Amgen Inc. (AMGN) Earnings Call Transcript & Summary

Good afternoon, everybody. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biopharma analysts here at Morgan Stanley, and very pleased to have Amgen with us for the next session. Before we get started, I just need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/research disclosures. And with that, very pleased to have Bob Bradway, the CEO of Amgen, with us. And Bob, I'm going to turn it over to you to make some opening comments, and then we'll jump into the Q&A.

Okay, Matt. Well, thanks for having us. I look forward to the day where we can actually be back together in the same conference room. But in the meanwhile, maybe I could just open with a few comments and then turn it over to you for questions. I guess where I'd like to start, Matt, is by saying that when we look at the business, we think we're setting up well for long-term growth, setting up to be able to deliver for our investors over a long-term horizon. And if I start with the pipeline. Maybe I could just quickly remind you that there'll be a lot of activity in our inflammation franchise over the next several years. So we're expecting a label expansion for Otezla with the addition of mild to moderate patients, we hope, by the end of the year. We're expecting an approval to launch tezepelumab, which, of course, is our first-in-class antibody against TSLP for severe asthmatics, and we're excited about what this innovation should represent for patients, so that's next year. And then, of course, in the year, which follows, we expect to be launching are biosimilar to HUMIRA. And maybe also worth noting that we have 3 other relevant biosimilars in Phase III development that includes biosimilar for STELARA, biosimilar for SOLIRIS, both of those, of course, touch on the implant franchise. And while it doesn't touch on the implant franchise, an EYLEA biosimilar, which I want to mention as well. So there'll be quite a lot going on in our implant franchise in the way of late stage developments. When we get through that period of sequential launches, we'll be looking at the launch of AMG 451, which is the first-in-class anti-OX40 molecule that we partnered with Kyowa Kirin. We look forward to being able to speak more about that in the sharing of data that will take place over the next few weeks. And then just finally on implant, Matthew, I'd remind you that we have a late stage molecule addressing celiac disease, which is in clinical development, and with a couple of mid-stage pipeline assets directed against lupus and ulcerative colitis, and we're intrigued by the opportunity that we see emerging there. Of course, cancer is on everybody's mind at the moment, and our LUMAKRAS launch is off to a good start, and I'd be happy to talk about that. But the highlights for me are the fact that doctors are ascertaining the KRAS G12C status of their lung cancer patients to a much greater extent than what we've seen even in prior lung cancer biomarker-driven launches. So we're already above 70% of the physicians ascertaining whether their patients have the relevant mutation or not to use LUMAKRAS. And so that's fueling what is a really good start for us. You'll recall that we have a variety of combination studies beginning to emerge. And including tomorrow, we'll share some data for LUMAKRAS in combination with our EGFR antibody Vectibix. So we look forward to sharing more information about that. Behind LUMAKRAS, we have our Phase III molecule for gastric cancer, bemarituzumab. So we're excited to have that Phase III molecule rapidly advancing. Matthew, as you know, we've said that we think that, that's a molecule that will be relevant in other solid tumor settings, and we'll be talking about, for example, squamous cell lung cancer as a particular example of that, and we expect to be -- begin a squamous cell study. And again, we'll have more details on that available later in the week. And then, of course, our solid tumor BiTE continue to progress, AMG 160 against PSMA, and AMG 757 against the DLL3 Amgen. So we're excited about how cancer will play into the growth for us over the next several years as well. In research, a lot of exciting things going on. I'd be happy to talk about that, Matthew, if that's of interest to you and our investors. But suffice it to say that we think we're now in a very strong position to leverage our human genetic insights to make investments like the ones that we did in Rodeo and the one that we did in Amgen -- or AMG 451, the anti-OX40. And we're excited about our approach to multispecifics, which we think is opening up a huge amount of drug space that was previously considered undruggable. So the combination of what we're doing with our targeted protein degradation, leveraging our new Evolution acquisition and, hopefully, the acquisition of TeneoBio as well, we think, will put us in a very strong position in the research horizon. So we're excited about what we see happening in research and development and, obviously, have a strong ongoing set of growth opportunities with Repatha, Prolia, Otezla and other recently launched medicines in our portfolio. But let me perhaps just conclude by saying we maintain a strong balance sheet. We continue to use that to return capital to our shareholders and in the form of dividend buyback. And also, we'll continue to look for strategic transactions like before that we've recently done to grow the innovative portfolio of the company. So Matthew, with that, why don't I take a pause and answer your questions.

That's great. Thank you for the introduction. I think you highlighted a lot of topics that we can talk about in detail today. So why don't we touch on 2 sort of macro topics before we go into some of the details? So one is just no one seems to know what's going on in D.C. right now, but there might be something going on. So maybe you could just give us your views on that and how you think that may play out for the industry.

So Matthew, obviously, I think all the attention in our industry is on the question around whether there will be a large reconciliation package passed through the House and the Senate. And if there is such a large reconciliation package, whether it will include so-called pay-fors from the drug industry. I think if there is a large reconciliation package, it will very likely include pay-fors from the drug industry. And so our focus is on trying to educate legislators about the importance of making drugs accessible to patients. So we think there are some reforms that are appropriate, things that would bring down the out-of-pocket expense for seniors and things that would make innovative medicines more widely available in our country. So we're continuing to advocate for those changes. But I think at this stage, Matthew, it's a question of sculpting fog. They're really -- there aren't specific proposals that are floating about that we can talk about. But I think it is clear that behind the scenes and behind the thinking for this large stimulus package would be a set of things that the industry with so-called pay-for as part of any past legislation.

Okay, okay. good. So you talked about KRAS? Obviously, LUMAKRAS is a key focus for a lot of people. Maybe just -- I think there are a couple of things we can go through, but maybe the first one is just the launch itself, what sort of uptake you're seeing and what your outlook is for the launch right now?

Yes. So the launch is performing very well. We're very pleased with all the things that we're tracking, all the activity that we're watching day-to-day. I think the drug has been very well received by clinicians, by patients, by payers. So as you know, we're privileged to be the first one to launch a molecule of this type. We now have several thousand patients, in excess of 3,000 patients, who have been exposed to the drug through clinical trial through expanded early access programs and through commercial drill. We're pleased to begin now getting our first international approvals, most recently in England, as you're aware. So launch is off to a good start. I think the one tangible data point you may hear people talking about is, again, the KRAS G12C ascertainment status. So when we see north of 70% of patients now are being informed about their KRAS G12C mutational status, I think that represents real, solid progress. That is in excess of what we similar stage from the PD-1s or from the EGFRs or from the ALKs. So it tells me that we're executing effectively and that there's a lot of pent-up need and desire to be able to offer these patients something specific for their non-small cell lung cancer mutation. So again, in any dimension, I think we're off to a good start, Matt.

Okay. And then, obviously, I guess 2 follow-ups to that. Investors are obviously focused on the competitive -- the potential competitive dynamics in the marketplace. So maybe you could just comment on how you see your profile playing out versus potential competitors.

Well, as I said, Matthew, we feel very good about our position here in being first and having a medicine looks to have a very durable effect that's available on a once-daily medicine. And we now have the benefit of, again, thousands of patients being exposed to the drug. We have the largest global development program underway for an agent addressing this specific mutation. So we think we're very well positioned, but we know -- we expect -- fully expect that there will be competition. So we continue to build out the profile of the molecule and do everything we can to make prescribers and patients feel comfortable that this is the right way to address patients whose cancer and non-small cell lung cancer has a G12C mutation. As you're aware, Matthew, we'll be sharing data tomorrow of our LUMAKRAS and Vectibix trial, and we're excited to, again, talk about those data and what those represent for colorectal cancer patients who also have a G12C mutation. And as you know, we have other tumors enrolling -- other tumors with G12C mutation enrolling, and we look forward to seeing those data as well.

Okay. Okay. Good, good. Well, wait. I won't get you to preview the data for tomorrow, so we'll wait to see that.

Good.

Maybe we could touch on Otezla a little bit. I think that's been another topic for investors, especially just given how that drug has reacted to COVID and some of the performance that we've seen there. So I guess could you touch on the market trends and what you're seeing sort of in the second half from that drug? And then I have a follow-up about some competitive agents.

Yes. So again, let me just remind you the volume grew 10% as reported in the second quarter. And that's despite the fact that patient visits to dermatologists for this condition were still down about 15% compared to pre-COVID. So this is a sector that's still feeling the effect of COVID, but we're still seeing double-digit growth in volume for demand for the product. We're -- again, the next important step here for us is the opportunity to expand the label to incorporate those patients we studied in the mild-to-moderate setting, and we're continuing to launch internationally, most recently making progress in China and other international markets. So we continue to expect this to be an important growth driver for us, and we think this is a product that addresses an important need in the marketplace and one which benefits from now a very long established track record of safety and efficacy.

Okay. Good. TYK2, obviously, always comes up here, the potential competitive profile. I was wondering if you could comment on TYK2, but also comment on TYK2 in respect to the fact that we've now seen FDA stance on JAKs and the potential label update there. So I'm just curious if any of your views on TYK2 on that competitive profile has shifted since the JAK update came out.

Well, I would say, first of all, we've always expected that there would be competition from a TYK2 molecule. It hasn't changed. We have always recognized that one of the benefits of Otezla versus any other agent, again, it's the long established track record of safety and efficacy. And I think the importance of safety has been called into focus again by the FDA analysis of JAK class. And I think that you're going to continue to see the impact of the FDA assessment of the JAKs play out in the marketplace. So if you ask me, do I feel better about the position of Otezla? I would say that, again, I think the safety and efficacy track record is probably even more important now than it was before those data emerged. As to how TYK2 will play and as to how dermatologists will adapt to a new molecule with a more uncertain safety profile, I think that's something that we'll just have to see for the passage of time.

Okay. Okay. Good. You talked about biosimilars in your opening comments. I think we've obviously seen some really nice growth in that franchise. But we also know that as you face more competition there, right, that the in-line products -- there's more pricing pressure. So you mentioned a handful of launches. Maybe if you're willing to sort of walk us through some of those launches and how you're thinking about contribution from those, particularly HUMIRA and EYLEA.

Yes. Well, maybe the easiest way to do it, Matthew, is just to point out again that we expect to be competing with our AMGEVITA molecule in the U.S. beginning in 2023, which is the biosimilar to HUMIRA. And as I said, we have Phase III programs underway for STELARA, SOLIRIS and EYLEA. And we expect that those will give us an opportunity to compete in the marketplace after 2023. But our -- this, for us, is already a $2 billion franchise, biosimilars. We think that we'll have an opportunity to launch sequentially 3 or 4 attractive medicines here beginning in 2023 and be able to offer a choice in the marketplace, and we expect that those will be important contributors to growth for the company.

Maybe just to try and be specific, I mean, is this a growth category between now and when those launches start? Or is it more about a stable category until you see those new launches?

Yes. New launches in new territories are what we expect to be the drivers of growth. So we expect again in 2023 when we have an opportunity to launch our HUMIRA biosimilar in the U.S., that will be an important source of incremental growth for us. But that will be -- the key will be new molecules, new markets, new geographic regions from the biosimilars. And we're fortunate to have a sequence of launches that we think will play well into the mid part of this decade for us.

Okay. Okay. Great. Good. I want to talk about the outlook for business development, but maybe if we could put it in a couple of pieces of context. I think it comes up a lot now in the context of investors have started to worry more about what happens when the denosumab franchise starts to face competition and I think are looking for clarity around how Amgen grows through or at least remains steady through that kind of period. So maybe you could give us your sort of midterm outlook on the business and then just talk about how you think about using business development or not in that context.

Yes. So again, I'm not going to give guidance, obviously, and you wouldn't expect it in this call. But I started by saying that we think we're setting up well to deliver long-term growth to our investors. So our strategy is to try to deliver growth, long-term growth, and that means on the top and bottom line, and we think we're setting up well to do that over the long term. So an important part of that is the flow of molecules that I talked about earlier, inflam in oncology and, of course, the sequence of biosimilar launches that we're alluding to a moment ago. So the flow of molecules from inflam includes a number of important business development transactions historically and recently. So again, if you think about just the last year, we acquired or partnered with Kyowa Kirin in the derm area with their molecule that's directed at OX40, so a first-in-class molecule that we think is going to compete very effectively in the atopic dermatitis space. And we'll share data in the next couple of weeks that I think will help make the profile of this molecule a little bit more clear. So that's going to be a mid-decade contributor for us and something that we think will play well in the marketplace. I would also say that we see opportunities outside of atopic dermatitis based on our assessment of human genetics behind this target, this pathway. So we'll continue to look at ways to expand that molecule beyond just atopic dermatitis. Similarly, I mentioned that we have a number of other inflam molecules in mid-pipeline, so our lupus and ulcerative colitis franchises, which we think are opportunities, which we think have the potential to be exciting. And again, we'll be growing -- still expect to be growing the Otezla franchise through this period that you're talking about. So those are important ways in which business development will help augment what we're doing internally. In cancer, as you know, we acquired the Five Prime business, which brought with it first-in-class Phase III molecule for gastric cancer. As I said earlier, we think it will apply to other solid tumors as well. And the most -- or the first one that we're disclosing in that regard is squamous cell lung cancer. So we expect to begin studying it in that setting, and we'll be looking at others as well. So that has the potential to be an important contributor, and that's the kind of business development activity where we think we can make an acquisition at a premium and still deliver a return to our shareholders. So we'll continue to look. Again, we did 2 early stage transactions, one Rodeo in the inflam area, again, inspired by our assessment of human genetics behind that target. And then again, more recently, TeneoBio, which we think fits well with our long-term strategy for multi-specific -- for developing multi-specific drugs, also with potential to play in both oncology and inflammation. So short answer -- sorry, short answer, Matt, business development has been important and will continue to be important for Amgen. If you look through time, it's been about half of our revenues come from internally sourced, half from external, and that's likely to be the case over the long term as well.

Okay. Okay. I was going to say you talked about human genetics, your efforts there with deCODE a couple of times today. I guess the question is, there's obviously newer technologies there, machine learning, AI, et cetera. So how is Amgen using those and implementing that in terms of broadening its discovery efforts?

Yes. So it's -- there are a couple of things going on. One, the number of patients for whom we have detailed genomic information now is much broader than when we first acquired deCODE. So we're now at a point where we have millions of patients for which we have detailed and increasingly a whole genome sequence data available. And we're now combining that with proteomic and other so-called multiomic data at a scale that was infeasible only a few years ago. So we're able to take individuals and look at their genetic sequence at the level of single nucleotide and then assess them across 5,000 different proteins, for example, in the blood. And by virtue of being able to look at the genomics and the proteomics, gaining insights into pathways that we think are relevant. So it's playing out both at the discovery level and also in the way that we're designing drug development trials. So we're excited about what we see. We think we have a unique proprietary approach to human genetics by virtue of the massive data that we've assembled in Iceland. And obviously, machine learning and artificial intelligence are a core part of what we and anybody else would do with a data set like that. And I think, increasingly, that will be of value to us in our multiomic approach. In the field, however, of machine learning and AI, Matthew, there are other developments right now which we think are also profoundly important that we intend to be a leader in. And those have come to the fore through the recent publications on different ways to predict protein structure from sequence. And that has the potential, we believe, to radically improve the success rates and decrease the time required to design and select large molecules to advance into the clinic. So we're very excited about what we see for machine learning and AI. And as we're saying, we're committed to being a leader in using those technologies to accelerate the rate at which we bring medicines forward and to improving the success rate of those medicines.

Okay. Good, good. That's interesting, and we'll definitely keep a watch on that. I think one of the other issues that comes up a lot for investors is I think people have gotten focused on the, I guess, potential tax liability that you may face from some of the IRS actions. So could you just I guess maybe step back for people and talk about how concerned you are about that and what your outlook is for that case?

Well, Matthew, I think we've been very clear that we think the IRS' position is without merit. And it's as simple as that. We think their position is without merit. And we think we've taken appropriate adequate reserves for the matter in question.

Okay. You talked about China a little bit earlier on. And I know growing the business outside the U.S., right, has been an important focus for you. So I think through your partnership with BeiGene, you now have, I believe, 5 or more products approved in China, and then you also have a few that you're selling directly there. So could you talk about China as a market and your focus on that? And what sort of contribution you think you can derive from China?

Yes. Sure. Well, first, what I would say is that if you look at the second quarter, our volume demand growth outside the U.S. is 22%. So one of the reasons we're growing at 22% outside the United States is that our JPAC business, including China, is growing very rapidly. So unlike other companies in our industry, we're starting from a small base in both Japan and China. And I'm excited to say we're off to a strong start. So as you mentioned, in China, we have a partnership with BeiGene. And we think BeiGene is world-class, in particular, in oncology development and sales and marketing in China, and they're demonstrating their skills with the 3 medicines that we have approved in that market in cancer. So those are XGEVA, KYPROLIS and BLINCYTO. And we're looking forward to developing and launching other oncology drugs with them in that marketplace. But off to a good start with those 3. And then in our general medicine franchises, we recently gained national reimbursement listing for Prolia, and we have opportunities for Repatha and are just launching Otezla there now. So we have both in cancer and outside of cancer, an opportunity to leverage the large demand for medicines like ours in that country, and we're doing that now for the first time. So that will be a rapidly growing and contributing part of our business.

Okay. Okay. Good. We'll watch that, for sure. I guess maybe 2 questions here before we finish up as we're getting close to the end. But you talked about Repatha, and I think if we go back 2 years ago or so, everybody was worried about Repatha growth, and I think you've been able to get through Medicare and get through some of the headwinds and really start to demonstrate growth for that product. The flip side is if we look at Aimovig, which is around the same time in terms of new product launch rate, that one has stalled more. So maybe could you compare and contrast what's happening with those products? And if you think you can turn around Aimovig in the same way you've turned around Repatha.

Well, I might even add Prolia to the discussion, Matthew. I think there was a time when people were concerned about whether Prolia would reach the many millions of patients that it's now reaching. And I think what Prolia demonstrated is the challenge, but also the opportunity with a novel first-in-class biologic that addresses a patient population that's never been treated with a biologic before. But we demonstrated with Prolia that we could reach many millions of patients even after patent expiration of what were then the leading molecules in the treatment of osteoporosis. And Prolia has and continues to deliver. Similarly, Repatha represents, again, novel mechanism of action in launching into a marketplace where there are many generics that were considered standard of care. But like Prolia, over time, the efficacy and safety of Repatha have enabled it to grow and penetrate the market. We're now treating more than 1 million patients with Repatha and expect that number to continue to grow handsomely through, again, through the balance of the decade. And Aimovig, again, is the first-in-class new biologic to treat patients that have serious migraine. It's the first medicine of its type approved and specifically designed for migrainers. And so I expect over time, Matthew, that we'll leverage the safety and efficacy data there for migrainers the way we have in other disease states, and that this will continue to be an important medicine for those patients and for us. So we have 5 years of safety and efficacy data, and the important thing is the feedback from the patients who are on the therapy who talk about the significant benefits that they get from this approach. And so I expect, again, that we have to educate the clinicians. We have to educate the patients. We've got to get them back from the pandemic, get them back in treating their disease or diagnosing and then treating their disease with clinicians who are increasingly familiar with this way of addressing the problem. Again, it's a hugely debilitating disease, again, especially for women who are in their working prime. And so there is an important need to educate and increase penetration in this marketplace.

Okay. Well, perfect. I think you've allowed us to tick through a lot of good topics today. So thanks for all the responses and the back and forth. And we appreciate the time and thanks for being here.

Okay, Matthew. Thanks for hosting me then. See you soon.