Amgen Inc. (AMGN) Earnings Call Transcript & Summary

Okay. Great. Good morning, everyone. Welcome to the first day of the BofA Healthcare Conference. My name is Geoff Meacham. I'm the senior biopharma analyst here, and I have Aspen Mori from my team as well. And we're thrilled to have Amgen speak at our conference virtually, of course. And we have a lot of folks in the Amgen team, so we have Arvind Sood, who's Head of Investor Relations. We have Murdo Gordon, EVP Global Commercial Operations; Peter Griffith, CFO; and Dave Reese, EVP of R&D. So we'll ask each one of them a number of questions, but Arvind, do you want to kick off the questions?

Sounds great, Geoff. Many thanks for inviting us to your conference. We really appreciate the opportunity. We really just have some of the big topics. We have all the subject matter experts this morning, so we look forward to having a dialogue. [ As you heard from ] Geoff, we recently reported our first quarter results and Q1 was impacted by the pandemic, but we began to see a recovery in March, which continued into April. And we expect these trends to continue throughout the year. At a time when there's pressure on net prices across the board, we stayed very focused on volume-driven growth, and several of our growth drivers, including Repatha, Prolia, [indiscernible], Otezla and Aimovig are generating volume growth, as was apparent in our Q1 results. Biosimilars, an important growth driver for us now. But going forward, growth in this business is going to be driven by the addition of new products and new markets that we can commercialize our biosimilars in. Also we see very good progress with our pipeline, having submitted LUMAKRAS with an ongoing priority review. And in August [indiscernible] you may have noticed we just submitted yesterday in a submission for the mild to moderate indication for Otezla with a December 19 PDUFA date. The last comment that I would make, Geoff, is that we have significant financial flexibility with a strong balance sheet and strong cash flow generation. And with that, I'm going to turn it over to you and delve into any questions or topics you would like to discuss.

Perfect. Thank you, Arvind. Let's start with Dave Reese. So I wanted to ask a bit on sotorasib or LUMAKRAS. It does seem like following the quarter, there was some confusion about the FDA request for the low-dose studies. Just give us some context for this, help us better understand the situation, and what implications this has on approval and maybe even future studies of LUMAKRAS.

Yes. Thanks, Geoff. So this is -- first of all, I would say, in terms of a broad framing for drugs that are being considered for accelerated approval, there are many precedents for the [indiscernible] if dose finding after approval. The dose we have at the current time that we studied in the potentially pivotal [indiscernible] trial, 960 milligrams. We're very confident [indiscernible] The drug has a great tolerability profile, as I said on the call a week or 2 ago, and have said all along. When we look at the safety profile in the clinic, we're very happy with what we're seeing. And 1 question that we'll ask in the dose comparison study is based on the accumulated preclinical, pharmacokinetic, pharmacodynamic and clinical data efficacy and safety, [ can lower dose ], and we modeled 240 milligrams as a dose that would be potentially a lower [ bow ] where you achieve exposures that would perhaps generate a comparable level of efficacy to 960 milligrams, while [ investing ] on the good tolerability profile of the draw. So that's the question we're asking. I know [indiscernible] Mark retained from the University of Chicago that was published in the ASCO post at the end of January that talks about these sorts of dose comparison in the study. So that's, I think, probably a reasonable frame for thinking about this. The last thing I'd like to say about that study is it doesn't have any implications or it's not directly related to any of the combination trials that we're doing. Every combination regimen goes through its own dose exploration. And so one thing, I would urge that we sort of sever the link between modern therapy and combination therapies because there is no direct effect.

Got you. Okay. And just a follow-up to that, Dave, when we look forward to some of the combination studies later on this year and going forward, PD-1 combos, but are there any other -- I just wanted to get maybe your overall view of the [indiscernible]. And then looking beyond lung, are there combos that you think either targeted or [indiscernible] particularly exciting and could lead to some interesting data?

Yes. As we mentioned, there's a master protocol that's currently going forward. We've got other -- combination studies are now 13 or 14 different combinations in the clinic. These were really for 1 or both of 2 reasons: first, based on biology. So the SHP2 combination, as we mentioned, continues to move forward. We'll present that when we have a large enough body of evidence, I think to draw meaningful conclusions. Later in the year, we anticipate presenting our MEK combination. As I mentioned, we're still exploring how this drug will be used potentially in combination with PD-1s, whether that's combinations, whether it's sequential therapy. And then there are a variety of other regimens, backbone regimens, in diseases such as colorectal cancer, pancreatic cancer, other tumors where G12C mutations occur, add a measurable frequency. And as we accumulate data in those combinations, they will move forward. I think now it's a matter of simply empirically generating the data in the clinic. We think we've chosen a suite of rationally designed combinations that really cover the waterfront across indications where G12C mutations play a role, but now, it's simply generating the clinical data. And that's moving forward quite quickly.

Got you. Okay. Let's switch gears to commercial. And Murdo, at a higher level, a lot of -- 1Q was pretty tough for a lot of different companies in the biopharma space, I think, mostly driven by seasonality, which is normal, but also some COVID-19. I wanted to maybe ask you the recovery in access phase for Amgen kind of products, are you seeing some signs that things are abating a little bit just with respect to doctor office visits and the like?

Yes. Thanks for the question, Geoff, and thanks, Aspen, for having us. The first quarter clearly was a challenge from a COVID impact perspective. And a large part of that was the change in physician and patient behavior as a result of the spikes over the holiday period, but there's also a continuing compounding effect of the overall reduction in new patient diagnosis as a result of fewer HCP visits throughout the course of last year. If you look at 2020, we were down, depending on the therapeutic area, about 10% in new patient diagnosis. So that has definitely had an impact on our portfolio thus far this year. In fact, as you said, it's had an impact on the entire sector. We have a few leading indicator products that we watch very closely. One of [indiscernible] business in Q1 actually did quite well because it was negatively impacted in Q1 of last year. If you recall, in March, as things shut down, Prolia had a really, really tough period through that shutdown period. So Prolia's that's coming back a little. So January, February in the quarter, very soft. March, looking better. It's continuing into April. But we're projecting that there will be a relatively steady, but slow recovery through the first half of the year, opening up, hopefully, in the back half of the year. One other area just to highlight because it's still down quite a bit, and that is oncology. Oncology patient visits are off in the neighborhood of 10% year-over-year or pre-COVID, I should say, compared to this year. And that's also a function of the difficulty in diagnosing new oncology patients. The lab measures are still done and other diagnostic technique -- visits still down. So I think it's still going to take some time before things look like they're back to normal. And that's, of course, the U.S. As you go outside the U.S., we see different patterns in different markets, as you would expect, related to how the COVID pandemic is evolving.

Murdo, it's Aspen. I'd have a follow-up on the commercial side as well. So now that we have a TK2 data in hand and Otezla will be moving into earlier and earlier lines of therapy. Just kind of want to get your sense of the psoriasis market and the competitive landscape moving forward, maybe over the next, I don't know, year, 2 years? Yes, how are you doing that?

Yes. Sure, Aspen. I'm quite excited about what we've been able to do in transitioning Otezla into our portfolio last year around the world. Our teams worked seamlessly to bring the people across from Celgene into our organization and to continue to serve customers and patients in a seamless way. So that has been a very good transition for us. We're pleased with the data, the mild to moderate trial that enhances the positioning of Otezla. Otezla, as you know, is the first post-topical and only pre-biologic oral that you can access in the market. And it serves as a really nice opportunity for patients who have tried and persisted with topicals for relief of their psoriasis, but just either they have awkward locations for the psoriasis or too much body surface area in the more moderate and severe cases. There are also a number of moderate and milder patients that are still on topicals, are persisting with topicals, that could benefit from Otezla, and that's where the new data and the new indication will help stimulate additional growth. We continue to hold competitive share in the overall psoriasis market. So the softness that we saw in Q1 on Otezla was not a function of competitive share; it was a function of that new patient drag that I talked about with Geoff is something that will continue to impact on a go-forward basis. And until we see those psoriasis diagnoses grow, our growth will be somewhat impacted because we rely on those bio-naive new patients coming in for our growth. We're not relying on switch from biologics like some of the other biologic agents where they're switching share between each other. We're really relying on the new diagnosed post-topical patient. The last thing I'll say is we've got excellent coverage on Otezla, and I think that really affords us that opportunity to go out more broadly. We started promoting in primary care, as I've mentioned in the past, in anticipation of being ready for the more mild patient type, which is sometimes not under the care of a dermatologist, but under the care of a primary care physician. We've had this product in the market between Celgene and Amgen for over 6 years, over 0.5 million patients treated in the real world. A well-developed clinical profile, well-understood safety profile. And I think that gives dermatologists a real confidence when they're choosing that first post-topical systemic option. I think it will be interesting to see on [indiscernible], given that it is from the TK 2 JAK family We will want to see how that evolves. And we want to see what physician attitudes are with a new entrant into the market in the midst of what we're seeing related to the broader JAK category and how the FDA handles the safety concerns there. So that's an unknown at this time. We did, as a reminder, anticipate that there would be positive data on this compound when we built our deal model and when we transacted on Otezla. So this is not a surprise, too, as we figured it would be at least a positive efficacy endpoint. But obviously, this new safety discussion is something that we didn't anticipate, and we're watching it very closely.

That's helpful, Murdo. Let's switch gears to capital allocation. And Peter, I wanted to ask you, when you think about now that the Rodeo and Five Prime deals are kind of behind us, where do you think Amgen's parties are with respect to BD? Do you guys continue to look holistically at a number of deals? Or going to remain the main focus?

Geoff, thank you. Thanks for the question. Thanks to BAML for inviting us again. So listen, on capital allocation, the most important thing at Amgen is it's a forethought, it's not an afterthought. And we've been very, very [indiscernible] in evaluating these development opportunities. And really, we start with internal innovation. We've talked about that for a long time. LUMAKRAS and tezepelumab are great examples of that. When we go to our CapEx, we're funding -- for example, our new manufacturing in the future plant up in Providence, Rhode Island, we're funding our digitization. We've made a commitment to be carbon-neutral by 2027, so CapEx comes next. And then we get to where you asked the question, Geoff, which is business development. And we're going to continue to be patient. We will wait for opportunities. We're one of the best, if not the best buyer. I think Murdo made a fantastic point that Otezla was an excellent example where we waited, we knew we were one of the very best buyers, if not the best, and then we were able to promptly integrate it. A very large allocation, $13.4 billion of our shareholders' capital in November '19. We will continue to look and we favor our 3 therapeutic areas that we have discovery and as you mentioned [indiscernible] and oncology. But we really focused also on opportunities that give our shareholders return, not just the shareholders, but sellers. As I'd like to say, we've got the firepower. We've got the flexibility to do anything. We maintain an efficient capital structure, results are an optimal act. We like our ratings. We like our firepower. And our ability to do what I call small, medium, large and extra large. We're Amgen. We get an opportunity to look at everything, but we get an opportunity to look at all different sizes and shapes of acquisitions, but also collaborations, licensing partnerships. We can put all inorganic opportunities out there that will help shape our portfolio over the medium and the long term. So Geoff, we're committed to continue to deploy capital. And Rodeo and Five Prime are terrific examples. Five Prime came right in, it was great, in the oncology area. Some earlier-stage assets, but we're excited to continue to bring those on to shape the portfolio on the backside in the future. So we'll continue to be active as we always have been. Our history is always the best indicator of Amgen. We like to be predictable and consistent [indiscernible]. I would just reemphasize again, our first allocation is always internal innovation, and we're delighted we have 3 great designation drugs in the company right now. And just one last thought, Geoff, is over history, if you look at Amgen and our sales, they tend to be kind of roughly 50% generated from internal innovation and roughly 50% from external. So we don't see any large changes there. We don't see [indiscernible] at all with respect to that. So we look forward to maintaining, roughly, a balance in that. So great question.

That's helpful, Peter. Yes. And just the follow-on to that is, are you comfortable where you are from a leverage perspective, just thinking about the balance sheet? And then when you think about geographic kind of distribution, the BeiGene deal, you guys have done a lot of really smart deals. Should we expect more of an emphasis on OUS kind of increasing that footprint? Or are you comfortable [indiscernible].

Well, look, one of our pillars of our strategy is to continue our global expansion. I think our commercial group's done a terrific job really globalizing the business. I think the rollout of Otezla around the world's been excellent. I think it was indicated in 55 countries, and so Murdo can correct me, [indiscernible] 5 or 30, and we continue to roll that out. So our commitment to global expansion is going to be that we expect about 25% of our growth over the next 10 years, as we've signaled from our JPAC region. So we'll continue to make commitments around that. But in terms of our capital structure back to the question itself, we think we've got a very efficient capital structure right now. We're pleased with where -- we think it results in an optimal WACC. We're pleased with our strong credit ratings. That gives us the firepower we need. And we -- Geoff, we continue to return capital to shareholders. We increased our dividend 10% [indiscernible] per share per quarter. We upped the top of our share repurchase range to $5 billion. So we're now $3 billion to $5 billion for the year [indiscernible] on a long-term basis. It's what Amgen is, which is consistent, predictable return of capital to shareholders. And finally, puts us right down in the range we were last year as the pandemic hit where we kind of guided to the lower end, but we [ see it ] this year. So we're pleased with capital allocation. I would just reemphasize again, we continue to think about that. We want to be predictable and consistent [indiscernible] what we're going to continue to set. So thank you very much for the question.

Perfect. Perfect. Dave, let's switch gears to the earlier pipeline. The BiTE platform is really a very sort of strong source of new candidates for Amgen. And over the past couple of years, you've talked about -- you've had the BCMA program, the prostate program. But you've also had some pauses to some of them as you sort of modify and optimize the candidates. Are you comfortable with kind of where you are now for the BiTE program kind of going forward? And maybe what are the more exciting products that come out that are more mid- to later-stage that could have some derisking events in, let's say, in the next 12 months or so, that value for investors in your view?

Yes. Thanks, Geoff. The BiTE programs are moving forward. I think the next 8, 12 months will be very important. You mentioned the prostate cancer program, which is AMG 160, that targets PSMA and advanced prostate cancer; and a second solid tumor program, AMG 757, that targets DLL3 in small cell lung cancer. We're also looking at that now in neuroendocrine prostate cancer where there's a very high rate of expression of the target. I think the core challenge in the field right now for T-Cell engaging therapies is cytokine release syndrome, and we continue to work at optimizing our dosing regimens. I think we've got absolute proof of principle in solid tumors in the prostate cancer and small cell lung cancer programs. And so now, it's a question of finding a therapeutic window and the path forward, I think we're going to generate decision-making data in the coming months, and we'll provide guidance as those data are forthcoming. But coming up here as we finalize the optimization. We've moved into an expansion cohort in the prostate cancer program. All those data over the course of this year and perhaps early into next year, will be quite important to us in informing the platform.

Dave, it's Aspen. I have a question on tezepelumab. So now that we've seen quite a bit of data from that program. Maybe just help us understand what's the differentiation there versus some of the other biologics in -- that are available and in development? And how would you kind of position tezepelumab to the physician deciding between that and the other drugs in the competitive landscape?

Yes. Tezepelumab is one of my favorite molecules. I think it's going to be a important drug for patients with asthma. As we presented a few months ago, it has efficacy in terms of reducing the annualized exacerbation rate in patients regardless of eosinophil count, which is a sort of a rough surrogate for the allergic status of their asthma. I would point out that roughly 60% of patients have an eosinophil count less than 300, which is a commonly used cut point, up to 30% will have eosinophil counts less than 150, and we showed efficacy in all [indiscernible] 150 population. That's the first time that any biologic has shown efficacy. So we think this profile, coupled with the very clean safety profile that we've seen, will enable this as a potentially first choice for a wide swath of patients with severe uncontrolled asthma. This is global epidemic, the prevalence -- prevalence is increasing because of demographic factors, urbanization, pollution that's going to be the case in decades to come. I know Murdo and his team are eagerly awaiting the drug, as our patients, and we have great feedback from investigators around the world. And as we mentioned, the filing is with the FDA now. They have a period of time to formally accept it. That's the standard process, and then we'll get the approval date. And of course, we'll provide guidance around the anticipated approval as we get more information and as discussions proceed with the FDA.

Just as a follow-up to that, Murdo, maybe I wanted to get your view of tezepelumab [indiscernible] said, there's a lot going on in asthma, but clearly, there still is an unmet need in the refractory end of things. How are you thinking about the market and maybe sort of a prelaunch kind of awareness build, things of that nature?

Yes. I know that Dave said this is his favorite, but I think the Head of R&D is more inclusive of all of his pipeline products. Like children, you have to love them all the same. But we do love this one in particular. We're really thrilled with what we've seen with tezepelumab so far. Look, anytime you can bring a product to the market that is the first of the new mechanism, is uniquely differentiated, that definitely helps on the commercial side. So think access and reimbursement where you're looking for unique formulary positions with payers where only your drug can address a certain patient population and you're uniquely positioned to do that. We have the strength of the partnership between ourselves and AstraZeneca with their history in respiratory and our -- makes for really kind of best of type of collaboration here as we bring this product to the market. And last but not least, which Dave touched on, it's a highly effective and very well-defined safety profile. So that sets up for a lot of potential in the market. We are definitely looking to position the product broadly and to address a broad spectrum of severe uncontrolled asthma patients. We have -- as I mentioned in the partnership with AstraZeneca, we have decided to focus our efforts in North America between Canada and the U.S. in terms of commercial presence, and AstraZeneca will take the product, respond -- promotion responsibilities elsewhere in the world. It's a 50-50 profit share. So at the end of the day, we'll find a way to balance that out. And even within the areas where we're co-promoting, we've kind of decided on which company should take which activity because of the strength in their organization. So we haven't done the Noah's Ark 2x2 model. We're really kind of divided and conquered and built an organization to launch this. We're very advanced in our preparedness and we're ready to get out there and start helping these severe uncontrolled asthma patients. I mean, there's over 1 million severe uncontrolled asthma patients in the U.S. alone. So this is a sizable opportunity and one we're looking forward to pursuing. .

And it seems like, Murdo, you do have some synergy from a commercial perspective and inflammation. Same goes in oncology with LUMAKRAS, too.

Yes, definitely. We -- the LUMAKRAS fit is hand to glove, really. We built that team out last year, and they've been calling on their customers for many months now. So they won't be new relationships at key accounts; they will be familiar ones. So we're extremely ready to launch that product. The medical team's been out there actually working on addressing KRAS G12C testing and getting those reports generated so that there are -- I'm not -- on the product is available, should they be advancing beyond their first-line treatment. That being said, testing rates on LUMAKRAS are still around the 58% to 60% range for G12C status. So that will be a bit of a rate limit around the early days of the launch, but we expect that to ramp very rapidly. Once you have a drug that can, as they say, action on the mutation, so it becomes actionable, and then usually finds its way onto the front page of the report. So that commercial fit is very, very tight. And I think given that we're focused on where Amgen can uniquely add value in the access arena of patient support and of course, in physician promotion on tezepelumab, we found a very efficient way to go to market. And we'll do -- we'll continue to do that with AstraZeneca as that product grows over time.

Perfect. Well with that, we're out of time. So Murdo, thank you very much; Dave, Peter and Arvind. Great conversation today. Great some good insight. I appreciate your time, guys.

Thanks, Geoff.

Thanks, Geoff.