the company is one of the top biotech companies in the world. I mean the first is a human issue here, so we want to be thoughtful about that and certainly hope that our colleagues in the industry, some of them that are working on vaccines and therapeutics, make good progress here. But we are being very vigilant, Yaron, and we'll continue to be on this. And I would ask Murdo for his comments on it, too, if he's got any.

I think you've largely covered it. The only thing I might add is we've managed to handle a lot of what we would normally do in a live setting remotely with the exception of the most important transaction. And that's health care provider and patient that needs to be obviously, in large part, a physical interaction. We're committed to working with local health authorities so that our people are not vectors for transmission of the virus. So we won't be calling on customers where there are hotspots or where they're trying to close institutions only for patients in emergency care. We'll obviously be very respectful and, I would say, overly cautious on that front because we want to keep our employees safe. But the piece we can't control is how patient behavior might change. We saw that in the early 2000s with SARS, the number of physicians as it just went down. That clearly impacts clinical trials and/or new patient treatment decisions more so than continuing. So those are the things we're watching. But it's really too early to try and put any quantification around that right now.

And what about -- what -- do you have any sense on, I think you do, what percentage of your studies are in China?

Yes. So we do have ongoing clinical trials in China. It's a very, very low percentage. Obviously, as Peter mentioned, we anticipate that, that will grow through the BeiGene collaboration. But we're in the very early stages of that in getting those projects off the ground. So we have very limited exposure to disruption in China. If the virus broadens and spreads, then there are other things that we'll have to put into operations. Inside the company, we have a strong governance structure around this. These are lessons learned from hurricanes and fires, unfortunately. We kind of know how to run the business when we have big disruptions. This is a very big one, but the playbook can still apply. So we've got country, regional and global-level meetings on a very frequent basis daily around the company.

Okay. I'm going to shift then and talk about biosimilars. We at Cowen conducted a survey for, I think, 25 years in a row on drug pricing. And last year's survey came back and said biosims' penetration would be in the 50s this year. They're saying biosims' penetrations are going to end up being somewhere in the 30s, mid-30s, is kind of where they see the peak share going. What are your thinking about that? I mean we're looking at Neulasta, Neulasta ceded about 25% of the market so far. Price obviously was on top of that. So clearly, you're competing on price and retaining share. But both on the defensive side and then on the offensive side to you, what do you think biosims' penetration can be?

Yes. It's a very difficult question to ask on an average basis because the case study so far are so different from one another. Let's just take our Neulasta long-acting filgrastim franchise as an example. If you exclude Onpro and just look at prefilled syringe, the biosimilars are already at 50%, all right? So I would say that's an analog for in a "normal" innovator biosimilar erosion curve where there's no device and/or unique economic considerations, I'm thinking REMICADE here, right? So if there's nothing distorting the normal behavior of how you would prescribe an innovator biologic and how you prescribe a biosimilar, a 50% penetration, I think, is a reasonable assumption of where we're getting to now. But if you throw Onpro into the mix, that penetration drops to 30%. And so some people might casually look at long-acting filgrastim and say, "That's 30%." And that would be, I think, in my view of how a behavior is that would be an error because I think there's differentiation with Onpro that we've been able to apply and hold on to share. So it's [ quite ] apples and oranges. Now if you look into the oncology arena, where we're competing against the Roche innovator products with both KANJINTI and MVASI, our Herceptin and bevacizumab biosimilars, I think we're off to a very quick start. The payer dynamics are different yet again because you're now in oncology, you're in buy-and-bill, you've got slightly different patient concerns, you've got multilayered structure in the market. So you've got providers, GPOs, 340B hospitals, non-340B hospitals and, of course, the payer. And I think it remains to be seen what the penetration will be in that market. But it's -- I think we are on our way to looking more like Europe and less like the U.S. in the past.

More like Europe in terms of what the peak share could be? Or more like Europe in terms of like a tender-like business?

Biosimilar penetration of the innovator.

Yes. And what do you -- even in Europe, it's variable by country, by indication, by drug. So when you say more like Europe, what comes to mind?

I think if you average our category and you look at Europe, in 2, 3 years, the U.S. will look a lot closer to what Europe looks like today.

Yes, which is more 50% to 70% share or...

It's on the higher end of 50%.

Higher end of 50%. Okay. I'm going to ask you maybe just as a gross generalization in terms of when I think of GPOs or I'm talking about oncology biosimilar penetration and where the sweet spots are. Buy-and-bill, one would imagine, would be a sweet spot because of the lag, right, the 6-month payment lag. 340Bs, probably a headwind. GPOs, probably a tailwind? Or how are you thinking which segments are...

Providers' GPO is quick to adopt, right, because the incentives align. 340B, when you get pass-through status, relatively quick to adopt. Academic oncology center is a little slower to adopt, unless they're nudged by payers, which is why you have to consider what your payer strategy would be.

Academics is slower just because of academic relationships?

No. It's more of the economics of what they charge for the innovator, especially on the commercial side, not so much on Medicare.

Got it. Okay. EVENITY, the scripts are growing nicely, albeit from a slow base. Those of us who covered Amgen for years and years remember Prolia. We think we're all skeptical of how big of a drug that could be. And this is one was -- Amgen got that one right. I think Wall Street was definitely more bearish. Expectations for EVENITY were very, very low. And share in Japan has been -- the Japanese launch has been very strong. U.S. and Europe obviously are lagging. What are you expecting from EVENITY, I think, maybe in terms of potential share over time? Or maybe give us a sense of magnitude of ramp that you're seeing so far.

Yes. So let's start with where we've positioned the product. We've positioned EVENITY for the high-risk osteoporosis patient that has had a fracture and is at high risk of a subsequent fracture. Less than 20% of those patients get any active treatment today. So that's a huge unmet medical need that most providers, most payers and most governments around the world recognize that there should be some closer attention paid to it. We're fortunate that we have Prolia and the experience of how we built an in-office administration, buy-and-bill treatment model for osteoporosis. So that exists. So it's no longer something that needs to be built for EVENITY because it's in place. The overlap of prescribing is quite high, as you would imagine. There are some unique prescribers for EVENITY that are a little bit different for them. But for the most part, EVENITY is a subset of Prolia prescribers. So that makes it a very efficient commercial model as well. And of course, we've got experience. We understand these thought leaders. We know the providers that are prescribing. And I think we priced EVENITY at a very good price point, roughly a 30% discount to the lowest price of anabolic competitors. So 12-month treatment, 30% at least lower than competing treatments. The challenge, of course, that we had was the FDA adding a black box warning given the cardiovascular risk data. And we've been very clear with prescribers saying that these people who have had a recent cardiovascular event should be excluded from care. I would say prescribers are more conservative than that. They're looking back further than the last year. They're seeing any history of CV event risk and excluding those patients from care. But given the size of the population, given that very few, 20% of them, get treated, the addressable patient pool is still very, very large for EVENITY. So it's more of a rate of change, rate of penetration than it is ceiling in terms of thinking about how big that product could be.

Okay. And then for omecamtiv mecarbil, I mean, this is the one where you're waiting for event rates to hit and have data at the end of the year. And to a certain degree, it's a binary. It's got an element of a binary outcome in heart failure. How do you get ahead of that in terms of you'll have to launch with positive data within 18 months into a big, new market to Amgen? So how do you prep ahead of time commercially?

So the good news is we're a company with a cardiovascular presence today. About 1.5 years ago, I asked the team to launch a hospital account-focused cardiovascular team. So that's been in place for, I'd say, fully staffed for the last few months. And they're out there now with Corlanor and with Repatha, calling on the cardiologists prescribing base that will ultimately be the target population for a product like omecamtiv. So that's a big running start, if you will, to have that team in place in the U.S. and to have those relationships already in existence. The other thing I would say is we're also going to be very methodical and very careful about how we pursue access for this medicine, lessons learned from Repatha, lessons learned from other competitors that have recently launched in heart failure. And that's going to take some time to materialize. So even post approval, there's a bit of time in market here to get the education out to the prescriber base through medical and commercial efforts and to make sure that all of the necessary infrastructure is there. So it's not necessarily all prelaunch for this asset.

And what were some of the barriers maybe ENTRESTO felt that you wouldn't -- you can get a jump-start on?

It's a little hard to boil ENTRESTO down to any one thing. I think it's a slightly different case and maybe not quite analogous to omecamtiv. Because omecamtiv has a very different mechanism that people haven't seen in the market, so it's quite differentiated. And I would say that maybe at least initially there was a bit of confusion as to what ENTRESTO added beyond generically available ACE or ARB. And I think that's where payers at least decided to restrict. But I would say ENTRESTO is a very effective product. And I think it's getting some uptake now. But it took a while to open it up.

Okay. Well, terrific. Gentlemen, thank you so much for joining us. We really appreciate it. I think we're out of time. It's a pleasure. Thank you.

Thank you, Yaron. Thank you.