Amgen Inc. (AMGN) Earnings Call Transcript & Summary

And there we are. We're live, unceremoniously like that. Well, my name is Evan Seigerman. I'm the senior large-cap biopharma analyst here at Crédit Suisse. And it's my pleasure to introduce Amgen on the first day of our Virtual Healthcare Conference. I'm looking forward to next year when we can all be in person. We were reminiscing about how nice that was. But from Amgen, we have Peter Griffith, CFO; Murdo Gordon, Global Commercial Operations; and of course, Arvind Sood, VP of IR. I was told very specifically to give it to Arvind after the introduction. So Arvind, take it away.

Evan, thank you very much. Good afternoon, everybody. I really appreciate this opportunity. As you mentioned, Evan, we would much rather be at The Phoenician in Scottsdale, but that's kind of the way it is right now. So Evan, let me just tee up some key topics, and then we can move on to your questions. Our recently reported Q3 results, I think, are yet another indication of very good execution in the midst of this pandemic. We had 12% revenue growth, and that, of course, was supplemented by strong volume growth of 18%. The strong volume growth is coming from some of our key growth products, including Prolia, Otezla, Repatha. And our biosimilars portfolio, we generated about $480 million in revenues in Q3. We continue to advance our pipeline. We recently reported top line Phase II data with sotorasib in non-small cell lung cancer. And we noted that the overall response rate data is consistent with Phase I and other measures of efficacy are promising. And we are going to be presenting this data with a later data cutoff date in January at the World Lung meeting. We are also expecting top line data on tezepelumab near term and are expecting a high-quality data set based on the very compelling Phase II data that we previously reported. Also making good progress with our extended half-life BiTE platform. And as you noted in your report this morning, we expect to have data on AMG 757 at the upcoming SITC meeting and AMG 701 later this year. The last point that I would note, Evan, is that we have a strong balance sheet and will continue with our thoughtful and disciplined approach to capital allocation. So with that, let me turn it back to you, and we'll be happy to address your questions.

Excellent. Well, thank you for that introduction. And again, thank you, everyone, for joining us.

So let me just start on a high level. I know we had the results, what was it, 2 weeks ago now. Time is kind of frozen, it seems. I just want to start on a high level just talking about the impact of COVID-19, especially now that we have a vaccine, how you see Amgen kind of moving beyond the pandemic and setting us up into performance in 2021? So maybe Peter and Murdo, you can give me both of your perspectives from the CFO perspective and the Chief Commercial Officer perspective.

Sure. I'm happy to start, and Murdo can clean up where I leave off. Thank you, Evan, and thank you, Crédit Suisse for the conference. We're delighted to be here. So we looked at COVID. We saw as we were getting into our evaluation of the rest of the year that a resurgence of infections, certainly in Europe. And now we're seeing it, of course, and we knew it would happen as Dr. Reese says, it's just mathematics happening here in the United States. So first of all, from a humanitarian aspect, we're hopeful that we can all get this under some control as quickly as possible. And we're certainly very, very grateful to our colleagues at Pfizer for what we heard today. So fourth quarter guidance, we left it wider than we normally do. We came down $100 million and we went up $100 million. I think that, that contemplates at the bottom a little bit of a COVID acceleration, if that happens. And we also are thinking about some of our products, and Murdo can talk a little bit more about those that may or may not feel some effect from COVID as we did back in the April and May time frame. We expect non-GAAP operating expenses to grow 20% quarter-over-quarter. We got quite specific on that because we want our investors and colleagues to know that we feel like we deferred expenses. We didn't cancel them. So when you look at a 20% increase quarter-over-quarter and what that does for us is that puts us right in the range where we've been in the last 5, 6, 7 years in the fourth quarter in terms of OpEx as a percentage of overall OpEx for the year. So we're feeling confident in our ability to safely return to the labs, engage virtually, spending some more on commercial expenses, as Murdo will explain our launches. We wanted to make some investments, some DTC and some other investments to not just for 2020, but to really look towards 2021. We always like to, as I say, look over the curvature of the Earth. So quarter 4 margins typically are the lowest, as I said. So I think if you go back historically, it's 28%, 29%, 30%, not appropriate to draw conclusions going in 2021. As everybody knows, we'll give 2021 guidance in January, and we'll certainly do that again. So we're not looking at 2021 now. But we think we're in a typical seasonal pattern with some deferred expenses coming in that we're investing. We continue to be excited about the business. I'm sure we'll talk a little bit about the pipeline today and saw a little bit today on 757 and the BiTEs and had some news on 510 KRAS. So we're very confident in the business. We feel very, very good about it. And we're looking forward to finishing out the year as we always do with very strong execution. Maybe just one thing, Evan. I'd hate for it to be taken for granted that a year ago, almost to the anniversary, we invested $13.4 billion of our shareholders' capital into Otezla. And that integration went really, really well. And it went on time. It went on track. The transition service agreements and the TSAs all fell off on time, on track. And we don't take that for granted. We know that's a lot of capital and it's worked out well, and we'll certainly like to talk about Otezla today. But that was a big piece of 2020. I mean that was a big focus. And we have the collaboration with BeiGene, and we also brought Astellas back in. So a lot of strong execution in 2020, integration and innovation, so we're pleased with that. So I'll turn it over and let Murdo share with you some additional thoughts.

Excellent. Thank you, Peter.

Thanks, Peter. Thanks, Evan. The only thing I would maybe just add is what we're seeing in the marketplace with respect to COVID's impact on physician behavior and patient behavior, the 2 important intermediaries and how our business works. And what we're pleased to see is even as COVID is rising in Europe and parts of the U.S., we've seen a much more resilient health care system. We've seen institutions and physicians continuing to see patients. The harder one to predict is whether or not patients will isolate themselves from medical care as happened during the lockdown. So far, we've seen pretty good continued recovery as we saw in the third quarter. And we're hoping that will continue in the fourth quarter. A couple of things just to think about very specifically, one COVID-related and one less COVID-related. Our kind of canary in the coal mine product for COVID is Prolia, which is a physician-administered injection for a senior, vulnerable, high risk patient population. And so that product tells us if there's a change in physician behavior and access to physicians as well as patient behavior. So far, what we saw as a recovery in Q3 is continuing in Q4. But we talked about this on the call a little. You need to remember that, that dip we saw in Q2 has an echo in Q4 because of the 6-month dosing. So that change in the normal timing of when people were getting their Prolia has now time shifted. Instead of being in Q1, Q3, softness is going to be Q2, Q4. That's just something to watch out for on Prolia. It doesn't mean that we've lost demand. It just means that the normal dips in when that product is used have appeared in a different place. We actually were able in Q3 to recover a lot of the patients that delayed injections. And then the other product just to keep an eye on because it's going to be impacted by a reimbursement change, and that's Parsabiv. As we see the change from the TDAPA data collection period going into the end-stage renal disease bundle, we have a final rule out now that sets a ceiling on reimbursement for that bundled payment. That includes calcimimetics, but not to the same extent of being able to use those products as you had in the past. And so we are seeing some pullback on demand there, and we expect to see that continue next year. Just a reminder, when this happened in the ESAs, it was as much as a 20% reduction year-on-year when they went into the bundle.

Excellent. And those are some good segues into some specific commercial questions. So let's start off with Otezla. I know, Peter, you mentioned that as a big investment last year and then also Murdo, your work on it this year integrating it in. So it's another recent launch, but it's not a new product as Celgene had it prior. How do you position Otezla given some concerns about Bristol's TYK2 with the data that they presented last week, but also having a strong position in the market? How do you think about it now and the potential dynamics evolving over time? Also note in your prowess as Amgen as being able to market inflammation products.

Yes. Thanks, Evan. We really did feel when we made that transaction that we were the best buyer for that product. I mean, these things are, you have to be a bit opportunistic when the FTC says, look, you got to unload this. And we were very interested from the get-go. We obviously know the dermatology arena. As you point out, it was a really good fit for us. And as Peter mentioned, the integration has gone extremely well. Thanks to the commitment of the legacy Celgene people that are now part of Amgen as well as the receiving Amgen employees. I've done a few different integrations in my career, and this one has probably topped the list in terms of the most effective and the shortest time frame with the least negative impact on the business. And if anything, we've been able to actually increase the focus on Otezla compared to where it was. And it was already a very important product for Celgene. So what I love about Otezla is it's a unique product positioned really well in the market for a post-topical psoriasis patient but pre-biologic. And it really does occupy that space well. It has very, very good commercial and reimbursement coverage. We have co-pay assistant programs and free goods programs, but it's largely a well-reimbursed product with a lot of good access to it. So it's easy to prescribe for dermatologists and rheumatologists alike. We have, as I said, increased resourcing and promotion of Otezla. We actually have cross-trained all of our Enbrel field-based staff to be able to promote Otezla and vice versa. And we've also increased primary care promotion. That's something Celgene wasn't able to do. We have a primary care field force, and we have them starting promotion of Otezla. And we're seeing some good things in the new prescription evolution of that product. There is a bit of suppression in overall rheumatology and dermatology due to COVID. So there's a little bit of softness in the overall market. But I think we've largely been shielded from that impact compared to, say, injectable biologics or, in particular, the IV biologics that are being used in the category. As with the competitors that could be coming into the market, I obviously have some familiarity with the TYK2 product and the whole kind of JAK family of small molecules. We've watched how those have played out in other categories. I think there's a lot of room in this market for multiple orals. But I do think they'll start to parse. I think when we get our mild to moderate indication, hopefully next year, we'll continue to move into a broader and broader, early kind of post-topical treatment patient population. And if you're looking for biologic-like efficacy, albeit with some potential safety considerations, then perhaps a product like TYK2 would be an important choice as well. So we'll see what the final data say. We know what the press release has indicated, having met primary endpoints. We know what they studied. Looking forward to seeing the data. And I do think when I look at dermatologists and how careful they are in what they prescribe on the basis of safety and efficacy profile, I think we've largely been able to satisfy that need for a convenient psoriasis treatment. And I think it's going to be a little bit more challenging to come in and get them to look at a JAK-type product or JAK family product like TYK2. So I feel good about where we are. We'll continue to invest. We are also looking at international expansion on Otezla to grow it. So we recently secured reimbursement in Australia. Our Japanese business is performing really well. And we're seeking reimbursement in some other markets where, historically, Otezla has not been reimbursed. So between our in major market promotional effort and expansion of that as well as the geographic work we're doing to increase reimbursement footprint, I think that double-digit growth guidance we gave for the product is well in hand.

Excellent. And kind of looking at some of your other key products, you had mentioned Prolia. And one of the things, I think, in my conversations with Arvind and I believe with you as well, talking about moving to alternate sites of care as a way to potentially mitigate some of the concerns around the pandemic. Has that been some part of your strategy? Or now that we might have a vaccine, is it no longer as necessary? How do you think about that going forward?

Yes. Like you and many others, I'm clearly excited about the news today on the vaccine front from Pfizer, credit to them and their partners for doing the work there. And fingers crossed, hopefully, they'll be able to make a lot of doses in a really short period of time. But having watched some of the other EUA-type situations, it takes a while for that engine to rev up. It takes a while for the distribution allocation. So yes, we still are planning on continuing to keep alternate sites of care open. Early in the pandemic, the bone franchise team did a really nice job of helping practitioners change up how they deliver the medicine and have dedicated kind of osteoporosis patient days in their clinics so that they could practice good distancing. We also opened up a traveling nurse program, and we even work with CMS to ensure a possibility of self-administration. We did some education on that. So we've got layers, I think, of kind of mitigating channels of administration now, which is really good. To date, they've been largely underutilized compared to what we thought. But that also means that the in-office administration has been less impacted than we thought. So I'm not complaining about that. Going forward, should the in-office administration dip, I think our channels are really well positioned and able to mitigate that.

And then 2 more comments on kind of your legacy business, and we can talk about my favorite topic with you, biosimilars as well and the pipeline. So Aimovig, we're about 2.5 years until the launch. Have you started to see that product turn around? And kind of any comments on the dynamics you're seeing in the CGRP space?

Yes. We had a great launch of Aimovig, and there was a pent-up demand of patients who were waiting on the first-in-class CGRP antibody to be available. And we also made sure that access and reimbursement wasn't an issue in the early days. And so we've shifted from that pent-up demand now to steady-state. So where are we now? Well, we enjoy market-leading market share in total prescriptions and new-to-brand prescriptions. We have secured the broadest market access coverage of any CGRP treatment available in terms of access and reimbursement. But what we haven't necessarily done to the extent that we need to is shift the prescribing pattern from older oral agents that are less effective at preventing migraine to the newer treatments like Aimovig. That's still kind of a behavior that needs to evolve. So right now the CGRP market has penetrated about 15% of the eligible or addressable prevention market, 1-5. So 15% is, in my mind, it's far too low given the impact that Aimovig can have on a migraine sufferer. I mean, this is one area where I really enjoy reading the patient letters that we get. People talk about, hey, I can hold down a job. I'm in a relationship. I have my life back. It reminds me of earlier days in my career when I worked in atypical antipsychotics and that we were addressing bipolar disease and other mental health conditions. I mean migraine is debilitating. And you've got millions of people around the world suffering on these older anticonvulsants and other medicines that just don't work that well. And our job is to push and press and move those patients on to Aimovig. We've got 5 years plus of safety data and efficacy data follow-up now. So it's not a new drug. This is a well-known, well-understood product where, quite frankly, more patients should be benefiting from it. So we continue to invest along with our partners, Novartis. We continue to grow the category. It was growing, I would say, about 7,000 new patients per week, which is pretty good. That's total CGRP category of new patients. That went down during COVID, unfortunately, to about 4,500 a week, and we're climbing back up with each passing week now. But this is a category that I think the long term looks really good, but there's some behavior change that we need to effect.

And one final question on the legacy-based commercial business. You had mentioned Parsabiv being moved into the bundled payment. Without necessarily giving guidance, but how should we think about how that could impact the Parsabiv line item come 2021 when that is included in the bundle?

Yes. We don't really have the perfect analog for it. Otherwise, I'd point you there. I would say at a minimum, when you look at what happened to ESAs, they were down 20% when they went into the bundle. I would say that, that's a fairly good approximation for now. The one thing that complicates this further, though, is you've got generically available cinacalcet. Now I don't think that's the best option for patients. But economically, there are going to be some dialysis providers that are going to want to try and manage the economics of the bundled payment. And it's unfortunate because I think it does a disservice to patients where the benefit of Parsabiv, which is really clear, is going to be challenged by the economics out of the bundle. And we work with the policymakers to try and have that bundle raised. And we were partially successful. The original rule would have had a much lower bundle because of the data capture period they were using. We got them to drop a couple of quarters. So overall, the bundle payment went up a bit from our base case. But still, it's really challenging for providers out there to use products that are going to cause a loss in economic recovery. We'll do our bit for patients, and we'll keep focusing on it to try and mitigate it, but it's a tough force to counteract.

And I want to turn gears to BeiGene. And Peter, I want to kind of ask you this question first. Given you talked about capital allocation and the investment you made in Otezla, I was wondering if you could provide some rationale as to the investment into BeiGene. And how you think that, that investment has been paying off from both a more CFO perspective, but also from a more commercial perspective, for you Murdo. So first, Peter, then for you, Murdo, on the same one. I think, Peter, you're on mute.

I don't want to interrupt Murdo.

No, no one does.