Amgen Inc. (AMGN) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Oppenheimer's 33rd Annual Healthcare Conference. I'm Jay Olson, one of the biotech analysts at Oppenheimer. And it's a pleasure to introduce Amgen and an honor to have Arvind Sood, Head of IR here today with us. And Susan Sweeney also joining, Senior VP of Global Marketing Access and Capabilities. So thank you both so much for joining us here today. Really appreciate it. It's a pleasure to see you both.

Thank you, Jay. Thanks for inviting us. If you'd like to, I can just make some brief opening comments, then I'll turn it back to you and then we can delve into addressing any questions that you or any of the investors might have.

Thank you, Arvind.

And Jay, perhaps I'll just begin with highlighting a few key aspects of 2022. Well, for us, I would say this was a year of continued strong execution. There's no big secret, I mean the macro environment has been very difficult. There's a tremendous amount of uncertainty as investors are navigating through. So our focus has been very much on driving unit volume growth. And if you look at our performance in Q4 of 2022 in itself, we had about 10% unit volume growth, 9% for the full year and we achieved record sales on 16 of our brands. We also made very good progress on our pipeline. As a matter of fact, we advanced 6 molecules into Phase III or registration enabling trials. Biosimilars business, we continue to make a lot of progress there. We didn't have any new product launches there in 2022. But this year, of course, just recently, we launched AMJEVITA, which is a biosimilar version of HUMIRA. And that's going to feature prominently as we work towards achieving our goal of doubling our revenues over the 2021 base, which was about $2.2 billion and our target is to double those revenues by the end of the decade. Just a couple of other points. We continue to have a strong balance sheet. We have stable free cash flow of about $9 billion in 2022. And of course, we continue to engage in what we believe are smart strategic transactions, of which we have executed, too, most recently. One was ChemoCentryx through which we acquired TAVNEOS, unique product for vasculitis. And then most recently, we announced the acquisition of Horizon Therapeutics, and we expect this transaction to close within the first half of this year. As we are getting into the latter part of the first quarter, Jay, perhaps I can just highlight -- just give some of the key aspects of what we are focusing on as far as the first quarter is concerned. As we have stated before, we expect the first quarter revenue to be below the revenue in Q1 of 2022. And that's not unusual with insurance reverifications, the deductible resets. Typically, the first quarter ends to be the lowest quarter as a percentage of the full year. Now there are a couple of other nuances that we -- that I would also remind you of. We have $225 million of COVID antibody sales in Q1 of '22, that we don't expect to repeat in Q1 of this year. We also expect a non-GAAP operating margin to be below 50% as a percentage of sales. And there are a couple of reasons behind that, that we have articulated, again, nothing new. But of course, on a full year basis, we expect the operating margin to be around 50% as we have previously called out. The 2 reasons behind the non-GAAP operating margin being below 50% in Q1, for 1 year, R&D investment is expected to be up double digits year-over-year in the first quarter. And this basically reflects the R&D investment that we are putting behind some of our late-stage pipeline products. And those include rocatinlimab or OX40 antibody, bemarituzumab for gastric cancer and Olpasiran which is our [Indiscernible] inhibitor for cardiovascular disease. And Jay, you might recall that we have also referenced a $125 million onetime charge to cost of sales related to the Puerto Rican excise tax and most of this is expected to materialize in the first quarter of this year. Let me just conclude by saying that we are confident in the outlook that we have provided on a full year basis for 2023. And I would just again remind you that this outlook that we have provided, of course, as for Amgen is a stand-alone company, so it excludes any impact from the announced acquisition of Horizon. Once we have completed the transaction, of course, we'll come back to you and the investment community with revised growth outlook. So with that, Jay, let me turn it over to you. And between Susan and myself, we'll be happy to address any questions that you might have.

Okay. Great. Thank you so much, Arvind and Susan, and thanks again for joining us here. That's a perfect set up. One of the questions that we get is about revenue mix in U.S. versus ex U.S. I think ex U.S. is expected to contribute 35% of total Amgen revenues by 2030. And last year, there were some headwinds in ex U.S. markets including unfavorable foreign exchange rates. But can you just talk about ex U.S. sales contribution to total revenues in 2023? Especially with China opening and you have several drugs listed on China's essential drug list and you also have continued new product launches outside the U.S. So any color on that would be great.

Yes. Great. Jay, thanks for the question. And we see the ex U.S. sales as a growth driver for Amgen. Even when we talk about the Horizon deal, it was one of the things that we thought with the acquisition of Horizon would also help Horizon accelerate their growth. But you're right, last year, there were some headwinds from a foreign exchange standpoint, it was about 2% overall across all of the markets. And also, yes, we do expect that we will continue to grow the ex U.S. market, the 35% by 2030. And that's up from what we had thought just in '22 when we did the Investor Day call in February of last year of 28%. We do see a lot of growth coming out of the Asia Pacific market, Japan and China specifically. For China, as you mentioned, recently, we received the NRDL listing for Prolia and Repatha, which is the new reimbursement drug listing, which opens up the market to a very large patient population. In fact, for Repatha, last year, we saw a 58% volume growth. And Arvind mentioned that, that is one of the things that we see across all of our business is, nice, strong volume growth. In addition to that, in China, as you recall, we had done a deal with BeiGene on our oncology portfolio. They're currently promoting 3 of the Amgen products, XGEVA, KYPROLIS and BLINCYTO, and we get revenues from that. And as part of that deal, 2 out of the 3 of those products will revert back to Amgen by the end of the decade. So again, nice continuation of the building of the China business, both in the gen med side of our business as well in general medicine in the oncology side. Japan also is lending to high growth moving forward and as of today, too, for -- in the Japanese population, it's an aging population. I think it might be one of the fastest aging population. So a lot of our products may help patients in that population. Specifically on osteoporosis, we've seen nice growth coming out of EVENITY and continuing to see that moving forward. Likewise, on Repatha. Repatha still remains the only PCSK9 that's approved in Japan. So we would expect that we'll see continued growth from there. And as Arvind mentioned, not next year but not too far off, we have a number of launches coming up, just to point out one of them, bemarituzumab, which is the drug that's being developed for gastric cancer that was as a result of the Five Prime acquisition. Bemarituzumab targets FGFR2b expression, which for gastric cancer, it's about 30% of the patients. There's also a higher prevalence of gastric cancer in Japan. So overall, we see good volume-driven growth across the globe and a continued acceleration of that business leading to a greater contribution overall to Amgen sales.

Okay. Great. Thank you for that additional color. That's super helpful. And I'm glad that you mentioned Repatha. I do want to come back to Repatha. But maybe just before that, Arvind had mentioned biosimilars earlier, which is a key component also of your volume-driven growth strategy. Can you talk about how the recent launch of AMJEVITA is going in the U.S.? And maybe also remind us the rationale behind your 2-tiered pricing strategy.

Yes, absolutely. We're excited about AMJEVITA. Again, our strategy on the biosimilars is to be in the first wave of the launches and we have been with the biosimilars that we've introduced in the market. Same with AMJEVITA, we're the first in the U.S. And again, I'll talk about the U.S. specifically. Of course, we've launched AMJEVITA around the world, and it has the leading market share of the biosimilars around the world. So we have the experience outside the U.S., but inside the U.S. that lead time of 5 months really does give us some advantages. Firstly, we're able to secure formulary access across the 3 major pharmacy benefit managers, the PBMs, which position us at parity to HUMIRA in the marketplace, which is a good position. But I should say you should expect that the uptake of AMJEVITA might look a little bit different than MVASI or KANJINTI or earlier launches in the biosimilar space because of the reimbursement of them. AMJEVITA is going into the Part D side of the business, will be managed through the PBMs, and that's why those formulary positions are very important, while KANJINTI and MVASI went through the Part B side, which was buy and bill in which you will see very fast uptake of those, but then a decline as you see the pricing component with regards to ASP. So overall, by having broad access across the PBMs, we feel like we're in a really good position. But it was important for us, as you had mentioned, Jay, to launch the 2 prices in the market with 2 different SKUs because for some PBMs, the higher-priced SKU, which is 5% less than HUMIRA's list price in the marketplace, that higher-priced SKU for some PBMs rebates are very important. And so the higher price SKU gives them a higher rebate value, whereas for customers like integrated delivery systems, IDNs, they prefer the lower price SKU to be the one that they go with. So overall, we feel that it places us to meet what the needs are in the marketplace. But I should say, overall, for AMJEVITA, we do feel we're positioned well, not only the 5-month entry into the market, but the inflammatory disease area is a disease that we've been operating in for a long time. We have ENBREL, Otezla, TEZSPIRE, a number of different products in there. And we know with talking to the customers, physicians and patients, there are some things that are really important in a biosimilar that an innovator has a unique position to bring in to the market, such as we have field organizations that are out there to be able to talk to the customers that have been in the field already. We have co-pay assistant programs and the ability to be able to handle that at volume with the number of patients that are coming in. Likewise also, nurses to help that transition, although similar, the injection may be different. And that's another thing that's important from our strong heritage and manufacturing biologics. We have an easy-to-use device in the market, good needle size. We did come in with citrus spray, which will give a patient a better experience. So overall, we're excited about the prospects for AMJEVITA. It's very early days. We'll give an update on how we're doing from a sales perspective when we get into the quarter.

Okay. That's super helpful. And maybe just to follow up on a couple of the more nuanced aspects of the launch, can you just talk about how you expect the launch trajectory to be influenced by the interchangeability designation and the high-dose version of AMJEVITA?

Yes. As I said, we think we're positioned well and we see interchangeability as one of the many aspects that you need to bring in when you're launching the product. We do have an interchangeability study that's underway. We'll give the readout of that by the end of the first half this year. But we do feel that for all of the different components that are important in the uptake of a biosimilar in the market, Amgen is well positioned, as I said, with affordability through co-pay programs, experience with the product, supply, ensuring that we have quality, we have nurses on call and interchangeability we see as just one aspect of it. I should say, again, though, for overall uptake on AMJEVITA, we've been clear on it that we do believe you may see a slower uptake than you've seen with some of the other biologics. But as it plays out in the marketplace, we may see that there is more durability with the Part D biosimilars than what you see with the fast up and down with the Part B biosimilars.

Okay. That's helpful. And then one of the, I guess, potential read across that investors ask about is any impact on ENBREL performance as a result of the AMJEVITA launch or other HUMIRA biosimilar launches?

Yes, absolutely. I mean ENBREL competing in that class, we do expect that we'll see some pressure on net selling price because we'll both have a number of biosimilars coming into the marketplace, plus also the continued advancement of innovator products. So we're competing on multiple fronts there. We don't have any guidance right now beyond '23 with regards to what that might look like. But we do feel we're still positioned very well with ENBREL from a volume growth standpoint. It's a product that is well known. 20 years in the marketplace. Typically, patients in the market, and I can talk about rheumatoid arthritis specifically here. Typically, patients in the marketplace do go through multiple TNFs. In fact, about 30% of patients will go through 2 TNFs and also -- and 65% of them -- 65% of the rheumatoid patients do receive a TNFS first line. So we do expect that based on the profile of ENBREL, the experience that physicians have had, [indiscernible] ongoing use of ENBREL in the marketplace, but we do expect that we're going to get some pricing pressure.

Okay. Understood. Maybe going to Repatha. Amgen had some impressive data last year from the FOURIER open-label extension study and then additional analysis that were presented at ACC showing benefits from earlier initiation with Repatha. Can you talk about how to leverage those findings in the global commercialization of Repatha?

Yes, absolutely. I mean, we were really pleased with the data that we were able to present at ACC this year -- with -- last year, I mean -- with now 8 years experience of Repatha in the FOURIER study with the open-label extension and it really does show that Repatha has a medically significant sustained LDL expected, but the study shows that you have a significant reduction in your LDL. And it really adds to our real-world evidence that we have the product's performance in the trials that we've seen. I mean, specifically also from an outcome standpoint, what we did see in the trial that patients that initiated therapy earlier, because we had patients that were on the original FOURIER study all the way out and then patients that had converted over to Repatha after being in the controlled group, that the benefit was really profoundly seen of patients that started earlier. So that's a really important insight for physicians and for patients on after having an event of getting on therapy quickly. We are right now going to submit the results to the EMA, the European Medicines approval process to get it added to the label there. And we think that will help overall with the worldwide growth of Repatha. But currently, right now, certainly, the medical parts of our team are out actively speaking with our customers about the extension data and the importance of this information.

Okay. Great. And I do want to follow up on -- I apologize going back to Arvind made a comment earlier about the closing of the Horizon deal. And there's a question coming in from the audience. Just to clarify, Arvind, could you just remind us the time line for closing the Horizon deal?

Yes. No change in the time line, Jay. We expect the deal to close within the first half of this year. There have been -- there's been a fair amount of inquiry after we received a second request from the FTC but I would just point out that we don't see any anticompetitive issues and we are confident that the deal will close within the first half of this year.

Okay. Great. And apologies for that. We'll come back to -- continue Repatha. So it seems like the -- in 2022, the ex-U.S. Repatha growth was especially strong. Is that a trend that we should expect to continue?

Again, with Repatha, we have the launch in China with the expansion in the NRDL. So that was definitely a big part of the growth that we've seen. But overall, Repatha has a strong position in many markets. As I said, in Japan, we have a very good position with being the only PCSK9 in the market there and a room to grow from a volume standpoint of patients being treated. In Europe, it depends on the market with regards to the access situation. Some markets were very high in share and penetration in a particular market. Other markets, there is significant room to still grow. So I would expect that we would continue to see volume-driven growth of Repatha around the world. Because even in the U.S., you're seeing nice volume-driven growth. We have a good position from an access standpoint in the U.S. We're continuing to see more prescribers prescribe Repatha both on the cardiologist side, but also seeing that on the primary care physician side. So 1.5 million patients treated to date, there's many more patients in this marketplace that could benefit from Repatha.

Okay. Great. And then maybe just one last Repatha question. How do you view the evolving competitive landscape, especially, I guess, in the near term from the Leqvio launch? And then longer term, we saw some data recently from an oral PCSK9 inhibitor that Merck is developing. Any thoughts on how the PCSK9 competitive landscape may evolve?

Yes, absolutely. I mean, so the one difference with Repatha versus the newer agents coming into the market is they've not yet proven the outcomes data. So we still have -- we talked about FOURIER-OLE now 8 years of experience and also data to support the product overall. So both of those coming into market. Leqvio now approved only on LDL lowering, but the new orals as well will likely come in, although they're in their very early days. They're still just reading out on their Phase II trial need to go into their Phase III. So let me talk about Leqvio first. I mean, Leqvio, we are seeing some modest uptick in the market, but modest right now from an access standpoint, different model. We are accessed through the Part D side of the business, whereas Leqvio is buy and bill and has to get cardiologists or physicians to administer the product in their offices, which takes a little bit more time. So again, we're seeing that our strong access, I think we have 80% of covered lives right now in the U.S. We'll continue to drive the growth for us versus Leqvio. Versus the orals coming into the market, we had in our outlook that we had put together for the investor call last year, we had already modeled that orals coming into the market and assume that at least one of them would be able to be approved. But again, it's early days. We've seen LDL data so far, they'll have to go through their clinical trials. When approved, they won't come into the market with the outcomes data and by the time they get their outcomes data, I think it will be close to the end of the life cycle with Repatha as a branded product in the market.

Okay. Super helpful. We are getting a few questions about LUMAKRAS so maybe I'll jump over to LUMAKRAS for a minute. Mirati recently launched adagrasib in the U.S. and I think they indicated on their recent call that the KRAS G12C diagnosis rate is -- or testing rate is around 2/3 in the U.S. Can you just comment on the testing rate that you've seen? And how has it evolved since the initial approval of LUMAKRAS?

Yes. So we've actually seen the testing rates much higher overall. We see about 80% of the patients that are tested for KRAS G12C. The real issue is when they're tested and is the test available at the time that the physician makes a treatment choice. So oftentimes, patients are tested when they have first-line non-small cell lung cancer. And then as they progress to second line, it isn't about that range that you see that patients have, what I would call, an actionable test, meaning that the physician has easy access to and it is able to get access to the test quickly. We are spending time on that in the market right now with our field organization, both working with the different medical groups in oncology of how do we make sure that the test is actionable at the time that they get diagnosed with second line, that's through their EMR, their electronic medical record systems. But also as a reminder that there is not just the tissue-based test that is available for KRAS G12C, but there is also a blood test that is available for KRAS G12C. So overall, I think the testing rate in second line is really important to get the test to be actionable in the marketplace that physicians know the status of their patients.

Jay, since you asked about LUMAKRAS, if I could just also provide a quick update. We have recently completed the submission of the LUMAKRAS, the Code Breakthrough 100, you might recall this is the Phase III confirmatory study. As well as LUMAKRAS dose comparison study, and we have completed these submissions with both the Food and Drug Administration and also the EMA. So it goes without saying we are very much looking forward to discussing these data with the regulators. And of course, Sweeney will have more to say about this as these discussions progress. Just wanted to provide that update.

Okay. Great. That's super helpful. And actually, maybe just one follow-up question that's coming in here. Can you comment on when we'll see the data for the 240-milligram dose.

Yes. So as I've mentioned before, the fact that this is something that we are still discussing with the regulators, we'll provide that update at the appropriate time.

Okay. Understood. And then -- well, this is related, but I suspect it may be a similar situation, but this person is also asking about how the 240-milligram dose might impact pricing and reimbursement and on any ongoing clinical trials.

Yes, something we can't go into any additional detail at this stage. Obviously, we price our products to capture the full value of those products, and we'll continue to abide by those principles. But like I said, the fact that these aren't regulatory discussions at this stage, unfortunately, we can't go into any additional detail at this stage. But down the road at the appropriate time, we will provide some [Indiscernible].

Okay. That's perfect. And then maybe one last LUMAKRAS related question. Can you just comment on any strategies that Amgen is using to defend your first-to-market position in KRAS G12C as competitors enter the field?

Yes. I mean one of the things that -- the comments that I made earlier were really about the U.S. only. But just as a reminder, we are launched in 45 countries around the world. So we see growth rate coming across the world, not just in the U.S. I definitely believe it's been my experience in oncology. First-to-market does make a big difference in physicians getting accustomed to using the product. We have a very experienced sales team. They've had a lot of experience with LUMAKRAS in the marketplace, in the second-line lung cancer space. Of course, the second-line lung cancer space is also a bit constrained by the number of patients that are in it and so eventually, we will top out the number of patients that can be treated there. And we've done a significant investment of exploring LUMAKRAS' applicability across a number of indications, which will also lead to future growth.

Okay. Excellent. And then this is not a LUMAKRAS question, but an oncology-related question also coming in from our audience. Can you just comment on any thoughts regarding ADC development strategy, especially in light of recent deals, including today's deal, that would be great.

Arvind, do you want to take that one?

Yes. So I can make a couple of comments and Susan feel free to add. So Jay, this field is evolving rapidly. So we felt that it was prudent to explore the potential. So -- and we have entered this field with a couple of collaborations that we have announced, there's one with LegoChem Biosciences then there was another one, I think that we had announced with the company [Indiscernible]. So we don't necessarily view these as a replacement for BiTE platform, our bispecific T-cell engager platform but rather a modality that's going to allow us to interdict a particular therapeutic target. So that's how we are thinking about this. Anything else, Susan that you would like to add?

No, I think that's clear. I mean platform -- I mean, we look at being platform-agnostic, understanding the target and then figuring out what's the best platform. And as Arvind said, ADC is an area that we've stepped into with the exploration of the 2 new arrangements that we have made, and we'll have to see how it evolves.

Okay. Excellent. Okay. So maybe going to Otezla. Can you talk about the long-term growth potential for Otezla? I think Amgen previously pointed to 1.5 million addressable patients in the U.S. Is that still the goal?

Yes. So Otezla recently had gotten the indication for the mild population in psoriasis. So it's the only in the -- systemic in the market that has mild, moderate and severe. We do see that there is a nice opportunity for Otezla in the mild patient, it's 1.4 million addressable, 4 million total patients in there. And the profile of Otezla plays very well for those patients of -- a very well-established product, good safety and tolerability profile that's been proven over a number of years. You don't have any testing that has to be done before initiating therapy. We have good access in that marketplace. Albeit we do have competition for some topical, some new topicals that have just come into the market, those new topicals have free drug programs which are putting some pressure on us. But we think after they go through their free drug period and get into actually negotiating their access position, our strong access and heritage placed us well for continued growth for Otezla.

Great. And then I guess there were some gross to net dynamics in 2022 based on enhanced co-pay and patient assistance programs, additional rebates. Can you just talk about any gross to net dynamics that investors should be aware of in 2023?

Yes. I mean I think you hit on it there. Really, that gross to net was related to an enhancement in our co-pay program, which we chose to do to make sure that patients get access to therapy. It really doesn't reflect price pressure from payers. It was a strategic choice to drive access and ensure that we can get that new patient start.

Okay. Understood. All right. Well, I'm receiving a signal that we are out of time from our moderator. So we'll wrap things up there. I want to thank you both so much for joining us here today. It's been a real pleasure catching up with you and learning more about the impressive work that you're doing at Amgen. So thank you very much.

Our pleasure too. Thanks so much for inviting us to your conference.

Yes. Thank you.

Great to see you both. Thank you.