Amgen Inc. (AMGN) Earnings Call Transcript & Summary

Good afternoon, everybody, and thank you once again for the final day of the 41st Annual Cowen Healthcare Conference. I'm Yaron Werber from the biotech team. And it's a pleasure to moderate the fireside chat with Amgen, with my colleague, Gabe Schneider. And we are very pleased to have the full team here today. We have Peter Griffith, who's EVP and CFO; Murdo Gordon, EVP, Global Commercial Ops; and David Reese, EVP of R&D; and Arvind Sood, of course, our VP of Investor Relations. Gentlemen, thank you so much for joining us. We appreciate it. And we have a box open on the screen. If anybody has questions, you can pop them in there and we'll do our best to ask them on your behalf or you can e-mail us directly, and we'll be happy to take them. So Peter, maybe let me turn it over to you maybe for some introductory remarks about how the business is going, and then we'll dive into Q&A.

Yaron, thank you very much, and good morning, good afternoon, everyone, and thank you, Cowen, for inviting us again this year. We're delighted to be with you. So as you know, this morning, we announced an agreement to acquire Five Prime Therapeutics for $38 per share in cash, representing an equity value of about $1.9 billion. But let's start where we always started Amgen first before we speak with Yaron more and answer some of the questions. And first and foremost, at Amgen, we're committed to discovering, developing, manufacturing and delivering first-in-class, best-in-class innovative therapeutics to patients with serious and grievous illnesses all over the world. And so with that, the lead asset of Five Prime is bema. First-in-class, Phase III-ready therapy with positive Phase II data in first-line gastric cancer, the third leading cause of cancer deaths in the world today, and offers us a mid- to long-term volume growth opportunity. It strengthens our innovative oncology portfolio and is complementary with our gastric cancer programs. It advances our efforts to grow our business internationally and in Asia Pacific in particular, where gastric cancer is highly prevalent, where we expect to generate about 25% of our total company sales growth over the next 10 years. We'll leverage our industry-leading biologics and process development and manufacturing expertise to develop and commercialize this product for patients all over. We expect the deal to close by the end of the second quarter 2021 and look forward to advancing this important new medicine into Phase III as quickly as possible. So turning for a moment back to 2020. We made significant progress on our strategic objectives. We advanced our innovative first-in-class pipeline with positive registration-enabling data for sotorasib and tezepelumab. Executed well with 9% revenue growth, driven by 15% volumes and 12% non-GAAP EPS growth for 2020. Successfully integrated Otezla, advance the BeiGene collaboration and successfully transitioned to a full affiliate model in Japan. And noteworthy, we exceeded $1 billion in revenue from our JPAC region in 2020, building momentum in the regions. We have a strong balance sheet, continue to generate strong free cash flows with almost $10 billion of free cash flow in 2020. With our commitment to dividends and share buybacks, we retained significant financial flexibility to continue to evaluate business development opportunities to deliver incremental value to our shareholders, and most importantly, new therapeutics for our patients. In 2021, our focus is on commercial execution of launch and growth products to sustain long-term volume-driven growth, a point Murdo will certainly address as we get into your questions. Yaron, I'll turn it back over to you.

Well, terrific. Thanks, Peter.

So Murdo, maybe let me put you on the spot first and ask about last year, was a challenging year for everybody pretty much, COVID-19, obviously, was extremely unexpected, to say the least, disrupted commercial ops and patient access globally, yet revenues grew 9% year-over-year. Revenues -- EPS was up 12% despite these challenges. As you think about the core strategy this year, what are going to be the key driver? And what's different commercially for you this year than last year? And how can you meet your objectives?

Thanks for the question, Yaron, and good to be here with you and Gabe. I'm -- as I reflect on 2020, we learned a lot. We learned about how to adapt to ever-changing kind of external market environment. And I think we've employed a lot of those lessons learned and embedded them in the organization as we look at 2021 and beyond. Our assumption is that the COVID pandemic will be with us for the majority of the year. While we're all hopeful when we see vaccinations accelerate, and we definitely see providers and patients coping better with the situation on the ground with respect to the rising virus infection rates. We see that as a headwind through at least the first 3 quarters of the year. We also see a little bit of change in the seasonality in our portfolio. So the normal, very light Q1 that we will see in our business with respect to how that compares to Q2, Q3 and 4, we're seeing that also light this year and maybe even a little lighter based on some of the COVID patterns that have occurred. But long term, what we're happy about, what we've done in the portfolio is we've largely removed a lot of the barriers from the growth of our core portfolio. So when we say volume growth, what we mean is treating more patients in the therapeutic areas where we already have approved products. So I'll take Repatha as an example, we enjoy a vast majority of covered lives, low co-pay, very affordable. So now the job is getting cardiologists and primary care physicians to use Repatha more aggressively in the treatment of their very high-risk ASCVD patients. Aimovig, really strong overall access coverage. Prolia, very good broad prescriber base, highly unmet medical need, lots of patients still to be treated. Look at Otezla, which we brought in and drove a lot of our growth last year, and the integration went really well. We've now broadened the scope of responsibility for the Otezla field force to include primary care physicians in anticipation of a mild to moderate indication. Again, more patients to treat, really good access coverage, less barriers in the market. So we've unlocked the ability to grow that core portfolio. And then on the hemo-oncology side, we've got a nice portfolio of promoter products that continue to grow high single digits year-on-year, and we expect that to continue. On the yet to be kind of fully realized in terms of growth perspective, we still got an expansion of our biosimilars portfolio happening geographically. So we're bringing on other markets in Latin America, Middle East, still a few markets in Europe. And that's allowing us to really expand that biosimilars piece of the portfolio to drive growth, especially in that midterm phase of the company going forward. And last but certainly not least, we have 2 products that we're anticipating launching in the near future with sotorasib, our KRAS G12C inhibitor in lung cancer, and of course, tezepelumab, and I would -- I would now add bemarituzumab to that late-stage pipeline that could be launched in the not-too-distant future and driving additional growth for the company. So we're pretty pleased with our growth prospects. But I will say it's still going to be an interesting year with respect to COVID and how that's affecting patient and physician behavior.

Okay. That's great, Murdo. And what about with Prolia and XGEVA, where are those drugs right now in terms of the rebound? And COVID got better and obviously got worse, and now we're sort of in a better spot again. But women will have to get treated or men and women with bone met related to myeloma?

Yes. And it's a little different, Yaron, between XGEVA and Prolia. Let's start with Prolia. Definitely, providers are much better equipped than they were, say, in Q2 of last year. So they've found a way to ensure safe distancing for their patients and being able to self -- being able to administer Prolia in their practice. So we have seen a rebound. We saw that in fourth quarter. We continue to see it hold up. The thing that we're watching actually right now is we've got softness because of the weather in the country. A lot of people in the last few weeks, at least were rescheduling some of their meetings. I would say on XGEVA, we're still seeing a little bit of a lag in the performance of that product compared to historical norms. And that's one that we're watching very closely for the year. Still, again, a huge unmet need. There are a lot of cancer patients that would benefit from that product for their skeletal complications of their disease and their treatment and the team does a really nice job there. But there are some reimbursement effects in that side of the business that play a bit of a headwind role there as well.

Okay. An EVENITY, where are you on that launch? There was a huge launch in Japan. You've been working through some of the inventory. Then you were beginning to make progress in the U.S. and of course, COVID hit.

Yes. Demand numbers look very good in Japan and in the U.S. You rightly referred to just an interesting way in which we transfer product to our partner and book sales there. So that sometimes makes the Japan curve a little spiky. Overall, though, we're really pleased with the launch, our partners at UCB now are rolling out across Europe. And I think more and more of the prescribers who have good experience with EVENITY are broadening their use and treating more high-risk post fracture patients. We're also seeing patients go from EVENITY back on to Prolia. So it's actually helping us as a franchise to have both those products.

Peter, maybe I'm just going to move to you, and Murdo, we'll come back to you later on. When you're looking at the guidance for '21, what drove -- what are the real sort of drivers of the top line in '21? And just remind us on the OpEx side, this is a year of R&D investment and sort of SG&A synergies, right? So help us understand kind of how you think about this year?

Yes, Yaron. Thank you very much. That's a great question. It's an important question. First, I'd like to reaffirm our full year outlook with revenue guidance of $25.8 billion to $26.6 billion and non-GAAP earnings per share guidance of $16 to $17. And as I do, looking at the current analyst models, I think our guidance is generally appropriately reflected on a full year basis. But let me offer a couple of reminders and thoughts on the first quarter and some of this repeats what Murdo just said, which is we expected to see some quarter-to-quarter variability through 2021 due to COVID with potential recovery in the latter part of the year, contingent on the vaccine rollout. The spike in cases in January and early February has had some impact on our physician-administered brands, as Murdo said, sensitive to COVID, like Prolia, XGEVA and KYPROLIS. Our second -- excuse me, our first quarter is typically the lowest as a proportion of full year revenues, and the COVID effect this year will lead to Q1 revenues as a percentage of the full year being moderately lower than what it represented in Q1 of 2020. And a reminder that Q1 2020 benefited from a combination of accounting adjustments to ENBREL and the COVID related inventory buildup right at the end of that first quarter that aggregated about $215 million. On other revenues, we will begin recognizing revenues on the Lilly agreement beginning in the second quarter. As we expect our first shipment of the Lilly antibody at that time. And then on Parsabiv, with Parsabiv's inclusion in the bundle, we expect a 40% to 50% sales decline for the full year. And in addition, in Q1, we expect customers to deplete the roughly $40 million of inventory built up in the second half of 2020. So now to OpEx, that part of the question. We'll continue to invest in innovation, launches and new products and digitization efforts. We expect 2021 total non-GAAP operating expenses to grow at a rate similar to that of 2020 for non-GAAP operating expense. And finally, as we said last month, we've created an industry-leading cost structure, and we expect an operating margin of roughly 50% in 2021. So that's a good question, Yaron, and that's where we're sitting right now.

Okay. Got it. So it looks like Q1 is, again, there is a COVID impact and then there's going to be more of a bounce back in the remaining quarters. And you've given us in your guidance, if I remember correctly, some content on how to think about the Lilly agreement and where it's going to be recorded, I believe, in the other revenue line.

Yes. Yes, the revenue and other revenue and then the cost of sales will be included, then the payments, that will be in cost of sales, right?

Okay, which is a part of the guidance there. Okay. Fantastic. And the guidance does not include sotorasib revenues this year? Or it does include sotorasib this year?

Why don't I invite Murdo to comment on that? And we're really excited about sotorasib, but it'd be great, Murdo, maybe you want to jump in.

Yes, Yaron, it does include some sotorasib asset sales. It's obviously hard to forecast what that number is going to be given the variability on launch timing. We do -- as we've announced, have a PDUFA date in August, but we're hopeful that, that could happen a little sooner, and we're ready, as we've said, to be able to launch sotorasib any day now, if we were fortunate enough to see an earlier approval, teams on the ground, everybody is fully staffed, we know these customers well. So that one is one that really just depends on what the FDA approval timeline looks like.

Okay. Gabe, do you want to take it away on Five Prime?

Yes. Thanks. So first, congratulations on the deal. We've actually been discussing bema at some of our panels and experts have been enthusiastic for sure. So maybe first for Dr. Reese. Could you just clarify the incidence of high FGFR2b expression? Is it 30% of all gastric cancer or is it 30% of the HER2-negative gastric cancers? And then maybe as a follow-up, I know we don't know the exact overlap of FGFR2b and PD-L1. But do we know the incidence of PD-L1 in the overall gastric population?

Yes, thanks. Important questions. 30% of the HER2-negative population and the -- the HER2-positive population for those who are not familiar with gastric cancer is 12% to 15% of the overall population. As Peter indicated, globally, this is a very important malignancy, in particular, in East Asia. It's a real public health challenge. Just by way of context, there are nearly as many cases of gastric cancer annually in China, Japan, South Korea and Southeast Asia, as there are all major solid tumors in the U.S. So huge challenge, standards of care have not changed in a long time. As you indicate, we anticipate that check inhibitors will be used here. But we think there is -- there will be some non-overlap in the populations where you have an FGFR2b overexpressing tumor that is PD-L1 low or non-expressing we'll refine those estimates as we go forward. We also believe that in many parts of the world, standard chemotherapy, which was the backbone in the Phase II FIGHT trial that really forms the heart of the data set from Five Prime. We think that those backbone regimens will remain standard of care for quite some time.

Great. And presumably, the pivotal Phase III study will be bema plus chemo versus chemo alone. Could you talk a little bit about the plan to do combination studies with checkpoint inhibitors in first line? And is there any thought yet about a potential second line study in checkpoint refractory patients, given that in case those do make it to market first, there could be a need for data in checkpoint refractory?

Yes. I think all of the above would be the short answer here, Gabe. Our intent -- and there will be upcoming regulatory interactions that discuss Phase III planning. But based on what I just said, our intent would be a core pivotal Phase III program that looks similar to the FIGHT trial, in other words, chemotherapy with or without bemarituzumab in patients with FGFR2b overexpression. Absolutely, we're interested in investigating things like triplet therapy, which would be chemotherapy plus checkpoint inhibitor plus bemarituzumab and then indications beyond gastric cancer, such as squamous cell carcinoma belong, where there is evidence that FGFR2b overexpression occurs in a subset of tumors.

Great. And then just my last question is, I know on your call, you mentioned that pretty much all the programs outside of bema or upside from this deal. Are any programs in particular you highlight, even just briefly that you seem interested in?

I don't know that we're ready to take -- to talk about that just yet. We will look very carefully at all of those programs. They're largely immuno-oncology. And so they fit into our portfolio. And as we develop plans going forward, we'll provide additional guidance.

Sure. Okay. I'll toss it back to Yaron.

Yes. So maybe one more quick question on bema. Is -- I wasn't on the call earlier today, Gabe was. Did you give any timeline to starting the pivotal Phase III or not yet for bema?

Five Prime has talked about trying to get that launched by the end of this year. That would certainly be our aspiration as well. That's obviously dependent on regulatory interactions and agreement on what the Phase III program looks like. But that's certainly -- that's a rough goal right now, Yaron.

Okay. And is there a chance that the primary is response rates? And the secondary is a PFS and survival? Or do you need to sort of tee off with PFS and survival will just given...

I think that's going to be a key part to regulatory discussions, but overall survival is typically a key endpoint in gastric cancer, given the natural history of the disease and what historically has been done in -- from a regulatory perspective.

Okay. Let's stay with David, with sotorasib and the -- we've been getting a lot of questions. When you look at STK11 mutants, and we'll be looking at the data with pembro, the response rates are lower by a little bit than it does as alone. Pembro alone is around 39%, pembro, an unselected pembro and STK11 is about sort of 29%, chemo is sort of in the lower 20s. Decrements of about 10% each. So as you think about moving to first-line and do an STK11 study, can that be potentially pivotal enabling? And its supportive of approval or supportive, I should say, of a label expansion on its own? Or is that going to be more of just to have the data out there, you'll have a new label by that point presumably anyway?

Yes. Again, I don't want to speculate on how the FDA may view that particular pathway. But clearly, as you're indicating, there is evidence, and there's no biologic plausibility for a relative resistance of KRAS G12C plus STK11 altered tumors to checkpoint inhibition and immunotherapies more broadly. So that's something that's incorporated in our development program and that we are advancing as we generate those data of course, we would determine what an appropriate regulatory pathway might be.

Okay. And as you think about -- obviously, in your studies in the COBRA studies, you're doing a lot of different combos with -- and you've talked about that you've been able to use full dose, sotorasib with a MEK -- with a SHIP2. You haven't commented as much about PD and PD-1 was there a reason for that? Or is it just holding the data until we see it probably at ASCO?

Yes. I mean I think we'll release those data when we've got the, I think, a robust enough data set, whether it's at ASCO or later in the year, but certainly over the course of this year. And we're still looking at dosing and sequencing. One of the real questions with checkpoint inhibitor combinations, given the potential up regulation, for example, PD-L1 with G12C inhibition is whether a sequential strategy makes more sense than a straight up combination. So we're looking at all of those sorts of approaches.

You would treat with sotorasib first potentially and then?

Yes, potentially. Exactly. Induction followed by checkpoint inhibition, it would be one thought.

Okay. When you're thinking about colon cancer, and I know you're in the middle of your early stage studies, it's -- you haven't released a lot of data so far. But presumably, I imagine the next study will be with an EGFR inhibitor, whether it's yours or ERBITUX. Does it make sense to put in a MEK inhibitor in that triple too or are you sort of less impressed with the activity of the MEK axis within that pathway?

Yes. I mean, I think, again, all of those are of potential interest and one of the reasons that we have a master protocol that's got 10 arms now as you implied open is that we can add arms as clinical and biologic evidence emerges or drop arms. In addition, individual arms can be expanded into what's roughly a Phase II trial to provide a strong look at efficacy that's what we've done with the MEK combination. So while early cohorts are meant to generate the requisite safety data, we can then expand that to get really good estimates of what efficacy looks like. And that's the approach that we'll take with various combinations. If you use your imagination, of course, you can come up with an extraordinary number of combinations. We've tried to select those based on potential biologic synergy and/or combining with standard backbones in various indications where G12C alterations occur.

And just remind us in terms of in patients with brain mets and lung cancer, where are you and what are the next steps?

We've got specific cohorts open looking at brain metastases and so now it's a matter I think of just generating the clinical data.

And would you some point present the data from the earlier experience of patients who had brain mets or I remember there was one patient presented. I think the pivotal, obviously...

We're continuing to look at that. And as you know, these are relatively small numbers of patients, but as we get an aggregate number that's meaningful, of course, we would present that as we provide updates on the various studies we've previously reported.

Okay. Murdo, back to you. I think we just have a few minutes remaining. Otezla for mild to moderate psoriasis, that's been filed. I think we're still waiting for the advanced data to be presented. I think it's going to be soon -- how from our checks, there is some usage already in that segment, right, among the community setting, but still, it's not obviously penetrated. How big is that opportunity?

Well, the mild to moderate population is in the neighborhood of about 4 million patients, but we're more focused on the patients who have large surface areas of their skin involved in their psoriasis and the topical treatments that they're used to right now, just are inconvenient and difficult for the average patient with larger surface area involvement. So we're targeting a subset, but it's still a very large population, Yaron, that we think that Otezla can benefit. As I mentioned in my first comment, we're also pleased that we've got really good access, a really well understood safety profile with Otezla compared to some of the other potential treatments that are in the market or may enter the market. And we've got a lot of experience in this disease setting, both from ENBREL and now with Otezla. So we got a very experienced commercial and medical organization that's champing -- ready to go and -- if and when we get approval.

And so of that segment, the mile -- the 4 million miles, but then what percentage of large body surface areas where topicals just won't work?

Yes, you're looking still about half that population that's addressable.

Yes. And do you have any sense how many are actually under care? Continues to go to...

They're all under care. They're all either trying off-the-shelf topicals or prescription topicals, but not necessarily systemic orals.

Yes. Okay. And then maybe a final question is on biosimilars. I mean, last year, you posted about $1.7 billion, which was really a terrific launch with 30% to 40% shares in certain cases. Now you have RIABNI, AVSOLA was still sort of early. RIABNI really didn't count last year at all. The guidance and the way you always talk about it, you always mentioned competition, which will come and price dynamics, which will come. But there's been a lot of learnings already even in the Neulasta segment and pricing at some point stabilizes, and there was some rationality in the market. So what are you expecting in those segments? I mean, you've become sort of the leader in those areas. And there's going to be tactical guerilla warfare going on, but is it going to be rational guerilla warfare? Or it's going to be irrational guerilla warfare?

I think most of the actors in the market that we compete with have been quite rational. And I think that the general themes you outlined in your question are probably real in terms of the longer you go, the less price fluctuation you see, unless, of course, you have a raft of new entrants come in. But even there, those new entrants probably have more reasonable expectation of how much market share they're going to get if they're late in coming to the market, which, of course, is the situation for us with AVSOLA and to some extent, RIABNI. When you're in that first wave, you're in a much more competitive advantageous position, and we took advantage of that in Europe with AMGEVITA and in the U.S. with our oncology biosimilars. What I see in terms of our ability to compete is really about having the right strategy at the multiple layers of stakeholders in the market. So in the buy-and-bill world, what do you do with payers? Are you looking to establish open access so that commercially, the average physician knows that reimbursement will be relatively straightforward because buy and bill, these physicians are on the hook for the price of the drug, and they don't want delays in how that drug is going to be processed or reimbursed to their practice, particularly in light of compressed economic scenario with COVID. So I think what we were able to do was for our biosimilar portfolio is established really good payer coverage. Then really good provider contracting, including GPOs and then working at the individual prescriber level to inspire confidence in the product because of Amgen's 40 years of making biologics, the great patient services we have and the knowledgeable field force that we have deployed. So I think that all conspired to give us that strong performance we alluded to last year, and I think that will help us compete going forward. It's a little different on the Part D side. The PBM plays a much bigger role and then, of course, you have to have the right pull-through effort with the prescribing base. So that's one that's still, I think people are learning in that world. I think we kind of know the playbook in oncology a little more to unfold as we look at the inflammation side.

Okay. Well, terrific. Thank you so much. I think we're just about out of time. I really appreciate you joining, David, Arvind, Murdo and Peter. Always great to say. Thanks so much, and stay safe.

Thank you for inviting us here.

Thank you.

Thank you.