Amgen Inc. (AMGN) Analyst and Investor Conference August 26, 2013 8:30 AM ET
Arvind Sood - Vice President of Investor Relations
Robert A. Bradway - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Equity Award Committee
Jonathan M. Peacock - Chief Financial Officer and Executive Vice President
Michael J. Yee - RBC Capital Markets, LLC, Research Division
Matthew Roden - UBS Investment Bank, Research Division
Mark J. Schoenebaum - ISI Group Inc., Research Division
Robyn Karnauskas - Deutsche Bank AG, Research Division
Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division
Jim Birchenough - BMO Capital Markets U.S.
Rachel L. McMinn - BofA Merrill Lynch, Research Division
Terence C. Flynn - Goldman Sachs Group Inc., Research Division
Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division
Ravi Mehrotra - Crédit Suisse AG, Research Division
Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division
Howard Liang - Leerink Swann LLC, Research Division
My name is Delainah, and I will be your conference facilitator today for Amgen's analyst and investor call. [Operator Instructions]
I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.
Thank you, Delainah. Good morning, everybody. I, together with our Chairman and CEO, Bob Bradway; and our CFO, Jon Peacock, who are both here with me this morning, would like to thank you for joining our call this morning.
By now, I'm sure you've seen our press release announcing that we plan to acquire Onyx Pharmaceuticals. There is also a presentation that has been posted to our website. So we are conducting this brief call this morning to highlight the strategic rationale in terms of this transaction.
Now please note that the tender offer has not yet commenced and our communication is not an offer or solicitation of an offer to purchase any securities. On the commencement date of the offer, an offer to purchase and other related documents would be filed with the Securities and Exchange Commission, and the tender offer will only be made pursuant to those documents. Investors and security holders are urged to read both the tender offer document and the solicitation recommendation statement regarding the offer when they become available and are filed with the SEC, as they will contain important information.
So because of this, we will have to be limited in our comments and will focus only on highlighting the strategic rationale in terms of the acquisition. Beyond the information provided in the press release, we will not discuss details of ongoing clinical trials or regulatory or commercial plans or financial projections and thus, the principal reason that Tony Hooper, our Head of Commercial Operations; and Sean Harper,
our Head of R&D, are not on the call this morning.
So we look forward to providing more information once the transaction is closed, which is expected at the beginning of the fourth quarter, subject to the satisfaction of customary closing conditions, including the receipt of regulatory clearance. So through the course of our call this morning, we may make forward-looking statements, and actual results can vary materially.
But with that, I would like to turn the call over to Bob. Bob?
Robert A. Bradway
Okay. Good morning, and thanks for joining for us. This is an exciting day here at Amgen. Attractive acquisition opportunities, like the one we're going to talk about this morning, are rare in our industry, so this is a big day for us and we hope, for our shareholders as well.
As Arvind noted, owing to the regulated nature of the acquisition process that we're embarking on, we're not going to be able to get into a lot of details on this call, but we look forward to doing that, of course, after the acquisition closes. I'll start with some comments about the strategic rationale for the deal before handing over to Jon to talk about the financials and the timetable. And then, we'll open the call up for questions.
First, I'd like to emphasize that we felt this opportunity was strategically compelling for us, enabling us to build on our strength in oncology, an area in which we are one of the world's leaders, with revenues of about $7 billion in 2012, and to add to our long-term growth prospects while adding real value for our shareholders. Multiple myeloma is an area of interest to us, given the emerging opportunities to address important unmet medical needs there and the rapidly growing demand for innovative therapies in this disease.
We were able to spend considerable time with Tony Coles and his team at Onyx, closely reviewing the prospects for Kyprolis and obviously, came away impressed with its profile as a potent and well-tolerated proteasome inhibitor that we think will become a very important factor in treating multiple myeloma. Kyprolis is at an early stage in its life cycle, and that's important to us as we feel that this is a point where we can still help maximize the full potential of the product by virtue of our experience in the global oncology markets. I think you can see the benefit of that experience looking at our own success with XGEVA, which has been one of the most successful oncology launches in the past 5 years.
The acquisition also adds several other oncology assets that are in partnerships, which we expect will contribute to revenue and earnings growth for us as well. So really, in all respects, we think Onyx fits well with our commercial oncology product portfolio and with our pipeline, generally. You'll recall that we have 9 late-stage programs, which we expect will generate registration-enabling data by 2016. And these 9, of course, include 4 novel oncology compounds, specifically T-VEC and blinatumomab, as well as rilotumumab and trebananib.
Finally, we think this deal is attractive financially for us and our shareholders. It's accretive to revenues from the outset, will be accretive to earnings in 2015 and cash flow thereafter. We feel we were able to acquire the company in a valuation that will generate return for our shareholders while maintaining our strong balance sheet and commitment to an increasing dividend.
If we turn to Slide 5, as I noted above, the acquisition positions us well in the growing multiple myeloma market. Kyprolis was approved last year for relapsed/refractory multiple myeloma patients and is off to a strong start and increasingly viewed by experts as the best-in-class proteasome inhibitor with a superior safety profile. We see great potential for Kyprolis in earlier lines of multiple myeloma, and obviously, we'll support the ongoing clinical programs with our oncology development and regulatory experience.
We will work towards expanding access to Kyprolis for patients in the U.S. and internationally, and we're active, as you know, in supporting the specialists who treat these patients already. And I believe our existing teams and commercial infrastructure are well suited to help launch and grow this product globally. Longer term, oprozomib, an innovative oral proteasome inhibitor in Phase II development, could play an important role in maintenance and combination therapy for multiple myeloma patients.
Turning to the next slide. I just want to note as well that this acquisition also brings other innovative oncology assets to the portfolio. These include 2 oral kinase inhibitors partnered with Bayer. Nexavar and Stivarga are already important therapies approved for oncology patients. Nexavar is, of course, approved for liver and kidney cancer and Stivarga for colorectal and stomach cancers. Both these products are underdevelopment for additional indications as well. And palbociclib, Pfizer's investigational oral CDK4/6 inhibitor in Phase III for advanced breast cancer, has received breakthrough therapy designation by the FDA based on exciting preliminary Phase II data, showing impressive improvement in progression-free survival in combination therapy.
Before I hand over to Jon to briefly cover the financing arrangements and the implications for our capital allocation strategy, I'd like to conclude by emphasizing that we are looking forward to working with our colleagues in Onyx, and we're impressed with what they've accomplished for patients and for their shareholders. Jon?
Jonathan M. Peacock
Thanks, Bob. We plan to finance the acquisition with $8.1 billion in bank loans and with the balance funded with available U.S. cash. The loans will have a 5-year term and an average interest rate of 3-month LIBOR plus 104 basis points and current interest rates that amounts to around 1.3%.
And as Bob highlighted earlier, we're able to spend considerable time with Tony Coles and his team at Onyx, closely reviewing the prospects for Kyprolis and the broader portfolio. We expect our investment in Onyx of $9.7 billion, net of estimated Onyx cash, to deliver a return on capital well in excess of our cost of capital, which we estimate to be 8% and to be accretive to net income in 2015.
And with respect to our broader capital allocation strategy, I'd like to make a few points: the first is that we plan to continue to increase the dividend meaningfully over time, and we've built that into our plan; secondly, that we've consulted with the rating agencies ahead of this announcement and we do expect to maintain our solid investment-grade credit rating. In this regard, and as you think about our share count, you should not expect any significant share repurchase activity in 2014 or 2015. Overall, and as we set out in 2011, our plan remains to return, on average, more than 60% of net income to shareholders over the period 2011 to 2015.
And let me finish by briefly summarizing the process and the likely timing to closing on the final slide, 8. First of all, as Arvind mentioned earlier on, we plan to launch a tender offer later this week, and this will remain open for 20 business days. Secondly, we'll commence Hart-Scott-Rodino filings over the next several days and the initial review period for this filing is 15 calendar days. So the transaction could close as early as September 30, subject to satisfying customary closing conditions and in this case, a satisfactory outcome from the HSR review and the tender offer, the primary conditions to closing.
So with that, our next scheduled call will be with -- to discuss our Q3 earnings and other developments in the quarter, and that takes place during the week of October 21. Let me hand over now to Bob to field any questions that you might have.
Robert A. Bradway
Okay. Thank you, Jon. And bearing in mind the comments that Arvind made at the outset of our call, which is that we were going to be constrained from talking about a number of details at this point in the transaction, we would welcome an opportunity now to hear your questions. So why don't we open the line up for calls -- for callers.
Delainah, let's go ahead and take some questions over the next 15 minutes or so and if you can begin with reviewing the procedure for asking questions.
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