Amgen Inc. (AMGN) Earnings Call Transcript & Summary

Okay. Welcome to the afternoon sessions of day 3 of the BofA Virtual Vegas Global Health Care Conference. My name is Geoff Meacham. I'm the senior biopharma analyst here at BofA. And I have Aspen Mori from my team as well on the line. We're thrilled to have Amgen present this afternoon. And speaking on behalf of Amgen, we have Peter Griffith, CFO. We have Murdo Gordon, Head of Global Commercial Operations; and then Arvind Sood from the IR team. Peter and Murdo, are you guys there?

We sure are.

Okay. Great. So the first thing we're going to do is I'll ask Peter and Murdo to have -- just say something at the onset here just to set up the stage. We have some questions and, of course, there are the ability to, on the Veracast system, to also type us a question and we can ask that as well. So with that, Peter, thanks for joining us. I'll hand over to you.

Yes. Thank you, and thank you, BofA, for the invitation to join today. And we'd just like to start by saying our company, we continue at Amgen to be committed to The Amgen Difference, which is discovering, developing, manufacturing and delivering innovative medicines to patients with serious illnesses all over the world. So as we all certainly know, we're facing an unprecedented global health care disruption, not seen in any of our lifetimes, really the most severe in the last 100 years. Our focus remains on the safety of our employees and families and continuing to reliably supply our medicines to patients across the globe. Our execution was solid in Q1 with revenues up 11% and earnings per share up 17%. We continue to be focused on integration, innovation and execution in 2020. In integration, we're focused, and we're on time and on track with the integration of Otezla, where we used $13.4 billion of our shareholders' capital and the transaction closed in November of 2019, to work our way and build our inflammation portfolio. Murdo will certainly visit with you about this. Secondly, we brought back on board our 49% of the Astellas joint venture in Japan that we didn't own on time and on track, April 1. That gives us much better access in the third largest pharmaceutical market in the world. And finally, we're pleased that on January 2 of this year, we invested $2.8 billion to acquire a 20.5% interest in BeiGene, a leading Chinese biotech company. We're collaborating on 20 early oncology products with them, and they're going to work on 3 of our cancer products in market as they come in; XGEVA, KYPROLIS and BLINCYTO. And we're pleased that we have, albeit a small but an indication of proof for XGEVA there in China. We've reaffirmed our revenue and non-GAAP earnings per share guidance for 2020. I do want to note that we, like most of our peers, expect some uncertainty across the quarters, with likely the greatest impact we estimate later in Q2, with stabilization and partial recovery occurring in the second half of the year. On capital allocation. I'd remind everyone that capital allocation at Amgen continues to be a forethought, not an afterthought, and we intend to continue to be transparent and predictable. Our priorities being unchanged and uninterrupted. We have a strong balance sheet, strong cash flows. We had $2.0 billion in free cash flow in Q1, no liquidity issues and strong access to the capital markets, as indicated by the $4 billion issuance of debt last week that we executed on. So one last comment on execution. No problems at all with our supply chain. And as our company and Esteban Santos, our Head of Manufacturing, say, "It's every patient, every time," like it's been for 40 years. So with that, I'll turn it over to Murdo for some of his opening comments, then we'll look forward to some Q&A.

Thank you, Peter. And as Peter mentioned, we are living in unprecedented times. Many of us are adjusting to the next normal in our world. I would say while we did start the year very strong with both January and February looking very good on a demand basis and some impact of COVID-19 in March, we still delivered very strong volume growth, 15% on a global basis with 10% in the U.S. and 32% ex U.S. And the growth was really a nice broad generation of growth across our portfolio of newer products, including Otezla, Repatha, our biosimilars portfolio and EVENITY. Our outlook, as Peter mentioned, is based on an expectation that we will see more impact, in fact, greatest impact in Q2 and some in Q3, with stabilization thereafter and partial recovery occurring during that second half of the year. Important to note that there are a mix of impacts on our portfolio as a result of COVID-19. First and foremost, we all know by now that physician-patient interactions have been fairly extensively disrupted. So that reduces some new patient diagnosis as well as in-office administration of treatment. So that, in turn, reduces or impacts parts of our business differentially. The most acute impact has been observed in our bone denosumab franchise of Prolia and XGEVA as well as with EVENITY. And we are working very hard in the same spirit as our manufacturing colleagues do to bridge continuity of care for every patient every time. And in more recent weeks, we've seen some improvement in in-office administrations of our bone products. On the other hand, products like Otezla, an oral drug in a largely IV or self-administered injection biologics market, is seeing some benefit as a convenient option there with an established safety and efficacy profile and no need for any lab monitoring. And we've also seen some tailwinds in our Neulasta Onpro business where the innovation, that is Onpro, allows the patient to reduce their exposure to the oncology clinic and receive critical G-CSF treatment to reduce the risk of febrile neutropenia. So that diversity of our portfolio and -- along with the resiliency of our staff around the world gives us the confidence that our guidance incorporates our assumptions of the range of outcomes for 2020. And I'll pause there.

Okay. Thanks, Murdo. Thanks, Peter. Yes, I wanted to -- maybe I'll first ask -- Murdo ask you a question just as it relates to the product portfolio. And when you think about the COVID-19 impact, there are some categories that are more affected than others. I wanted to get a sense from you for how that's playing out? What categories are more amenable, for example, to telemedicine? And then should we be in a little bit more of an extended period, let's say, if there's wave 2 or something else, do you expect those same trends to hold?

Yes. Thanks, Geoff. I would say, across our business, we are seeing some variability in the impact that COVID-19 is having by therapeutic area. It's fair to say that primary care and indications where more vulnerable patients like osteoporosis in older patient population might require treatment, those have been more impacted than, say, oncology where patient visits have come down, but to a lesser extent. So for us, that will have a variable impact on our portfolio. But in addition to that, you have to think about the administration of products. So as I mentioned in my opening remarks, anything that's in-office administration is much more difficult to mitigate in terms of impact than something that's a self-administration, home administration option. So our bone business really, Prolia, XGEVA, EVENITY, the most significant impact. As I said, the last few weeks have been encouraging. We've seen some rebound there. We're still below historical norms, but we're up from the lowest point that we saw in March. So that's improvement. We're also working on solutions for patients and able to get product to them through pharmacy channels for home administration. And that is improving as well. I would say, on the rest of our business, the nephrology business is holding up well. I think dialysis providers have been very quick to get out of the gate and collaborate with one another, quite frankly, to provide safe, sterile isolation for patients to receive their dialysis. And of course, as you all know, it's a life-sustaining treatment. Every 3 days, people need to be in there. So that business is relatively unimpacted by COVID-19. And then on, as I said, oncology is down a little, but not to the same extent as bone. And oncology practices are finding ways of, particularly for fast-moving, severe malignancies, making sure people can get their drug treatment. I would say, we -- as I mentioned, we are seeing some upticks in brands like Otezla given the convenience of an oral product in psoriasis -- psoriatic arthritis and Onpro, Neulasta Onpro is gaining share with each passing week. So that's helped. And Enbrel, given its safety history, its large base of continuing patients versus new is also holding up quite well. So that's kind of a summary of the Amgen portfolio. And I would say that with respect to telemedicine, the adoption rates are obviously accelerating rapidly. And I think in many areas like cardiovascular, migraine, we're seeing good use of telemedicine, telehealth solutions. And that's good news for products like Repatha and Aimovig. And I'll pause there.

That's helpful. And one more, just to follow up on Otezla. Obviously, you guys have been leaders in the I&I space in many different indications. On the back of Enbrel, I wanted to maybe ask you, what are the lessons to be learned from that, that could help you further accelerate the Otezla launch? And have you learned much about Otezla in terms of its positioning since you acquired the drug? Obviously, in psoriasis, it's a pretty competitive category, but you have a knowledge of the space already, pretty detailed knowledge.

Yes. I mean as Peter mentioned, we're very pleased with the quality of the integration effort. I think, quite frankly, it's been seamless. We were fortunate that many of our legacy Celgene colleagues have chosen to bridge over and help us with that. So Otezla has become a part of our portfolio very, very quickly. The trends on -- the historical trends that we saw, very strong performance in psoriasis historically has continued. As you're aware, we also announced that we had a positive mild to moderate trial. So that's good news. I think we're also seeing that the strategy to have Otezla positioned as the kind of a post-topical prebiologic solution for patients with psoriasis has held up really well. And the payer access reinforces that, the promotion reinforces that. Since we picked it up, a couple of things we've done a little bit differently is we've put some primary sales force promotion on Otezla and we're seeing good things there. Given its profile, it's a product that a broader group of prescribers can find utility for their practices, and we're seeing that. That's going well. We could potentially expand that effort. And we've also looked for opportunities for synergy within the promotion of Enbrel. So I think overall, it's been a great fit. We felt we were the logical buyer for that asset. And we've been very, very pleased with the early impact it's had in our portfolio and our growth.

Okay. That's helpful. Peter, I want to switch gears to talk a little bit more about capital allocation and balance sheet. And I think the first thing is just talk through some of the priorities here. Clearly, you guys are -- I know you're going to say you're committed to the dividend, but I wanted to ask you on the BD side of things. Does the COVID uncertainty kind of change the pace of how you look at deals or how you can be opportunistic in terms of size and scale?

Thank you, Geoff. Very good questions. Number one, on capital allocation. As I mentioned in my opening remarks, it's a forethought at Amgen, not an afterthought, that we remain committed to our capital allocation principles, which start with investing in internal innovation. And then our capital expenditures and investments here inside the company remain a high priority, including our industry-leading, environmentally-friendly, next-generation manufacturing facility up near Providence, Rhode Island. We're excited about that, for example, that is nearing completion and should be up licensed and operating in the first quarter of 2022, on time and on track. Then we do patiently evaluate business development opportunities that clear our hurdle rate and are consistent with our therapeutic focus. Let me speak about that in a moment because you asked me about business development pace. But then I'd like to go our next allocation, of course. At Amgen, we have a strong history of continuing to return capital to shareholders by delivering competitive growing dividends. And as we indicated, we will execute share repurchases as appropriate. We guided towards the lower end of our $3 billion to $5 billion range that we had indicated in January. So just as a mention, we did raise our quarterly dividend by 10% to $1.60 per share in the first quarter. So capital allocation is very important to us. That all rests on what we call our efficient capital structure which optimizes weighted average cost of capital. We don't try to minimize weighted average cost of capital, we try to optimize it. Maintain our strong credit ratings. As indicated, they were reaffirmed last week in connection with our $4 billion issuance of debt. So on to the BD pace, it's a very fair question. I think business development, I always talk about our 4 Ps there. First, we're patient. Murdo said it very articulately. So we thought we were the logical buyer for Otezla. So we were patient that fell out of the BMS Celgene merger. We announced that deal on August 26 of last year. The company was very patient. And in November, we used, as I said earlier, $13.4 billion of shareholder capital. We'll continue to be patient and look for opportunities where we are the best or one of the very best buyers. Secondly, we're going to be prudent. We're going to wait and find situations that clear our hurdle rate, our weighted average cost of capital and return -- give returns to our shareholders, not just the shareholders of the sellers. And number three, we're going to be precise. The third P is precise. So our current areas where we have discovery research and we think we can be especially effective in transactions. As you said, certainly, inflammation, where we executed on Otezla; oncology/hematology, where we're executing on the collaboration with BeiGene, by way of example; and in cardiovascular, where Repatha certainly had a good first quarter, and we're looking forward to the readout for -- by way of example on omecamtiv mecarbil later this year. Certainly, we'll prosecute that data and see where it comes. But those 3 therapeutic areas in business development are where we'd like to really laser focus. But of course, we're in 3 commercial areas that we certainly would look at, to a lesser degree than the 3 where we have heavy discovery research in, but that's bone, nephrology and neuroscience. And then finally, after being patient and prudent and precise, we want to be prompt. So after almost 4 decades in mergers and acquisitions, there's a number of lessons I've learned; some the easy way, some the hard way. But what I have learned for sure is that the achievement of returns as modeled in a deal only happen when you do the integration on a very timely basis. And as I said out in my opening remarks and as Murdo also said, we're on time on track with the Otezla integration. The [ TSAs ] will drop-off on time as we see it now, it's moving along. So we want to be prompt. So let me make one final comment because the question comes up as to what -- are there changes in valuations that have happened that make us want to be more opportunistic. I think you asked us about our pace. Well, we think our cadence and direction is going to remain right where it's at. We're going to continue to be patient and thoughtful. We're a little bit surprised values haven't come down a little bit more in the small and mid-cap areas than some of the earlier private stage. But we certainly, being Amgen, we get an opportunity to look at just about everything we need to look at and should look at. And we have a great team. Murdo teams with Dave Reese, who heads up R&D, who teams with Dave Piacquad, who's our Head of Business Development, has been at the company over 10 years, has decades of experience and is arguably one of the most experienced business development executives in the industry. So we've got a great threesome there that does a great job looking proactively for the right opportunities for us. So we're not just reacting and being opportunistic. So that's the answer to the question on capital allocation and kind of the pace around business development. So we'll keep our measured, thoughtful, patient pace around business development, but we certainly -- when we see something that meets our criteria, we certainly will move quickly as we did, for example, with Otezla.

That's helpful, Peter. And just as a follow-up to that, there seems like with the BeiGene deal, there was sort of an intended focus to diversify the geographic mix. And so I had a couple of questions. One is that, are there other geographies that you feel like could also be helped through alliances or through partnerships? And then this -- the corollary to that is, when you mentioned the different therapeutic categories, when you guys look through the lens of BD, is there a need to diversify in the current categories that you have? Or you just look at individual companies and products individually?

All great questions. So other geographies, I think at this point, we feel very -- we're very, very confident in our practice over in Europe. We've got great management, great team, good execution. We've done really well by way of example. Murdo could certainly expand on this in the biosimilar area over there. So we feel really confident in that. I would say the BeiGene opportunity in China, we needed to be in a bigger way in the second largest pharmaceutical market in the world, and BeiGene is a great opportunity for us to do that. So we continue to be very focused on executing on that collaboration, and we'll continue to do that, Geoff. Third, I mentioned Astellas, so Japan being the third largest pharmaceutical market. We just brought in the 49% of that joint venture we didn't previously own and that frees us up to do some more, and we think improve our cadence there around what we're doing, again, in the third largest pharmaceutical market. So we feel like we've got good coverage in the major geographies in the world. We're working to execute on that now. I would suggest we've said before that about 25% of our growth over the next 5 or 6 years will come from our international growth. So we're excited about that. And then finally, you asked about the therapeutic areas and diversifying perhaps inside of those. And I think right now, we feel good about where we're at. I mean I think about the inflammation portfolio. And we've certainly got Enbrel in there as an outstanding biological, doing great. Otezla, as we say, is a post-topical, pre-biological and certainly a great market position. AMGEVITA is a wonderful biosimilar that's done really, really well, and we're excited to see what the readout this year will be on tezepelumab or teze, as we call it, for severe asthma. Certainly, we've got to wait and see the data. We're going to have to prosecute the data and make sure that works. But we're very excited about that. So we think that builds that inflammation portfolio out nicely. And in the cancer/heme area, we've got a very strong internal innovation coupled with execution on that with BeiGene. So we're going to continue to move that forward. Cardiovascular area, feeling good about Repatha, as I mentioned earlier. We'll continue to move that forward. That's certainly a big size area, Repatha, to help people get that cholesterol down. It certainly doesn't stop going down just because of a virus. So we're working hard on executing on that great growth product, Repatha. So I'm not sure -- we'll keep doing exactly what we're doing. And keep right in the middle of those 3 therapeutic areas. If something pops up in, again, bone, neuroscience or nephrology, we'd certainly look at it. But we want to kind of stick to what we think we're doing really well. Geographical growth, I'm glad you brought it up. It's a pillar of our strategy. We feel like that's gone pretty well. And so we're feeling good about our therapeutic areas too and feel confident that they are good places for us to compete. And most importantly, to serve patients, what we do well.

Got you. That's helpful. Aspen from the team had a couple of questions, I think, for Murdo. Aspen?

Thanks, Geoff, and thanks to Peter and Murdo for joining us. A couple on the growth products. I think, first, we'll start with Aimovig. I guess, Murdo, do you see, after the more recent contract negotiations for Aimovig to get a little bit better access, do you think that, will kind of move behind -- move beyond the -- some of the early launch, like maybe barriers is the wrong word, but really launch hurdles maybe and now it's just a matter of execution?

Yes, it's a good question, Aspen. I think it's been hard, obviously, for people outside the company to track how we've been performing with Aimovig. I would say we're very pleased overall with our share and volume performance. And I think now that we've been through a full round of access negotiations, we've got 93% coverage of lives in the marketplace. So we do feel good about where we are right now. I think we did say in our fourth quarter call that we would see a step change because of the new access in the U.S. for Aimovig at CVS, which we felt was important to secure. And then we expect that, that should stabilize net price for the balance of the year. We also think there's just such a significant need in the marketplace to treat more patients. When you talk to a patient who was suffering from 15 migraine days a month and they go on to Aimovig, you feel how impactful this medicine can be in the lives of people. They can return to relationships. They can return to employment. Many patients come out of Medicaid coverage and into insured benefits. So this is a game-changing, life-altering medicine. What is still happening, however, is many prescribers are still persisting with older treatments that are really just not that effective. And in fact, if you look at some of the drugs that are used like anticonvulsants or repurposed antidepressants, up to 85% of patients will have refractory breakthrough migraines despite that therapy. And so we're looking at that population of patients who have many migraine days. They're on drugs that have a lot of side effects and toxicity and aren't all that efficacious as patients that should be candidates for CGRP migraine prevention with a product like Aimovig. And we've got a very effective partnership with Novartis with the right market promotional resources, strong medical teams around our efforts. And now we have the most long-term data behind the product showing its efficacy and safety. So I think it's early days in the category, and I think that there's still millions of patients to be helped. So we're optimistic that this will continue to be a good growth driver for us.

One more now on -- I want to touch on biosimilars. I think that for most of The Street, biosimilar performance has been a pleasant surprise. It's clearly been growing perhaps faster than a lot of people have expected. So maybe you can touch on what's kind of driven the strength there? And then how you expect that market to evolve as more competitors enter the space? And how you guys expect to maintain your differentiation and leadership?

Yes. As I mentioned, when we were talking about Otezla that Amgen is -- was the logical company to own that asset. I think we're also one of the preeminent manufacturers of biologics, high-quality biologics, and a pioneer in that space. So I think Amgen is also a company that should deliver strength in the biosimilars market, and I'm pleased that, that's the case so far. Our experience in Europe has been great. AMGEVITA is the #1 biosimilar to HUMIRA across Europe, thanks to high-quality execution and really high-quality manufacturing and great physician and patient services as wraparound. I think that experience of our 2 oncology biosimilars that we launched in the U.S., MVASI and KANJINTI, both of whom -- both of which have around a 30% share of the molecule in the market. So really pretty good uptick there. I think another part of the reason for our success is that our biosimilars business is not a separate standalone unit. We develop biosimilars so that they can be promoted and supported by the same field force that's working on products like Neulasta and KYPROLIS and others. So that, I think, has helped us extrapolate on the really many decades of relationships we have with oncologists, with GPOs, with oncology networks, with hospitals. And I think when an Amgen account manager or a representative or a medical employee shows up, they can talk about the entire oncology portfolio inclusive of the biosimilars. It's also interesting, Amgen being such an originator in biosimilars and biotechnology, we've also had to defend against biosimilars on our Neulasta business and our ESA business. So we've been very fortunate to learn how to defend, which sets you up well with how to promote. So the same account managers that have been working on contracting Neulasta are the same managers that are contracting on MVASI and KANJINTI. And I think that's given us a lot of knowledge and a lot of experience. And the only other thing I'd mention is many people were looking at kind of a REMICADE biosimilar market as the analog for the U.S. and I've maintained for many months now that that's not the right analog to look at. We've seen the prefilled syringe biosimilars in long-acting filgrastim be quite successful. So really, the market is functioning well, and I think we don't need policy or legislation to promote biosimilar uptake. I think a free market, as it exists today, is facilitating good biosimilar uptake and we're the beneficiaries of that with MVASI and KANJINTI. So overall, really, really strong globally. We had $320 million in revenue across our 3 launched biosimilar products. So we've got a good run rate going. It's still early days. There's competition there, and that means some price erosion. But I would say we're in very good shape in it. This is a good segment of our portfolio for future growth.

Well, Murdo, Peter, thanks a lot for your time. We're running up on the top of the hour here. So really helpful conversation, lots of insights. So thanks a lot, guys.

Thank you. Thank you, Geoff. Thank you, Aspen.

Thank you, Geoff. Thank you, Aspen.

We appreciate it. Bye bye.