Amgen Inc. (AMGN) Earnings Call Transcript & Summary

This is Matthew Harrison. I'm one of the biotech analysts here at Morgan Stanley. Very pleased to have Amgen with me for the next session. Quickly, before we get started, I need to read a brief disclaimer. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member, please disconnect and reach out separately. For important disclosures, visit the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representatives. So I'm very pleased to have Bob Bradway, the CEO; Peter Griffith, the CFO; and Arvind Sood from IR. And Bob, I'm going to turn it over to you to make some opening comments, and then we'll get into Q&A.

Okay, Matthew. Well, first, let me say thanks for hosting us in this format, again, at your fall conference. We're delighted to be here. I appreciate your ongoing interest in the company. Let me just say a few opening remarks, Matthew, and then turn it over to your questions. First, let me reiterate what we reported in the first half of the year, which is sales growth of about 8%, driven by volume growth globally of about 14%. And off the back of that volume growth, we were able to drive operating income up by some 12% and earnings per share up by 12% as well. So even with the significant disruption of COVID through the first half of the year, we've been performing well, and we're focused now on driving growth from our newly launched products in the second half of the year. And of course, those include Repatha and Prolia that's showing good growth. We're focused on Aimovig and focused on EVENITY. We're focused on the biosimilar portfolio. And we expect that the second half of the year will be stronger than what we experienced, obviously, in the first half. And then in addition, Matthew, as you know, we have the opportunity to look at some pivotal and registrational data for 3 of our programs in the latter part of this year, one in cancer, the AMG 510 program, which, of course, is our molecule directed at a particular form of KRAS mutation. I think it's well known now in the investment community. We have the opportunity to look at tezepelumab, which is our antibody that we hope will be a new important therapy for patients that have uncontrolled asthma. And then finally, we have omecamtiv, which is our molecule for heart failure. So we're focused on operating the business through this challenging period of disruption that is represented by COVID but also excited about getting some answers to some questions -- fundamental questions in cancer, respiratory disease and heart failure. So why don't we open it up to questions, Matthew, and I'm happy to talk about what's ever on your mind and the mind of your investors?

Well, great. Thanks, Bob. I appreciate that. Maybe a good place to start, as we have in the past, is some more noise out of D.C., a couple of executive orders around pricing, obviously, the election is coming up as well. So maybe just give us your thoughts on pricing and some of the potential changes that could occur or not?

Well, I guess overall, Matthew, I'd just remind you that we've seen actual net price decreases in our industry over the past 2 years. You see that at Amgen. You saw that through the first half of the year. We reported single-digit price declines. So we're in a little bit of a different era here right now in the U.S. for year-over-year price changes compared to what has prevailed for the past couple of decades. Nonetheless, there have been a variety of different proposals. And I think you're referring, in particular, to the executive order around the so-called MFN, most favored nation status. So there'll be more discussion about what's the appropriate way for drugs to be priced in the U.S. and obviously, we don't think it's appropriate to import personalized medicine practices like those that are represented by virtually all of the OECD companies -- or countries rather that are referenced in the executive order. Instead, we think there are market-based mechanisms that make more sense, and we continue to advocate for those and in particular, for things that would enable seniors to get access to innovative medicines. Fundamentally, Matthew, our view is that the country needs more innovation, not less. And the worst thing we can do is advance and get registered innovative medicines that seniors can't use. So we want to be part of the solution. We don't think MFN is particularly constructive. And I think there's still a lot of hurdles for -- that have to be crossed before it goes into effect.

Okay. Appreciate it, Bob. So then the second thing is you talked about sort of the cadence of revenues as it's related to COVID. I think maybe just a good opportunity to talk about what you've seen in terms of volumes as you've looked across the recovery and sort of your outlook for volumes potentially as we head into the winter here and maybe cases could go back up again.

Well, maybe what I can reiterate, Matthew, is what we've said already publicly. So obviously, January and February were very strong months, largely unaffected by the virus. March and April, on the other hand, were very challenging, as you well know, for us and others in the industry. We felt that we were seeing a bottoming of activity in April. And I think that when we look back on the full year, we'll recognize that March and April were tough. Physicians weren't seeing patients. Patients, in some cases, weren't able to get new diagnoses; in other cases, weren't able to get medicines. So there was quite a bit of interruption. But fortunately, I think, by May, June, July, we were seeing physician practices, patients, payers working through the logistical challenges and finding ways to make sure that the medicines that were needed were available and were being administered. So we felt that we would see a rather steady improvement in access and then return to patient-doctor visits and ongoing use of medicines and new appropriate new starts for medicines. And I think that's what we're going to recognize has happened when we look back on the full year. So we were, again, expecting volume trends to improve in the second half of the year, and that's largely consistent with what we see in the IMS data and see in what others are reporting.

Okay. Okay. Perfect. I want to talk about pipeline because you've obviously got a handful of major catalysts coming towards the end of the year. But I guess maybe 2 things before we get there. So migraine, right, key product that you've had there, you've launched over the last couple of years. You're starting to see orals come into that market. And while the indication statement isn't the same, just wondering what you're seeing in terms of the competitive pressures there and what's your outlook for that product?

Well, again, Aimovig, as you know, Matthew, was the first approved CGRP inhibitor, and we're thrilled with the performance of the medicine for patients. The feedback we get from patients continues to be very, very encouraging, which is to say that the medicine is working. It's addressing what was a huge need for people that suffer from frequent chronic migraine. So we're very focused on trying to grow the number of patients who benefit from this therapy. We think there are millions of patients for whom this is an appropriate -- for whom the question is appropriate, whether they should go on to a therapy like Aimovig. And so our efforts are continuing to be to educate patients and to educate physicians about the benefits of these therapies. So you're right. The good news for patients is there are new medicines that are coming into the field. And again, that's helping to build awareness about the fact that we're on the dawn of a new era here, where there are other therapeutic interventions available for these patients who, for so many decades, really haven't had any innovative medicines that work to any great extent. So the good news is there are medicines that work to a great extent like Aimovig, and that's the message that we're trying to get out.

Do you need an oral or another migraine product to be able to continue to compete in that category? Do you think you're set with what you have?

Yes, I don't think we feel we need an oral medicine, Matthew. Obviously, we're committed to migraine. We're going to continue to look for innovative ways to build our presence in this area. So if we see something that fits well from a business development standpoint, we'll consider it. But I don't -- I certainly wouldn't say we feel we need to have another product in this category, what is the leading CGRP injectable product now and is performing very well, again, for patients, and our focus is on trying to grow the market.

Okay. Okay. And then second one, before we get to pipeline, biosimilars, right, product category that you stood up over the last, I don't know, 4 or 5 years and had pretty dramatic increases in sales here since you started to launch those products. How are you thinking about the sustainability of that revenue stream, especially as you start to see more competition for some of the products that you've launched?

Well, we're still in the early days, Matthew, of this industry developing in the U.S. So right now, we have a franchise that's generated. It's on track to exceed by some amount with the $1 billion threshold this year, so we're pleased with that. We've been able to execute on the objectives that we had for the franchise, which is to say that we've been able to hit our development time lines and our launch schedules. We've been amongst the early -- therefore, amongst the early entrants in the field, and we've benefited from that, not just in the U.S. but globally. So this continues to be an attractive growth opportunity for us. We're continuing to develop and we're readying the launch of additional molecules. And so for now, Matthew, that's what we're focused on. I think longer term, we'll have to see how many competitors are able to sustainably develop and stay in the market to the extent that there are handfuls of competitors in each product area. Obviously, that will have an effect on price and on the long-term attractiveness of the individual products in the market. But for now, we feel good. We're generating revenues, we're generating -- earnings growing. We think we're earning an attractive return for our shareholders.

And obviously, you've gotten through both the original decision as well as the appeal on Enbrel. You'll be launching, in the next couple years, some biosimilars against TNFs as well. How do you think about the TNF category as it faces biosimilar competition with respect to your efforts in biosimilars, but as well the branded product you sell, which is Enbrel?

Yes. We are pleased that we'll have a portfolio of products to be able to offer for physicians, patients, payers. We think that, that has the potential to be helpful to us. We also obviously have Otezla. We think that's very complementary with what we've been doing in inflammatory medicines for the last couple of decades. So we feel that in inflammation right now, with our Remicade biosimilar, with our Humira biosimilar, with our own product Enbrel, with Otezla, with the potential of tezepelumab and some other things in our pipeline that we're building what will be a very strong portfolio of products.

Okay, good. All right. Well, look, let's move on to the pipeline, and we can obviously come back. There's plenty more topics in terms of the base business to touch on. But maybe we can start with 510, clearly, a product that a lot of people are focused on. I think there's a significant debate among investors about the relevance of response rate versus PFS. Maybe just put into context what you're thinking is going to make -- what kind of clinical data is going to make this a successful product?

Obviously, I mean, I don't want to sound glib, but we need to show that the molecule is safe and effective for patients that have this mutation, this KRAS mutation, which has been for decades, so difficult to treat. So physicians have, for decades, understood that patients who have this KRAS G12C mutation are particularly in a difficult place with a challenging prognosis because there just haven't been any therapies that have been able to work effectively upstream or downstream of it to prevent progression of disease. So based on the data that we've seen so far, we're very excited about being the first ever to demonstrate that we can inhibit this pathway. And we think in doing so, we have a molecule that will be both safe and effective, not just in non-small cell lung cancer, but in other solid tumors that have this mutation as well. So as you know, Matthew, we'll have data here at the European Society of Molecular Oncology over the next few days. And those will be incremental Phase I data that will help illuminate the reasons why we're excited about this as a potential therapy to be added in the field. So we're expecting to have our monotherapy data later this year, and we look forward to getting those and when we have them in hand, putting together a package and filing it with regulators.

To the extent you can, Bob, how would you compare and contrast the incremental update that we're going to get this coming weekend versus the pivotal study? How much information do you think is going to be relevant that we'll get this coming weekend?

Well, I think, Matthew, I would say I think the data will be helpful -- the data that will be available this weekend will be helpful. Again, this is the first in class, so physicians and others who take an active interest in the patients with this disease, I think, will be very keen to understand what we've learned so far. And as regards the blinded clinical data, as you know, Matthew, I think it'd be a fool's errand for me to try to connect the data from the Phase I trial that we're reporting on now with data that we haven't seen yet. So we just have to wait until we have the Phase II data in hand until we're able to report on those before we try to compare the experience from the Phase I trial with the later trials.

And then from a regulatory standard, I mean, is there a minimum amount of response rate or a minimum PFS delta that you think you need to be able to achieve to make this a product that the regulators communicated to you, there's a certain amount that you need? Or how are you just thinking about that minimum bar that you need to hit?

Yes, I know there's been a lot of discussion about that. And I think some of the other competitors in the field may have fixed specific numbers to -- the answer to their version of this question, Matthew. But again, we're looking forward to having the data, taking the data to regulators and having the discussion with them. Again, I think regulators recognize there's a huge unmet medical need here. Regulators recognize this is a first-in-class molecule, and so we're anxious. We look forward to having the data in hand and look forward to having the appropriate discussions once we have those data with the regulators. But I think it would be premature and inappropriate for me to try to disclose how the regulators are thinking about this.

Okay. Okay. Helpful. And then you just talked about competition. Just broadly, how are you thinking about the competitiveness of this category and how that impacts your view on the commercial opportunity?

No. Look, I think all categories in cancer are competitive now, Matthew. It's a very rare medicine that doesn't have dozens of competing potential new entrants. So we're delighted that we seem to be, again, well ahead of the competition in exploring this molecule. I think there will be some benefits to having established the pathway. We've been able to sort of characterize some of the intellectual property around this axis and how to use inhibitors of the axis. So we have a track record, as you know, Matthew, of being first-in-class with innovative medicines. I mentioned Aimovig earlier. Tezepelumab is another example. Omecamtiv is another example, obviously, Repatha. So we like to be first in class and best in class and have the opportunity to characterize the biology and establish how these new medicines should be used in clinical practice. And I think we've seen that there is a benefit from being first.

And just one more question before we move on to omecamtiv. I mean any updates on your ability to look at other mutations along this axis? Obviously, G12C is one of many that maybe you could target. Any thoughts on...

We and others are obviously interested in all of the KRAS mutations, and we continue to look for ways to reach the other mutations that aren't benefiting from therapies today. But again, it would be premature for me to try to speculate about whether we or anybody else is seeing real progress on those other mutations. I think for now, the good news is we have a molecule that looks very interesting for the G12C mutants. And hopefully, that establishes confidence that it would be possible to do something similar for the other versions of mutations for which there are no therapies yet today as well.