Amgen Inc. (AMGN) Earnings Call Transcript & Summary

Once again to the 43rd Annual Healthcare Conference, and it's actually the first TD Cowen Healthcare Conference. I'm Yaron Werber, biotech analyst here at TD Cowen. And it's a great pleasure to moderate the next fireside chat with Amgen, and the management really needs no introduction, all the way to at the left at the end is Peter Griffith, who's EVP and Chief Financial Officer; and to his right is Murdo Gordon, who's our EVP of Global Commercial Ops. Gentlemen, good to see you. Thank you so much for joining.

Great to be here.

And for many of you who've been at the lobby, you can see there's actually a video. I'm talking about innovators in biotech and Murdo's the video with us. We shot that at JPMorgan about 1.5 months ago.

Yes, don't send it to my daughter.

So Peter, let's start with you, maybe give us a little bit of opening remarks about guidance and sort of what's at stake for the year?

Let me do that. And, Yaron, thank you. Congratulations on your transaction, TD, closing on the acquisition, and we have a great relationship with both institutions. So we wish you well, and I'm sure you'll do better. 1 plus 1 equal 3, as you always ask us. So 2022 was a year of continued solid execution. At Amgen, we drove unit volume growth with the portfolio of leading innovative brands, achieving record sales on 16 of our brands, progressed our innovative pipeline, advanced 6 first-in-class molecules into Phase III or registration-enabling trials. We advanced our industry-leading biosimilars business, generated positive Phase III data for 3 molecules the last month. As you know, we launched our Humira biosimilar AMJEVITA in the United States. We strengthened our product portfolio through the acquisition of ChemoCentryx for almost $4 billion in October of 2022 with their key product [indiscernible] addressing ANCA-associated vasculitis. We've announced the acquisition of Horizon Therapeutics for $27.8 billion, and we're very excited about what that has to offer when that transaction closes. We delivered robust operating margins while investing in product launches and pipeline opportunities as strong balance sheet and free cash flow, which was $8.8 billion last year enabled us to continue our disciplined capital allocation approach in 2022. 2023 outlook reflects confidence in our ability to execute through continued macro headwinds, 2023 guidance of $26.0 billion to $27.2 billion in revenue and $17.40 to $18.60 of non-GAAP EPS, excluding any impact from the announced acquisition of Horizon Therapeutics. So this reflects continued volume growth at the portfolio level, products like Repatha, Prolia, Tavneos, TEzsPIRe and EVENITY. It also reflects declines in certain established products like Neulasta and EPOGEN as well as some continued price pressure on the oncology biosimilars. It's important to note that our current publicly available consensus estimates are derived from a combination of estimates of Amgen as a stand-alone company, along with estimates from some analysts who've already added Horizon into their estimates. So there's a little bit of a mixed bag there. As of today, this is true for both, the first quarter and for the 2023 consensus. So I just wanted to say a couple of clarifying things, Yaron, thank you. Our Q1 outlook excludes any impact from Horizon. To be clear about our expectations, there are some reminders as we work our way towards the end of the first quarter. We expect the first quarter 2023 revenues to be below Q1 of 2022, simply reflects our COVID antibody revenues last year that we're lapping that we don't expect to repeat this year. We continue to expect the non-GAAP operating margin for the full year of roughly 50%. But as we indicated in the year-end call, we expect the margin to be below 50% in the first quarter, with correspondingly lower operating income, reflects onetime residual Puerto Rico excise tax of about $125 million, most of which we expect to materialize as a charge in the first quarter with no corresponding tax benefit. We also -- reflects an anticipated double-digit year-over-year increase in non-GAAP research and development expense in the first quarter reflects the advancement of numerous priority programs there in the pipeline, including Olpasiran, rocatinlimab and bemarituzumab. It also reflects the year-over-year margin impact of those higher COVID antibodies in the first quarter of 2022. So we're lapping that. We expect our first quarter non-GAAP tax rate to be in line with our full year guidance of 18% to 19%, reflecting the reclassification of that Puerto Rico excise tax from cost of sales down into the tax provision line. First 2 months are proceeding with our expectations. We remain confident in our full year outlook. The announced acquisition of Horizon can further augment our long-term growth potential, their key products, TEPEZZA, KRYSTEXXA and UPLIZNA can benefit from our decades of leadership in inflammation and nephrology as well as our global scale. So we continue to expect the deal to close in the first half of 2023. And I would, once again, to mention how important Tavneos is that we acquired in October to address ANCA-associated vasculitis. So we're really excited about 2023 and delivering through 2030. Yaron, back to you.

Great. So Peter, there was a lot of information. Thank you for that. So the first question is you did get a second request from FTC, and you're still very comfortable with first half. It sounds like you anticipated that latter or that's just do you think that's something you can answer pretty quickly.

We don't anticipate anything out of the government. So I would just say we continue to be optimistic about closing in the first half of this year.

And the -- I think one of the rating agencies changed the rating, the other one didn't, based on the deal. So you're comfortable with where you are. I think you're modeling about 5%. And obviously, the debt hasn't been priced, but is that sort of what you see the market right now for you?

Yes. So the debt is priced. So the deal transpired. We have a 5.4% coupon on all the tranches of the new debt, average maturity about 16 years. That takes our overall portfolio, Yaron. It keeps it at about 16 years in maturity, and then the overall interest expense rate will be about 420 basis points, 4.2%. So we received the proceeds from that last Thursday. And so we're all set on that. And as you can imagine, we're thoughtful and careful about how we invest that. And so we're advantaged by strong short-term rates right now.

Yes. And when you're thinking about you -- about a year ago, you gave a forward-looking sort of view through 2030. Obviously, Horizon was not a part of that guidance presumably. How does Horizon -- I know you're not prepared to change anything here today, but how does conceptually does Horizon change your outlook?

If I can answer it this way, both ChemoCentryx and Horizon, we view as opportunities to derisk and be additive to our pipeline and what the company is doing. And what we issued in February 8 of 2022 was organic. We feel great about the organic business. We like our -- we like what's in the market right now. And certainly, Murdo will jump in and talk to you about Repatha and Otezla and Prolia and EVENITY, and TEZSPIRE had a great year. And we look forward to more great things from TEZSPIRE and how it treats patients with severe asthma. We look forward to Tavneos in the market now and having that as part of our portfolio. So we feel great organically about where we're at. And so we continue to prosecute that. The pipeline is great, right? We talked about -- we're spending money on passion rocatinlimab, on bemarituzumab that our Phase III, we have tarlatamab in a registration-enabling Phase IIb trial, which is, as you know, Yaron, small cell lung cancer, there hasn't been anything there. So this is a bispecific T-cell engager to address a solid tumor that nothing exists out there. We're excited about that. So the pipeline feels really strong. We talk about biosimilars on the way to 2030. We continue to be confident in that guide of a double of 2021 base of $2.2 billion by 2030. We think about the strength of Repatha, great volume growth last year, I think, in excess of 50%. OTEZLA, we still like where it sits between the topicals as Murdo like say post-topical, pre-biological. So we feel great about that medicine. And then, of course, our rest of our portfolio continues to move along strong and provide cash flow for us to reinvest in innovation, both internally [ and externally. ]

Yes. So maybe, I mean, to both of you and definitely Murdo chime in here. TEPEZZA, I know this is not your product yet. It's very hard for you to comment. TEPEZZA's been a little lumpy, kind of had a very strong first half, kind of slow down and kind of stabilized, so to speak. And I know a sales force usually is fairly distracted in the middle of a deal. It's been a little flattish. I think historically, consensus numbers still have expected to pay at a double to $4 billion. They've been at a run rate of about $2 billion, $2.2 billion right now roughly. Depending on which quarter you're looking at, where is the growth going to come from?

Yes. I think the Horizon team deserve a ton of credit for what they've done with that product. I mean they've taken a condition that is severely debilitating for many patients with thyroid eye disease, where there was no treatment other than surgery. And they've turned it into a medical treatment -- medically treated disease with a drug that has a demonstrable effect on symptoms. So kudos to the Horizon team for what they've done. And I won't go over the history, but we all know what happened there. I mean they were disadvantaged by the DPA and some other things. So they've weathered that extremely well during a pandemic. And so I think where they're at now is investing to grow the brand. One thing just to think about TEPEZZA is the course of treatment has a fairly significant lag between intent to prescribe and when that first infusion occurs. So a lot of the things that are happening in the market with the increase in investment, in sales and marketing resources and some medical resources may take a while to flow through in the demand performance of the product. So that's just something for everybody to keep in mind as they look at TEPEZZA. But from our perspective, one of the things that we got really excited about was the international expansion of TEPEZZA. And Horizon, we're building new affiliate structures while planning for launch. Now in a post-close world, the affiliate structure of Amgen exists. I mean we're in over 100 markets. So we don't need to be building and launching at the same time. We just need to launch. And so we can expand perhaps the number of markets that we can go into, from perhaps where Horizon is and we might be able to speed some of that up. So that's a major source of growth for TEPEZZA. And then it's about broadening the prescribing base and broadening the patient population that could take advantage of it. They did a clinical activity cutoff point in their clinical trial that was -- that granted them an approval, but their indication statement is for thyroid eye disease. It doesn't specify the clinical activity score. And so there's work that needs to be done, including their chronic trial and I think additional work in the market and with payers to show the benefit of treating more patients with perhaps lower clinical activity scores who could benefit from thyroid eye disease. This clinical activity score kind of takes what is a human condition and makes it numeric. But these are people even with low clinical activity scores that are miserable. Their eyes are itchy, they have some proptosis, they have some visual acuity issues, and they really do need treatment. And surgery is not a good option for them when there's a medical treatment available. So we're very, very excited about TEPEZZA. And as I said, I think we can build on the strong work already done by Horizon.

Yes. And let's -- I'm going to stay on the M&A side. Tavneos, the first quarter, if I remember correctly, was kind of mid-teens, $17 million, if I remember correctly, could be off just the last quarter that you reported. So Tavneos been -- Q4, yes. I mean the first quarter that you really reported sales. That number was actually fairly good. Is there anything that we need to think about, inventory build replenishment? Or was this organic growth?

No. We've got good organic momentum on Tavneos, super young launch, right? The ChemoCentryx guys, I guess, again, did a very nice job in rheumatology, but roughly 1/3 of the ANCA-associated vasculitis patients get diagnosed and treated by nephrologists. And so they were just beginning to expand into that nephrology community. We have nephrology coverage. We've got broad rheumatology coverage. So we are able to drive awareness of Tavneos, both in rheumatology and in nephrology. And I think you'll see an acceleration in the demand of that product. So really excited about that. There's also an opportunity to broaden the prescribing base here. It's an oral, doesn't require infusion infrastructure. It just requires knowledge of how to diagnose the disease and knowledge that there's now a therapy that could potentially alter the course of the disease and reduce remission and perhaps reduce the glucocorticoid use, which is a big issue in the treatment of autoimmune disease like this. We tend not to talk about the long-term effects of long-term treatment with drugs like prednisone. But if Tavneos can help there, we want to make sure that patients have the opportunity to benefit from it.

Yes. Can we talk about TEZSPIRE, the EUR 170 million, first year was really encouraging. The feedback has been really strong. It was strong into the launch. Our survey work continues to be very strong. Good feedback here on the panel. Where -- why is it going so well? If you looked at previous biologics, they were definitely more sluggish initially.

Yes. I think severe uncontrolled asthma being treated with biologics has become a much better understood thing. And I think what you're seeing is the overall biologics category grow, but I also think this is where you have to look at the strength of the partnership we have with AstraZeneca. You have 2 very large companies with a highly differentiated product and differentiated mechanism that can simplify the treatment of uncontrolled asthma. So we're seeing, if you look at our revenues, roughly half of our revenues are coming from biologic naive patients. So we are contributing to that expansion of the biologic class, and then half are coming from other biologics that patients might have seen in their frontline treatment of severe uncontrolled asthma. Of the base of business we're getting, we're also seeing, yes, we're getting slightly more low eosinophilic patients, but we're getting high eosinophilic patients as well. That means the message of you don't need to do the phenotypic work up. You don't need to worry of whether it's allergic or whether it's low eos or high eos, they're using TEZSPIRE in a broad array of patients. We have slightly more depth of prescribing in the allergist community. That's probably a function of it being a physician-administered product launch. We would expect the prescribing base to broaden, now that we've launched the self-administered option. So we're super excited. Clearly, launches were definitely slowed by the impact of COVID and access to physicians, and I'm very proud of the Amgen and AstraZeneca teams that have been able to take this product out to our customers.

Okay. Let's move to AMJEVITA. That product was launched about -- just about 5 weeks ago. 2 different price points, [ why 5%, ] 55% presumably to address the different structures of plans that PBMs want to address. You're -- we're waiting for your interchangeability data soon. I believe it's coming this half or so. How fast can you then file and potentially launch that? And when you're thinking about conversion in general from branded HUMIRA this year just given how plans are set up and the volume and the incentives related to price in next year. So to be [ your ] into it, that when you have an interchangeable version, there's a lot more versions out there in general. At what point do we really see the conversion?

Okay. So a lot to unpack there. First off, we -- when we launched AMJEVITA, we said that interchangeability was a nice-to-have, not a need-to-have. So I think that's still the case. We've secured broad access for AMJEVITA, the 3 large national PBMs. We're now working through pulling some of that access through in demand. The dual pricing structure, yes, it addresses the different customer types, but it also helps patients lower their out-of-pocket cost if they get the low list price prescribed. So that was another benefit of why we chose that pricing strategy. And then we've got some integrated delivery networks who are very interested in converting from HUMIRA to AMJEVITA. So overall, the launch is progressing according to internal expectations. So nothing to report yet on that. You'll hear more when we report on the quarter. And then when you think about this market, I would think about it in kind of 3 phases. I would think about it as the period of time where we're on our own in the market, the period of time post July when there are other competitors in the market, and then the period of time beginning in January of '24. And that's important, because even though there are new biosimilars coming in middle of the year and may have the opportunity to contract for some access, the contracting cycle tends to be on an annual basis. So I think -- we continue to believe that the description of our launch as being a gradual uptake as appropriate. And I think that we'll continue to work with clients and customers who are willing to drive biosimilar adoption on behalf of their patients. The overall interchangeability effect, I think, eventually will become important in the U.S. as it is in some other markets around the world. But nonmedical switching or switching of patients without a physician involvement on a biologic today in the U.S. is not something that's happening all that much on the pharmacy benefit side. So I think we decided it was important to have. We initiated the trial. As you said, we'll have data soon on that. But it's -- I think it augments an already very strong program. Last but not least, like Amgen has got over 40 years biologics manufacturing experience. We can supply the market where the leading form of adalimumab outside the U.S. We have the commercial infrastructure to pull it through a physician. We have the patient support structure to help support at the patient level. We think we can compete effectively.

Yes. And any -- I imagine -- and I don't know how much you can comment. You -- I recall one of the reasons back in the days to doing the Otezla deal is to go, obviously, leverage exponential international expansion and the ability to then contract for the portfolio, right? So now you have Ambrell, you have AMJEVITA, and you have Otezla. Does that -- is that still an attractive package when you contract for access or things are getting more complicated?

It's always complicated, but there are advantages to having debt in a portfolio, because some PBMs want to restrict not just the number of products, but the number of manufacturers that they develop contracting relationships with. So we're definitely at the table when it comes to those types of insurers and/or pharmacy benefit managers. I also think just there's a certain advantage to being in the market and having negotiations across multiple assets in a category, because you can cross-reference and see where trends are going with respect to gross to net. And I think it helps you with strategy for your pipeline, because it helps you then understand what are the development criteria that I need to share with Dave and his -- Dave Reese, our Head of R&D, and his organization. So we know what we're shooting for when we go to market. And we did that with TEZSPIRE,right? We said, "Hey, you're going to have to differentiate here." Because you go in there and you're not differentiated, you're going to get a really difficult time trying to secure access at a reasonable rebate rate. So I think all of that helps.

And what are you seeing on Otezla? It's facing competition now [indiscernible]. It's still early in that launch. But then increasingly, you're beginning to see [ XorviA ] and [ Votama ] coming into on the topical side with biologics like activity.

Yes, I think it's important that you mentioned the new topical launches. We've been fortunate with Otezla in that the data have turned over well since we acquired that product. We got the mild data [indiscernible] data at the beginning or prior to last year, but we got the indication last year. And since then, we've been moving the positioning of the product to that post-topical first biologic, which Peter mentioned earlier. The beauty of that is it's a huge unaddressed population, right? You've got roughly 4 million patients on topical treatment for their psoriasis. We would estimate about 1.5 million of those patients aren't going to get sufficient symptom relief for their psoriasis just on a topical. They're going to need to add a systemic. Majority of those patients are cycling through topicals because they don't want to take a biologic. So this is where Otezla as the only systemic agent that's indicated for the treatment of psoriasis without regard to the severity of the disease becomes the first systemic treatment option available that dermatologists can offer their patients. Now what's happening right now in the market? Well, the 2 topicals are running free drug programs, [indiscernible] is running a free drug program. Dermatologists in general, don't love treating psoriasis because they make more money and prefer to be doing things like BOTOX and electrolysis. But for the patient who says, "Hey, I'm not doing that well on my topical." That's when Otezla becomes a really good option for them. And then our access helps reinforce that. We have broad coverage major -- at the major PBMs, and we have very, very few restrictions on that coverage. So the utilization management criteria are relatively simple. And in many cases, we don't have any utilization management criteria other than perhaps physician attestation. So really, really nice situation for Otezla. It is clear, we've got a little bit of pressure on the business right now, because of those free drug programs. So there's a bit of switch away. The other thing to remember here with Otezla is roughly half of the patients who will try Otezla will not get the symptom relief they're looking for and will go on to other therapies. So that's where we see the role of another oral like [indiscernible] or even a biologic as a post Otezla treatment. So that first systemic option of Otezla, I think, is really well positioned.

Okay. Great. And then I was going to talk about STELARA, because we're expecting interchangeability data, I believe, this year, right, even this half. You haven't said a lot about your launch timelines. I believe you can launch this year, but it's pending some potential litigation that's still ongoing with J&J. So I don't know how much you can say about that, but whatever you can share.

I think the simplest way to answer that question, Yaron, is we expect to be first or first wave in terms of STELARA biosimilar launch.

Okay. Because I believe the patents should have expired, the composition should have expired in May of this year. Am I in the right ballpark, but there's other logistical...

There are other things to consider, but we expect to be first or first wave launch.

And again, here, the interchangeability data is coming afterwards. When you look -- when we looked historically, and we just published this not too long ago, it's usually the first 2 launchers that really capture the lion's share of the market, right? And then there is always a share war and a price war that happens afterwards. But they usually are the sticky 2 brand. Is that -- was that sort of the -- always the strategy, get there first again, even if you have the supplement within interchangeability later, you're not going to lose that much share?

Definitely. We feel that the most important criterion when reviewing biosimilar target opportunities is can we be first or in first wave, very close to first or simultaneously first, if you will. And so that's a criterion that we apply to the strategy of our biosimilars business. And I think where we've done that, we've been very successful, and we've established leadership. The other thing just to remember is the reason that the follow-on biosimilars have a tough time penetrating is most of the benefit is from the innovator to the biosimilar in terms of price advantage. Going from biosimilar to biosimilar doesn't yield you a large price advantage, but you still have to -- if you're a health care provider or a network or a payer, you have to deploy resources to create that switching. And so the ROI on that effort isn't always that good. We call it switching cost. And you even see it outside the U.S.

Okay. What about aflibercept 2 milligrams? I think that's potentially launching in 2025. We're expecting in that -- we saw some Phase III data last year. There's going to be another, I think, the full set of Phase III data coming this half. I don't know what you could discuss on the data, what are we going to get now that we didn't get last time?

Look for competitive reasons, we're not going to comment on that. But again, we feel really confident in that program, and we expect to be first or first [ lap. ]

And what about high-dose EYLEA. And they filed a brand new BLA, which they're eligible for a 13-year protection for that 8 milligram formulation. What about the underlying composition on the aflibercept? Is that going to get a whole new 13-year clock? Or how do you think about that?

I think you'd need to ask the innovator that question. We think that there's an opportunity for our biosimilars. And so that's what we're pursuing.

Okay. But an 8-milligram approval should not impact your ability to launch a biosimilar 2-milligram.

We still think there's an attractive opportunity there, yes. I think that you'll see more companies looking at strategies to develop new BLA. So that shouldn't be a surprise. And some of those may be successful and many of them won't be.

But -- so I guess my question is essentially you can -- we can -- I guess is a question whether it's a new drug, it's really a new formulation, and there's a whole bunch of logistical considerations for that. Does that mean that you won't be able to launch another formulation for a 13-year clock? Or is it a question of just developing your own formulation and circumventing whatever patents they might have?

Again, there's complexity to every individual situation. So I'm not going to comment on that one, but I do think you'll see more companies considering strategies like you're seeing play out in the market because of the IRA and other things.

I see. Okay. Any questions from the audience? If not, then let's talk in the last 2 minutes or so about the IRA. There are some puts and takes in the bill. It's highly complicated. There's definitely -- it provides some incentives to developing biosimilars. The timing is critical. There's also the sort of catastrophic coverage. There's multiple facets to it. How do you view the IRA?

I view the IRA as wasted opportunity to help improve care for patients and to reduce the cost of medical treatment for patients. I think you've heard different members of our industry come out and say that there were a number of different things that happened in the IRA. Had they been passed on to patients, we would have understood it. But unfortunately, it's going to debt reduction and other parts of the government budget. Having said that, this is a piece of legislation that I think Amgen is well positioned to endure if I can say that. We have predominantly a biologics-based business. We are in specialty areas. We have many products that are single orphan indication. So I think we have the opportunity at Amgen to continue to run a very successful innovative company for many years to come, and the IRA will change some of the way in which we think we will have to look at small molecule and biologic products and prioritize differently than we might have in the past, because you have a 9-year period of exclusivity prior to a government selecting your product for a price reduction on the small molecule versus the large. I think the inflation caps are things that we can deal with. So that's already impacting our business. That was in -- as Peter said, that was in our consideration on our long-range guidance that we provided at the beginning of last year. And then when it comes to the biosimilar legislation, I think we can help CMS understand how to implement that in a way that doesn't disincentivize biosimilar drug development. So we've engaged there, and we hope that they will listen to some of our ideas on that. But yes, overall, it's a shame that went down as it did. The catastrophic piece is something that you mentioned. I'm not sure that's well understood, Yaron. So that's probably another discussion at another time. But the PBMs are likely to react to that, and it won't be in a way that helps patients.

Yes. And maybe just finally, Enbrel is obviously the most exposed products from 2026 onwards for negotiation. Of the roughly $4 billion, how much is Medicare facing with Enbrel?

Very little. Yes. It's predominantly [ commercial ].

Well, great, Peter and Murdo. Thanks so much for joining us.

Yaron, thank you. Thank you, TD. Thank you, [indiscernible].

Thank you. Great to see everybody.