Amgen Inc. (AMGN) Earnings Call Transcript & Summary

Okay. Welcome, everyone. My name is Geoff Meacham. I'm the senior biopharma analyst here at BofA, and welcoming you to the London Health Care Conference. I also have asked Aspen Mori from my team with me as well. There are questions via the Veracast system, so feel free to log those in. And we are thrilled today to have Amgen presenting. And speaking on behalf of Amgen we have CFO, Peter Griffith. We have to -- also have Arvind Sood from the IR team. Welcome, guys.

Thank you, Geoff.

Thank you.

Thank you to AML, too. Thank you for having us.

Of course, yes. So you guys are going to go through some slides first. And then we'll do some Q&A.

Great. Thank you, Geoff. And again, hello, everybody, and we certainly hope that wherever you are, you're safe and you're well, and we're glad that you've joined us today. So we've got some slides. I'll just refer to the slide numbers because I believe you've got access to them. Our -- I'll start with Slide 3, and we'd like to share with you how we've been executing through the pandemic while investing for our long-term growth. So 5 points I'd like to make here with you for strong execution through the first half of 2020, we'll review some results on the next slide. Secondly, we've provided uninterrupted supplies of medicines for patients around the world through the first half of 2020. As we say at Amgen, it's every patient every time for 40 years. Third, our key clinical study readouts are expected by year-end. There's 3 of those, and I'm sure we'll speak about those a bit today. Fourth, strong balance sheet and cash flow generation. Our capital allocation priorities in hierarchy remains unchanged and uninterrupted. And then finally, we believe biopharma is very well positioned to be a part of the solution for the current pandemic. We're proud of our responses in the industry. And you will have seen -- I want to take a minute and highlight how our industry is collaborating closely to combat COVID-19. You likely have seen that we announced a global antibody manufacturing collaboration with Lilly this morning to significantly increase the supply capacity for their potential COVID-19 therapies. Lilly is currently studying several potential neutralizing antibodies for the prevention and/or treatment of COVID-19 as either monotherapy or in combination. Through this collaboration, the 2 companies are going to have the ability to scale rapidly up production should one or more of the antibody therapies prove successful in clinical testing and receive regulatory approval. Finally, we can leverage our deep technical expertise in antibody development and in particular, our strong capabilities in the scale-up and manufacturing of complex biologics in this worldwide fight against COVID-19. By the way, we'll continue our own efforts to develop a therapeutic antibody that is complementary to first generation technologies, such as those being pursued by Lilly. Now next, I'd like to go to the next slide, Slide 3, just quickly. Strong first half results, up 8% in revenue, driven by 14% volume growth. You'll note our non-GAAP operating income was up 12% with a 54.4% operating margin in the first half of the year. Non-GAAP EPS, up 12% also. As you know, our largest product in the first half of the year would have been Enbrel, and we have a number of growth products that we'll talk about in a minute. Turning to Slide 5. We've got a couple of our bone franchise products on the left. EVENITY continues a very strong rollout, both in the United States and parts of the -- other parts of the world. Prolia continues to see a rebound from a slowdown in April when our -- the patients for Prolia had difficulty getting into their provider. But now, that's seen a nice rebound, as Murdo Gordon was able to share at the end of the second quarter. So we're delighted with that, first and foremost, for the patients that can now get in and get their medicine. Next, Repatha, we continue to have strong conviction in the cardio area. We think Repatha is a very strong product, and we continue to move on that, very good volume growth in the first half of the year. Aimovig is our migraine product. I know that there have been some competitive intrusions into that space, but we're very confident. With over 4 million people in the United States suffering from migraine that could be helped by prophylaxis in this area, we think Aimovig continues to be a great opportunity for us. And finally, Otezla, certainly worth noting. We used $13.4 billion of our shareholders' capital last year to acquire Otezla, and we have strong conviction in that is a terrific product for us in the prebiologic, post topical in inflammation. Next on Slide 6. First wave of biosimilars, very well received. We had $675 million in sales in the first half of the year. We manage and commercialize our biosimilars by therapeutic area. We think that's a strategic advantage, and we're excited about biosimilars as a strong growth area for us. We certainly have played a lot of defense with biosimilars, and so we're glad to be able to play some offense where we use the learnings and the knowledge sharing from where we play defense. We're focused here. We think it's a very good capital allocation, both from a margin standpoint, but most importantly, clears our hurdle rate with room to spare. On Slide 7, you'll note that our international expansion is anticipated to be a source of long-term growth for us. 25% of our growth over the next 10 years, we expect out of the JPAC region. As you'll see here, in China, second largest market -- pharmaceutical market in the world. We continue to execute on our BeiGene collaboration. We invested another $421 million into that in July, and that's on time, on track in terms of our activities around commercializing XGEVA, for example, here. BLINCYTO and KYPROLIS coming as soon as we get clearance there. And then over on the right-hand side, we were able to transition in our Astellas joint venture in April. And of course, now we have Japan to ourselves, and we're pleased with our opportunities there. Turning to Slide 8. I anticipated innovative pipeline readouts in the second half of 2020. We're certainly looking forward to interrogating the data. We're prepared with launches in each 1 of these 3. You'll note that each 1 is in 1 of our discovery research areas. Certainly sotorasib, or soda as some people now call it, our advanced nonsmall cell lung cancer monotherapy on the left there. Inflammation. Teze, as we call tezepelumab, we'll expect to hear from that in the fourth quarter and interrogate that data. And finally, on the right, albeit it's -- we've indicated all along, it's a high risk, high reward situation, omecamtiv mecarbil heart failure with reduced injection fraction. Turning to Page 9 then. And capital allocation priorities unchanged, uninterrupted. Investing first in internal innovation. We've spent about $33 billion over the last 9 years in internal R&D. Secondly, capital allocation to our capital expenditures, including in emerging technologies and digitization, where we want to emerge from this pandemic as one of the stronger players amongst our peers. Next, external business development opportunities. As you recall, Amgen generally has a portfolio of about 50% internally generated products and about 50% externally generated products. We intend on continuing that investment. And then finally, returning capital to shareholders, growing dividend. We've raised our dividend to $1.60 per share per quarter, up about 10% over last year. And finally, our share repurchases, we indicated at the end of the first quarter and we indicated again at the end of the second quarter. And we expect to be in the lower end of the range of $3 billion to $5 billion in share repurchases this year. That indicates that as we felt at the end of the first quarter that we wanted to indicate some sensitivity to the topic of share repurchases, we certainly have plenty of firepower to end up anywhere in that range. But we did indicate that we expect to be at the lower end. That capital allocation priority framework is built on an efficient capital structure to optimize our WACC and maintain our strong credit ratings. Page 10, quickly. You can see our returns. I think most of you are familiar with those. Certainly, they've been strong. We've invested in the business since 2011, 30% of the sales, about $66 billion, and we're looking forward to continuing that trend. And finally, just -- I would just say, at the end of here and summering up, we'll give it to Geoff and some Q&A, we expect to continue the return to top line, volume-driven growth 2020. Growth drivers include our recently launched products, including our biosimilars, as we discussed, our ongoing global expansion and the contribution of Otezla. We'll expand that international footprint, as we talked about. Our collaboration with BeiGene, product acquisitions, we'll look forward globally. We continue to make significant investments in R&D to advance the pipeline of differentiated first-in-class and best-in-class programs. We're focused on delivering long-term growth for our shareholders. And in Amgen, we continue to be mission driven. We wake up every morning looking to advance our mission of discovering, developing, manufacturing and delivering innovative medicines to patients with grave illnesses located all over the world. So with that, Geoff, I'll turn it back to you, and we can get to some Q&A and go from there.

Okay. Great. That's a great background, Peter. Thank you very much. Yes, just -- I wanted to ask you in the context of the pipeline readouts for the balance of the year. These could be pretty meaningful products in the marketplace and require pretty good investments to make them successful. How does Amgen think about this in the context of capital allocation priorities? In other words, if they're all highly successful, does that, for instance, inform your -- maybe the pace of business development going forward versus if they're not successful, do you think you'll be in the marketplace a little bit more aggressively?

Well, I think that's a really good question, Geoff. And let me just say, your first thesis there that all 3 hit. I think Arvind calls that the hat trick, for those of you who are ice hockey fans. And look, we'll interrogate the data to see where it comes out. I would say, number one, as we indicated at the end of the second quarter call, we're fully prepared and are prepared for launching each 1 of the 3. So we did indicate that we're going to increase -- have increased our spend in the second half of the year to make sure that we're prepared for the launch of those, and we'll continue to work on that. Secondly, we always are in the market in business development. I think that's a really good question to ask. And I think our view of business development is we want to be very predictable and consistent in that. And we go to what I call, Geoff, our 4 Ps in order to maintain that consistency so our investors and our -- those who follow the company kind of understand where we're going to be going to. The first is patients. I think Otezla is a perfect example of patients in the sense very specifically that it would -- we were one of the very best, if not, in that case, the best buyer in the world for that opportunity. That means that when we model it out, we have the opportunities both at the revenue and the cost levels to be able to take advantage of that opportunity as well as or better than anybody else. So we want to be patient. That opportunity is, as all of you will recall, came out of the Celgene-Bristol situation, and we were able to move on it very quickly and very promptly, and it worked out very well. So first in our hierarchy around business development, regardless of how many of the product readouts are interrogated and work or don't work, our business development activities, we'll continue to be patient. Second, we're going to continue to be prudent. We're always going to look for opportunities where the opportunity is going to clear the hurdle rate for us. It's going to be above our WACC. We want to make sure we're turning -- achieving returns for our shareholders, not just for the shareholders, the sellers. And in today's markets, with the valuations for the privates, the small caps and the mid-cap companies in our space, we need to be very thoughtful about that. So we're careful in achievement -- in being prudent and achieving returns for our shareholders, not just as shareholders and the sellers. We will continue to be precise. We think when we're in areas that we know, we do a lot better in our business development opportunities. So we think about cardiometabolic. We think about inflammation. We think about oncology, hematology. There are 3 areas in which we have strong discovery research, and we think we do a really good job there when we get into external business development activities in those areas. But next, we do have 3 other commercial therapeutic areas where we have a lot of expertise, and we'll continue to look through those and scrub through those to see the opportunities there. And that would certainly be bone nephrology and neurology. And so those are -- that's the precision we want. We have the guard rails, if you want, around what we really want to get to in terms of areas. And finally, and I think really importantly at Amgen, we want to make sure we have opportunities where we can integrate them promptly. So prompt integration is going to achieve the returns for our shareholders that we think we want to get to, that we'll clear that hurdle rate we talked about in terms of the improvement. So we're going to be patient. We're going to be prudent. We're going to be precise. We're going to be prompt in what we do on business development. Certainly, we think about that all the time. We're asked oftentimes, what about scope, what about size? And we've got plenty of firepower. We were able to access the debt markets for $5 billion in February on very favorable terms and conditions. We actually went back in May because we thought it was very prudent to take advantage of those opportunities again, raised another $4 billion. We went in and did a debt exchange, extend some maturities and run some corporate finance hygiene on the balance sheet that turned out really well for us. That closed in August. Plenty of firepower. We can do, as I say, extra smalls all the way up to extra largest. But we'll look at everything. And so we'll continue to be active in this area, the capital allocation hierarchy. Once we get past business development, just to quickly finish it off. Of course, we get to returning capital to shareholders. We talked about the growing dividend earlier. We talked about share repurchases. And we talked about how we build that on an efficient capital structure. We want to maintain our ratings. So that's kind of an overview, Geoff. I know that's a little bit of kind of a general answer. But there's specifics in that, that are really important to us. And certainly, the readouts are really important building a strong company. We have lots of great products. We'll continue to work our pipeline also. We've got other products coming up through the pipeline and we're continuing to invest in that. We indicated at the end of the second quarter, our laboratories are back up to 80% or 85% of the capacity. At one point, in the midst of COVID, we were down less than 10%. They've come back nicely. So we're moving forward and looking forward to increasing our spend in that in the early oncology and other pipeline activities that we have. So lots going on. We're excited about it. So thanks for that question.

And Geoff...

It sounds like, Peter...

Arvind?

Yes. I would just kind of say that I just wanted to add that commercially, for each of these 3 assets, Geoff, we are already taking steps for the potential approval of these products. And on the cancer side, on the oncology side, our medical teams, they are already taking steps to make sure that they are improving and enhancing the awareness. So cancer patients understand their KRAS G12C status. And also, again, a relevant biomarker testing is front of mind for everyone. We have also realigned our customer model for the U.S. oncology business to make sure that we create space for sotorasib eventually fitting within the portfolio and to also integrate it with a product that we already have on the market, a product that you know is Vectibix, which is approved for colorectal cancer. In the cardiovascular space, we have an established presence in this space today with Repatha, and we have also built a hospital account focused team that we think, Geoff, is going to be foundation for the launch of omecamtiv. And our view is that we can also apply the lessons that we have learned from Repatha and other cardio launches, not just our own but competing launches or competitive launches as we think about positioning this particular product, of course, once we see the Phase III data. In the inflammation space with tezepelumab, also working very closely with the partners, AZ, Astrazeneca. They have a lot of good, relevant experience across respiratory disease, pulmonology. They even have very good rapport with the allergy community, which obviously, are going to be our target customers for the initial asthma indication.

Thanks, guys. That's a really helpful answer. So I'm just trying to think of the commercial infrastructure. And through the BeiGene deal, you guys have -- it's a very smart, savvy deal. You have access to that end of the world from a commercial perspective. Is it fair to say, are there regions that you'd like to invest more to grow your footprint commercially? Like, for example, more across Europe or Latin America? Amgen is obviously a global company and has been a U.S.-centric company for a long time, but BeiGene starts to expand that a little bit. Is there a strategy in place to kind of expand that further, either internally or even externally through alliances?

Geoff, very good question. And you asked about Europe. So our colleague, Arvind, spent quite a bit of time there, so he's more than welcome to jump in and comment on that a bit. But I would just say about Europe, we have a great team over there. We have a great regional manager. Our European business did really, really well through the pandemic, and we're pleased with the performance. So we feel that's a great area for us, and we'll continue to allocate capital to that as they need it in order to continue to grow that business. Go back to Asia for a minute. I think it's hard to overlook the fact that China is the second largest pharmaceutical market in the world. Japan is the third. We just had significant activity there in the past year, even less than a year with this investment of $3.2 billion in BeiGene, executing on the early collaboration -- excuse me, the early oncology collaboration with them on the 2020 molecules. Commercializing, as we said earlier, KYPROLIS and CYTO, and we've actually got one indication on [ Xcede ] and, I think it's tried into bone cancer that we're underway in China with them on. So you are absolutely right, that does inform the BeiGene collaboration and what we're doing with them, that informs how we look at the Chinese market in general. I will also remind all of our colleagues that we do continue to have a general medicine business in China, and we continue to move that forward. So we continue to have that opportunity also. And turning to Japan, as we said, we transitioned the Astellas JV back in -- third largest pharmaceutical market in the world. Last year, we had a terrific rollout of EVENITY there, which was great news for the patients there that need it. And we'll continue to allocate capital to JPAC. As I said in my opening remarks, we expect about 25% of our growth over the next 10 years to come from JPAC. So we have confidence in that. We think it's a good use of our shareholders' capital, and we'll continue to move forward on that. Maybe just back to cover Europe for another minute or so. There's opportunities there. We've looked at any number of business development opportunities. As I said, we think capital allocation to Europe is good. We've got a great team there. They integrate things well. They execute very well in the Amgen way, so we have no hesitation to do that. In South America, we've got what we call a great icon team that manages South America, and we're very focused on that. The opportunities down there, we'll continue to move that forward also. So you make a great point. Globalization, as we say to our team here at Amgen, it's really a decades-type of game that you have to play. You have to be prepared to run a marathon. It's not a sprint. You're going to invest in situations around the world where there'll be puts and takes, but the secular trend will be up and will be forward. We're committed to do that. We understand that's where we're required to go. And as we do that, we are fully prepared to play the unit volume game. We have strong manufacturing across the globe. We have a great next-gen manufacturing plant in Singapore. We're building one in Providence, Rhode Island here in the United States. We've got good facilities over in Ireland and Netherlands. So we'll continue to move that forward also. So we understand that strategy is important. I've got a lot of experience in globalization. I'm personally fully committed to it, and we're going to execute on that. Albeit right now, we're doing it virtually, globalization. But as I've said to a number of my colleagues, how many of us thought we would be able to advance globalization without any jet lag for the past 6 months. So we need to move forward on that, and it's very important. So Arvind, would you have anything you'd want to add to that?

The only -- one other product example, Peter, that I would toss in the mix is that of Otezla. And Geoff, when we acquired this product, we felt that this kind of afforded us a unique opportunity in that this product had been approved in about 50 markets, but had been launched in only about 30. So again, a very unique opportunity for us to continue to expand our global footprint because we certainly have the global footprint to launch this product in these added markets. So that's all I would add.

Okay. That's helpful, guys. Yes. So we've talked about the pipeline and that being a growth driver in the intermediate to long term. But let's turn to some of your longer patent cycle products like Repatha and EVENITY and Aimovig. These are products that are still pretty early in their launches, maybe a year or a few years in. Just the question is, are there further commercial investments that you'd like to make in these products just to try to expand the opportunity, the TAM or even expand the -- obviously, the market share in the near term? And then are there geographies among those that still require a little bit more of an investment to get them to the level that can really start to move the needle on the top line?

Well, I think, Geoff, we are always looking for opportunities with those 3 great growth products. We talked about EVENITY. And I think you mentioned that, and that's been a terrific growth product for us, a great opening and rollout in Japan last year launch. It's working out very well in the United States this year. So we're excited about that. Repatha, as I said in my opening remarks, we have a lot of conviction around that opportunity. And I think there's a heart attack or stroke every 40 seconds in the United States, and we don't [indiscernible] that. That's a great product. We understand, as everybody knows, there'll be some -- there are some competitive intrusions in there. We feel very good about this product, and we're going to continue to invest in it. We're going to continue to roll that out in a strong way through any means that we have. And Aimovig, we continue to be very excited about this. We talked about opportunities there in terms of working other situations with it, backing up our commercial activities, very important. There are certainly some competitors coming into that space, but we feel really good about the results we're getting there, over 4 million people in the United States that require or could use some type of prophylaxis for migraines. It's a terrible debilitating disease, it tends to hit a lot of women kind of in their prime years and makes it hard for them to work and achieve their other activities. So we're very committed to that. And any life cycle management types of investments, we pay a lot of attention to those 3. And we think those are all 3 uses of capital here at Amgen. So it's a great question, but we're very enthused about where we're at with those 3, and we thank you for asking about them. Arvind, would you like to add anything to that?

I think you've covered that very well, Peter. I have nothing more to add.

Okay. Perfect. I want to get Aspen from the team a chance to ask a question or 2. He's been focused on you guys with me for a while, so Aspen, all you.